NFP found profitability but shed firms and office space last quarter
Big roll-up is using drastic measures to make ends meet
4 min read- NFP achieved Q4 profitability by selling advisory firms and subleasing office space.
- Strategic actions, including expense control and reorganization, boosted NFP's 2009 results.
- Impairment of goodwill reflects declining value of acquired advisory firms.
- Subleasing headquarters will increase NFP's pre-tax cash flow in coming years.
National Financial Partners Corp. showed a profit for the fourth quarter, but only after it sold partner firms and subleased a major chunk of its own office space, according to a release it published on Tuesday.
The giant New York-based roll-up reported fourth-quarter net income of $1.9 million or four cents per share, compared to a loss of $12.4 million or 31 cents per share in the same quarter last year. The results sent the share price up 34 cents or 3.99% to $8.87.
NFP sold eight subsidiary advisory forms and “certain assets” of seven other subsidiary firms, according to the company. As of September 30, NFP operated over 150 firms, according to its 10Q SEC filing of Nov. 4.
“Starting in 2008 and early in 2009, we took key strategic actions focused on controlling our expenses and establishing a more rigorous expense discipline throughout the organization,” Jessica Bibliowicz, chairman and CEO. “We then turned our focus to reorganizing the Company along two core client-facing groups and introducing new incentive plans. Results in 2009 were positively impacted by these actions and include increased operating cash flow, significant debt reduction, the sale of non-core firms and improving sales performance.”
Promised land
Bibliowicz's turnaround plan for National Financial Partners includes rolling up RIAs
NFP is closely watched in the advisory world because it is the one roll-up that made it to the promised land of a major initial public offering. The company went public in Sept. 2003. Recently, its shares have been battered as the company’s profitability evaporated.
The company’s business model has become such a symbol for unwise practices that it was cited in the lawsuit filed by David Brochu of StrategicPoint against Focus Financial in November. The suit characterizes purchases of firms that earn transactional revenues to be NFP-like and therefore questionable in nature. To see that article, click here
NFP’s business model is seen as flawed by some people because its earnings dropped from $54 million in 2007 to $14.8 million in 2008 and its shares now trade at less than $9 after going higher than $55 in 2007.
Impairment of goodwill
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In the fourth quarter of 2009, impairment of NFP’s goodwill and intangible assets was $6.2 million, the company reported yesterday in its earnings release. Over half of the write-down in value was related to the advisory firms where a “disposition” is in process or was completed after the fourth quarter of 2009, according to NFP’s release. In other words, firms that it acquired are no longer worth nearly what they were before.
In another radical move designed to conserve cash long-term, NFP subleased a whole floor of its corporate headquarters in Manhattan during the fourth quarter of 2009, which ended Dec. 31.
Once Exhibit A that roll-ups are a flop, NFP is emerging as a stingy, strategic player
Triggered a jump
This move triggered a jump in general and administrative expense (G&A) of $6.0 million, or 39.4%, to $21.3 million in the fourth quarter of 2009 compared with the prior year period. G&A included $9.0 million in expense related to the sublease of the floor of its corporate headquarters in the fourth quarter of 2009.
The sublease is expected to increase NFP’s pre-tax cash flow by approximately $1.1 million, pre-tax net income by approximately $3.8 million and pre-tax cash earnings by approximately $2.7 million in 2010 and increase pre-tax cash flow by $1.3 million, pre-tax net income by $4.0 million and pre-tax cash earnings by $2.9 million annually from 2011 to 2014.
Here are some of the positive things that NFP pointed out in its press release that sent shares higher:
Net Income per Diluted Share of $0.04
Cash Earnings per Diluted Share of $0.61
Cash Flow from Operations Increased 27% in the Fourth Quarter 2009 Compared with a Year Ago
Revenue Grew 21% in the Fourth Quarter 2009 Compared with the Third Quarter 2009
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