View this article online: https://www.insurancejournal.com/news/national/2005/03/01/52022.htm
U.S.I. Holdings Corporation in Briarcliff Manor, N.Y. reported financial results for the fourth quarter and year ended December 31, 2004, citing plans to reduce expenses, sell three of its operations and improve organic growth.
Revenues for the quarter increased $16.2 million, or 16.9%, to $112.8 million from $96.6 million in the comparable period in 2003. The increase reflects the impact of fourth quarter revenue of $16.6 million resulting from acquisitions made in 2004.
On an organic basis, commissions and fees grew 0.7% for the quarter. Contingent commissions for the three months were $2.0 million, as compared to $1.7 million for the same period last year.
Revenues for the year increased $61.7 million, or 17.8%, to $407.2 million from $345.5 million for the comparable period in 2003. The revenue increase reflects the impact of acquisitions of $53.2 million and organic growth of $8.5 million. On an organic basis, commissions and fees grew 3.6% for the year (Insurance Brokerage 2.6% and Specialized Benefits Services 22.1%). Contingent commissions were $19.0 million for the year as compared to $17.7 million in 2003.
On December 20, 2004, USI approved a plan to reduce ongoing operating expenses. As a result of these actions, the company recorded expenses of $12.4 million in the fourth quarter of 2004 related to employee severance and related benefits ($3.4 million), facilities closures ($3.4 million), the modification of sales professionals’ agreements ($2.9 million) and contract terminations ($2.7 million). The plan is expected to result in cost savings of approximately $6.0 million, before taxes, in 2005.
Also on December 20, 2004, USI announced that its Board of Directors had approved plans to sell three operations in its Insurance Brokerage and Specialized Benefits Services segments that exhibit significant earnings volatility or do not fit with USI’s core business strategy. As a result of these actions, USI recorded a $9.5 million impairment charge on the intangible assets of one of these operations. The historical results of operations for these entities have been reclassified to discontinued operations. To date, in the first quarter of 2005, USI consummated the sale of one operation and reached an agreement in principle with a buyer to sell another operation.
“2004 was a difficult operating environment with property and casualty rates softening, industry concern and confusion around contingent commissions and operating challenges previously noted in the December press release,” David L. Eslick, chairman, president and CEO noted.
“As we reported in December we have taken a number of decisive steps to trim expenses and improve profitability going forward. Additionally, we remain absolutely committed to our strategy and business model and believe the future results will support this commitment. We believe the margin improvement plan, improving organic revenue growth in our benefits brokerage and worksite marketing distribution segments, combined with the acquisition of Summit Global Partners and Patterson//Smith, position us well to meet our financial goals in 2005.”
Income from continuing operations before income tax expense for the quarter decreased $11.3 million to $1.3 million from $12.6 million in the fourth quarter of 2003. The decrease was principally due to the $12.4 million of expenses noted above, a net increase in corporate expenses of $1.1 million primarily related to legal fees and costs related to various insurance industry investigations and Sarbanes-Oxley 404 compliance and combined increases in interest and amortization expense of $0.8 million. Contingent commissions contributed approximately $2.0 million to income from continuing operations before income tax expense for the quarter, a $0.3 million increase over the $1.7 million of contingent commissions recorded in the fourth quarter of 2003.
Income from continuing operations before income tax expense for the year increased $0.1 million, or 0.4%, to $28.5 million from $28.4 million for the comparable period in 2003. The increase was due primarily to acquisitions and a $4.0 million expense for the early extinguishment of debt in 2003, offset by the $12.4 million of expenses noted above, a net increase in Corporate expenses of $3.2 million primarily related to legal fees and costs related to various insurance industry investigations and Sarbanes-Oxley 404 compliance and a net increase in depreciation and amortization expense of $1.5 million. Contingent commissions contributed approximately $19.0 million to income from continuing operations before income tax expense for the year, a $1.3 million increase over the $17.7 million of contingent commissions recorded in 2003.
The income tax provision for the quarter was $1.4 million compared to a benefit of $4.6 million for the comparable period in 2003. The income tax provision for the year was $12.5 million compared to a benefit of $4.0 million for 2003. The income tax provision for both periods increased primarily because in the fourth quarter of 2003 USI reversed the valuation allowance on its deferred tax asset resulting in a tax benefit for the fourth quarter and year ended December 31, 2003. For the quarter ended December 31, 2004, income from continuing operations was $0.00 per share on a basic and diluted basis, respectively, as compared to $0.37 and $0.36 per share on a basic and diluted basis, respectively, for the comparable period in 2003. For the year ended December 31, 2004, income from continuing operations was $0.33 per share on a basic and diluted basis, respectively, as compared to $0.71 per share on a basic and diluted basis, respectively, for the comparable period in 2003.
EBITDA margin (EBITDA as a percentage of revenues) for the quarter was 10.5%, compared to 23.2% for the fourth quarter of 2003. For the year, EBITDA margin was 17.0% compared to 21.2% for the comparable period in 2003. The decline for the quarter and year was due principally to the $12.4 million of expenses noted above, a net increase in corporate expenses primarily related to legal fees and costs related to various insurance industry investigations and Sarbanes-Oxley 404 compliance, primarily offset by the positive impact of acquisitions.
USI will hold a conference call and audio webcast to review the results at 8:30 AM (EST) on Tuesday, March 1, 2005. To access the audio webcast, please visit USI’s website at http://www.usi.biz/ on Tuesday March 1, 2005, and follow the link. To access the conference call, dial toll-free (888) 428-4480 or (612) 332-0636 for international callers, five minutes before the teleconference. A replay of the conference call will be available on the Investor Relations section of the USI website (http://www.usi.biz/) or by dialing (800) 475-6701 and using access code 768506.