goeasy Ltd. Reports Record Results for the Third Quarter

Loan Portfolio Increased from $750 million to $1.04 billion, up 38%

Revenue Increased from $130 million to $156 million, up 20%

Net Income Increased from $14.3 million to $19.8 million, up 38%

Quarterly Earnings Per Share Increased from $0.97 to $1.28, up 32%

MISSISSAUGA, Ontario, Nov. 04, 2019 (GLOBE NEWSWIRE) — goeasy Ltd. (TSX: GSY), (“goeasy” or the “Company”), a leading full-service provider of goods and alternative financial services, announced its results for the third quarter ended September 30, 2019.
               
Third Quarter Results

During the quarter the Company generated a record $286 million of total loan originations, up 29% from the $221 million in the third quarter of 2018. The increased originations led to growth in the loan portfolio of $75.9 million, which reached $1.04 billion at the end of the current quarter, up 38% from $750 million as at September 30, 2018.

Revenue for the third quarter increased to $156 million, up 20% over the same period in 2018, driven by the expansion of the consumer loan portfolio. The net charge-off rate for the quarter was 13.2%, up slightly from 12.9% in the third quarter of 2018, down sequentially from 13.5% in the second quarter of 2019 and within the Company’s targeted range of 11.5% to 13.5% for 2019.

Growing revenues and continued improvements in operating leverage led to elevated margins, with record net income and earnings per share. Operating income grew to $42.6 million, up 29% from $32.9 million in the third quarter of 2018, while the operating margin expanded to 27% up from 25%. Net income in the third quarter was $19.8 million, up 38% from $14.3 million in 2018, which resulted in diluted earnings per share of $1.28, up 32% from the $0.97 in 2018.

“We saw positive momentum from our new branded media campaign, which drove a 25% increase in loan application volume and a second straight quarter of record new customers, resulting in a 20% increase in loan growth over the prior year,” said Jason Mullins, goeasy’s President & Chief Executive Officer. “Credit performance also began to improve, as the annualized net charge-off rate for the quarter reduced sequentially by 30-bps, from 13.5% to 13.2%, while the risk-adjusted yield held flat. The strong revenue growth combined with continued operating leverage led to another quarter of record net income and earnings per share.”

“The last several months have also been highlighted by several major accomplishments on our journey to become Canada’s top non-prime consumer lender,” Mr. Mullins continued. “Our progress to improve the future credit quality of our portfolio, expand our channels of distribution through the strategic partnership and investment in PayBright, and strengthen our balance sheet with $120 million of increased capacity and reduce borrowing costs, provides further confidence to achieve our targets for 2019 and beyond. With the successful amendment of our revolving credit facility now completed, we will focus on exploring the opportunity to refinance our high yield notes and add new sources of capital that can further increase liquidity and optimize our balance sheet.”

Other Key Third Quarter Highlights

easyfinancial

  • Total application volume increased 25%
  • Revenue grew to $122 million, up 28%
  • Secured loan portfolio grew to $101 million, up from $41 million
  • 65% of net loan advances in the quarter were issued to new customers, up slightly from 63%
  • 46% of applications acquired online, up from 37%
  • Aided brand awareness of 84%, up from 80%
  • Average loan book per branch improved to $3.5 million, an increase of 35%
  • The delinquency rate on the final Saturday of the quarter was 4.6%, up slightly from 4.4%
  • Operating income of $47.5 million, up 26%
  • Operating margin of 39%, consistent with the third quarter of 2018             

easyhome

  • Revenue of $33.9 million, down slightly from $34.2 million
  • Same store revenue growth of 2.4%
  • Consumer lending portfolio within easyhome stores increased to $33.5 million, up from $17.2 million
  • Revenue from consumer lending increased to $4.6 million, up from $2.2 million
  • Operating income of $5.6 million, down slightly from $5.9 million
  • Operating margin of 16.6%, down slightly from the 17.2% reported in the third quarter of 2018
  • Acquired and merged 6 stores and the associated consumer leasing portfolios from Aarons Inc.

Overall

  • 38th consecutive quarter of same store sales growth
  • 73rd consecutive quarter of positive net income
  • Total same store revenue growth of 20.4%
  • Return on equity of 24.1% in the quarter, up from 23.8%
  • Net external debt to net capitalization of 69% as at September 30, 2019, below the Company’s target leverage ratio of 70%
  • Cash provided by operating activities before the net issuance of consumer loans receivable and purchase of lease assets during the quarter was a record $80.9 million
  • Repurchased 79,260 shares in the quarter under the Company’s Normal Course Issuer Bid, bringing total repurchases since November 2018 to 856,712 shares at a weighted average price of $41.19
  • Ranked in the inaugural TSX30 program as one of the 30 top-performing TSX stocks over a three-year period based on dividend-adjusted share price appreciation
  • Listed on the inaugural Report on Business list of Canada’s Top Growing Companies for its three-year cumulative revenue growth

Nine Months Results

For the first nine months of 2019, goeasy achieved revenues of $444 million, up 21% compared with $368 million in the same period of 2018. Operating income for the period was $122.3 million compared with $84.6 million in the first nine months of 2019, an increase of $37.7 million or 45%. Net income for the first nine months of 2019 was $57.7 million and diluted earnings per share was $3.72 compared with $37.2 million or $2.53 per share, increases of 55% and 47%, respectively.

Balance Sheet and Liquidity

Total assets were $1.24 billion as at September 30, 2019, an increase of 26% from $985 million as at September 30, 2018, driven by the growth in the consumer loan portfolio.

Cash provided by operating activities before the net issuance of consumer loans receivable and purchase of lease assets was $225 million during the first nine months of 2019, an increase of 32% from $170 million in the same period of 2018. 

Based on the cash on hand at the end of the quarter and the borrowing capacity under the Company’s amended revolving credit facility, goeasy had approximately $215 million in funding capacity, which will allow it to achieve its targets for the growth of its consumer loan portfolio through to the first quarter of 2021. The Company has historically been able to obtain the additional financing required to fund the growth of its business at steadily lower costs of borrowing, increasing rates of leverage and more favorable terms. The Company also estimates that once its existing and available sources of capital are fully utilized, it could continue to grow the loan portfolio by approximately $150 million per year solely from internal cash flows.

The Company also estimates that as of September 30, 2019 if it were to run-off its consumer loan and consumer leasing portfolios, the value of the total cash repayments paid to the Company over the remaining life of its contracts would be approximately $2.1 billion.

Future Outlook

The Company has provided 3-year commercial targets for 2019 through 2021. The Company continues to pursue a long-term strategy that includes expanding its product range, developing its channels of distribution and leveraging risk-based pricing offers, which increase the average loan size and extend the life of its customer relationships. As such, the total yield earned on its consumer loan portfolio will gradually decline, while net charge-off rates moderate and operating margins expand, resulting in an increase to return on equity. These targets remain unchanged and are as follows:

  2019 Targets 2020 Targets 2021 Targets
Gross Loan Receivable Portfolio at Year End $1.1B – $1.2B $1.3B – $1.4B $1.5B – $1.7B
easyfinancial Total Revenue Yield 49% – 51% 46% – 48% 43% – 45%
New easyfinancial Locations 10 – 20 10 – 20 10 – 20
Net Charge-offs as a Percentage of Average Gross Consumer Loans Receivable 11.5% – 13.5% 11% – 13% 11% – 13%
easyfinancial Operating Margin 40% – 42% 44% – 46% 45% – 47%
Total Revenue Growth 20% – 22% 14 – 16% 10% – 12%
Return on Equity 24%+ 26%+ 26%+

Dividend

The goeasy Board of Directors has approved a quarterly dividend of $0.31 per share payable on January 10, 2020, to the holders of common shares of record as at the close of business on December  27,  2019.

Forward-Looking Statements

All figures reported above with respect to outlook are targets established by the Company and are subject to change as plans and business conditions vary. Accordingly, investors are cautioned not to place undue reliance on the foregoing guidance. Actual results may differ materially.

This press release includes forward-looking statements about goeasy, including, but not limited to, its business operations, strategy, expected financial performance and condition, the estimated number of new locations to be opened, targets for growth of the consumer loans receivable portfolio, annual revenue growth targets, strategic initiatives, new product offerings and new delivery channels, anticipated cost savings, planned capital expenditures, anticipated capital requirements, liquidity of the Company, plans and references to future operations and results and critical accounting estimates. In certain cases, forward-looking statements are statements that are predictive in nature, depend upon or refer to future events or conditions, and/or can be identified by the use of words such as ‘expects’, ‘anticipates’, ‘intends’, ‘plans’, ‘believes’, ‘budgeted’, ‘estimates’, ‘forecasts’, ‘targets’ or negative versions thereof and similar expressions, and/or state that certain actions, events or results ‘may’, ‘could’, ‘would’, ‘might’ or ‘will’ be taken, occur or be achieved.

Forward-looking statements are based on certain factors and assumptions, including expected growth, results of operations and business prospects and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company’s operations, economic factors and the industry generally, as well as those factors referred to in the Company’s most recent Annual Information Form and Management Discussion and Analysis, as available on www.sedar.com, in the section entitled “Risk Factors”. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those expressed or implied by forward-looking statements made by the Company, due to, but not limited to, important factors such as the Company’s ability to enter into new lease and/or financing agreements, collect on existing lease and/or financing agreements, open new locations on favourable terms, purchase products which appeal to customers at a competitive rate, respond to changes in legislation, react to uncertainties related to regulatory action, raise capital under favourable terms, manage the impact of litigation (including shareholder litigation), control costs at all levels of the organization and maintain and enhance the system of internal controls. The Company cautions that the foregoing list is not exhaustive.

The reader is cautioned to consider these, and other factors carefully and not place undue reliance on forward-looking statements, which may not be appropriate for other purposes. The Company is under no obligation (and expressly disclaims any such obligation) to update or alter the forward-looking statements whether as a result of new information, future events or otherwise, unless required by law.

About goeasy

goeasy Ltd., a Canadian company, headquartered in Mississauga, Ontario, provides non-prime leasing and lending services through its easyhome and easyfinancial divisions. With a wide variety of financial products and services including unsecured and secured instalment loans, goeasy aspires to help put Canadians on a path to a better financial future, as they rebuild their credit and graduate to prime lending. Customers can transact seamlessly with easyhome and easyfinancial through an omni-channel model that includes online and mobile, as well as over 400 leasing and lending locations across Canada supported by more than 1,900 employees.

Throughout the company’s history, it has served over 1 million Canadians and originated over $3.6 billion in loans, with one in three customers graduating to prime credit and 60% increasing their credit score within 12 months of borrowing.

goeasy is the proud recipient of several awards including Waterstone Canada’s Most Admired Corporate Cultures, Glassdoor Top CEO Award, Achievers Top 50 Most Engaged Workplaces in North America, the Digital Finance Institute’s Canada’s Top 50 FinTech Companies, ranking on the TSX30 and placing on the Report on Business ranking of Canada’s Top Growing Companies. The company and its employees believe strongly in giving back to the communities in which it operates and has raised over $2.7 million to support its long-standing partnerships with the Boys & Girls Clubs of Canada and Habitat for Humanity.

goeasy Ltd.’s. common shares are listed on the TSX under the trading symbol “GSY” and goeasy’s convertible debentures are traded on the TSX under the trading symbol “GSY-DB”.  goeasy is rated BB- with a stable trend from S&P and Ba3 with a stable trend from Moody’s. Visit www.goeasy.com.

For further information contact:

Jason Mullins
President & Chief Executive Officer
(905) 272-2788

David Ingram
Executive Chairman of the Board
(905) 272-2788

goeasy Ltd.        
         
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION    
(Unaudited)        
(expressed in thousands of Canadian dollars)        
         
         
    As At As At  
    September 30, December 31,  
    2019 2018  
         
ASSETS        
Cash   29,723 100,188  
Amounts receivable   17,713 15,450  
Prepaid expenses   5,130 3,835  
Consumer loans receivable, net   971,467 782,864  
Investment   34,300  
Lease assets   45,987 51,618  
Property and equipment   22,300 21,283  
Deferred tax assets   8,132 9,445  
Derivative financial asset   23,905 35,094  
Intangible assets   17,031 14,589  
Right-of-use assets   43,648  
Goodwill   21,310 21,310  
TOTAL ASSETS   1,240,646 1,055,676  
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Liabilities        
Revolving credit facility   112,000  
Accounts payable and accrued liabilities   40,989 45,103  
Income taxes payable   4,078 7,499  
Dividends payable   4,447 3,247  
Deferred lease inducements   1,234  
Unearned revenue   7,323 6,002  
Lease liabilities   50,136  
Convertible debentures   40,797 40,581  
Notes payable   643,337 650,481  
TOTAL LIABILITIES   903,107 754,147  
         
Shareholders’ equity        
Share capital   141,927 138,090  
Contributed surplus   17,438 16,105  
Accumulated other comprehensive income   9,325 3,624  
Retained earnings   168,849 143,710  
TOTAL SHAREHOLDERS’ EQUITY   337,539 301,529  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   1,240,646 1,055,676  
         

goeasy Ltd.            
             
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME        
(Unaudited)            
(expressed in thousands of Canadian dollars except earnings per share)            
             
             
    Three Months Ended Nine Months Ended  
    September 30, September 30, September 30, September 30,  
    2019  2018  2019 2018   
             
REVENUE            
Interest income   90,304   67,597   249,594 182,163    
Lease revenue   27,134   29,506   84,968 90,308    
Commissions earned   34,909   29,387   98,341 85,514    
Charges and fees   3,786   3,421   10,944 10,046    
    156,133   129,911   443,847 368,031    
             
EXPENSES BEFORE DEPRECIATION AND AMORTIZATION            
Salaries and benefits   30,141   27,149   89,248 85,339    
Stock-based compensation   1,752   1,727   5,828 5,081    
Advertising and promotion   6,425   3,352   19,211 12,942    
Bad debts   43,326   32,867   113,485 84,794    
Occupancy   5,086   8,628   15,089 25,858    
Technology costs   3,314   2,660   9,071 8,292    
Other expenses   7,737   7,605   21,504 21,796    
    97,781   83,988   273,436 244,102    
             
DEPRECIATION AND AMORTIZATION            
Depreciation of lease assets   9,023   10,091   28,051 30,144    
Depreciation of property and equipment   1,607   1,461   4,657 4,470    
Depreciation of right-of-use assets   3,798     11,266    
Amortization of intangible assets   1,355   1,486   4,127 4,704    
    15,783   13,038   48,101 39,318    
             
Total operating expenses   113,564   97,026   321,537 283,420    
             
Operating income   42,569   32,885   122,310 84,611    
             
Finance costs            
Interest expenses and amortization of deferred financing charges   14,208   12,894   40,350 32,989    
Interest expense on lease liabilities   613     1,808    
    14,821   12,894   42,158 32,989    
             
Income before income taxes   27,748   19,991   80,152 51,622    
             
Income tax expense (recovery)            
Current   8,097   9,266   21,951 20,601    
Deferred   (174 ) (3,617 ) 535 (6,216 )  
    7,923   5,649   22,486 14,385    
             
Net income   19,825   14,342   57,666 37,237    
             
Basic earnings per share   1.35   1.03   3.94 2.70    
Diluted earnings per share   1.28   0.97   3.72 2.53    
             
             

Segmented Reporting            
               
      Three Months Ended September 30, 2019  
($ in 000’s except earnings per share)   easyfinancial easyhome Corporate Total  
               
Revenue            
  Interest income   87,087 3,217   90,304  
  Lease revenue   27,134   27,134  
  Commissions earned   32,706 2,203   34,909  
  Charges and fees   2,463 1,323   3,786  
      122,256 33,877   156,133  
               
Total operating expenses before            
  depreciation and amortization   71,283 16,854 9,644   97,781  
               
Depreciation and amortization            
  Depreciation and amortization of lease assets, property and equipment and intangible assets   1,794 9,453 738   11,985  
  Depreciation of right-of-use assets   1,672 1,951 175   3,798  
      3,466 11,404 913   15,783  
               
Segment operating income (loss)   47,507 5,619 (10,557 ) 42,569  
               
Finance costs            
  Interest expenses and amortization of deferred financing charges         14,208  
  Interest expense on lease liabilities         613  
            14,821  
               
Income before income taxes         27,748  
               
Income taxes         7,923  
               
Net Income         19,825  
               
Diluted earnings per share         1.28  
               
      Three Months Ended September 30, 2018  
($ in 000’s except earnings per share)   easyfinancial easyhome Corporate Total  
               
Revenue            
  Interest income   66,053 1,544   67,597  
  Lease revenue   29,506   29,506  
  Commissions earned   27,728 1,659   29,387  
  Charges and fees   1,877 1,544   3,421  
      95,658 34,253   129,911  
Total operating expenses before            
  depreciation and amortization   55,906 17,660 10,422   83,988  
               
Depreciation and amortization            
  Depreciation and amortization of lease assets, property and equipment and intangible assets   2,004 10,712 322   13,038  
Segment operating income (loss)   37,748 5,881 (10,744 ) 32,885  
               
Finance costs            
  Interest expense and amortization of deferred financing charges         12,894  
Income before income taxes         19,991  
               
Income taxes         5,649  
               
Net Income         14,342  
               
Diluted earnings per share         0.97  
               
               
      Nine Months Ended September 30, 2019  
($ in 000’s except earnings per share)   easyfinancial easyhome Corporate Total  
               
Revenue            
  Interest income   241,321 8,273   249,594  
  Lease revenue   84,968   84,968  
  Commissions earned   92,029 6,312   98,341  
  Charges and fees   6,853 4,091   10,944  
      340,203 103,644   443,847  
Total operating expenses before            
  depreciation and amortization   194,294 49,944 29,198   273,436  
               
Depreciation and amortization            
  Depreciation and amortization of lease assets, property and equipment and intangible assets   5,389 29,383 2,063   36,835  
  Depreciation of right-of-use assets   4,728 5,978 560   11,266  
      10,117 35,361 2,623   48,101  
               
Segment operating income (loss)   135,792 18,339 (31,821 ) 122,310  
               
Finance costs            
  Interest expense and amortization of deferred financing charges         40,350  
  Interest expense on lease liabilities         1,808  
            42,158  
               
Income before income taxes         80,152  
               
Income taxes         22,486  
               
Net Income         57,666  
               
Diluted earnings per share         3.72  
               
      Nine Months Ended September 30, 2018  
($ in 000’s except earnings per share)   easyfinancial easyhome Corporate Total  
               
Revenue            
  Interest income   178,808 3,355   182,163  
  Lease revenue   90,308   90,308  
  Commissions earned   80,829 4,685   85,514  
  Charges and fees   5,402 4,644   10,046  
      265,039 102,992   368,031  
               
Total operating expenses before            
  depreciation and amortization   158,106 54,733 31,263   244,102  
               
Depreciation and amortization            
  Depreciation and amortization of lease assets, property and equipment and intangible assets   6,368 31,866 1,084   39,318  
Segment operating income (loss)   100,565 16,393 (32,347 ) 84,611  
               
Finance costs            
  Interest expense and amortization of deferred financing charges         32,989  
Income before income taxes         51,622  
               
Income taxes         14,385  
               
Net Income         37,237  
               
Diluted earnings per share         2.53  

Summary of Financial Results and Key Performance Indicators          
           
($ in 000’s except earnings per share and percentages) Three Months Ended Variance Variance  
September 30, 2019 September 30, 2018 $ / bps % change  
Summary Financial Results          
Revenue 156,133   129,911   26,222   20.2 %  
Operating expenses before depreciation and amortization 97,781   83,988   13,793   16.4 %  
EBITDA 49,329   35,832   13,497   37.7 %  
EBITDA margin 31.6 % 27.6 % 400 bps   14.5 %  
Depreciation and amortization expense 15,783   13,038   2,745   21.1 %  
Operating income 42,569   32,885   9,684   29.4 %  
Operating margin 27.3 % 25.3 % 200 bps   7.9 %  
Finance costs 14,821   12,894   1,927   14.9 %  
Effective income tax rate 28.6 % 28.3 % 30 bps   1.1 %  
Net income 19,825   14,342   5,483   38.2 %  
Diluted earnings per share 1.28   0.97   0.31   32.0 %  
Return on equity 24.1 % 23.8 % 30 bps   1.3 %  
           
Key Performance Indicators      
Same store revenue growth (overall) 20.4 % 26.2 % (580 bps)   (22.1 %)  
Same store revenue growth (easyhome) 2.4 % 6.2 % (380 bps)   (61.3 %)  
           

Segment Financials
         
easyfinancial revenue 122,256   95,658   26,598   27.8 %  
easyfinancial operating margin 38.9 % 39.5 % (60 bps)   (1.5 %)  
easyhome revenue 33,877   34,253   (376 ) (1.1 %)  
easyhome operating margin 16.6 % 17.2 % (60 bps)   (3.5 %)  
           

Portfolio Indicators
         
Gross consumer loans receivable 1,035,596   749,581   286,015   38.2 %  
Growth in consumer loans receivable 75,888   63,008   12,880   20.4 %  
Gross loan originations 286,068   221,340   64,728   29.2 %  
Total yield on consumer loans (including ancillary products) 50.1 % 53.5 % (340 bps)   (6.4 %)  
Net charge-offs as a percentage of average gross consumer loans receivable 13.2 % 12.9 % 30 bps   2.3 %  
Potential monthly lease revenue 8,432   8,906   (474 ) (5.3 %)  
           
           
           
($ in 000’s except earnings per share and percentages) Nine Months Ended Variance Variance  
September 30, 2019 September 30, 2018 $ / bps % change  
Summary Financial Results      
Revenue 443,847   368,031   75,816   20.6 %  
Operating expenses before depreciation and amortization 273,436   244,102   29,334   12.0 %  
EBITDA 142,360   93,785   48,575   51.8 %  
EBITDA margin 32.1 % 25.5 % 660 bps   25.9 %  
Depreciation and amortization expense 48,101   39,318   8,783   22.3 %  
Operating income 122,310   84,611   37,699   44.6 %  
Operating margin 27.6 % 23.0 % 460 bps   20.0 %  
Finance costs 42,158   32,989   9,169   27.8 %  
Effective income tax rate 28.1 % 27.9 % 20 bps   0.7 %  
Net income 57,666   37,237   20,429   54.9 %  
Diluted earnings per share 3.72   2.53   1.19   47.0 %  
Return on equity 24.5 % 21.6 % 290 bps   13.4 %  
           
Key Performance Indicators        
Same store revenue growth (overall) 19.8 % 25.0 % (520 bps) (20.8 %)  
Same store revenue growth excluding easyfinancial (easyhome) 3.4 % 6.1 % (270 bps) (44.3 %)  
           

Segment Financials
         
easyfinancial revenue 340,203   265,039   75,164   28.4 %  
easyfinancial operating margin 39.9 % 37.9 % 200 bps   5.3 %  
easyhome revenue 103,644   102,992   652   0.6 %  
easyhome operating margin 17.7 % 15.9 % 180 bps   11.3 %  
           

Portfolio Indicators
         
Gross consumer loans receivable 1,035,596   749,581   286,015   38.2 %  
Growth in consumer loans receivable 201,817   223,035   (21,218 ) (9.5 %)  
Gross loan originations 781,861   657,517   124,344   18.9 %  
Total yield on consumer loans (including ancillary products) 50.2 % 54.8 % (460 bps)   (8.4 %)  
Net charge-offs as a percentage of average gross consumer loans receivable 13.3 % 12.6 % 71 bps   5.6 %  
Potential monthly lease revenue 8,432   8,906   (474 ) (5.3 %)  
           

Kemper Reports Strong Third Quarter 2019 Operating Results

Kemper Reports Strong Third Quarter 2019 Operating Results

CHICAGO–(BUSINESS WIRE)–Kemper Corporation (NYSE: KMPR) reported net income of $129.0 million, or $1.91 per diluted share, for the third quarter of 2019, compared to $92.2 million, or $1.40 per diluted share, for the third quarter of 2018. In the third quarter of 2019, net income included a $7.8 million after-tax gain, or $0.11 per diluted share, attributable to the change in fair value of equity and convertible securities. As adjusted for the acquisition of Infinity Property and Casualty Corporation (“as adjusted”)1, net income was $135.6 million, or $2.01 per diluted share, for the third quarter of 2019, compared to $131.7 million, or $2.01 per diluted share, for the third quarter of 2018.

Adjusted consolidated net operating income1 was $130.0 million, or $1.93 per diluted share, for the third quarter of 2019, compared to $104.5 million, or $1.59 per diluted share, for the third quarter of 2018. These results increased primarily from the continued profitable growth in the Specialty Property & Casualty Insurance segment.

Highlights of the quarter include:

  • Consolidated earned premiums increased by 8 percent, or $82.3 million in the quarter
  • Specialty Property & Casualty Insurance segment’s earned premiums increased by 10 percent, or $72.2 million in the quarter

“Kemper had a great quarter, and thanks to the ongoing efforts of our committed team, our results demonstrate that our strategy and business model continue to perform well,” said Joseph P. Lacher, Jr., President and CEO. “We generated industry-leading organic growth while maintaining a strong margin and balance sheet. We continued to create shareholder value as demonstrated by strong increases in earned premiums, book value per share and tangible book value per share, as well as our underlying fundamentals including return on equity, earnings per share, and net operating income.”

1 Non-GAAP financial measure. All Non-GAAP financial measures are denoted with footnote 1 throughout this release. See “Use of Non-GAAP Financial Measures” for additional information.

 

 

Three Months Ended

 

Nine Months Ended

(Dollars in Millions, Except Per Share Amounts) (Unaudited)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

Net Income

 

$

129.0

 

 

$

92.2

 

 

$

406.4

 

 

$

183.6

 

Income from Continuing Operations

 

$

129.0

 

 

$

92.3

 

 

$

406.4

 

 

$

183.4

 

Adjusted Consolidated Net Operating Income1

 

$

130.0

 

 

$

104.5

 

 

$

320.4

 

 

$

198.5

 

 

 

 

 

 

 

 

 

 

Impact of Catastrophe Losses and Related Loss Adjustment Expense (LAE) on Net Income

 

$

(11.6

)

 

$

(15.9

)

 

$

(48.2

)

 

$

(56.3

)

 

 

 

 

 

 

 

 

 

Diluted Net Income Per Share From:

 

 

 

 

 

 

 

 

Net Income

 

$

1.91

 

 

$

1.40

 

 

$

6.10

 

 

$

3.23

 

Income from Continuing Operations

 

$

1.91

 

 

$

1.40

 

 

$

6.10

 

 

$

3.23

 

Adjusted Consolidated Net Operating Income1

 

$

1.93

 

 

$

1.59

 

 

$

4.81

 

 

$

3.49

 

 

 

 

 

 

 

 

 

 

Impact of Catastrophe Losses and Related LAE on Net Income Per Share

$

(0.17

)

$

(0.24

)

$

(0.73

)

$

(0.99

)

Capital

Total Shareholders’ Equity at the end of the quarter was $3,894.2 million, an increase of $844.1 million, or 28 percent, since year-end 2018 driven by net income, unrealized gains on the fixed maturity portfolio and proceeds from the issuance of stock partially offset by dividends paid to shareholders. Kemper ended the quarter with cash and investments at the holding company of $169.1 million, and the $400 million revolving credit agreement was undrawn.

During the third quarter of 2019, Kemper paid dividends of $16.7 million.

Kemper ended the quarter with a book value per share of $58.43, an increase of 24 percent from $47.10 at the end of 2018. Book value per share excluding net unrealized gains on fixed maturities1 was $51.51, up 13 percent from $45.40 at the end of 2018, driven by net income partially offset by dividends paid to shareholders.

Revenues

Total revenues for the third quarter of 2019 increased $48.3 million, or 4 percent, to $1,243.8 million, compared to the third quarter of 2018, driven by $72.2 million of higher Specialty P&C earned premiums. Specialty P&C earned premiums increased primarily from higher policies in force. Net investment income decreased $0.3 million to $91.7 million in the third quarter of 2019. Net realized investment gains were $1.7 million in the third quarter of 2019, compared to $3.6 million last year. Other income decreased from $37.8 million to $7.2 million in the third quarter of 2019 due primarily to the recognition of a $35.7 million gain for the partial satisfaction of a final judgment against CSC in the third quarter of 2018.

Segment Results

Unless otherwise noted, (i) the segment results discussed below are presented on an after-tax basis, (ii) prior-year development includes both catastrophe and non-catastrophe losses and LAE, (iii) catastrophe losses and LAE exclude the impact of prior-year development, (iv) loss ratio includes loss and LAE, and (v) all comparisons are made to the prior year quarter unless otherwise stated.

 

 

Three Months Ended

 

Nine Months Ended

(Dollars in Millions) (Unaudited)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

Segment Net Operating Income:

 

 

 

 

 

 

 

 

Preferred Property & Casualty Insurance

 

$

21.1

 

 

$

12.2

 

 

$

29.1

 

 

$

19.7

 

Specialty Property & Casualty Insurance

 

78.5

 

 

21.5

 

 

220.8

 

 

67.3

 

Life & Health Insurance

 

33.4

 

 

27.1

 

 

69.8

 

 

77.9

 

Total Segment Net Operating Income

 

133.0

 

 

60.8

 

 

319.7

 

 

164.9

 

Corporate and Other Net Operating Income (Loss)

 

(3.0

)

 

43.7

 

 

0.7

 

 

33.6

 

Adjusted Consolidated Net Operating Income1

 

130.0

 

 

104.5

 

 

320.4

 

 

198.5

 

Net Income (Loss) From:

 

 

 

 

 

 

 

 

Change in Fair Value of Equity and Convertible Securities

 

7.8

 

 

8.7

 

 

78.8

 

 

9.6

 

Net Realized Gains on Sales of Investments

 

1.4

 

 

2.8

 

 

30.9

 

 

7.9

 

Net Impairment Losses Recognized in Earnings

 

(1.5

)

 

(1.4

)

 

(9.6

)

 

(1.8

)

Acquisition Related Transaction, Integration and Other Costs

 

(4.1

)

 

(22.3

)

 

(9.5

)

 

(30.8

)

Loss from Early Extinguishment of Debt

 

(4.6

)

 

 

 

(4.6

)

 

 

Income from Continuing Operations

 

$

129.0

 

 

$

92.3

 

 

$

406.4

 

 

$

183.4

 

The Preferred Property & Casualty Insurance segment reported net operating income of $21.1 million for the third quarter of 2019, compared to $12.2 million in 2018. Improved results were primarily due to lower incurred catastrophe losses and LAE and the sale of the Company’s subrogation rights associated with California wildfires in 2017 and 2018, partially offset by higher underlying losses and LAE as a percentage of earned premiums. The Preferred Property & Casualty Insurance segment’s combined ratio decreased 10.9 percentage points to 92.4 percent, while the underlying combined ratio1 increased 0.4 percent points to 94.9 percent in the third quarter of 2019, driven by a slight deterioration in the underlying loss ratio1.

The Specialty Property & Casualty Insurance segment reported net operating income of $78.5 million for the third quarter of 2019, compared to $21.5 million in 2018. Results improved primarily from strong organic Personal Automobile growth and a reduction in amortization of purchase accounting adjustments compared to 2018. The segment’s underlying combined ratio1 was 91.8 percent compared to 99.1 percent in the third quarter of 2018.

The Life & Health Insurance segment reported net operating income of $33.4 million for the third quarter of 2019, compared to $27.1 million in 2018. Results increased primarily from a decrease in policyholders’ benefits. The decrease in policyholders’ benefits and incurred losses reflected a release in accrued reserves.

Unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2019 and 2018 are presented below.

 

 

Three Months Ended

 

Nine Months Ended

(Dollars in Millions, Except Per Share Amounts)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

Revenues:

 

 

 

 

 

 

 

 

Earned Premiums

 

$

1,135.2

 

 

$

1,052.9

 

 

$

3,326.6

 

 

$

2,320.8

 

Net Investment Income

 

91.7

 

 

92.0

 

 

270.4

 

 

249.6

 

Other Income

 

7.2

 

 

37.8

 

 

31.8

 

 

40.2

 

Income from Change in Fair Value of Equity and Convertible Securities

 

9.8

 

 

11.0

 

 

99.7

 

 

12.1

 

Net Realized Gains on Sales of Investments

 

1.7

 

 

3.6

 

 

39.1

 

 

10.0

 

Other-than-temporary Impairment Losses:

 

 

 

 

 

 

 

 

Total Other-than-temporary Impairment Losses

 

(1.8

)

 

(1.8

)

 

(12.0

)

 

(2.3

)

Portion of Losses Recognized in Other Comprehensive Income

 

 

 

 

 

(0.1

)

 

 

Net Impairment Losses Recognized in Earnings

 

(1.8

)

 

(1.8

)

 

(12.1

)

 

(2.3

)

Total Revenues

 

1,243.8

 

 

1,195.5

 

 

3,755.5

 

 

2,630.4

 

Expenses:

 

 

 

 

 

 

 

 

Policyholders’ Benefits and Incurred Losses and Loss Adjustment Expenses

 

782.6

 

 

757.3

 

 

2,373.4

 

 

1,693.7

 

Insurance Expenses

 

256.0

 

 

296.0

 

 

754.3

 

 

627.3

 

Loss from Early Extinguishment of Debt

 

5.8

 

 

 

 

5.8

 

 

 

Interest and Other Expenses

 

37.9

 

 

61.7

 

 

117.3

 

 

116.4

 

Total Expenses

 

1,082.3

 

 

1,115.0

 

 

3,250.8

 

 

2,437.4

 

Income from Continuing Operations before Income Taxes

 

161.5

 

 

80.5

 

 

504.7

 

 

193.0

 

Income Tax (Expense) Benefit

 

(32.5

)

 

11.8

 

 

(98.3

)

 

(9.6

)

Income from Continuing Operations

 

129.0

 

 

92.3

 

 

406.4

 

 

183.4

 

Income (Loss) from Discontinued Operations

 

 

 

(0.1

)

 

 

 

0.2

 

Net Income

 

$

129.0

 

 

$

92.2

 

 

$

406.4

 

 

$

183.6

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations Per Unrestricted Share:

 

 

 

 

 

 

 

 

Basic

 

$

1.93

 

 

$

1.42

 

 

$

6.17

 

 

$

3.26

 

Diluted

 

$

1.91

 

 

$

1.40

 

 

$

6.10

 

 

$

3.23

 

 

 

 

 

 

 

 

 

 

Net Income Per Unrestricted Share:

 

 

 

 

 

 

 

 

Basic

 

$

1.93

 

 

$

1.42

 

 

$

6.17

 

 

$

3.26

 

Diluted

 

$

1.91

 

 

$

1.40

 

 

$

6.10

 

 

$

3.23

 

 

 

 

 

 

 

 

 

 

Weighted-average Outstanding (Shares in Thousands):

 

 

 

 

 

 

 

 

Unrestricted Shares – Basic

 

66,622.4

 

 

64,580.4

 

 

65,621.8

 

 

55,925.7

 

Unrestricted Shares and Equivalent Shares – Diluted

 

67,207.7

 

 

65,349.5

 

 

66,341.2

 

 

56,495.5

 

Unaudited business segment revenues for the three and nine months ended September 30, 2019 and 2018 are presented below.

 

 

Three Months Ended

 

Nine Months Ended

(Dollars in Millions)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

REVENUES:

 

 

 

 

 

 

 

 

Preferred Property & Casualty Insurance:

 

 

 

 

 

 

 

 

Earned Premiums:

 

 

 

 

 

 

 

 

Preferred Automobile

 

$

119.7

 

 

$

111.4

 

 

$

353.0

 

 

$

325.0

 

Homeowners

 

61.5

 

 

62.5

 

 

182.6

 

 

186.5

 

Other Personal

 

9.8

 

 

10.1

 

 

29.5

 

 

30.4

 

Total Earned Premiums

 

191.0

 

 

184.0

 

 

565.1

 

 

541.9

 

Net Investment Income

 

12.0

 

 

20.1

 

 

32.6

 

 

47.8

 

Total Preferred Property & Casualty Insurance Revenues

 

203.0

 

 

204.1

 

 

597.7

 

 

589.7

 

Specialty Property & Casualty Insurance:

 

 

 

 

 

 

 

 

Earned Premiums:

 

 

 

 

 

 

 

 

Specialty Automobile

 

719.2

 

 

655.3

 

 

2,092.5

 

 

1,229.0

 

Commercial Automobile

 

64.2

 

 

55.9

 

 

186.2

 

 

80.6

 

Total Earned Premiums

 

783.4

 

 

711.2

 

 

2,278.7

 

 

1,309.6

 

Net Investment Income

 

28.8

 

 

20.7

 

 

79.2

 

 

40.8

 

Other Income

 

4.4

 

 

0.9

 

 

6.2

 

 

1.6

 

Total Specialty Property & Casualty Insurance Revenues

 

816.6

 

 

732.8

 

 

2,364.1

 

 

1,352.0

 

Life & Health Insurance:

 

 

 

 

 

 

 

 

Earned Premiums:

 

 

 

 

 

 

 

 

Life

 

96.2

 

 

95.2

 

 

289.0

 

 

284.3

 

Accident & Health

 

47.6

 

 

44.9

 

 

142.4

 

 

132.0

 

Property

 

17.0

 

 

17.6

 

 

51.4

 

 

53.0

 

Total Earned Premiums

 

160.8

 

 

157.7

 

 

482.8

 

 

469.3

 

Net Investment Income

 

49.7

 

 

51.0

 

 

154.4

 

 

159.2

 

Other Income

 

2.9

 

 

1.2

 

 

5.6

 

 

2.9

 

Total Life & Health Insurance Revenues

 

213.4

 

 

209.9

 

 

642.8

 

 

631.4

 

Total Segment Revenues

 

1,233.0

 

 

1,146.8

 

 

3,604.6

 

 

2,573.1

 

Income from Change in Fair Value of Equity and Convertible Securities

 

9.8

 

 

11.0

 

 

99.7

 

 

12.1

 

Net Realized Gains on Sales of Investments

 

1.7

 

 

3.6

 

 

39.1

 

 

10.0

 

Net Impairment Losses Recognized in Earning

 

(1.8

)

 

(1.8

)

 

(12.1

)

 

(2.3

)

Other

 

1.1

 

 

35.9

 

 

24.2

 

 

37.5

 

Total Revenues

$

1,243.8

$

1,195.5

$

3,755.5

$

2,630.4

KEMPER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Millions)

(Unaudited)

 

Sep 30,

2019

 

Dec 31,

2018

Assets:

 

 

 

Investments:

 

 

 

Fixed Maturities at Fair Value

$

6,883.6

 

 

$

6,424.2

 

Equity Securities at Fair Value

928.7

 

 

684.4

 

Equity Securities at Modified Cost

41.2

 

 

41.5

 

Equity Method Limited Liability Investments at Cost Plus Cumulative Undistributed Earnings

213.4

 

 

187.0

 

Convertible Securities at Fair Value

35.6

 

 

31.5

 

Short-term Investments at Cost which Approximates Fair Value

424.2

 

 

286.1

 

Other Investments

447.4

 

 

414.8

 

Total Investments

8,974.1

 

 

8,069.5

 

Cash

133.6

 

 

75.1

 

Receivables from Policyholders

1,139.8

 

 

1,007.1

 

Other Receivables

217.1

 

 

245.4

 

Deferred Policy Acquisition Costs

536.5

 

 

470.0

 

Goodwill

1,114.0

 

 

1,112.4

 

Current Income Tax Assets

44.1

 

 

38.9

 

Other Assets

660.7

 

 

526.5

 

Total Assets

$

12,819.9

 

 

$

11,544.9

 

Liabilities and Shareholders’ Equity:

 

 

 

Insurance Reserves:

 

 

 

Life & Health

$

3,566.2

 

 

$

3,558.7

 

Property & Casualty

1,941.6

 

 

1,874.9

 

Total Insurance Reserves

5,507.8

 

 

5,433.6

 

Unearned Premiums

1,574.9

 

 

1,424.3

 

Deferred Income Tax Liabilities

175.3

 

 

26.2

 

Liabilities for Unrecognized Tax Benefits

 

 

4.4

 

Collateralized Investment Borrowings at Cost

137.6

 

 

10.0

 

Debt at Amortized Cost

778.7

 

 

909.0

 

Accrued Expenses and Other Liabilities

751.4

 

 

687.3

 

Total Liabilities

8,925.7

 

 

8,494.8

 

Shareholders’ Equity:

 

 

 

Common Stock

6.7

 

 

6.5

 

Paid-in Capital

1,812.9

 

 

1,666.3

 

Retained Earnings

1,704.5

 

 

1,355.5

 

Accumulated Other Comprehensive Income

370.1

 

 

21.8

 

Total Shareholders’ Equity

3,894.2

 

 

3,050.1

 

Total Liabilities and Shareholders’ Equity

$

12,819.9

 

 

$

11,544.9

 

Unaudited selected financial information for the Preferred Property & Casualty Insurance segment follows.

 

 

Three Months Ended

 

Nine Months Ended

(Dollars in Millions)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

 

 

 

 

 

 

 

 

 

Results of Operations

Net Premiums Written

 

$

189.6

 

 

$

195.6

 

 

$

566.7

 

 

$

564.1

 

 

 

 

 

 

 

 

 

 

Earned Premiums

 

$

191.0

 

 

$

184.0

 

 

$

565.1

 

 

$

541.9

 

Net Investment Income

 

12.0

 

 

20.1

 

 

32.6

 

 

47.8

 

Total Revenues

 

203.0

 

 

204.1

 

 

597.7

 

 

589.7

 

Incurred Losses and LAE related to:

 

 

 

 

 

 

 

 

Current Year:

 

 

 

 

 

 

 

 

Non-catastrophe Losses and LAE

 

121.7

 

 

116.6

 

 

361.6

 

 

338.6

 

Catastrophe Losses and LAE

 

11.9

 

 

18.3

 

 

51.1

 

 

65.9

 

Prior Years:

 

 

 

 

 

 

 

 

Non-catastrophe Losses and LAE

 

(1.1

)

 

(1.9

)

 

(10.5

)

 

2.9

Catastrophe Losses and LAE

 

(15.4

)

 

(0.2

)

 

(15.3

)

 

(7.4

)

Total Incurred Losses and LAE

 

117.1

 

132.8

 

386.9

 

400.0

Insurance Expenses

 

59.4

 

57.2

 

174.6

 

167.7

Operating Income

 

26.5

 

14.1

 

36.2

 

22.0

Income Tax Expense

 

(5.4

)

 

(1.9

)

 

(7.1

)

 

(2.3

)

Segment Net Operating Income

 

$

21.1

 

 

$

12.2

 

 

$

29.1

 

 

$

19.7

 

 

 

 

 

 

 

 

 

 

Ratios Based On Earned Premiums

Current Year Non-catastrophe Losses and LAE Ratio

 

63.8

%

 

63.4

%

 

64.1

%

 

62.5

%

Current Year Catastrophe Losses and LAE Ratio

 

6.2

 

9.9

 

9.0

 

12.2

Prior Years Non-catastrophe Losses and LAE Ratio

 

(0.6

)

 

(1.0

)

 

(1.9

)

 

0.5

Prior Years Catastrophe Losses and LAE Ratio

 

(8.1

)

 

(0.1

)

 

(2.7

)

 

(1.4

)

Total Incurred Loss and LAE Ratio

 

61.3

 

72.2

 

68.5

 

73.8

Insurance Expense Ratio

 

31.1

 

31.1

 

30.9

 

30.9

Combined Ratio

 

92.4

%

 

103.3

%

 

99.4

%

 

104.7

%

 

 

 

 

 

 

 

 

 

Underlying Combined Ratio1

Current Year Non-catastrophe Losses and LAE Ratio

 

63.8

%

 

63.4

%

 

64.1

%

 

62.5

%

Insurance Expense Ratio

 

31.1

 

31.1

 

30.9

 

30.9

Underlying Combined Ratio1

 

94.9

%

 

94.5

%

 

95.0

%

 

93.4

%

 

 

 

 

 

 

 

 

 

Non-GAAP Measure Reconciliation

Combined Ratio

 

92.4

%

 

103.3

%

 

99.4

%

 

104.7

%

Current Year Catastrophe Losses and LAE Ratio

 

6.2

 

9.9

 

9.0

 

12.2

Prior Years Non-catastrophe Losses and LAE Ratio

 

(0.6

)

 

(1.0

)

 

(1.9

)

 

0.5

Prior Years Catastrophe Losses and LAE Ratio

 

(8.1

)

 

(0.1

)

 

(2.7

)

 

(1.4

)

Underlying Combined Ratio1

 

94.9

%

 

94.5

%

 

95.0

%

 

93.4

%

 

 

 

 

 

 

 

 

 

Unaudited selected financial information for the Specialty Property & Casualty Insurance segment follows.

 

 

Three Months Ended

 

Nine Months Ended

(Dollars in Millions)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

 

 

 

 

 

 

 

 

 

Results of Operations

Net Premiums Written

 

$

815.0

 

 

$

735.4

 

 

$

2,428.8

 

 

$

1,392.7

 

 

 

 

 

 

 

 

 

 

Earned Premiums

 

$

783.4

 

 

$

711.2

 

 

$

2,278.7

 

 

$

1,309.6

 

Net Investment Income

 

28.8

 

 

20.7

 

 

79.2

 

 

40.8

 

Other Income

 

4.4

 

 

0.9

 

 

6.2

 

 

1.6

 

Total Revenues

 

816.6

 

 

732.8

 

 

2,364.1

 

 

1,352.0

 

Incurred Losses and LAE related to:

 

 

 

 

 

 

 

 

Current Year:

 

 

 

 

 

 

 

 

Non-catastrophe Losses and LAE

 

579.4

 

 

527.6

 

 

1,702.9

 

 

987.1

 

Catastrophe Losses and LAE

 

2.3

 

 

1.4

 

 

7.3

 

 

3.7

 

Prior Years:

 

 

 

 

 

 

 

 

Non-catastrophe Losses and LAE

 

(4.1

)

 

(1.6

)

 

(31.0

)

 

2.0

 

Catastrophe Losses and LAE

 

0.2

 

 

 

 

0.3

 

 

(0.3

)

Total Incurred Losses and LAE

 

577.8

 

 

527.4

 

 

1,679.5

 

 

992.5

 

Insurance Expenses

 

139.2

 

 

176.8

 

 

404.9

 

 

273.7

 

Other Expenses

 

1.0

 

 

1.7

 

 

2.3

 

 

1.7

 

Operating Income

 

98.6

 

 

26.9

 

 

277.4

 

 

84.1

 

Income Tax Benefit

 

(20.1

)

 

(5.4

)

 

(56.6

)

 

(16.8

)

Segment Net Operating Income

 

$

78.5

 

 

$

21.5

 

 

$

220.8

 

 

$

67.3

 

 

 

 

 

 

 

 

 

 

Ratios Based On Earned Premiums

Current Year Non-catastrophe Losses and LAE Ratio

 

74.0

%

 

74.2

%

 

74.8

%

 

75.3

%

Current Year Catastrophe Losses and LAE Ratio

 

0.3

 

 

0.2

 

 

0.3

 

 

0.3

 

Prior Years Non-catastrophe Losses and LAE Ratio

 

(0.5

)

 

(0.2

)

 

(1.4

)

 

0.2

 

Prior Years Catastrophe Losses and LAE Ratio

 

 

 

 

 

 

 

 

Total Incurred Loss and LAE Ratio

 

73.8

 

 

74.2

 

 

73.7

 

 

75.8

 

Insurance Expense Ratio

 

17.8

 

 

24.9

 

 

17.8

 

 

20.9

 

Combined Ratio

 

91.6

%

 

99.1

%

 

91.5

%

 

96.7

%

 

 

 

 

 

 

 

 

 

Underlying Combined Ratio1

Current Year Non-catastrophe Losses and LAE Ratio

 

74.0

%

 

74.2

%

 

74.8

%

 

75.3

%

Insurance Expense Ratio

 

17.8

 

 

24.9

 

 

17.8

 

 

20.9

 

Underlying Combined Ratio1

 

91.8

%

 

99.1

%

 

92.6

%

 

96.2

%

 

 

 

 

 

 

 

 

 

Non-GAAP Measure Reconciliation

Combined Ratio

 

91.6

%

 

99.1

%

 

91.5

%

 

96.7

%

Current Year Catastrophe Losses and LAE Ratio

 

0.3

 

 

0.2

 

 

0.3

 

 

0.3

 

Prior Years Non-catastrophe Losses and LAE Ratio

 

(0.5

)

 

(0.2

)

 

(1.4

)

 

0.2

 

Prior Years Catastrophe Losses and LAE Ratio

 

 

 

 

 

 

 

 

Underlying Combined Ratio1

 

91.8

%

 

99.1

%

 

92.6

%

 

96.2

%

 

 

 

 

 

 

 

 

 

Unaudited selected financial information for the Life & Health Insurance segment follows.

 

 

Three Months Ended

 

Nine Months Ended

(Dollars in Millions)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

 

 

 

 

 

 

 

 

 

Results of Operations

 

 

 

 

 

 

 

 

 

Earned Premiums

 

$

160.8

 

 

$

157.7

 

 

$

482.8

 

 

$

469.3

 

Net Investment Income

 

49.7

 

 

51.0

 

 

154.4

 

 

159.2

 

Other Income

 

2.9

 

 

1.2

 

 

5.6

 

 

2.9

 

Total Revenues

 

213.4

 

 

209.9

 

 

642.8

 

 

631.4

 

Policyholders’ Benefits and Incurred Losses and LAE

 

88.8

 

 

97.0

 

 

307.7

 

 

301.1

 

Insurance Expenses

 

83.6

 

 

79.4

 

 

248.7

 

 

232.7

 

Operating Profit

 

41.0

 

 

33.5

 

 

86.4

 

 

97.6

 

Income Tax Expense

 

(7.6

)

 

(6.4

)

 

(16.6

)

 

(19.7

)

Segment Net Operating Income

 

$

33.4

 

 

$

27.1

 

 

$

69.8

 

 

$

77.9

 

Use of Non-GAAP Financial Measures

Adjusted Consolidated Net Operating Income1

Adjusted Consolidated Net Operating Income1 is an after-tax, non-GAAP financial measure computed by excluding from Income from Continuing Operations the after-tax impact of 1) loss from change in fair value of equity and convertible securities, 2) net realized gains on sales of investments, 3) net impairment losses recognized in earnings related to investments, 4) acquisition related transaction, integration and other costs, 5) loss from early extinguishment of debt and 6) significant non-recurring or infrequent items that may not be indicative of ongoing operations. Significant non-recurring items are excluded when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years and (b) there has been no similar charge or gain within the prior two years. The most directly comparable GAAP financial measure is Income from Continuing Operations.

Kemper believes that Adjusted Consolidated Net Operating Income1 provides investors with a valuable measure of its ongoing performance because it reveals underlying operational performance trends that otherwise might be less apparent if the items were not excluded. Loss from Change in Fair Value of Equity and Convertible Securities, Net Realized Gains on Sales of Investments and Net Impairment Losses Recognized in Earnings related to investments included in the Company’s results may vary significantly between periods and are generally driven by business decisions and external economic developments such as capital market conditions that impact the values of the Company’s investments, the timing of which is unrelated to the insurance underwriting process. Loss from Early Extinguishment of Debt is driven by the Company’s financing and refinancing decisions and capital needs, as well as external economic developments such as debt market conditions, the timing of which is unrelated to the insurance underwriting process. Acquisition Related Transaction, Integration and Other Costs may vary significantly between periods and are generally driven by the timing of acquisitions and business decisions which are unrelated to the insurance underwriting process. Significant non-recurring items are excluded because, by their nature, they are not indicative of the Company’s business or economic trends.

A reconciliation of Income from Continuing Operations to Adjusted Consolidated Net Operating Income1 for the three and nine months ended September 30, 2019 and 2018 is presented below.

 

 

Three Months Ended

 

Nine Months Ended

(Dollars in Millions) (Unaudited)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

Income from Continuing Operations

 

$

129.0

 

 

$

92.3

 

 

$

406.4

 

 

$

183.4

 

Less Net Income (Loss) From:

 

 

 

 

 

 

 

 

Income from Change in Fair Value of Equity and Convertible Securities

 

7.8

 

 

8.7

 

 

78.8

 

 

9.6

 

Net Realized Gains on Sales of Investments

 

1.4

 

 

2.8

 

 

30.9

 

 

7.9

 

Net Impairment Losses Recognized in Earnings

 

(1.5

)

 

(1.4

)

 

(9.6

)

 

(1.8

)

Acquisition Related Transaction, Integration and Other Costs

 

(4.1

)

 

(22.3

)

 

(9.5

)

 

(30.8

)

Loss from Early Extinguishment of Debt

 

(4.6

)

 

 

 

(4.6

)

 

 

Adjusted Consolidated Net Operating Income1

 

$

130.0

 

 

$

104.5

 

 

$

320.4

 

 

$

198.5

 

Diluted Adjusted Consolidated Net Operating Income Per Unrestricted Share1

Diluted Adjusted Consolidated Net Operating Income Per Unrestricted Share1 is a non-GAAP financial measure computed by dividing Adjusted Consolidated Net Operating Income1 attributed to unrestricted shares by the weighted-average unrestricted shares and equivalent shares outstanding. The most directly comparable GAAP financial measure is Diluted Income from Continuing Operations Per Unrestricted Share.

A reconciliation of Diluted Income from Continuing Operations Per Unrestricted Share to Diluted Adjusted Consolidated Net Operating Income Per Unrestricted Share1 for the three and nine months ended September 30, 2019 and 2018 is presented below.

 

 

Three Months Ended

 

Nine Months Ended

(Unaudited)

 

Sep 30,

2019

 

Sep 30,

2018

 

Sep 30,

2019

 

Sep 30,

2018

Diluted Income from Continuing Operations Per Unrestricted Share

 

$

1.91

 

 

$

1.40

 

 

$

6.10

 

 

$

3.23

 

Less Net Income (Loss) Per Unrestricted Share From:

 

 

 

 

 

 

 

 

Income from Change in Fair Value of Equity and Convertible Securities

 

0.11

 

 

0.13

 

 

1.18

 

 

0.17

 

Net Realized Gains on Sales of Investments

 

0.02

 

 

0.04

 

 

0.46

 

 

0.14

 

Net Impairment Losses Recognized in Earnings

 

(0.02

)

 

(0.02

)

 

(0.14

)

 

(0.03

)

Acquisition Related Transaction, Integration and Other Costs

 

(0.06

)

 

(0.34

)

 

(0.14

)

 

(0.54

)

Loss from Early Extinguishment of Debt

 

(0.07

)

 

 

 

(0.07

)

 

 

Diluted Adjusted Consolidated Net Operating Income Per Unrestricted Share1

 

$

1.93

 

 

$

1.59

 

 

$

4.81

 

 

$

3.49

 

Book Value Per Share Excluding Net Unrealized Gains on Fixed Maturities1

Book Value Per Share Excluding Net Unrealized Gains on Fixed Maturities1 is a ratio that uses a non-GAAP financial measure. It is calculated by dividing shareholders’ equity after excluding the after-tax impact of net unrealized gains on fixed income securities by total Common Shares Issued and Outstanding. Book Value Per Share is the most directly comparable GAAP financial measure. Kemper uses the trends in book value per share, excluding the after-tax impact of net unrealized gains on fixed income securities, in conjunction with book value per share to identify and analyze the change in net worth attributable to management efforts between periods. Kemper believes the non-GAAP financial measure is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market conditions, the magnitude and timing of which are not influenced by management. Kemper believes it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers.

A reconciliation of the numerator used in the computation of Book Value Per Share Excluding Net Unrealized Gains on Fixed Maturities1 and Book Value Per Share at September 30, 2019 and December 31, 2018 is presented below.

(Dollars in Millions) (Unaudited)

 

Sep 30,

2019

 

Dec 31,

2018

Shareholders’ Equity

 

$

3,894.2

 

 

$

3,050.1

 

Net Unrealized Gains on Fixed Maturities

 

461.3

 

 

110.4

 

Shareholders’ Equity Excluding Net Unrealized Gains on Fixed Maturities1

 

$

3,432.9

 

 

$

2,939.7

 

Underlying Combined Ratio1

Underlying Combined Ratio1 is a non-GAAP financial measure that is computed by adding the current year non-catastrophe losses and LAE ratio with the insurance expense ratio. The most directly comparable GAAP financial measure is the combined ratio, which is computed by adding total incurred losses and LAE, including the impact of catastrophe losses and loss and LAE reserve development from prior years, with the insurance expense ratio. Kemper believes the underlying combined ratio is useful to investors and is used by management to reveal the trends in Kemper’s property and casualty insurance businesses that may be obscured by catastrophe losses and prior-year reserve development. These catastrophe losses may cause loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on incurred losses and LAE and the combined ratio. Prior-year reserve development is caused by unexpected loss development on historical reserves. Because reserve development relates to the re-estimation of losses from earlier periods, it has no bearing on the performance of the company’s insurance products in the current period. Kemper believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing its underwriting performance. The underlying combined ratio1 should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business.

As Adjusted for Acquisition1

As Adjusted for Acquisition1 amounts are non-GAAP financial measures. For three months ended September 30, 2019 and September 30, 2018, as adjusted amounts are computed by subtracting the impact of purchase accounting adjustments from the comparable consolidated GAAP financial measure reported by Kemper. The Company believes computing and presenting results on an adjusted basis are useful to investors and are used by management to provide meaningful and comparable year-over-year comparisons.

A reconciliation of the As Adjusted for Acquisition1 non-GAAP financial measures used in this press release to the comparable GAAP financial measure for the three months ended September 30, 2019 is presented below.

(Dollars in Millions, Except Per Share Amounts) (Unaudited)

 

Kemper

Consolidated

GAAP

Financial

Measure

 

Less Impact

of Purchase

Accounting

Adjustments

 

As Adjusted

for

Acquisition1

Net Income

 

$

129.0

 

 

$

(6.6

)

 

$

135.6

 

Net Income Per Share – Diluted

 

$

1.91

 

 

$

(0.10

)

 

$

2.01

 

Specialty Property & Casualty Insurance Segment:

 

 

 

 

 

 

Earned Premiums

 

$

783.4

 

 

$

 

 

$

783.4

 

Segment Net Operating Income

 

$

78.5

 

 

$

(6.4

)

 

$

84.9

 

A reconciliation of the As Adjusted for Acquisition1 non-GAAP financial measures used in this press release to the comparable GAAP financial measure for the three months ended September 30, 2018 is presented below.

(Dollars in Millions) (Unaudited)

 

Kemper

Consolidated

GAAP

Financial

Measure

 

Less Impact

of Purchase

Accounting

Adjustments

 

As Adjusted

for

Acquisition1

Net Income

 

$

92.2

 

 

$

(39.5

)

 

$

131.7

 

Net Income Per Share – Diluted

 

$

1.40

 

 

$

(0.61

)

 

$

2.01

 

Specialty Property & Casualty Insurance Segment:

 

 

 

 

 

 

Earned Premiums

 

$

711.2

 

 

$

 

 

$

711.2

 

Segment Net Operating Income

 

$

21.5

 

 

$

39.7

 

 

$

61.2

 

Conference Call

Kemper will discuss its third quarter 2019 results in a conference call on Monday, November 4, at 4:30 p.m. Eastern (3:30 p.m. Central) Time. Kemper’s conference call will be accessible via the internet and by telephone. The phone number for Kemper’s conference call is 844.826.3041. To listen via webcast, register online at the investor section of kemper.com at least 15 minutes prior to the webcast to download and install any necessary software.

A replay of the call will be available online at the investor section of kemper.com.

More detailed financial information can be found in Kemper’s Investor Financial Supplement and Earnings Call Presentation for the third quarter of 2019, which is available at the investor section of kemper.com.

About Kemper

The Kemper family of companies is one of the nation’s leading specialized insurers. With over $12 billion in assets, Kemper is improving the world of insurance by providing affordable and easy-to-use personalized solutions to individuals, families and businesses through its Auto, Personal Insurance, Life and Health brands. Kemper serves over 6.4 million policies, is represented by more than 30,000 agents and brokers, and has over 8,400 associates dedicated to meeting the ever-changing needs of its customers.

Learn more about Kemper.

Cautionary Statements Regarding Forward-Looking Information

This press release may contain or incorporate by reference information that includes or is based on forward-looking statements within the meaning of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events, and can be identified by the fact that they relate to future actions, performance or results rather than strictly to historical or current facts.

Any or all forward-looking statements may turn out to be wrong, and, accordingly, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this press release. Forward-looking statements involve a number of risks and uncertainties that are difficult to predict, and are not guarantees of future performance. Among the general factors that could cause actual results and financial condition to differ materially from estimated results and financial condition are the possibility that the anticipated benefits and synergies from an acquisition may not be fully realized to the extent or within the time frame previously expected and other factors listed in periodic reports filed by Kemper with the Securities and Exchange Commission (the “SEC”). No assurances can be given that the results and financial condition contemplated in any forward-looking statements will be achieved or will be achieved in any particular timetable. Kemper assumes no obligation to publicly correct or update any forward-looking statements as a result of events or developments subsequent to the date of this press release. The reader is advised, however, to consult any further disclosures Kemper makes on related subjects in its filings with the SEC.

Christine Patrick, 312.661.4803 or investors@kemper.com

Barbara Ciesemier, 312.661.4521 or bciesemier@kemper.com

KEYWORDS: Illinois United States North America

INDUSTRY KEYWORDS: Professional Services Insurance Finance

MEDIA:

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Tactile Systems Technology, Inc. Reports Third Quarter 2019 Financial Results; Updates 2019 Outlook

Third Quarter Revenue Increased 37% Year-Over-Year; Operating Income Up 134%

MINNEAPOLIS, Nov. 04, 2019 (GLOBE NEWSWIRE) — Tactile Systems Technology, Inc. (“Tactile Medical”) (Nasdaq: TCMD), a medical technology company focused on developing medical devices for the treatment of chronic diseases at home, today reported financial results for the third quarter ended September 30, 2019.


Third Quarter 2019 Summary:

  • Third quarter total revenue increased 37% year-over-year, to $49.6 million, compared to $36.3 million in third quarter 2018; the adoption of new lease accounting standards contributed three percentage points of the year-over-year increase in total revenue.
  • Operating income of $3.2 million, compared to $1.4 million in third quarter 2018.
  • Net income of $2.4 million, compared to $1.7 million in third quarter 2018.
  • Adjusted EBITDA of $6.4 million, compared to $4.6 million in third quarter 2018.
  • On July 22, 2019, the Company announced the appointment of Jay Stracke to the position of Vice President of Reimbursement and Payer Relations, effective July 15, 2019. Mr. Stracke succeeded Tactile Medical’s Senior Vice President of Reimbursement and Payer Relations, Mary (Maggie) Thompson, RN, who retired from her full-time role and transitioned into a part-time role as Vice President, Payer Initiatives.

“Our strong execution continued in the third quarter with revenue growth of 37% year-over-year and steady improvements in profitability,” said Gerald R. Mattys, Chief Executive Officer of Tactile Medical. “These accomplishments were primarily driven by the ongoing investments in the field sales team, in combination with solid market adoption of the Flexitouch Plus system, a keen focus on targeting the most productive accounts in the lymphedema market and the broad in-network coverage we have obtained with commercial payers.”

Mr. Mattys continued, “We are raising our 2019 revenue guidance today and look forward to closing out the year with financial and operational momentum as we continue to deliver on our strategy to raise awareness of lymphedema and chronic venous insufficiency, bring our at-home therapies to new patients and increase our share of the more than $4 billion U.S. market opportunity that these chronic conditions represent.”


Third Quarter 2019 Financial Results

Revenue for the third quarter of 2019 increased $13.3 million, or 37%, to $49.6 million, compared to $36.3 million for the quarter ended September 30, 2018. The increase in revenue was attributable to an increase of $11.4 million, or 34%, in sales and rentals of the Flexitouch system and an increase of $1.9 million, or 64%, in sales and rentals of the Entre system in the quarter ended September 30, 2019. This revenue increase was largely driven by expansion of our salesforce, increased physician and patient awareness of the treatment options for lymphedema, broad in-network coverage with national and regional insurance payers and growth in the Medicare channel.

Effective January 1, 2019, the Company adopted ASU No. 2016-02, “Leases” (Topic 842) (“ASC 842”) which superseded the then-existing guidance for lease accounting, “Leases” (Topic 840) (“ASC 840”). Our rental revenue is derived from rent-to-purchase arrangements that typically range from three to ten months. Under ASC 840, our rental revenue was recognized as month-to-month cancelable leases, however, under ASC 842, these are recognized as sales-type leases.

In accordance with applicable guidance, we will continue to recognize rental agreements commencing prior to December 31, 2018, on a month-to-month basis as an operating lease until they are completed, which we anticipate to be in the fourth quarter of this year. Rental agreements initiated subsequent to January 1, 2019, are recorded as sales-type leases in accordance with ASC 842, whereby rental revenue and cost of rental revenue are recognized upon the lease commencement date. Total rental revenue for the first, second and third quarters of 2019 includes both operating and sales-type lease revenue. The impact of the Company’s adoption of ASC 842 contributed three percentage points of the year-over-year increase in total revenue in the third quarter of 2019.

Gross profit for the third quarter of 2019 increased $9.2 million, or 35%, to $35.4 million, compared to $26.2 million in the third quarter of 2018. Gross margin was 71.3% of revenue in the third quarter of 2019, compared to 72.1% of revenue in the third quarter of 2018. The decrease in gross margin was primarily attributable to sales and rental mix by product and by payer and amortization expense related to the assets licensed from Sun Scientific, Inc. in October 2018.

Operating expenses for the third quarter of 2019 increased $7.4 million, or 30%, to $32.2 million, compared to $24.8 million in the third quarter of 2018. The increase in operating expenses was primarily driven by an increase of $5.1 million, or 33% year-over-year, in sales and marketing expenses due to continued investment in field sales team expansion, patient training, and marketing initiatives to increase clinician awareness. Reimbursement, general and administrative expenses increased $2.0 million, or 25%, to $10.0 million in the quarter ended September 30, 2019, compared to $8.0 million in the quarter ended September 30, 2018. This increase was primarily attributable to increased personnel-related compensation expense in our reimbursement operations, payer development and corporate functions, as well as increased professional fees and legal expenses.

Operating income for the third quarter of 2019 increased $1.8 million, or 134%, to $3.2 million, compared to $1.4 million in the third quarter of 2018.

Income tax expense for the third quarter of 2019 was $0.9 million, compared to an income tax benefit of $0.2 million in the third quarter of 2018. The change in income tax expense/benefit was primarily driven by decreased tax benefits related to share-based compensation, compared to the prior year period.

Net income for the third quarter of 2019 increased $0.7 million, or 39%, to $2.4 million, or $0.12 per diluted share, compared to $1.7 million, or $0.09 per diluted share, in the third quarter of 2018. Weighted average shares used to compute diluted net income per share were 19.6 million and 19.5 million for the third quarters of 2019 and 2018, respectively. Adjusted EBITDA increased $1.8 million or 39% to $6.4 million for the third quarter of 2019, compared to $4.6 million in the third quarter of 2018.


First Nine Months 2019 Financial Results:

Total revenue for the nine months ended September 30, 2019 increased $35.1 million, or 36%, to $132.4 million, compared to $97.3 million for the nine months ended September 30, 2018. The increase in revenue was driven by an increase of approximately $30.6 million, or 34%, year-over-year in sales and rentals of the Flexitouch system and an increase of $4.6 million, or 57%, in sales and rentals of the Entre system. The impact of the Company’s adoption of ASC 842 contributed five percentage points of the year-over-year increase in total revenue in the nine months ended September 30, 2019.

Net income for the nine months ended September 30, 2019 increased $2.4 million, or 57%, to $6.7 million, or $0.34 per diluted share, compared to $4.3 million, or $0.22 per diluted share, for the nine months ended September 30, 2018. Weighted average shares used to compute diluted net income per share were 19.6 million and 19.3 million for the nine months ended September 30, 2019 and 2018, respectively.

Adjusted EBITDA for the nine months ended September 30, 2019, increased approximately $5.7 million, or 63%, to $14.6 million, compared to $9.0 million for the nine months ended September 30, 2018.


Cash


Position

At September 30, 2019, cash, cash equivalents and marketable securities were $44.7 million, compared to $45.9 million at December 31, 2018. The Company had no outstanding borrowings on its $10.0 million revolving credit facility at September 30, 2019.


2019 Financial Outlook

The Company now expects full year 2019 total revenue in the range of $186.0 million to $187.0 million, representing growth of 29% to 30% year-over-year, compared to total revenue of $143.8 million in 2018. The Company’s prior 2019 revenue guidance expectations called for total revenue in the range of $182.0 million to $184.0 million, representing growth of 26.5% to 28% year-over-year.

2019 total revenue guidance includes the impact of the Company’s adoption of ASC 842 which is estimated to increase revenue by approximately $6.0 million for the full year.

  • The updated guidance for total revenue growth of 29% to 30% year-over-year is expected to be driven by the following:
    • Sales revenue for 2019 is expected to be in the range of $159.0 million to $160.0 million, compared to sales revenue of $130.2 million in 2018. This compares to the Company’s prior guidance range of $157.0 million to $158.5 million.
    • Rental revenue for 2019 is expected to be approximately $27.0 million, compared to rental revenue of $13.6 million in 2018. This compared to the Company’s prior guidance range of $25.0 million to $25.5 million. The projected year-over-year increase in rental revenue for 2019 is expected to be driven by:
      • the impact of the adoption of ASC 842 – representing 44% of the expected increase in rental revenue for 2019;
      • operational growth of approximately 35% over 2018 rental revenue which compares to the Company’s prior operational growth expectations of 20% to 22% – representing approximately one third of the expected increase in rental revenue for 2019; and
      • the remainder of the expected increase relates to the reclassification of garment revenue to rental revenue that was previously reported in sales revenue. 

Management will host a conference call at 5:00 p.m. Eastern Time on November 4 to discuss the results of the quarter with a question and answer session. Those who would like to participate may dial 833-286-5804 (647-689-4449 for international callers) and provide access code 9563758. A live webcast of the call will also be provided on the investor relations section of the Company’s website at investors.tactilemedical.com.

For those unable to participate, a replay of the call will be available for two weeks at 800-585-836 (416-621-4642 for international callers); access code 9563758. The webcast will be archived at investors.tactilemedical.com.


About Tactile Systems Technology, Inc. (DBA Tactile Medical)

Tactile Medical is a leader in developing and marketing at-home therapy devices that treat chronic swelling conditions such as lymphedema and chronic venous insufficiency. Tactile Medical’s Mission is to help people suffering from chronic diseases live better and care for themselves at home. The Company’s unique offering includes advanced, clinically proven pneumatic compression devices, as well as continuity of care services provided by a national network of product specialists and trainers, reimbursement experts, patient advocates and clinicians. This combination of products and services ensures that tens of thousands of patients annually receive the at-home treatment necessary to better manage their chronic conditions. Tactile Medical takes pride in the fact that our solutions help increase clinical efficacy, reduce overall healthcare costs and improve the quality of life for patients with chronic conditions.


Legal Notice Regarding Forward-Looking Statements

This release contains forward-looking statements. Forward-looking statements are generally identifiable by the use of words like “may,” “will,” “should,” “could,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “continue,” “confident,” “outlook,” “guidance,” “project,” “goals” or “look forward” or the negative of these words or other variations on these words or comparable terminology. The reader is cautioned not to put undue reliance on these forward-looking statements, as these statements are subject to numerous factors and uncertainties outside of the Company’s control that can make such statements untrue, including, but not limited to, the adequacy of the Company’s liquidity to pursue its business objectives; the Company’s ability to obtain reimbursement from third party payers for its products; loss or retirement of key executives; adverse economic conditions or intense competition; loss of a key supplier; entry of new competitors and products; adverse federal, state and local government regulation; technological obsolescence of the Company’s products; technical problems with the Company’s research and products; the Company’s ability to expand its business through strategic acquisitions; the Company’s ability to integrate acquisitions and related businesses; price increases for supplies and components; the effects of current and future U.S. and foreign trade policy and tariff actions; or the inability to carry out research, development and commercialization plans. In addition, other factors that could cause actual results to differ materially are discussed in the Company’s filings with the SEC. Investors and security holders are urged to read these documents free of charge on the SEC’s website at http://www.sec.gov. The Company undertakes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.


Use of Non-GAAP Financial Measures

This press release includes the non-GAAP financial measure of Adjusted EBITDA, which differs from financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA in this release represents net income less interest income, net, less income tax benefit or plus income tax expense, plus depreciation and amortization, and plus stock-based compensation expense. A reconciliation of Adjusted EBITDA to net income is included in this press release.

Adjusted EBITDA is presented because the Company believes it is a useful indicator of its operating performance. Management uses the measure principally as a measure of the Company’s operating performance and for planning purposes, including the preparation of the Company’s annual operating budget and financial projections. The Company believes this measure is useful to investors as supplemental information and because it is frequently used by analysts, investors and other interested parties to evaluate companies in its industry. The Company believes Adjusted EBITDA is useful to its management and investors as a measure of comparative operating performance from period to period. In addition, Adjusted EBITDA is used as a performance metric in the Company’s compensation program.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to, or superior to, net income or loss, as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP, and it should not be construed to imply that the Company’s future results will be unaffected by unusual or non-recurring items. In addition, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures and certain other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In evaluating Adjusted EBITDA, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of Adjusted EBITDA should not be construed to imply that its future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on the Company’s GAAP results in addition to using non-GAAP financial measures on a supplemental basis. The Company’s definition of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

             
             
Tactile Systems Technology, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
    September 30,   December 31,
(In thousands, except share and per share data)   2019   2018

Assets
         
Current assets            
Cash and cash equivalents   $ 19,814   $ 20,099  
Marketable securities     24,920     25,786  
Accounts receivable, net     27,681     24,332  
Net investment in leases     7,628      
Inventories     16,882     11,189  
Income taxes receivable     3,847     1,793  
Prepaid expenses and other current assets     1,956     1,762  
Total current assets     102,728     84,961  
Non-current assets            
Property and equipment, net     7,499     4,810  
Right of use operating lease assets     15,204      
Intangible assets, net     5,074     5,339  
Medicare accounts receivable, non-current     3,025     1,884  
Deferred income taxes     8,840     8,820  
Other non-current assets     1,405     1,257  
Total non-current assets     41,047     22,110  
Total assets   $ 143,775   $ 107,071  

Liabilities and Stockholders’ Equity
           
Current liabilities            
Accounts payable   $ 6,289   $ 5,110  
Accrued payroll and related taxes     11,336     7,421  
Accrued expenses     3,696     2,785  
Operating lease liabilities     1,990      
Other current liabilities     817     760  
Total current liabilities     24,128     16,076  
Non-current liabilities            
Accrued warranty reserve, non-current     2,227     1,725  
Income taxes, non-current     54      
Operating lease liabilities, non-current     13,399      
Total non-current liabilities     15,680     1,725  
Total liabilities     39,808     17,801  
               
Stockholders’ equity:              
Preferred stock, $0.001 par value, 50,000,000 shares authorized; none issued
and outstanding as of September 30, 2019 and December 31, 2018
         
Common stock, $0.001 par value, 300,000,000 shares authorized; 19,016,032
shares issued and outstanding as of September 30, 2019; 18,631,125 shares
issued and outstanding as of December 31, 2018
    19     19  
Additional paid-in capital     87,524     79,554  
Retained earnings     16,393     9,705  
Accumulated other comprehensive income (loss)     31     (8 )
Total stockholders’ equity     103,967     89,270  
Total liabilities and stockholders’ equity   $ 143,775   $ 107,071  
               
               

Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
                         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
(In thousands, except share and per share data)   2019   2018     2019
  2018
Revenue                        
Sales revenue   $ 42,882   $ 32,969     $ 112,503     $ 87,731  
Rental revenue     6,730     3,353       19,926       9,572  
Total revenue     49,612     36,322       132,429       97,303  
Cost of revenue                        
Cost of sales revenue     12,233     9,153       33,231       24,275  
Cost of rental revenue     2,006     988       6,062       2,785  
Total cost of revenue     14,239     10,141       39,293       27,060  
Gross profit                        
Gross profit – sales revenue     30,649     23,816       79,272       63,456  
Gross profit – rental revenue     4,724     2,365       13,864       6,787  
Gross profit     35,373     26,181       93,136       70,243  
Operating expenses                        
Sales and marketing     20,737     15,632       56,546       42,641  
Research and development     1,467     1,223       3,982       3,949  
Reimbursement, general and administrative     9,966     7,956       28,159       22,799  
Total operating expenses     32,170     24,811       88,687       69,389  
Income from operations     3,203     1,370       4,449       854  
Other income     160     128       480       351  
Income before income taxes     3,363     1,498       4,929       1,205  
Income tax expense (benefit)     932     (248 )     (1,759 )     (3,063 )
Net income   $ 2,431   $ 1,746     $ 6,688     $ 4,268  
Net income per common share                        
Basic   $ 0.13   $ 0.10     $ 0.35     $ 0.23  
Diluted   $ 0.12   $ 0.09     $ 0.34     $ 0.22  
Weighted-average common shares used to compute net income per common share                        
Basic     18,981,015     18,344,956       18,870,622       18,166,999  
Diluted     19,641,853     19,525,686       19,630,721       19,328,947  
                               
                               

Tactile Systems Technology, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
    Nine Months Ended
    September 30,
(In thousands)   2019
  2018
Cash flows from operating activities            
Net income   $ 6,688     $ 4,268  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization     2,583       2,474  
Deferred income taxes     (31 )     (1,411 )
Stock-based compensation expense     7,387       5,638  
Loss on disposal of equipment           3  
Changes in assets and liabilities:            
Accounts receivable     (3,349 )     (2,556 )
Net investment in leases     (7,628 )      
Inventories     (5,693 )     (3,879 )
Income taxes     (2,051 )     (2,090 )
Prepaid expenses and other assets     (418 )     (1,358 )
Right of use operating lease assets     107        
Medicare accounts receivable, non-current     (1,141 )     1,707  
Accounts payable     979       (508 )
Accrued payroll and related taxes     3,915       1,586  
Accrued expenses and other liabilities     1,073       (190 )
Net cash provided by operating activities     2,421       3,684  
Cash flows from investing activities            
Proceeds from sales of securities available-for-sale           2,000  
Proceeds from maturities of securities available-for-sale     16,000       11,000  
Purchases of securities available-for-sale     (14,859 )     (14,792 )
Purchases of property and equipment     (4,276 )     (2,384 )
Intangible assets costs     (154 )     (1,052 )
Net cash used in investing activities     (3,289 )     (5,228 )
Cash flows from financing activities            
Taxes paid for net share settlement of restricted stock units     (3,107 )     (1,922 )
Proceeds from exercise of common stock options     1,838       1,218  
Proceeds from the issuance of common stock from the employee stock purchase plan     1,852       1,416  
Net cash provided by financing activities     583       712  
Net decrease in cash and cash equivalents     (285 )     (832 )
Cash and cash equivalents – beginning of period     20,099       23,968  
Cash and cash equivalents – end of period   $ 19,814     $ 23,136  
             
Supplemental cash flow disclosure            
Cash paid for interest   $     $ 3  
Cash paid for taxes   $ 326     $ 448  
Capital expenditures incurred but not yet paid   $ 801     $ 184  
                 
                 

Tactile Systems Technology, Inc.
Reconciliation of Net Income to Non-GAAP Adjusted EBITDA
(Unaudited)
                                                 
    Three Months Ended   Increase   Nine Months Ended   Increase
    September 30,   (Decrease)   September 30,   (Decrease)
(Dollars in thousands)   2019
  2018
  $   %   2019
  2018
  $   %
Net income   $ 2,431     $ 1,746     $ 685     39 %   $ 6,688     $ 4,268     $ 2,420   57 %
Interest income, net     (86 )     (95 )     9     (9)%     (262 )     (339 )     77   (23)%
Income tax expense (benefit)     932       (248 )     1,180     N.M.%     (1,759 )     (3,063 )     1,304   (43)%
Depreciation and amortization     750       787       (37 )   (5)%     2,583       2,474       109   4 %
Stock-based compensation     2,330       2,380       (50 )   (2)%     7,387       5,638       1,749   31 %
Adjusted EBITDA   $ 6,357     $ 4,570     $ 1,787     39 %   $ 14,637     $ 8,978     $ 5,659   63 %
                                                       

Tactile Systems Technology, Inc.
Supplemental Financial Information
(Unaudited)
                                                 
    Three Months Ended       Nine Months Ended    
    September 30,   Increase   September 30,   Increase
(Dollars in thousands)   2019   2018   $   %     2019     2018   $   %
Flexitouch System   $ 44,699   $ 33,330   $ 11,369   34 %   $ 119,767   $ 89,216   $ 30,551   34 %
Entre / Actitouch Systems     4,913     2,992     1,921   64 %     12,662     8,087     4,575   57 %
Total Revenue   $ 49,612   $ 36,322   $ 13,290   37 %   $ 132,429   $ 97,303   $ 35,126   36 %
                                             

Investor Inquiries:
Mike Piccinino, CFA
Managing Director
Westwicke Partners
443-213-0500
investorrelations@tactilemedical.com

Freshpet, Inc. Reports Third Quarter 2019 Financial Results

Company Reports 8th Consecutive Quarter of Greater Than 20% Growth

Reiterates Full Year 2019 Guidance

SECAUCUS, N.J., Nov. 04, 2019 (GLOBE NEWSWIRE) — Freshpet, Inc. (“Freshpet” or the “Company”) (NASDAQ: FRPT) today reported financial results for its third quarter and nine months ended September 30, 2019.

Third Quarter 2019 Financial Highlights Compared to Prior Year Period

  • Net sales of $65.3 million, an increase of 28.5%
  • Net income of $3.1 million compared to net loss of $0.1 million
  • Adjusted EBITDA of $12.0 million, an increase of 78.5%1

“Our third quarter results demonstrate the remarkable strength and potential of the Freshpet business.  We delivered our eighth consecutive quarter of net sales growth in excess of 20% and increased profitability even faster,” commented Billy Cyr, Freshpet’s Chief Executive Officer.  “We continue to believe we are in the early stages of changing the way people feed their pets – with a very long runway of growth ahead of us.  Our mission of providing more pets with fresh, all-natural foods that enrich their lives and the relationships with their pet parents is increasingly relevant to the growing number of households who choose to share their lives with a pet.”   

Third Quarter 2019

Third quarter of 2019 net sales increased 28.5% to $65.3 million compared to $50.8 million for the third quarter of 2018.  Growth in net sales for the third quarter of 2019 was driven by velocity, innovation, and distribution gains.

Gross profit was $30.7 million, or 47.0% as a percentage of net sales, for the third quarter of 2019, compared to $23.6 million, or 46.5% as a percentage of net sales, in the same period last year. The increase in gross profit was primarily driven by higher net sales. For the third quarter of 2019, Adjusted Gross Profit was $32.5 million, or 49.8% as a percentage of net sales, compared to $25.3 million, or 49.7% as a percentage of net sales, in the prior year period. The slight increase in Adjusted Gross Profit as a percentage of net sales was primarily due to higher sales price realization and a shift in sales mix to higher margin items, partially offset by higher ingredient and inbound freight cost. Adjusted Gross Profit is a Non-GAAP financial measure defined under “Non-GAAP Measures,” and is reconciled to gross profit in the financial tables that accompany this release.

Selling, general and administrative expenses (“SG&A”) were $27.2 million for the third quarter of 2019 compared to $23.6 million in the prior year period. As a percentage of net sales, SG&A decreased to 41.6% for the third quarter of 2019 compared to 46.4% in the third quarter of 2018. Adjusted SG&A for the third quarter of 2019 was $20.5 million, or 31.4% as a percentage of net sales, compared to $18.6 million, or 36.5% as a percentage of net sales, in the prior year period. The decrease in Adjusted SG&A as a percentage of net sales was primarily a result of increased expense leverage on higher net sales including leverage on media spend which remained consistent with prior year period. Adjusted SG&A is a Non-GAAP financial measure defined under “Non-GAAP Measures,” and is reconciled to SG&A in the financial tables that accompany this release.

Net income was $3.1 million for the third quarter of 2019 compared to net loss of $0.1 million for the prior year period. The increase in net income was a result of an increase in gross profit, partially offset by higher SG&A.

Adjusted EBITDA was $12.0 million, or 18.4% as a percentage of net sales, for the third quarter of 2019, compared to $6.7 million, or 13.2% as a percentage of net sales, in the third quarter of 2018. The increase in Adjusted EBITDA was a result of higher net sales and Adjusted Gross Profit, partially offset by higher Adjusted SG&A. Adjusted EBITDA, Adjusted Gross Profit and Adjusted SG&A are Non-GAAP financial measures defined under “Non-GAAP Measures,” and are reconciled to the closest comparable GAAP measures in the financial tables that accompany this release.

First Nine Months of 2019

Net sales increased 27.2% to $180.1 million compared to $141.6 million for the first nine months of 2018.  Growth in net sales for the first nine months of 2019 was driven by velocity, innovation, and distribution gains.

Gross profit was $83.9 million, or 46.6% as a percentage of net sales, for the first nine months of 2019, compared to $66.6 million, or 47.1% as a percentage of net sales, in the same period last year. The increase in gross profit was driven by higher net sales. For the first nine months of 2019, Adjusted Gross Profit was $89.2 million, or 49.5% as a percentage of net sales, compared to $71.4 million, or 50.4% as a percentage of net sales, in the prior year period. The decrease in Adjusted Gross Profit as a percentage of net sales was primarily due to increased production and processing cost, and higher ingredient and inbound freight cost, partially offset by higher sales price realization and a shift in sales mix to higher margin items. 

SG&A was $89.1 million for the first nine months of 2019 compared to $73.4 million in the prior year period. As a percentage of net sales, SG&A decreased to 49.5% for the first nine months of 2019 compared to 51.8% in the prior year period. The first nine months of 2019 included a planned increase in media spend of $8.0 million compared to the prior year period, or an additional 4.4% as a percentage of net sales.  Adjusted SG&A for the first nine months of 2019 was $73.2 million, or 40.7% as a percentage of net sales, compared to $60.4 million, or 42.7% as a percentage of net sales, in the prior year period. The decrease in SG&A and Adjusted SG&A as a percentage of net sales was primarily a result of increased expense leverage on higher net sales, partially offset by a planned increase in media spend. 

Net loss was $6.0 million for the first nine months of 2019 compared to net loss of $7.1 million for the prior year period. The decrease in net loss was a result of an increase in net sales and gross profit, partially offset by higher SG&A.

Adjusted EBITDA was $16.0 million, or 8.9% as a percentage of net sales, for the first nine months of 2019, compared to $11.1 million, or 7.8% as a percentage of net sales, in the prior year period. The increase in Adjusted EBITDA was a result of higher net sales and Adjusted Gross Profit, partially offset by increased Adjusted SG&A.

Cash and Net Debt

As of September 30, 2019, the Company had cash and cash equivalents of $7.2 million.  During the nine months ended September 30, 2019, the Company drew $35.4 million on its credit facility in connection with the Kitchens 2.0 project, planned increased media investment, and funding of working capital. The Company expects to fund the $100 million Kitchens 2.0 manufacturing expansion through its credit facility and cash from operations.

Outlook

For full year 2019, the Company reiterated its guidance. The Company continues to expect the following results:

  • To exceed net sales of $244 million, an increase greater than 26% from 2018
  • To exceed Adjusted EBITDA of $29 million, an increase greater than 43% from 2018

The Company is unable to provide guidance for net income or a reconciliation of forecasted Adjusted EBITDA to net income because certain items that are excluded from Adjusted EBITDA are inherently uncertain and cannot be predicted without unreasonable effort due to the unavailability of reliable estimates.

Conference Call and Webcast

The Company will host a conference call and webcast with the executive management team to discuss these results with additional comments and details today at 4:30 p.m. ET. The conference call webcast will be available live over the Internet through the “Investors” section of the Company’s website at www.freshpet.com. To participate on the live call listeners in North America may dial (877) 407-0792 and international listeners may dial (201) 689-8263.

A replay of the conference call will be archived on the Company’s website and telephonic playback will be available from 7:30 p.m. ET today through November 18, 2019. North American listeners may dial (844) 512-2921 and international listeners may dial (412) 317-6671. The passcode is 13692609.

About Freshpet

Freshpet’s mission is to improve the lives of dogs and cats through the power of fresh, real food. Freshpet foods are blends of fresh meats, vegetables and fruits farmed locally and made at our Kitchens in Bethlehem, PA.  We thoughtfully prepare our foods using natural ingredients, cooking them in small batches at lower temperatures to preserve the natural goodness of the ingredients. Freshpet foods and treats are kept refrigerated from the moment they are made until they arrive at Freshpet Fridges in your local market.

Our foods are available in select mass, grocery (including online), natural food, club, and pet specialty retailers across the United States, Canada and Europe. From the care, we take to source our ingredients and make our food, to the moment it reaches your home, our integrity, transparency and social responsibility are the way we like to run our business. To learn more, visit www.freshpet.com.

Connect with Freshpet:

https://www.facebook.com/Freshpet 

https://twitter.com/Freshpet 

http://instagram.com/Freshpet 

http://pinterest.com/Freshpet 

https://plus.google.com/+Freshpet 

https://en.wikipedia.org/wiki/Freshpet 

https://www.youtube.com/user/freshpet400 

Forward Looking Statements

Certain statements in this release constitute “forward-looking” statements. These statements are based on management’s current opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. These forward-looking statements are only predictions, not historical fact, and involve certain risks and uncertainties, as well as assumptions. Actual results, levels of activity, performance, achievements and events could differ materially from those stated, anticipated or implied by such forward-looking statements. While Freshpet believes that its assumptions are reasonable, it is very difficult to predict the impact of known factors, and, of course, it is impossible to anticipate all factors that could affect actual results. There are many risks and uncertainties that could cause actual results to differ materially from forward-looking statements made herein including, most prominently, the risks discussed under the heading “Risk Factors” in the Company’s latest annual report on Form 10-K filed with the Securities and Exchange Commission. Such forward-looking statements are made only as of the date of this release. Freshpet undertakes no obligation to publicly update or revise any forward-looking statement because of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

Non-GAAP Financial Measures

Freshpet uses the following non-GAAP financial measures in its financial communications. These non-GAAP financial measures should be considered as supplements to the GAAP reported measures, should not be considered replacements for, or superior to, the GAAP measures and may not be comparable to similarly named measures used by other companies.

  • Adjusted Gross Profit
  • Adjusted Gross Profit as a % of net sales (Adjusted Gross Margin)
  • Adjusted SG&A
  • Adjusted SG&A as a % of net sales
  • EBITDA
  • Adjusted EBITDA
  • Adjusted EBITDA as a % of net sales

Adjusted Gross Profit: Freshpet defines Adjusted Gross Profit as gross profit before non-cash depreciation expense and non-cash share-based compensation.

Adjusted SG&A Expenses: Freshpet defines Adjusted SG&A as SG&A expenses before depreciation and amortization expense, non-cash share-based compensation, launch expense, fees related to secondary offerings, and litigation expense.

EBITDA and Adjusted EBITDA: EBITDA represents net income (loss) plus interest expense, income tax expense and depreciation and amortization expense, and Adjusted EBITDA represents EBITDA plus gain (loss) on disposal of equipment, non-cash share-based compensation expense, launch expenses, fees related to secondary offerings, and litigation expense.

Management believes that the non-GAAP financial measures are meaningful to investors because they provide a view of the Company with respect to ongoing operating results. The non-GAAP financial measures are shown as supplemental disclosures in this release because they are widely used by the investment community for analysis and comparative evaluation. They also provide additional metrics to evaluate the Company’s operations and, when considered with both the Company’s GAAP results and the reconciliation to the most comparable GAAP measures, provide a more complete understanding of the Company’s business than could be obtained absent this disclosure. The non-GAAP measures are not and should not be considered an alternative to the most comparable GAAP measures or any other figure calculated in accordance with GAAP, or as an indicator of operating performance. The Company’s calculation of the non-GAAP financial measures may differ from methods used by other companies. Management believes that the non-GAAP measures are important to an understanding of the Company’s overall operating results in the periods presented. The non-GAAP financial measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance.

CONTACT
ICR
Katie Turner
646-277-1228
katie.turner@icrinc.com

1 Adjusted EBITDA, as well as certain other measures in this release, is a non-GAAP financial measure.  See “Non-GAAP Measures” for how we define these measures and the financial tables that accompany this release for reconciliations of these measures to the closest comparable GAAP measures.

FRESHPET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)

  September
30, 2019
    December 31,

2018
 
               
ASSETS              
CURRENT ASSETS:              
Cash and cash equivalents $ 7,205,735     $ 7,554,388  
Accounts receivable, net of allowance for doubtful accounts   19,500,754       12,326,703  
Inventories, net   13,306,994       9,317,232  
Prepaid expenses   1,653,217       1,078,232  
Other current assets   10,756,779       681,550  
Total Current Assets   52,423,479       30,958,105  
Property, plant and equipment, net   136,688,547       102,094,248  
Deposits on equipment   4,046,973       4,730,176  
Operating lease right of use assets   9,460,364        
Other assets   3,680,076       2,182,329  
Total Assets $ 206,299,439     $ 139,964,858  
LIABILITIES AND STOCKHOLDERS’ EQUITY              
CURRENT LIABILITIES:              
Accounts payable $ 17,839,951     $ 9,166,412  
Accrued expenses   19,447,055       9,050,551  
Current operating lease liabilities   1,129,806        
Total Current Liabilities $ 38,416,812     $ 18,216,963  
Long term debt   35,395,988        
Long term operating lease liabilities   8,712,671        
Other liabilities         273,420  
Total Liabilities $ 82,525,471     $ 18,490,383  
STOCKHOLDERS’ EQUITY:              
Common stock   36,100       35,556  
Additional paid-in capital   331,538,514       323,079,437  
Accumulated deficit   (207,368,869 )     (201,352,682 )
Accumulated other comprehensive income   (175,551 )     (31,610 )
Treasury stock, at cost — 14,169 shares on September 30, 2019 and on December 31, 2018   (256,226 )     (256,226 )
Total Stockholders’ Equity   123,773,968       121,474,475  
Total Liabilities and Stockholders’ Equity $ 206,299,439     $ 139,964,858  
               

FRESHPET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)

    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
                                 
NET SALES   $ 65,265,901     $ 50,799,601     $ 180,110,282     $ 141,594,158  
COST OF GOODS SOLD     34,560,261       27,183,648       96,163,080       74,972,294  
GROSS PROFIT     30,705,640       23,615,953       83,947,202       66,621,864  
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES     27,171,138       23,572,314       89,075,672       73,397,781  
INCOME (LOSS) FROM OPERATIONS     3,534,502       43,639       (5,128,470 )     (6,775,917 )
OTHER INCOME/(EXPENSES):                                
Other Income/(Expenses), net     (137,624 )     (27,392 )     (141,077 )     (24,302 )
Interest Expense     (310,465 )     (94,381 )     (688,890 )     (261,307 )
      (448,089 )     (121,773 )     (829,967 )     (285,609 )
INCOME (LOSS) BEFORE INCOME TAXES     3,086,413       (78,134 )     (5,958,437 )     (7,061,526 )
INCOME TAX EXPENSE     19,250       19,032       57,750       57,096  
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS   $ 3,067,163     $ (97,166 )   $ (6,016,187 )   $ (7,118,622 )
OTHER COMPREHENSIVE INCOME (LOSS):                                
Change in foreign currency translation   $ (81,667 )   $ (54,325 )   $ (143,941 )   $ (55,958 )
TOTAL OTHER COMPREHENSIVE (LOSS)     (81,667 )     (54,325 )     (143,941 )     (55,958 )
TOTAL COMPREHENSIVE INCOME (LOSS)   $ 2,985,496     $ (151,491 )   $ (6,160,128 )   $ (7,174,580 )
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                                
-BASIC   $ 0.09     $ (0.00 )   $ (0.17 )   $ (0.20 )
-DILUTED   $ 0.08     $ (0.00 )   $ (0.17 )   $ (0.20 )
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING USED IN COMPUTING NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                                
-BASIC     36,079,935       35,396,550       35,894,377       35,259,365  
-DILUTED     37,289,478       35,396,550       35,894,377       35,259,365  
                                 

FRESHPET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited

  For the Nine Months Ended  
  September 30,  
    2019       2018  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net loss $ (6,016,187 )   $ (7,118,622 )
Adjustments to reconcile net loss to net cash flows provided by operating activities:              
Provision for loss/(gains) on accounts receivable   104,700       (15,300 )
Loss on disposal of equipment   138,106       104,769  
Share-based compensation   5,706,580       4,170,409  
Inventory obsolescence   104,624       69,912  
Depreciation and amortization   11,707,422       10,418,274  
Amortization of deferred financing costs and loan discount   125,303       86,327  
Changes in operating assets and liabilities:              
Accounts receivable   (7,278,751 )     (393,394 )
Inventories   (4,094,386 )     1,339,371  
Prepaid expenses and other current assets   (10,650,214 )     (481,201 )
Operating lease right of use   125,711        
Other assets   (608,060 )     (118,675 )
Accounts payable   3,742,265       1,190,993  
Accrued expenses   10,396,504       (697,873 )
Other lease liabilities   (17,018 )     (23,243 )
Net cash flows provided by operating activities   3,486,599       8,531,747  
CASH FLOWS FROM INVESTING ACTIVITIES:              
Acquisitions of property, plant and equipment, software and deposits on equipment   (40,738,346 )     (12,681,600 )
Net cash flows used in investing activities   (40,738,346 )     (12,681,600 )
CASH FLOWS FROM FINANCING ACTIVITIES:              
Proceeds from exercise of options to purchase common stock   3,841,918       3,071,883  
Tax withholdings related to net shares settlements of restricted stock units   (1,252,953 )     (256,226 )
Proceeds from borrowings under Credit Facilities   50,620,988       6,000,000  
Repayment of borrowings under Credit Facilities   (15,900,000 )     (4,000,000 )
Financing fees paid in connection with borrowings   (406,859 )      
Net cash flows provided by financing activities   36,903,094       4,815,657  
NET CHANGE IN CASH AND CASH EQUIVALENTS   (348,653 )     665,804  
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   7,554,388       2,184,259  
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,205,735     $ 2,850,063  
               

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN GROSS PROFIT AND ADJUSTED GROSS PROFIT
(Unaudited)

    Three Months Ended


    Nine Months Ended


 
    September 30,


    September 30,


 
    2019


    2018


    2019


    2018


 
             
    (Dollars in thousands)


    (Dollars in thousands)


 
Gross Profit   $ 30,706     $ 23,616     $ 83,948     $ 66,622  
Depreciation expense (a)     1,599       1,579       4,754     $ 4,569  
Non-cash share-based compensation (b)     174       71       508     $ 224  
Adjusted Gross Profit   $ 32,479     $ 25,266     $ 89,210     $ 71,415  
Adjusted Gross Profit as a % of Net Sales     49.8 %     49.7 %     49.5 %     50.4 %

(a) Represents depreciation expense included in cost of goods sold.
(b) Represents non-cash share-based compensation expense included in cost of goods sold.

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN SG&A EXPENSES AND ADJUSTED SG&A EXPENSES
(Unaudited)

    Three Months Ended


    Nine Months Ended


 
    September 30,


    September 30,


 
    2019


    2018


    2019


    2018


 
             
    (Dollars in thousands)


    (Dollars in thousands)


 
SG&A expenses   $ 27,171     $ 23,572     $ 89,075     $ 73,398  
Depreciation and amortization expense (a)     2,465       2,044       6,953       5,850  
Non-cash share-based compensation (b)     2,902       1,706       5,198       3,947  
Launch expense (c)     1,264       1,015       3,335       2,677  
Secondary offering expenses (d)     50       137       349       137  
Litigation expense (e)           120             348  
Adjusted SG&A Expenses   $ 20,490     $ 18,550     $ 73,240     $ 60,437  
Adjusted SG&A Expenses as a % of Net Sales     31.4 %     36.5 %     40.7 %     42.7 %

(a) Represents non-cash depreciation and amortization expense included in SG&A.
(b) Represents non-cash share-based compensation expense included in SG&A.
(c) Represents new store marketing allowance of $1,000 for each store added to our distribution network, as well as the non-capitalized freight costs associated with Freshpet Fridge replacements. The expense enhances the overall marketing spend to support our growing distribution network.
(d) Represents fees associated with secondary public offerings of our common stock.
(e) Represents fees associated with two securities lawsuits.

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN NET INCOME (LOSS) AND ADJUSTED EBITDA
(Unaudited)

    Three Months Ended


    Nine Months Ended


 
    September 30,


    September 30,


 
    2019


    2018


    2019


    2018


 
             
    (Dollars in thousands)


    (Dollars in thousands)


 
Net income (loss)   $ 3,067     $ (97 )   $ (6,016 )   $ (7,119 )
Depreciation and amortization     4,064       3,623       11,707       10,419  
Interest expense     310       94       689       261  
Income tax expense     19       19       57       57  
EBITDA   $ 7,460     $ 3,639     $ 6,437     $ 3,619  
(Gain) loss on disposal of equipment     137       29       138       105  
Non-cash share-based compensation     3,076       1,776       5,706       4,170  
Launch expense (a)     1,264       1,015       3,335       2,677  
Secondary offering expenses (b)     50       137       349       137  
Litigation expense (c)           120             348  
Adjusted EBITDA   $ 11,987     $ 6,716     $ 15,965     $ 11,056  
Adjusted EBITDA as a % of Net Sales     18.4 %     13.2 %     8.9 %     7.8 %

(a) new store marketing allowance of $1,000 for each store added to our distribution network, as well as the non-capitalized freight costs associated with Freshpet Fridge replacements. The expense enhances the overall marketing spend to support our growing distribution network.
(b) Represents fees associated with secondary public offerings of our common stock.
(c) Represents fees associated with two securities lawsuits.

IVERIC bio to Report Third Quarter 2019 Financial Results and Host Conference Call on Tuesday, November 12, 2019

IVERIC bio to Report Third Quarter 2019 Financial Results and Host Conference Call on Tuesday, November 12, 2019

Company to Host a Zimura® R&D Symposium for Investors on November 20, 2019 –

NEW YORK–(BUSINESS WIRE)–IVERIC bio, Inc. (Nasdaq: ISEE) today announced that it will report its third quarter 2019 financial and operating results on Tuesday, November 12, 2019. Following the announcement, IVERIC bio’s management team will host a live conference call and webcast at 8:00 a.m. Eastern Time to discuss further details of the clinical trial results previously announced by the Company for its Zimura® (avacincaptad pegol) program in geographic atrophy (GA) secondary to dry age-related macular degeneration (AMD), review the Company’s financial results, and provide a general business update.

To participate in this conference call, dial 888-208-1711 (USA) or 323-994-2082 (International), passcode 5526863. A live, listen-only audio webcast of the conference call can be accessed on the Investors section of the IVERIC bio website at www.ivericbio.com. A replay will be available approximately two hours following the live call for two weeks. The replay number is 888-203-1112 (USA Toll Free), passcode 5526863.

Zimura R&D Symposium for Investors

The Company also announced that it will host a Zimura R&D Symposium for Investors on Wednesday, November 20, 2019 from 8:00 a.m. to 10:00 a.m. Eastern Time in New York. The event will feature a presentation of the previously announced clinical trial results from the Company’s Zimura program on GA secondary to dry AMD and will include discussions with retinal specialists and key opinion leaders in dry AMD. On October 28, 2019, the Company announced that Zimura met its pre-specified primary efficacy endpoint and reached statistical significance in a Phase 2b randomized, controlled clinical trial in GA secondary to dry AMD.

The event will be accessible via webcast on the IVERIC bio website at www.ivericbio.com. For more information, please contact Kathy Galante at kathy.galante@ivericbio.com or 212-845-8231.

About IVERIC bio

IVERIC bio is a biopharmaceutical company focused on the discovery and development of novel treatment options for retinal diseases with significant unmet medical needs. Vision is Our Mission. For more information on the Company please visit www.ivericbio.com.

Forward-looking Statements

Any statements in this press release about IVERIC bio’s future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors. Any forward-looking statements represent IVERIC bio’s views only as of the date of this press release. IVERIC bio anticipates that subsequent events and developments will cause its views to change. While IVERIC bio may elect to update these forward-looking statements at some point in the future, IVERIC bio specifically disclaims any obligation to do so.

ISEE-G

Investors:

IVERIC bio

Kathy Galante, 212-845-8231

Vice President, Investor Relations and Corporate Communications

kathy.galante@ivericbio.com

or

Media:

SmithSolve

Alex Van Rees, 973-442-1555 ext. 111

alex.vanrees@smithsolve.com

KEYWORDS: United States North America New York

INDUSTRY KEYWORDS: Research FDA Clinical Trials Biotechnology Health Pharmaceutical Optical Other Science Science

MEDIA:

Logo
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Tanzanian Gold Corporation Provides Update On Buckreef Project

TORONTO, Nov. 04, 2019 (GLOBE NEWSWIRE) — Tanzanian Gold Corporation’s, (TSX:TNX) (NYSE American: TRX) (the “Company’s”) Board of Directors is pleased to provide shareholders with a simplified guide to the progress that the Buckreef Project has made since the Company acquired it. This guide is based on the 43-101 Standard of Reporting.

Regulators in Canada require that on any significant matter related to mining, listed companies must follow National Instrument 43-101 (“NI 43-101”).

Disclosures covered by NI 43-101 include news releases of mineral exploration results, reporting of resources and reserves, technical studies, various levels of feasibility studies, presentations, oral comments, and websites.

For a typical mining project the NI 43-101 Standard of Reporting recognizes several distinct stages of reporting as a project moves from exploration to production. These stages are:

  • Exploration
  • Preliminary Resources
  • Technical Studies
  • Resources and Reserves
  • Preliminary Economic Assessment
  • Pre-Feasibility Study
  • Final Feasibility Study
  • Environmental Impact Study
  • Construction and Operation Plan

Each of these stages has more rigorous requirements of underlying work that must be completed in order to improve the confidence that a project is viable under a broad range of assumptions. These are increasingly demanding, such as more drilling even as part of a Final Feasibility Study that can be costly and time consuming. For example, estimates of costs in a Final Feasibility Study can be only +10% to -10% and must be based on at least 3 vendor quotes.

Various authorities have stated that it takes at least 10 years for a mining project to move from exploration to completion of a Final Feasibility Study and Environmental Impact Study, both of which are generally required for government permits, financing and developing comprehensive construction plans.

The Company firmly believes that, as illustrated by this guide to NI 43-101, the Buckreef Project has made significant advances. In June 2018, the Company published a comprehensive Pre-Feasibility Study. The authors of this study concluded that the Buckreef Project “is likely to be technically and economically feasible”. Highlights of that study, which was done at a gold price of $1,300 per oz are: an after-tax US$ NPV discounted at 5% of $131 million; an IRR of 74%; a capital payback period of 4 years; and an average LOM cash cost of US$ 735 per oz.

The Buckreef Project is now one step away from a Final Feasibility Study.

Despite the attractive metrics arising from the Pre-Feasibility Study, the Company decided to see if the Buckreef Project can be made bigger and better; and to start to collect the technical data to move the project to the Final Feasibility Stage. To date, the Buckreef Project has;

  • Drilled over 10,000m using at times three drill machines operating 24 hours per day,
  • Developed a geology-resource model of the entire Buckreef Mineralized Zone using technologically advanced data-mine software that will be used for future resource and reserve estimates,
  • Initiated a comprehensive metallurgical review and test data based on a plant that is two times larger than the plant in the Pre-Feasibility Study, and
  • Initiated a rock stress test program to determine the possibility of mining underground below the pit bottom.

It is the Company’s intention to make a Conceptual Study that incorporates all the new drilling results from the 2019 drill program as well as the data arising from the metallurgical and rock stress tests. This Conceptual Study will most likely be based on a larger open pit than that in the Pre-Feasibility Study and an underground mine that can access resources below the pit bottom. This Study will assist the Company to determine the key parameters of a Final Feasibility Study of the Buckreef Project.

Mr. James Sinclair, Executive Chairman of the Company notes “Successful world class mines are not simply discovered”, and continues by stating “They are built through years of complex scientific work to the highest of industry standards. I am delighted with the progress that our team is making to move Buckreef to a Final Feasibility stage.”

Respectfully Submitted,

“James E. Sinclair”

James E. Sinclair
Executive Chairman

For further information, please contact Michael Martin, Investor Relations, m.martin@tangoldcorp.com.com, 860-248-0999, or visit the Company website at www.tangoldcorp.com

The Toronto Stock Exchange and NYSE MKT LLC have not reviewed and do not accept responsibility for the adequacy or accuracy of this release

Cautionary Note to U.S. Investors – The United States Securities and Exchange Commission limits disclosure for U.S. reporting purposes to mineral deposits that a company can economically and legally extract or produce. We use certain terms on this news release, such as “reserves”, “resources”, “geologic resources”, “proven”, “probable”, “measured”, “indicated”, or “inferred” which may not be consistent with the reserve definitions established by the SEC.  U.S. Investors are urged to consider closely the disclosure in our SEC filings.  You can review and obtain copies of these filings from the SEC’s website at http://www.sec.gov/edgar.shtml.

This news release contains certain forward-looking statements and forward-looking information. All statements, other than statements of historical fact, included herein are forward-looking statements and forward-looking information that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company’s expectations are disclosed in the Company’s documents filed from time-to-time with the British Columbia, Alberta and Ontario provincial securities regulatory authorities.

Certain information presented in this release may constitute “forward-looking statements”  within  the  meaning  of  the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on numerous assumptions, and involve known and unknown risks, uncertainties and other factors, including risks inherent in mineral exploration and development, which may cause the actual results, performance, or achievements of the Company to be materially different from any projected future results, performance, or achievements expressed or implied by such forward-looking statements. Investors are referred to our description of the risk factors affecting the Company, as contained in our SEC filings, including our annual report on Form 20-F and Registration Statement on Form F-10, as amended, for more information concerning these risks, uncertainties, and other factors.

Diodes Incorporated Reports Third Quarter Financial Results

Diodes Incorporated Reports Third Quarter Financial Results

Revenue and Gross Profit Remain at Record Levels, Driving Record EBITDA, Net Income and EPS

PLANO, Texas–(BUSINESS WIRE)–
Diodes Incorporated (Nasdaq: DIOD) today reported its financial results for the third quarter ended September 30, 2019.

Third Quarter Highlights

  • Revenue was a record $323.7 million, an increase of 0.8 percent from the $320.9 million in the third quarter 2018 and an increase of 0.5 percent from the $322.0 million in the second quarter 2019;
  • GAAP gross profit remained a record at $122.0 million, compared to $115.2 million in the third quarter 2018 and $122.0 million in the second quarter 2019;
  • GAAP gross profit margin was 37.7 percent, compared to 35.9 percent in the third quarter 2018 and 37.9 percent in the second quarter 2019;
  • GAAP net income was a record $38.1 million, or $0.73 per diluted share, compared to $30.9 million, or $0.61 per diluted share, in the third quarter 2018 and $36.3 million, or $0.70 per diluted share, in the second quarter 2019;
  • Non-GAAP adjusted net income was a record $41.9 million, or $0.81 per diluted share, compared to $34.5 million, or $0.68 per diluted share, in the third quarter 2018 and $40.0 million, or $0.77 per diluted share, in the second quarter 2019;
  • Excluding $4.4 million, net of tax, of non-cash share-based compensation expense, both GAAP and non-GAAP earnings per share would have increased by $0.09 per diluted share;
  • EBITDA was a record $78.3 million, or 24.2 percent of revenue, compared to $72.0 million, or 22.4 percent of revenue, in the third quarter 2018 and $77.1 million, or 23.9 percent of revenue, in the second quarter 2019; and
  • Achieved cash flow from operations of $67.2 million and $41.8 million free cash flow, including $25.4 million of capital expenditures. Net cash flow was a negative $17.1 million, which includes the pay-down of $52.6 million of long-term debt.

Commenting on the results, Dr. Keh-Shew Lu, President and Chief Executive Officer, stated, “Diodes achieved another quarter of record financials, resulting in increased profitability and cash flow from operations. Our nine-month revenue grew 5.4% over the same period last year, while earnings increased over 30%. This growth is especially notable at a time during which our served market was down more than 6.5%. EBITDA also set a new quarterly record and represents the second consecutive quarter to exceed a $300 million annualized run-rate as it approaches 25% of total revenue. Further, gross margin remains solidly above 37% of revenue as product mix continues to benefit from record revenue in the automotive end market as well as our Pericom-branded IC products.

“Overall, I am very pleased with our year-to-date performance as we carefully navigate the seasonal softness and inventory adjustments that are typical of our industry as we approach year-end. Longer-term, Diodes remains well positioned to continue delivering consistent profitability growth with an ongoing focus on content gains in high-growth areas such as connected cars, high-end servers and storage, 5G as well as IoT.”

Third Quarter 2019

Revenue for third quarter 2019 was a record $323.7 million, an increase of 0.8 percent from the $320.9 million in the third quarter 2018 and an increase of 0.5 percent from the $322.0 million in the second quarter 2019.

GAAP gross profit for the third quarter 2019 remained a record at $122.0 million, or 37.7 percent of revenue, compared to the third quarter 2018 of $115.2 million, or 35.9 percent of revenue, and the second quarter 2019 of $122.0 million, or 37.9 percent of revenue. The 180-basis point year-over-year increase was primarily due to record high revenue contribution from the automotive market and the Pericom IC products.

GAAP operating expenses for third quarter 2019 were $73.3 million, or 22.7 percent of revenue, and $68.8 million, or 21.3 percent of revenue, on a non-GAAP basis, which excluded $4.5 million of amortization of acquisition-related intangible asset expenses. GAAP operating expenses in the third quarter 2018 were $69.4 million, or 21.6 percent of revenue, and in the second quarter 2019 were $73.5 million, or 22.8 percent of revenue.

Third quarter 2019 GAAP net income was a record $38.1 million, or $0.73 per diluted share, compared to GAAP net income of $30.9 million, or $0.61 per diluted share, in third quarter 2018 and GAAP net income of $36.3 million, or $0.70 per diluted share, in second quarter 2019.

Third quarter 2019 non-GAAP adjusted net income was a record $41.9 million, or $0.81 per diluted share, which excluded, net of tax, $3.7 million of non-cash acquisition-related intangible asset amortization costs. This compares to non-GAAP adjusted net income of $34.5 million, or $0.68 per diluted share, in the third quarter 2018 and $40.0 million, or $0.77 per diluted share, in the second quarter 2019.

The following is an unaudited summary reconciliation of GAAP net income to non-GAAP adjusted net income and per share data, net of tax (in thousands, except per share data):

Three Months Ended

September 30, 2019

GAAP net income

$

38,060

 

 
GAAP diluted earnings per share

$

0.73

 

 
Adjustments to reconcile net income to non-GAAP net income:
 
Amortization of acquisition-related intangible assets

 

3,700

 

 
Acquisition related costs

 

376

 

 
Land sale inspection extension fee

 

(237

)

 
Non-GAAP net income

$

41,899

 

 
Non-GAAP diluted earnings per share

$

0.81

 

Note: Throughout this release, we refer to “net income attributable to common stockholders” as “net income.”

(See the reconciliation tables of GAAP net income to non-GAAP adjusted net income near the end of this release for further details.)

Included in third quarter 2019 GAAP net income and non-GAAP adjusted net income was approximately $4.4 million, net of tax, of non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP earnings per share (“EPS”) and non-GAAP adjusted EPS would have increased by $0.09 per diluted share for third quarter 2019, $0.07 for third quarter 2018 and $0.08 for second quarter 2019.

EBITDA (a non-GAAP measure), which represents earnings before net interest expense, income tax, depreciation and amortization, in the third quarter 2019 was a record $78.3 million, or 24.2 percent of revenue, compared to $72.0 million, or 22.4 percent of revenue, in the third quarter 2018 and $77.1 million, or 23.9 percent of revenue, in the second quarter 2019. For a reconciliation of GAAP net income to EBITDA, see the table near the end of this release for further details.

For third quarter 2019, net cash provided by operating activities was $67.2 million. Net cash flow was a negative $17.1 million, including the $52.6 million pay-down of long-term debt. Free cash flow (a non-GAAP measure) was $41.8 million, which includes $25.4 million of capital expenditures.

Balance Sheet

As of September 30, 2019, the Company had approximately $226 million in cash, cash equivalents and short-term investments, long-term debt (including the current portion) totaled approximately $119 million, and working capital was approximately $465 million.

The results announced today are preliminary and unaudited, as they are subject to the Company finalizing its closing procedures and customary quarterly review by the Company’s independent registered public accounting firm. As such, these results are subject to revision until the Company files its Form 10-Q for the quarter ending September 30, 2019.

Business Outlook

Dr. Lu concluded, “For the fourth quarter, we expect revenue to be approximately $300 million, plus or minus 2 percent, which at the mid-point represents annual growth of 2.8 percent even in the overall weak market environment and continued outperformance of our served market. We expect GAAP gross margin to be 36.5 percent, plus or minus 1 percent. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 22 percent of revenue, plus or minus 1 percent. We expect net interest expense to be approximately $2.0 million. Our income tax rate is expected to be 21 percent, plus or minus 3 percent, and shares used to calculate diluted EPS for the fourth quarter are anticipated to be approximately 52.5 million.”

Purchase accounting adjustments related to amortization of acquisition-related intangible assets of $3.7 million, after tax, for Pericom and previous acquisitions are not included in these non-GAAP estimates.

Conference Call

Diodes will host a conference call on Monday, November 4, 2019, at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) to discuss its third quarter 2019 financial results. Investors and analysts may join the conference call by dialing 1-855-232-8957 and providing the confirmation code 8662677. International callers may join the teleconference by dialing +1-315-625-6979 and entering the same confirmation code at the prompt. A telephone replay of the call will be made available approximately two hours after the call and will remain available until November 11, 2019 at midnight Central Time. The replay number is 1-855-859-2056 with a pass code of 8662677. International callers should dial +1-404-537-3406 and enter the same pass code at the prompt. Additionally, this conference call will be broadcast live over the Internet and can be accessed by all interested parties on the Investors’ section of Diodes’ website at http://www.diodes.com. To listen to the live call, please go to the investors’ section of Diodes’ website and click on the conference call link at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available shortly after the call on Diodes’ website for approximately 90 days.

About Diodes Incorporated

Diodes Incorporated (Nasdaq: DIOD), a Standard and Poor’s SmallCap 600 and Russell 3000 Index company, is a leading global manufacturer and supplier of high-quality, application-specific standard products within the broad discrete, logic, analog, and mixed-signal semiconductor markets. We serve the consumer electronics, computing, communications, industrial, and automotive markets. Our products include diodes, rectifiers, transistors, MOSFETs, protection devices, function-specific arrays, single gate logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices, including LED drivers, AC-DC converters and controllers, DC-DC switching and linear voltage regulators, and voltage references along with special function devices, such as USB power switches, load switches, voltage supervisors, and motor controllers. Diodes also has timing, connectivity, switching, and signal integrity solutions for high-speed signals. Our corporate headquarters and Americas’ sales offices are located in Plano, Texas and Milpitas, California. Design, marketing, and engineering centers are located in Plano; Milpitas; Taipei, Taoyuan City, and Zhubei City, Taiwan; Oldham, England; and Neuhaus, Germany. Our wafer fabrication facilities are located in Oldham; Shanghai, China; and Greenock, Scotland. We have assembly and test facilities located in Shanghai, Jinan, and Chengdu, China; as well as in Hong Kong; Neuhaus; and Taipei. Additional engineering, research and development, sales, warehouse, and logistics offices are located in Taipei; Hong Kong; Oldham; Shanghai; Shenzhen and Yangzhou, China; Seongnam-si, South Korea; Munich, Germany; and Tokyo, Japan, with support offices throughout the world.

Recent news releases, annual reports and SEC filings are available at the Company’s website: http://www.diodes.com. Written requests may be sent directly to the Company, or they may be e-mailed to: diodes-fin@diodes.com.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such statements include statements containing forward-looking words such as “expect,” “anticipate,” “aim,” “estimate,” and variations thereof, including without limitation statements, whether direct or implied, regarding expectations of revenue growth, market share gains, increase in gross margin and increase in gross profits in 2019 and beyond; that for the fourth quarter of 2019, we expect revenue to be approximately $300 million plus or minus 2 percent; which at the mid-point represents annual growth of 2.8 percent even in the overall weak market environment and continued outperformance of our served market; we expect GAAP gross margin to be 36.5 percent, plus or minus 1 percent; non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 22.0 percent of revenue, plus or minus 1 percent; we expect net interest expense to be approximately $2.0 million; we expect our income tax rate to be 21.0 percent, plus or minus 3 percent; shares used to calculate diluted EPS for the fourth quarter are anticipated to be approximately 52.5 million. Potential risks and uncertainties include, but are not limited to, such factors as: the risk that such expectations may not be met; the risk that the expected benefits of acquisitions may not be realized or that integration of acquired businesses may not continue as rapidly as we anticipate; the risk that we may not be able to maintain our current growth strategy or continue to maintain our current performance, costs, and loadings in our manufacturing facilities; the risk that we may not be able to increase our automotive, industrial, or other revenue and market share; risks of domestic and foreign operations, including excessive operating costs, labor shortages, higher tax rates, and our joint venture prospects; the risk that we may not continue our share repurchase program; the risks of cyclical downturns in the semiconductor industry and of changes in end-market demand or product mix that may affect gross margin or render inventory obsolete; the risk of unfavorable currency exchange rates; the risk that our future outlook or guidance may be incorrect; the risks of global economic weakness or instability in global financial markets; the risks of trade restrictions, tariffs, or embargoes; the risk of breaches of our information technology systems; and other information, including the “Risk Factors” detailed from time to time in Diodes’ filings with the United States Securities and Exchange Commission.

DIODES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30, 2019

 

 

September 30, 2019

 

 

2019

 

2018

 

 

2019

 

2018

Net sales

$

323,674

 

$

320,946

 

$

947,973

 

$

899,543

 

Cost of goods sold

 

201,628

 

 

205,732

 

 

591,528

 

 

578,466

 

Gross profit

 

122,046

 

 

115,214

 

 

356,445

 

 

321,077

 

 
Operating expenses
Selling, general and administrative

 

46,123

 

 

42,475

 

 

137,143

 

 

131,778

 

Research and development

 

22,689

 

 

22,549

 

 

66,566

 

 

64,799

 

Amortization of acquisition related intangible assets

 

4,519

 

 

4,418

 

 

13,539

 

 

13,863

 

Other operating (income) expense

 

 

 

(66

)

 

(158

)

 

15

 

Total operating expense

 

73,331

 

 

69,376

 

 

217,090

 

 

210,455

 

 
Income from operations

 

48,715

 

 

45,838

 

 

139,355

 

 

110,622

 

 
Other income (expense)
Interest income

 

272

 

 

474

 

 

1,780

 

 

1,431

 

Interest expense

 

(2,007

)

 

(2,318

)

 

(6,163

)

 

(7,619

)

Foreign currency loss, net

 

(822

)

 

(655

)

 

(1,382

)

 

(3,384

)

Other income

 

2,577

 

 

1,061

 

 

5,056

 

 

6,073

 

Total other income (expense)

 

20

 

 

(1,438

)

 

(709

)

 

(3,499

)

 
Income before income taxes and noncontrolling interest

 

48,735

 

 

44,400

 

 

138,646

 

 

107,123

 

Income tax provision

 

10,613

 

 

13,190

 

 

32,085

 

 

31,726

 

Net income

 

38,122

 

 

31,210

 

 

106,561

 

 

75,397

 

Less net (income) loss attributable to noncontrolling interest

 

(62

)

 

(302

)

 

(501

)

 

(895

)

Net income attributable to common stockholders

$

38,060

 

$

30,908

 

$

106,060

 

$

74,502

 

 
Earnings per share attributable to common stockholders:
Basic

$

0.75

 

$

0.62

 

$

2.09

 

$

1.50

 

Diluted

$

0.73

 

$

0.61

 

$

2.05

 

$

1.46

 

Number of shares used in earnings per share computation:
Basic

 

50,998

 

 

50,115

 

 

50,687

 

 

49,713

 

Diluted

 

51,869

 

 

51,077

 

 

51,699

 

 

50,883

 

Note: Throughout this release, we refer to “net income attributable to common stockholders” as “net income.”

DIODES INCORPORATED AND SUBSIDIARIES

RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME

(in thousands, except per share data)

(unaudited)

For the three months ended September 30, 2019:

Operating
Expenses
Income Tax
Provision
Net Income
Per-GAAP

$

38,060

 

 
Diluted earnings per share (Per-GAAP)

$

0.73

 

 
Adjustments to reconcile net income to non-GAAP net income:
 
Amortization of acquisition-related intangible assets

4,518

 

(818

)

 

3,700

 

 
Acquisition related costs

471

 

(95

)

 

376

 

 
Land sale inspection extension fee

(300

)

63

 

 

(237

)

 
Non-GAAP

$

41,899

 

 
Diluted shares used in computing earnings per share

 

51,869

 

 
Non-GAAP diluted earnings per share

$

0.81

 

Note: Included in GAAP and non-GAAP net income was approximately $4.4 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP diluted earnings per share would have improved by $0.09 per share.

DIODES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME – Cont.

(in thousands, except per share data)

(unaudited)

For the three months ended September 30, 2018:

Operating

Expenses

 

Income Tax

Provision

 

Net Income

 
Per-GAAP

$

30,908

 
Earnings per share (Per-GAAP)
Diluted

$

0.61

 
Adjustments to reconcile net income to non-GAAP net income:
 
M&A
 
Pericom

 

2,633

 
Amortization of acquisition-related intangible assets

3,212

(579

)

 
Others

 

987

 
Amortization of acquisition-related intangible assets

1,206

(219

)

 
 
Non-GAAP

$

34,528

 
Diluted shares used in computing earnings per share

 

51,077

 
Non-GAAP earnings per share
Diluted

$

0.68

Note: Included in GAAP and non-GAAP adjusted net income was approximately $3.8 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted earnings per share would have improved by $0.07 per share.

DIODES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME – Cont.

(in thousands, except per share data)

(unaudited)

For the nine months ended September 30, 2019:

 

Operating

Expenses

Income Tax

Provision

Net Income

Per-GAAP

$

106,060

 

 
Diluted earnings per share (Per-GAAP)

$

2.05

 

 
Adjustments to reconcile net income to non-GAAP net income:
 
Amortization of acquisition-related intangible assets

13,538

 

(2,448

)

 

11,090

 

 
Acquisition related costs

471

 

(95

)

 

376

 

 
Land sale inspection extension fee

(300

)

63

 

 

(237

)

 
Non-GAAP

$

117,289

 

 
Diluted shares used in computing earnings per share

 

51,699

 

 
Non-GAAP diluted earnings per share

$

2.27

 

Note: Included in GAAP and non-GAAP adjusted net income was approximately $12.1 million, net of tax, non-cash share-based compensation expense, excluding officer severance. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted earnings per share would have improved by $0.23 per share.

DIODES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME – Cont.

(in thousands, except per share data)

(unaudited)

 

For the nine months ended September 30, 2018:

 

Operating

Expenses

 

Income Tax

Provision

Net Income

 
Per-GAAP

$

74,502

 
Earnings per share (Per-GAAP)
Diluted

$

1.46

 
Adjustments to reconcile net income to non-GAAP net income:
 
M&A
 
Pericom

 

7,811

 
Amortization of acquisition-related intangible assets

9,526

(1,715

)

 
KFAB

 

273

 
Restructuring

206

67

 

 
Others

 

5,557

 
Amortization of acquisition-related intangible assets

4,337

(794

)

 
Officer retirement

2,550

(536

)

 
Non-GAAP

$

88,143

 
Diluted shares used in computing earnings per share

 

50,883

 
Non-GAAP earnings per share
Diluted

$

1.73

Note: Included in GAAP and non-GAAP adjusted net income was approximately $11.2 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted earnings per share would have improved by $0.22 per share.

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE

The Company’s financial statements present net income and earnings per share that are calculated using accounting principles generally accepted in the United States (“GAAP”). The Company’s management makes adjustments to the GAAP measures that it feels are necessary to allow investors and other readers of the Company’s financial releases to view the Company’s operating results as viewed by the Company’s management, board of directors and research analysts in the semiconductor industry. These non-GAAP measures are not prepared in accordance with, and should not be considered alternatives or necessarily superior to, GAAP financial data and may be different from non-GAAP measures used by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names. The explanation of the adjustments made in the table above, are set forth below:

Detail of non-GAAP adjustments

Amortization of acquisition-related intangible assetsThe Company excluded this item, including amortization of developed technologies and customer relationships. The fair value of the acquisition-related intangible assets, which was recognized through purchase accounting, is amortized using straight-line methods which approximate the proportion of future cash flows estimated to be generated each period over the estimated useful life of the applicable assets. The Company believes that exclusion of this item is appropriate because a significant portion of the purchase price for its acquisitions was allocated to the intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both the Company’s newly acquired and long-held businesses. In addition, the Company excluded this item because there is significant variability and unpredictability among companies with respect to this expense.

KFAB restructuring – The Company has recorded restructuring charges related to the shutdown and relocation of its wafer fabrication facility located in Lee’s Summit, MO (“KFAB”). These restructuring charges are excluded from management’s assessment of the Company’s operating performance. The Company believes the exclusion of the restructuring charges provides investors an enhanced view of the cost structure of the Company’s operations and facilitates comparisons with the results of other periods that may not reflect such charges or may reflect different levels of such charges.

Officer retirement – In 2018, the Company excluded costs related to the retirement of two executives. These costs represent cash payments and the accelerated vesting of previously issued stock awards. The Company feels it is appropriate to exclude these costs since they don’t represent ongoing operating expenses and will present investors with a more accurate indication of our continuing operations.

Acquisition related costs– The Company excluded costs associated with the acquisition of Lite-On Semiconductor, which consisted of advisory, legal and other professional and consulting fees. These costs were expensed in the third quarter of 2019 when the costs were incurred and services were received, and in which the corresponding tax adjustments were made for the non-deductible portions of these expenses. The Company believes the exclusion of the acquisition related costs provides investors with a more accurate reflection of costs likely to be incurred in the absence of an unusual event such as an acquisition and facilitates comparisons with the results of other periods that may not reflect such costs.

Land sale inspection extension fee – The Company excluded receipt of inspection extension fees related to the sale of the land located in Plano, TX. This fee is paid by the land purchaser for the right to extend the sale close date, and the fee is not applied to the purchase price. The Company feels it is appropriate to exclude these fees since they don’t represent ongoing operating income and their exclusion will present investors with a more accurate indication of our continuing operations.

CASH FLOW ITEMS

Free cash flow (FCF) (Non-GAAP)

FCF for the third quarter of 2019 is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow from operations. For the third quarter of 2019, FCF was $41.8 million, which represents the cash and cash equivalents that we are able to generate after taking into account cash outlays required to maintain or expand property, plant and equipment. FCF is important because it allows us to pursue opportunities to develop new products, make acquisitions and reduce debt.

CONSOLIDATED RECONCILIATION OF NET INCOME TO EBITDA

EBITDA represents earnings before net interest expense, income tax provision, depreciation and amortization. Management believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties, such as financial institutions in extending credit, in evaluating companies in our industry and provides further clarity on our profitability. In addition, management uses EBITDA, along with other GAAP and non-GAAP measures, in evaluating our operating performance compared to that of other companies in our industry. The calculation of EBITDA generally eliminates the effects of financing, operating in different income tax jurisdictions, and accounting effects of capital spending, including the impact of our asset base, which can differ depending on the book value of assets and the accounting methods used to compute depreciation and amortization expense. EBITDA is not a recognized measurement under GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, income from operations and net income, each as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures used by other companies. For example, our EBITDA takes into account all net interest expense, income tax provision, depreciation and amortization without taking into account any amounts attributable to noncontrolling interest. Furthermore, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments.

The following table provides a reconciliation of net income to EBITDA (in thousands, unaudited):

Three Months Ended

 

Nine Months Ended

September 30, 2019

 

September 30, 2019

2019

 

2018

 

2019

 

2018

Net income (per-GAAP)

$

38,060

$

30,908

$

106,060

$

74,502

Plus:
Interest expense, net

 

1,736

 

1,844

 

4,383

 

6,188

Income tax provision

 

10,613

 

13,190

 

32,085

 

31,726

Depreciation and amortization

 

27,888