Hub International Reports 14% Organic Growth For Third Quarter 2002; While Diluted Earnings Per Share Grows 111%

 

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 Add Title:  Hub International Reports 14% Organic Growth For Third Quarter 2002; While Diluted Earnings Per Share Grows 111%
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 Location:  Chicago
 Date:    2002-11-04  
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 Hub International Limited (NYSE: HBG and TSX: HBG):

  • Total revenue increased $6.0 million to $49.6 million
  • Organic growth contributed $6.2 million
  • Expensing of stock options began effective July 1, 2002
  • EBITDA(*) margin improved 330 basis points
  • Net earnings grew 167% to $5.4 million
  • U.S. and Canadian operations each realized double digit organic growth

Hub International Limited (NYSE: HBG and TSX: HBG) today announced total revenue growth of 14% for the third quarter ended September 30, 2002 over last year's same period.

Revenue was up $6.0 million to $49.6 million primarily due to organic growth.

EBITDA(*) for the third quarter of 2002 was $11.3 million, a 33% increase compared with the $8.5 million reported for the same period last year. EBITDA margin improved to 22.7% from 19.4% for the quarter.

Net earnings for the third quarter were up $3.4 million to $5.4 million, while diluted earnings per share increased 111% to $0.19 for the third quarter of 2002 from $0.09 in 2001.

Martin P. Hughes, Chairman and Chief Executive Officer said, "Our results demonstrate the success of our strategy to leverage our decentralized approach to provide high quality service while capitalizing on our ability to attract new clients. We have gained efficiencies in our processes and are addressing the needs of the under-served commercial middle market. Importantly, we are effectively integrating the fold-in acquisitions that we have made in the past as we continue to pursue opportunities to acquire new hubs."

Review of Quarterly Results

Commission income, which accounts for over 90% of revenue, grew by $5.2 million, or 12%, to $46.6 million in the third quarter from $41.4 million for the same period last year. Client retention, new business, continued growth in demand for property and casualty insurance products and the sustained firming of insurance premiums drove the growth. Organic growth of commission income was strong for both the U.S. and Canada at 13% and 12%, respectively, for the quarter.

The improvement in EBITDA of 330 basis points for this quarter compared with the same period last year was due to organic growth, continued efforts at cost control and the adjustment in compensation structure effective January 1, 2002 whereby 50% of executive management profitability bonuses were replaced with stock options. These effects more than offset the impact of the Company's change in accounting policy to stock-based compensation issued to employees. Under this method, the fair value of stock-based compensation is recognized as an expense over the period in which entitlement to the compensation is earned. Non-cash stock option remuneration expense was $0.6 million in the quarter, or 1% of total revenue.

Effective January 1, 2002, as a result of Hub International adopting CICA Section 3062 and SFAS 142, "Goodwill and Other Intangible Assets," amortization of goodwill ceased. For last year's third quarter ended September 30, 2001, the company incurred goodwill amortization expense of approximately $0.06 per diluted share. Net earnings for the quarter ended September 30, 2001, adjusted for goodwill amortization, were $3.3 million, or $0.15 per diluted share.

Mr. Hughes added, "We do not see a near-term end to the current strong rate environment, however, we recognize that growth must be built on retaining our existing clients, expanding our offerings to those clients and gaining new business. We believe our market focus on mid-sized commercial business will enable us to sustain growth as we address the demand for more sophisticated risk management services."

Nine-Month Period Review

For the first nine months of 2002, total revenue increased by $55.3 million, or 55%, to $156.3 million from $101.1 million for the same period in 2001. Of this increase, $44.3 million was attributable to acquisitions. Commission income increased by $48.1 million, or 52%, to $140.1 million from $92.0 million for the same period last year. Excluding the $37.5 million effect of acquisitions, commission income increased by $10.6 million, representing an organic growth rate of 12%.

EBITDA for the ninth-month period increased 87% to $38.3 million compared with $20.5 million for the same period last year. EBITDA margin for the nine-month period increased to 24.5%, up from 20.3% for the same period last year.

Net earnings for the nine-month period were $21.1 million compared with $7.1 million in 2001, an increase of 199%, or $14.0 million. Diluted earnings per share increased 119% to $0.79 for 2002 from $0.36 in 2001 for the same period. Excluding the gain of $2.6 million on the sale of Old Lyme of $2.6 million, net earnings and diluted earnings per share would have been $18.5 million and $0.70, respectively. Adjusting amortization of goodwill for the first nine months of 2001, net earnings and diluted earnings per share would have been $9.7 million and $0.50, respectively.

Earnings Conference Call and Webcast

Hub International Chairman and CEO, Martin P. Hughes, and Chief Financial Officer, Dennis J. Pauls, will host a conference call and live web cast to review the company's results, general developments and industry dynamics at 10:30 a.m. ET on Tuesday, November 5, 2002.

To listen to the Hub International conference call:

  • The live web cast can be found at http://www.hubinternational.com. Participants should go to the website 10 - 15 minutes prior to the scheduled conference in order to register and download any necessary audio software.
  • The teleconference can be accessed at (212) 699-6810 in North America. Presentation slides to accompany the call can be viewed from the Company's website. (http://www.hubinternational.com)

To listen to the archived call:

  • The web cast will be available at http://www.hubinternational.com for approximately 90 days.
  • A replay can also be heard by calling (303) 590-3000 and entering passcode 503371#. The telephonic replay will be available through Tuesday, November 12, 2002.
  • (*)EBITDA is defined as earnings before interest, taxes, depreciation, and goodwill and other intangible asset amortization, gains and losses from the sale of property, equipment and other investments and other income - put option liability.

Headquartered in Chicago, IL, Hub International is a leading North American insurance brokerage that has grown rapidly since its formation in 1998 through mergers, acquisitions and organic growth. It provides a broad array of property and casualty, life and health, employee benefits, investment and risk management products and services through offices located in the United States and Canada. Hub International's strategy is to expand its market share in the highly fragmented U.S. insurance broker industry by acquiring quality brokerages in key geographic regions serving middle-market commercial businesses, to leverage its decentralized approach in order to differentiate its services and to capitalize on its scale to provide broader product offerings to its clients through multiple distribution channels.

This press release may contain forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements relate, among other things, to our plans and objectives for future operations. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors include, but are not limited to, risks associated with implementing our business strategies, identifying and consummating acquisitions, integrating acquired brokerages, attaining greater market share, developing and implementing effective information technology systems, recruiting and retaining qualified employees, fluctuations in the premiums charged by insurance companies with a corresponding fluctuation in our premium-based revenue, any loss of services of key executives, industry consolidation, increased competition in the industry, fluctuations in the demand for insurance products and the passage of new legislation subjecting our business to regulation in jurisdictions where we operate. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Additional information regarding these risks and other factors that could cause Hub International's actual results to differ materially from our expectations is contained in the company's filings with the Securities and Exchange Commission. Except as otherwise required by federal securities laws, Hub International undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

HUB International Limited
Consolidated Statements of Earnings

For the three months and nine months ended
September 30, 2002 and 2001
(in thousands of U.S. dollars, except per share amounts)
(Prepared in accordance with Canadian GAAP)
(Unaudited)


                                  Third quarter     First nine months
                               ------------------  ------------------
                                 2002     2001(*)    2002     2001(*)
                               --------  --------  --------  --------

Revenue
  Commission income            $ 46,567  $ 41,449  $140,117  $ 91,981
  Contingent commissions and
  volume overrides                  767       220    10,198     5,324
  Other                           2,218     1,932     6,017     3,735
                               --------  --------  --------  --------
                                 49,552    43,601   156,332   101,040
                               --------  --------  --------  --------
Expenses
  Remuneration                   26,620    24,701    84,134    57,875
  Non-cash stock option
  remuneration                      575        --       575        --
  Selling                         2,695     2,439     8,344     5,630
  Occupancy                       2,856     2,798     8,482     5,953
  Depreciation                    1,444     1,245     4,078     2,389
  Administration                  5,552     5,211    16,531    11,071
                               --------  --------  --------  --------
                                 39,742    36,394   122,144    82,918
                               --------  --------  --------  --------
Net earnings before the
 following                        9,810     7,207    34,188    18,122
  Interest expense                1,110     3,346     6,208     4,580
  Goodwill and other intangible
  asset amortization                389     1,424     1,147     3,101
  (Gain) loss on disposal of
  property and equipment and
  investments                        (6)        8    (2,578)     (286)
  Other income -- put option
  liability                        (270)       --      (948)       --
                               --------  --------  --------  --------

Net earnings before income
taxes                             8,587     2,429    30,359    10,727
                               --------  --------  --------  --------

Provision for income tax expense
 (benefit)
  Current                         4,831     2,323    10,845     5,366
  Future                         (1,666)   (1,925)   (1,559)   (1,694)
                               --------  --------  --------  --------
                                  3,165       398     9,286     3,672
                               --------  --------  --------  --------
Net earnings                   $  5,422  $  2,031  $ 21,073  $  7,055
                               --------  --------  --------  --------

Earnings per share
  Basic                           $0.21     $0.10     $0.96     $0.37
  Diluted                         $0.19     $0.09     $0.79     $0.36
Weighted average shares
 outstanding
  -- Basic (000's)               26,416    19,401    22,060    18,852
Weighted average shares
 outstanding
  -- Diluted (000's)             31,696    21,524    29,139    19,598

        (*)The consolidated financial statements of the company
        historically have been expressed in Canadian dollars.
        Effective October 1 2001, the company adopted the United
        States of America (U.S.) dollar as its reporting currency.
        Comparative financial information has been restated in U.S.
        dollars using the translation of convenience method. All
        historical financial statements including financial results
        for the quarter and nine months ended September 30, 2001 were
        converted from Canadian to U.S. dollars at the exchange rate
        in effect at September 30, 2001 of one Canadian dollar to
        0.6338 U.S. dollar. Revenue and expenses for the quarter and
        nine months ended September 30, 2002 were translated to U.S.
        dollars at the average exchange rates for the respective
        periods.




HUB International Limited
Organic Growth

For the three months ended
September 30, 2002 and 2001
(in thousands of U.S. dollars, except where noted)
(Prepared in accordance with Canadian GAAP)
(Unaudited)




                                                   Adjustment
                                                      for
                                  Total   Total  (Acquisitions)  Net
                                   Net     Net        and      Organic
                 2002     2001   Change  Growth    Disposals Growth(*)
               -------  -------  ------- ------   -----------  -------
Total
--------------
Commission
 Income        $46,567  $41,449  $ 5,118     12%     $    160     13%
Contingent
 Commissions
 and volume
 overrides     $   767  $   220  $   547    248%     $      -    248%
Other Income   $ 2,218  $ 1,932  $   286     15%     $      8     15%
               -------  -------  ------- ------      --------  -------
Total          $49,552  $43,601  $ 5,951     14%     $    168     14%
               =======  =======  ======= ======      ========  =======

USA
--------------
Commission
 Income        $26,133  $22,954  $ 3,179     14%     $   (150)    13%
Contingent
 Commissions
 and volume
 overrides     $   700  $   156  $   544    349%     $      -    349%
Other Income   $ 1,464  $ 1,104  $   360     33%     $      -     33%
               -------  -------  ------- ------      --------  -------
Total          $28,297  $24,214  $ 4,083     17%     $   (150)    16%
               =======  =======  ======= ======      ========  =======

Canada
--------------
Commission
 Income        $20,434  $18,495  $ 1,939     11%     $    310     12%
Contingent
 Commissions
 and volume
 overrides     $    67  $    64  $     3      4%     $      -      4%
Other Income   $   754  $   828  $   (74)    (9%)    $      8     (8%)
               -------  -------  ------- ------      --------  -------
Total          $21,255  $19,387  $ 1,868     10%     $    318     11%
               =======  =======  ======= ======      ========  =======

    (*) Net Organic Growth = New Business + Renewals - Lost Business
        +/- Rates +/- Economic Factors.



HUB International Limited
Consolidated Balance Sheets

As of September 30, 2002 and December 31, 2001
(in thousands of U.S. dollars)
(Prepared in accordance with Canadian GAAP)

                                                      2002     2001
                                                    -------- --------
ASSETS                                            (Unaudited)

Current assets:
Cash and cash equivalents                           $ 42,887 $ 26,979
Trust cash                                            45,401   50,426
Accounts and other receivables                        83,536  101,313
Investment held for sale                                  --   40,772
Income taxes receivable                                   --    1,460
Future income taxes                                    4,078    1,999
Prepaid expenses                                       3,179    2,471
                                                    -------- --------

Total current assets                                 179,081  225,420

Goodwill                                             222,924  220,848
Other intangible assets                               24,901   25,331
Property and equipment                                19,605   20,935
Future income taxes                                    4,582    2,671
Other assets                                           6,511    7,091
                                                    -------- --------

Total assets                                        $457,604 $502,296
                                                    -------- --------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Bank debt                                           $     -- $ 55,000
Accounts payable and accrued liabilities             124,733  164,094
Income taxes payable                                     836       --
Future income taxes                                      444    1,387
Current portion long-term debt and capital leases      2,193    4,169
                                                    -------- --------

Total current liabilities                            128,206  224,650

Long-term debt and capital leases                     45,067   76,159
Subordinated convertible debentures                   35,000   61,624
Future income taxes                                    5,277    4,592
                                                    -------- --------

Total liabilities                                    213,550  367,025
                                                    -------- --------

Commitments and Contingencies

Shareholders' equity:
Share capital                                        216,438  125,506
Contributed surplus                                      575       --
Cumulative translation account                         2,186    2,770
Retained earnings                                     24,855    6,995
                                                    -------- --------

Total shareholders' equity                           244,054  135,271
                                                    -------- --------
Total liabilities and shareholders' equity          $457,604 $502,296
                                                    -------- --------


HUB International Limited
Consolidated Statements of Cash Flows

For the three months and nine months ended
September 30, 2002 and 2001
(in thousands of U.S. dollars)
(Prepared in accordance with Canadian GAAP)
(Unaudited)


                                  Third quarter    First nine months
                               ------------------  ------------------
                                 2002     2001(*)    2002     2001(*)
                               --------  --------  --------  --------

OPERATING ACTIVITIES
Net earnings                   $  5,422  $  2,031  $ 21,073  $  7,055
Items not affecting cash
  Amortization and depreciation   1,833     2,669     5,225     5,490
 (Gain) loss on disposal of
  property and equipment and
  investments                        (6)        8    (2,578)     (286)
  Other income -- put option
   liability                       (270)       --      (948)       --
  Non-cash stock option
   remuneration                     575        --       575        --
  Future income taxes            (1,666)   (1,925)   (1,559)   (1,694)
                               --------  --------  --------  --------
                                  5,888     2,783    21,788    10,565
Non-cash working capital items
  Accounts and other
  receivables                    37,773    33,542    17,482    25,560
  Prepaid expenses                 (650)     (706)     (348)     (571)
  Accounts payable and accrued
   liabilities                  (36,752)  (24,535)  (39,163)  (18,802)
  Income taxes payable            2,986     2,252     2,231     2,628
                               --------  --------  --------  --------
                                  9,245    13,336     1,990    19,380
                               --------  --------  --------  --------
FINANCING ACTIVITIES
Bank debt                            --    15,107   (55,000)   53,500
Long-term debt -- advances       14,101     2,808    14,101    82,084
Long-term debt and capital
 leases --  repayments           (4,503)   (1,276)  (46,609)   (3,506)
Subordinated convertible
 debenture - repayment               --        --   (26,800)       --
Share capital -- issued for
 cash net of  issue costs             7     3,635    88,098     3,635
Share capital -- repurchases         --        --        --      (299)
Dividends paid                   (1,263)     (988)   (3,213)   (2,639)
                               --------  --------  --------  --------
                                  8,342    19,286   (29,423)  132,775
                               --------  --------  --------  --------
INVESTING ACTIVITIES
Property and equipment --
 purchases                       (1,155)   (6,212)   (2,798)   (7,080)
Proceeds from investment held
 for sale                            --        --    43,521        --
Sale of subsidiaries                 18        --     2,029        --
Purchase of subsidiaries, net
 of cash received                (3,245)  (14,448)   (4,553) (120,423)
Other assets                        103      (107)      117      (814)
                               --------  --------  --------  --------
                                 (4,279)  (20,767)   38,316  (128,317)
                               --------  --------  --------  --------
Change in cash and cash
 equivalents and
  trust cash                     13,308    11,855    10,883    23,838
Cash and cash equivalents and
 trust cash   --
  Beginning of period            74,980    44,258    77,405    32,275
                               --------  --------  --------  --------
Cash and cash equivalents and
 trust cash   --
  End of period                $ 88,288  $ 56,113  $ 88,288  $ 56,113
                               --------  --------  --------  --------

Supplemental disclosure of
 cash flow information
  Amount of interest paid in
   the period                  $    261  $  1,083  $  5,933  $  2,305
  Amount of income taxes paid
   in the period               $  1,880  $    162  $  8,784  $  3,050

        (*)The consolidated financial statements of the company
        historically have been expressed in Canadian dollars.
        Effective October 1, 2001, the company adopted the United
        States of America (U.S.) dollar as its reporting currency.
        Comparative financial information has been restated in U.S.
        dollars using the translation of convenience method. All
        historical financial statements including financial results
        for the quarter and nine months ended September 30, 2001 were
        converted from Canadian to U.S. dollars at the exchange rate
        in effect at September 30, 2001 of one Canadian dollar to
        0.6338 U.S. dollar. Revenue and expenses for the quarter and
        nine months ended September 30, 2002 were translated to U.S.
        dollars at the average exchange rates for the respective
        periods.
 In the following box below, please add a contact information.
CONTACT:
Hub International Limited
W. Kirk James 312/279-4881
kjames@hubinternational.com
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 SOURCE :   Hub International Limited