National Financial Partners Announces Second Quarter 2008 Results

NEW YORK, Aug. 5 /PRNewswire-FirstCall/ -- National Financial Partners
Corp. (NYSE: NFP), a network of independent financial advisors specializing in
life insurance and wealth transfer, corporate and executive benefits, and
financial planning and investment advisory services, today reported financial
results for the second quarter ended June 30, 2008.

6 mos. 6 mos.
Financial Highlights* 2Q 2008 2Q 2007 % Change 2008 2007 % Change
(Dollars in millions,
except per share
data)

Revenue $287.5 $283.0 1.6% $573.9 $527.2 8.9%
Net income 10.4 10.4 0.0% 20.4 18.9 7.9%
Net income per diluted
share 0.25 0.26 -3.8% 0.50 0.47 6.4%
Cash earnings 26.1 22.6 15.5% 51.1 43.4 17.7%
Cash earnings excluding
management agreement
buyout, net of tax 26.1 30.3 -13.9% 51.1 51.1 0.0%
Cash earnings per
diluted share $0.64 $0.57 12.3% $1.24 $1.09 13.8%
Cash earnings per
diluted share excluding
management agreement
buyout, net of tax $ 0.64 $ 0.76 -15.8% $ 1.24 $ 1.28 -3.1%
"Same store" revenue
growth -3.7% -2.7% 0.7% -7.6%
Net "same store"
revenue growth -4.4% 0.3% -0.1% -4.8%
Acquired base earnings $ 0.1 $ 5.1 $ 12.1 $ 19.0

* This summary includes financial measures not calculated based on
generally accepted accounting principles.

Second quarter 2008 net income was unchanged from the prior year period at
$10.4 million, or $0.25 per diluted share, compared with $0.26 per diluted
share in the second quarter of 2007. Second quarter 2008 cash earnings was
$26.1 million, or $0.64 per diluted share, compared with $22.6 million, or
$0.57 per diluted share, in the prior year period. Cash earnings excluding a
management agreement buyout, net of tax, was $30.3 million, or $0.76 per
diluted share, in the second quarter of 2007. (Cash earnings is a non-GAAP
measure, which the Company defines as net income excluding amortization of
intangibles, depreciation, and impairment of goodwill and intangible assets.
A full reconciliation of net income to cash earnings and cash earnings
excluding the management agreement buyout, net of tax, is provided in the
attached tables.) Cash earnings was higher as a result of revenue from new
firms, revenue growth from the Company's Austin, Texas-based distribution
utilities, and lower corporate and other expenses due to a $13.0 million
charge taken in the second quarter of 2007 for a management agreement buyout,
offset in part by negative "same store" revenue growth and higher cost of
services. Net income was additionally affected by increased depreciation,
amortization and impairment of goodwill and intangible assets and remained
flat relative to the prior year period. More detailed financial information
can be found in the Company's quarterly financial supplement, which is
available on the Company's Web site at www.nfp.com.
Jessica Bibliowicz, chairman, president and chief executive officer, said,
"Our life brokerage, group benefits and financial advisory businesses
continued to grow. Overall, second quarter results were impacted by economic
and financial market conditions as well as a challenging life insurance
underwriting environment in the high net worth, older age market. These
factors had the most impact on our life settlement, retail life insurance and
executive benefits businesses. The markets NFP serves enjoy strong underlying
demand, and we expect more normalized growth rates as market conditions
stabilize. We continue to target 'same store' revenue growth in the high
single-digits over the long term."
Ms. Bibliowicz continued, "NFP operates as a financial services
distribution company, which allows us to consistently deliver strong
profitability while taking no meaningful credit or liquidity risk. In
addition, we have produced strong after-tax cash flow on an annual basis that
has allowed us to invest in strategic acquisitions, further improve our
existing firms, pay dividends and repurchase shares, as appropriate."
Second Quarter Results
Revenue increased $4.5 million, or 1.6%, to $287.5 million in the second
quarter of 2008, from the prior year period. Components of the increase
included:
-- $13.6 million of revenue growth from firms acquired subsequent to the
start of the second quarter of 2007; and
-- revenue growth of $8.3 million, or 13.2%, to $71.3 million from the
Company's Austin, Texas-based distribution utilities, which include NFP
Insurance Services, Inc. ("NFPISI"), a licensed insurance agency and marketing
organization, and NFP Securities, Inc. ("NFPSI"), a registered broker-dealer.
These increases in revenue were offset by a "same store" revenue decline
of $7.6 million, or negative 3.7%, to $198.1 million, a decrease of $7.7
million from dispositions and adjustments for eliminations. The revenue
decrease from dispositions largely related to the sale of a wholesale group
benefits subsidiary in the first quarter of 2008. Net "same store" revenue
declined 4.4% during the second quarter of 2008. Firms included in the "same
store" calculations generally encompass firms that were owned by NFP for at
least four full quarters at the beginning of the second quarter of 2008. More
detailed definitions can be found in the Company's quarterly financial
supplement, which is available on the Company's Web site at www.nfp.com.
During the second quarter of 2008, production representing earned first
year commissions at NFPISI and Highland Capital Brokerage, NFP's largest life
insurance brokerage general agency, declined 3% compared with the prior year
period. This production represents the portion of NFP's new business placed
through carrier contracts at these entities. The decline in production
reflects general life insurance market conditions.
Gross margin before management fees was $93.1 million in the second
quarter of 2008, a decrease of $13.7 million, or 12.8%, from the prior year
period. Gross margin, which includes management fees as a component of cost
of services, was $52.3 million in the second quarter of 2008, a decrease of
$6.4 million, or 10.9%, from the prior year period. As a percentage of
revenue, gross margin was 18.2% in the second quarter of 2008 compared with
20.7% in the prior year period. The decrease in gross margin percentage was
the result of higher operating expenses and commissions and fees expense as a
percentage of revenue, partially offset by lower management fees as a
percentage of revenue. Operating expenses as a percentage of revenue
increased largely as a result of higher expenses at owned firms due to
continued business development. Commissions and fees expense as a percentage
of revenue increased primarily due to a greater contribution to revenue as
compared with the prior year period by NFPSI, which has high commission
payouts, and slightly higher commission expense as a percentage of revenue for
firms included in the "same store" revenue calculation.
Management fees as a percentage of gross margin before management fees was
43.8% in the second quarter of 2008 versus 45.0% a year ago. The Company's
firms are rewarded for achieving growth targets based on three-year
performance cycles resulting in accruals for potential incentive payments. In
the second quarter of 2008, incentive payment accruals were $2.6 million
versus $2.4 million a year ago and represented 2.8% of gross margin before
management fees in the second quarter of 2008 compared with 2.3% a year ago.
Incentive accruals can vary from period to period based on the mix of firms
participating in the incentive program and the level of their earnings.
Excluding incentive payment accruals, management fees as a percentage of gross
margin before management fees decreased in the second quarter of 2008 from the
prior year period. The lower management fee percentage excluding incentive
accruals was due largely to an increase in NFP's economic ownership percentage
of its firms' earnings from 50% in the prior year period to 52% in the second
quarter of 2008, resulting from the acquisition of a greater economic
ownership percentage in recent transactions. Stock-based compensation
included in gross margin was $1.7 million in the second quarter of 2008
compared with $1.4 million in the prior year period.
General and administrative expense ("G&A") included $1.5 million in
additional rent expense and a $0.3 million loss from the sale of office
equipment related to the relocation of the Company's corporate headquarters
that occurred in the second quarter of 2008 ("Additional Facility Expenses").
G&A, including the Additional Facility Expenses, increased 8.9% to $16.2
million in the second quarter of 2008 from $14.8 million in the prior year
period. Excluding the Additional Facility Expenses, G&A declined 3.4% in the
second quarter of 2008 compared with the prior year period as management
continues its efforts to reduce expenses at the corporate level. Stock-based
compensation included in G&A was $1.9 million in the second quarter of 2008
compared with $2.0 million in the prior year period. G&A increased as a
percentage of revenue to 5.6% in the second quarter of 2008 from 5.3% in the
prior year period. Excluding the Additional Facility Expenses, G&A declined
as a percentage of revenue to 5.0% in the second quarter of 2008.
In the second quarter of 2008, the Company took a $2.8 million impairment
charge related to one firm. The Company reviews and evaluates the financial
and operating results of its acquired firms on a firm-by-firm basis throughout
the year. Amortization increased 15.0% in the second quarter of 2008 due to
acquisition activity.
The income tax rate in the second quarter of 2008 was 46.4% compared with
a full year 2007 tax rate of 46.1%. The increase was due largely to higher
expenses related to FASB Interpretation No. 48 ("FIN 48") during the second
quarter. Projected full year 2008 FIN 48 expenses are heavily weighted toward
the first half of the year.
Acquisitions
As a leading independent distributor of financial products and services,
the Company operates a distribution network with over 180 owned firms. The
Company's acquisition program is essential to understanding the Company's
operating results.
Since the beginning of the second quarter through August 5, 2008, NFP has
completed six transactions (including four sub-acquisitions). In aggregate,
these transactions represent $4.3 million in base earnings acquired: $0.1
million effective June 1, 2008, $4.1 million effective July 1, 2008 and $0.1
million effective August 1, 2008. (The term base earnings represents the
cumulative preferred portion of the pre-tax earnings before owners'
compensation of acquired firms that the Company capitalizes at the time of
acquisition.)
Of the base earnings acquired, $2.9 million related to five transactions.
These transactions consist of the acquisition of a significant ancillary group
benefits firm, which will operate as a division of an existing NFP firm, and
four sub-acquisitions in the benefits and estate planning areas. NFP paid
approximately $11.6 million in cash and issued approximately 222,000 shares of
common stock for these five transactions. In aggregate, these five
transactions generated approximately $7.6 million in 2007 revenue, the most
recent full year prior to acquisition.
The Company also completed its previously announced acquisition of a
Canadian-based employee benefits firm that represents $1.4 million in base
earnings, subject to foreign currency fluctuations. NFP paid $5.7 million in
cash and issued approximately 93,900 shares of common stock for this
transaction. The firm had revenue of approximately $3.4 million in 2007.
Year-to-date, the Company has completed 15 transactions (including 8
sub-acquisitions) representing $16.3 million in base earnings. These
acquisitions generated revenue of approximately $59.1 million in 2007.
Ms. Bibliowicz commented, "We remain on target to achieve our 2008 goal of
$20 million in acquired base earnings and the pipeline remains healthy.
Mindful of the economic environment and our current valuation, we continue to
focus on strategic acquisitions that increase recurring revenue and further
support our distribution network through the expansion of our product
offering."
Dividends
Today, NFP's Board of Directors declared a third quarter cash dividend of
$0.21 per share. The dividend is payable on October 7, 2008 to stockholders of
record at the close of business on September 16, 2008. Based on the current
quarterly dividend, the Company pays an annualized dividend of $0.84 per
share. The Company's Board of Directors has accelerated its dividend
declaration schedule to coincide more closely with earnings release dates.
Share Repurchases
During the second quarter of 2008, NFP repurchased 0.6 million shares of
its common stock for $12.6 million at an average cost of $23.85 per share.
Year-to-date, NFP repurchased 0.9 million shares of its common stock for $21.9
million at an average cost of $25.45. NFP has approximately $23.1 million
remaining under its current share repurchase authorization.
Earnings Conference Call
The Company will conduct its second quarter 2008 earnings conference call
and audio webcast on August 6, 2008, from 8:00 to 9:00 a.m. (ET). The
conference call will be available live via telephone and the Internet. To
access the call, dial (617) 847-8704 (when prompted, callers should provide
the access code "NFP"). To listen to the conference call over the Internet,
visit www.nfp.com/ir. The conference call will be available for replay via
telephone and Internet for a period of 90 days. To listen to a replay of the
conference call via telephone, dial (888) 286-8010. The access code for the
replay is 88585909. To access the replay of the conference call over the
Internet, visit the above-mentioned Web site.
Reconciliation of Non-GAAP Measures
The Company analyzes its performance using non-GAAP measures called cash
earnings and cash earnings per diluted share (both including and excluding
management agreement buyout, net of tax), gross margin before management fees
and percentages or calculations using these measures. The Company believes
these non-GAAP measures provide additional meaningful methods of evaluating
certain aspects of the Company's operating performance from period to period
on a basis that may not be otherwise apparent under GAAP. Cash earnings and
cash earnings per diluted share should not be viewed as substitutes for net
income and net income per diluted share, respectively. Cash earnings is
defined as net income, excluding amortization of intangible assets,
depreciation, and impairment of goodwill and intangible assets. Cash earnings
per diluted share is calculated by dividing cash earnings by the number of
weighted average diluted shares outstanding for the period indicated. Gross
margin before management fees should not be viewed as a substitute for gross
margin. A full reconciliation of these non-GAAP measures to their GAAP
counterparts is provided in the attached tables as well as the Company's
quarterly financial supplement, available on the Investor Relations section of
the Company's Web site at www.nfp.com.
About National Financial Partners Corp.
Founded in 1998, NFP is a leading independent distributor of financial
services products to high net worth individuals and companies. NFP is
headquartered in New York and operates a distribution network of over 180
owned firms. For more information, please visit www.nfp.com.
Forward-Looking Statements
This release contains certain statements relating to future results, which
are forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include,
without limitation, any statement that may project, indicate or imply future
results, events, performance or achievements, and may contain the words
"anticipate," "expect," "intend," "plan," "believe," "estimate," "may," "will"
and "continue" and similar expressions of a future or forward-looking nature.
Forward-looking statements may include discussions concerning revenue,
expenses, earnings, cash flow, dividends, capital structure, credit
facilities, market and industry conditions, premium and commission rates,
interest rates, contingencies, the direction or outcome of regulatory
investigations and litigation, income taxes and NFP's operations or strategy.
These forward-looking statements are based on management's current views with
respect to future results, and are subject to risks and uncertainties. Factors
that could cause actual results to differ materially from those contemplated
by a forward-looking statement include: (1) NFP's success in acquiring high
quality independent financial services distribution firms, (2) the performance
of NFP's firms following acquisition, (3) competition in the business of
providing financial services to high net worth individuals and companies, (4)
NFP's ability, through its operating structure, to respond quickly and
effectively to regulatory, operational or financial situations, (5) NFP's
ability to effectively manage its business through the principals of its
firms, (6) changes in tax laws, including the elimination or modification of
the federal estate tax and any change in the tax treatment of life insurance
products, (7) developments in the pricing, design or underwriting of insurance
products or in NFP's relationships with insurance companies, (8) changes in
premiums and commission rates and the rates of other fees paid to NFP's firms,
including life settlement and registered investment advisory fees, (9) adverse
developments or volatility in the markets in which NFP operates, resulting in
fewer sales in financial services and products, including the availability of
credit in connection with the purchase of such products and services, (10)
adverse results or other consequences from litigation, arbitration, regulatory
investigations and inquiries, or internal compliance initiatives, including
those related to compensation agreements with insurance companies and
activities within the life settlements industry, (11) uncertainty in the
insurance and life settlements industries arising from investigations into
certain business practices and subpoenas received from various governmental
authorities and related litigation, (12) the reduction of NFP's revenue and
earnings due to the elimination or modification of compensation arrangements,
including contingent compensation arrangements and the adoption of internal
initiatives to enhance compensation transparency, including the transparency
of fees paid for life settlements transactions, (13) changes in interest rates
or general economic and credit market conditions, (14) securities and capital
markets behavior, including fluctuations in the price of NFP's common stock,
(15) the impact of legislation or regulations in jurisdictions in which NFP's
subsidiaries operate, including the possible adoption of comprehensive and
exclusive federal regulation over all interstate insurers, (16) the impact of
the adoption of certain accounting treatments, including FASB Staff Position
APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement)" and SFAS No. 141
(revised 2007), "Business Combinations," (17) adverse results or other
consequences from higher than anticipated compliance costs, including those
related to expenses arising from internal reviews of business practices and
regulatory investigations or those arising from compliance with state or
federal laws, and (18) other factors described in NFP's filings with the
Securities and Exchange Commission (the "SEC"), including those set forth in
NFP's Annual Report on Form 10-K for the year ended December 31, 2007, filed
with the SEC on February 19, 2008. Forward-looking statements speak only as
of the date on which they are made. NFP expressly disclaims any obligation to
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Revenue:
Commissions and fees $287,457 $282,995 $573,853 $527,219

Cost of services:
Commissions and fees 93,991 88,470 190,271 169,777
Operating expenses (1) 100,358 87,767 204,197 173,898
Management fees (2) 40,818 48,049 77,587 84,353
Total cost of services 235,167 224,286 472,055 428,028

Gross margin 52,290 58,709 101,798 99,191

Corporate and other expenses:
General and administrative 16,180 14,858 32,363 29,561
Amortization of intangibles 9,665 8,402 19,416 16,408
Impairment of goodwill and
intangible assets 2,848 1,184 5,028 3,013
Depreciation 3,155 2,642 6,209 5,110
Management agreement buyout - 13,046 - 13,046
Gain on sale of subsidiaries (463) (401) (7,087) (1,984)
Total corporate and other expenses 31,385 39,731 55,929 65,154

Income from operations 20,905 18,978 45,869 34,037

Net interest and other (1,511) (333) (3,070) 7

Income before income taxes 19,394 18,645 42,799 34,044

Income tax expense 8,994 8,237 22,394 15,143

Net income $ 10,400 $ 10,408 $ 20,405 $ 18,901

Earnings per share:
Basic $ 0.26 $ 0.28 $ 0.52 $ 0.50
Diluted $ 0.25 $ 0.26 $ 0.50 $ 0.47

Weighted average shares
outstanding:
Basic 39,562 37,833 39,501 37,745
Diluted 41,004 39,943 41,092 39,882

(1) Excludes amortization and depreciation shown separately in Corporate
and other expenses.
(2) Excludes management agreement buyout shown separately in Corporate and
other expenses.

CALCULATION OF GROSS MARGIN
(Unaudited - in thousands)

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007

Total revenue $287,457 $282,995 $573,853 $527,219
Cost of services:
Commissions and fees 93,991 88,470 190,271 169,777
Operating expenses (1) 100,358 87,767 204,197 173,898
Gross margin before management
fees 93,108 106,758 179,385 183,544
Management fees (2) 40,818 48,049 77,587 84,353
Gross margin $ 52,290 $ 58,709 $101,798 $ 99,191
Gross margin as percentage of
total revenue 18.2% 20.7% 17.7% 18.8%
Gross margin before management
fees as percentage of total
revenue 32.4% 37.7% 31.3% 34.8%
Management fees, as a percentage
of gross margin before management
fees (2) 43.8% 45.0% 43.3% 46.0%

RECONCILIATION OF NET INCOME TO CASH EARNINGS
(Unaudited - in thousands, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
GAAP Net Income $10,400 $10,408 $20,405 $18,901
Amortization of intangibles 9,665 8,402 19,416 16,408
Impairment of goodwill and
intangible assets 2,848 1,184 5,028 3,013
Depreciation 3,155 2,642 6,209 5,110
Cash Earnings $26,068 $22,636 $51,058 $43,432
Management agreement buyout, net of
tax - 7,681 - 7,681
Cash Earnings excluding management
agreement buyout, net of tax $26,068 $30,317 $51,058 $51,113

GAAP Net Income per share - diluted $ 0.25 $ 0.26 $ 0.50 $ 0.47
Amortization of intangibles 0.24 0.21 0.47 0.41
Impairment of goodwill and
intangible assets 0.07 0.03 0.12 0.08
Depreciation 0.08 0.07 0.15 0.13
Cash Earnings per share - diluted (3) $ 0.64 $ 0.57 $ 1.24 $ 1.09
Management agreement buyout, net of
tax - 0.19 - 0.19
Cash Earnings per share - diluted
excluding management agreement buyout,
net of tax (3) $ 0.64 $ 0.76 $ 1.24 $ 1.28

(1) Excludes amortization and depreciation shown separately in Corporate
and other expenses.
(2) Excludes management agreement buyout shown separately in Corporate and
other expenses.
(3) The sum of the per-share components of cash earnings per share --
diluted and cash earnings per share -- diluted excluding management
agreement buyout, net of tax, may not agree to cash earnings per share
-- diluted and cash earnings per share -- diluted excluding management
agreement buyout, net of tax, due to rounding.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - in thousands)

June 30, December 31,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $ 65,259 $ 114,182
Cash, cash equivalents and securities
purchased under resale agreements in
premium trust accounts 78,289 80,403
Current receivables 142,851 171,219
Other current assets 34,387 34,447
Total current assets 320,786 400,251
Intangibles, net 470,229 475,149
Goodwill, net 641,050 610,499
Deferred tax assets 21,654 20,561
Other non-current assets 102,068 53,620
Total assets $1,555,787 $1,560,080

LIABILITIES
Current liabilities:
Premiums payable to insurance carriers $ 79,325 $ 78,450
Borrowings 169,000 126,000
Other current liabilities 117,170 196,908
Total current liabilities 365,495 401,358
Deferred tax liabilities 120,426 116,115
Convertible senior notes 230,000 230,000
Other non-current liabilities 57,673 49,440
Total liabilities 773,594 796,913

STOCKHOLDERS' EQUITY
Common stock at par value 4,341 4,244
Additional paid-in capital 816,304 780,678
Retained earnings 122,998 119,197
Treasury stock (161,450) (140,952)
Total stockholders' equity 782,193 763,167
Total liabilities and
stockholders' equity $1,555,787 $1,560,080

SOURCE National Financial Partners Corp.

Investor Relations, Marc Gordon, +1-212-301-4033, ir@nfp.com, or Media
Relations, Elliot Holtz, +1-212-301-4060, communications@nfp.com, both of
National Financial Partners