Cepton Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2025

There are 5 speakers on the call.

Operator

Ladies and gentlemen, good morning and welcome to the Ambac Financial Group Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Charles Sebasky, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to Ambac's fourth quarter twenty twenty four call to discuss financial results. Speaking today will be Claude LeBlanc, President and CEO and David Trick, Chief Financial Officer. They will discuss the financial results of our business and the current market environment, and after prepared remarks, we'll take your questions. For those of you following along on the webcast during prepared remarks, we will be highlighting some slides from the investor presentation, which can be located on our website.

Speaker 1

Our call today includes forward looking statements. The company cautions investors that any forward looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors. Those factors are described under forward looking statements in our earnings press release and our most recent 10 Q and 10 K filed with the SEC. We do not undertake any obligation to update forward looking statements.

Speaker 1

Also, in prepared remarks or responses to questions, we may mention some non GAAP financial measures. Reconciliation of those non GAAP measures are included in our recent earnings press release, operating supplement or other materials in the Investors section of our website ambac.com. I would now like to turn the call over to Mr. Claude LeBlanc.

Speaker 2

Thank you, Chuck, and welcome to everyone joining today's call. Last year, Ambac made great strides in anchoring our market positioning as a leading growth focused MGA and delegated authority platform. On a consolidated basis, our P and C business generated nearly $900,000,000 of premiums, up 74% from 2023 and produced $236,000,000 of revenue, which is up 89% from the prior year. These results were made possible due to the tremendous progress on several fronts. Some of those achievements include: one, the acquisition of BEAT.

Speaker 2

This was a transformative deal that brought immediate scale and breadth to our distribution platform. BEAT has proven capabilities and a solid track record as an MJ Incubator. The experience of the BEAT leadership team combined with Serata's U. S. Specialty business expertise is expected to deliver very strong organic growth into the future.

Speaker 2

Two, successfully selling our legacy financial guarantee business to Oaktree for $420,000,000 This was a monumental effort for our organization and provides us the opportunity to accelerate the scaling of our Specialty P and C business. This sale was a culmination of years of hard work and successful execution of key priorities across our organization. I am extremely proud of the outcome we achieved and I look forward to closing the sale as soon as we satisfy the last remaining closing condition, receipt of regulatory approval from the Wisconsin OCI, which we anticipate this quarter or early next quarter. Three, investing in and preparing the business for the future. We have strengthened our business by investing in technology and talent to ensure the continued success of our platform.

Speaker 2

In addition, we have substantially completed the separation of our legacy and P and C businesses financial and technology platforms as well as personnel in preparation for the close of our legacy sale. Our focus is squarely on the future growth of our Specialty P and C business and delivering value for our shareholders. Our efforts are supported within a market environment where broadly speaking, we continue to see the overall E and S market performing well. The move towards risk specialization and E and S business continues across our industry and that specialization supports the growth of the MGA market. We continue to experience rate increases in The U.

Speaker 2

S. Casualty lines we focus on, where we are generally seeing high single to double digit rate increases. In the property market, we have seen some softening in the fourth quarter and through January 1 renewals, but terms and conditions have helped. It remains too early to know the overall impact of the California wildfires on market conditions. Professional and financial lines continue to see softness, especially in large account and public market D and L.

Speaker 2

Smaller account and management liability are holding up much better. Overall, Specialty and E and S commercial insurance market conditions remain broadly supportive of our business goals. Turning to our distribution business. ZERADA generated nearly $100,000,000 in revenue for twenty twenty four, up 93% and earned approximately $20,000,000 of adjusted EBITDA and $13,000,000 of adjusted EBITDA to Ambac common shareholders. The adjusted EBITDA margin for 2024 on a consolidated basis was 20%.

Speaker 2

However, I would point out that there are about 500 basis points of margin headwinds from the costs associated with the six de novo start ups previously mentioned. Those costs as we scale will be less and less material to the overall performance. In addition, longer term, we expect to make meaningful advancements to the adjusted EBITDA margin from organic growth, economies of scale, further technology led efficiencies and business synergies. For the year, organic growth was 5.4% with our Specialty Commercial Auto business performing particularly well and more than offsetting some headwinds in our ESL and short term medical business. It is worth highlighting that we view organic growth to be a core KPI of the business.

Speaker 2

However, the timing for the inclusion of BEAT in the organic revenue base later this year may result in some volatility in our quarterly organic growth results. One key element for supporting the growth in MGA businesses is the availability of managed capacity. That is why we believe having access to a broad range of managed capacity is a strategic differentiator for us. Managed capacity enables us to leverage the overall depth and breadth of insurance, reinsurance and ILS markets as well as the duration of third party capacity to the platform.

Speaker 3

While this is not something

Speaker 2

we will be reporting on every quarter, we thought it would be helpful to provide color on our capacity sources. For 2025, the Serata platform has more than $1,500,000,000 of committed third party capacity from a diversified panel of insurers, reinsurers, private capital and pension funds. Over 60% of that support has been behind us for four or more years, which I think validates the quality of the underwriting of our MGAs. Turning now to Everspan results for the quarter. Everspan had a strong year with the team focused on underwriting profitability and growth.

Speaker 2

Everspan's gross premium written grew to over $380,000,000 up 40% from the prior year. Its full year combined ratio of 101.6% was nearly a 500 basis points improvement over 2023 as the platform progresses towards critical scale. Everspent ended 2024 with its second quarterly underwriting profit with a 96.5 combined ratio, which was down three eighty basis points over the fourth quarter of twenty twenty three. The underwriting performance was a result of Everspan's concerted efforts to adjust to market conditions and rebalance capital allocation in support of our future business growth. Everspin maintains a strong pipeline of internal and external program opportunities, which we believe will further our goals to diversify the portfolio, support growth, reduce our combined ratios and deliver strong future ROEs.

Speaker 2

I will now turn the call over to David to discuss our financial results for the quarter. David?

Speaker 3

Thank you, Claude, and good morning, everyone. As Claude mentioned, we had notable changes to our reporting this quarter, which impacted our results in several areas. First, following the successful shareholder vote of the sale of the legacy financial guarantee business, we are now reporting that segment as discontinued operations. With that, we recorded a $570,000,000 loss on sale. Second, the effect of moving to discontinued operations for the legacy business means the go forward P and C segments and the holding company will be reported as continuing operations.

Speaker 3

And lastly, as I indicated last quarter, we have changed our non GAAP metrics this quarter as we more closely align with our insurance distribution and underwriting peers and no longer as a financial guarantee business. This quarter, we introduced a revised adjusted net income, a new adjusted EBITDA, a new organic growth metric and finally eliminated adjusted book value. We recognize there are a lot of changes and new metrics this period as we make this transition. So we wanted to briefly highlight how we are thinking about the performance of the business going forward. First, we are driving total revenue growth as well as organic revenue growth.

Speaker 3

Organic growth measures the ability of our business to grow revenue absent acquisitions and will be driven by de novo's and other growth initiatives such as expanding distribution and product over time. Secondly, as it relates to earnings power and operating performance, we appoint investors to consolidated and segment level adjusted EBITDA and margin, which includes MCI. This captures how each business is performing regardless of our ownership percentage. And lastly, as it relates to earnings power to investors, as shareholders, we would point to aggregate and segment level adjusted EBITDA to Ambac common shareholders. This identifies what belongs to shareholders.

Speaker 3

Over time, based on how we have structured our acquisitions to date, consolidated adjusted EBITDA and adjusted EBITDA to Ambac common shareholders are likely to converge. Hopefully, this helps clarify how we are viewing the business going forward. With that said, for the fourth quarter of twenty twenty four, Ambac generated a net loss of $548,000,000 or $10.23 per diluted share compared to a net loss of $16,000,000 or $0.24 per diluted share in the fourth quarter of twenty twenty three. Net loss from continuing operations attributable to Ambac common shareholders was $22,000,000 or positive $0.7 per share compared to $9,000,000 or $0.1 per share loss in the fourth quarter of twenty twenty three. EPS was positive in the fourth quarter of twenty twenty four even though we recorded a net loss due to the impact of lowering the carrying value of redeemable NCI upon remeasurement using the redemption value method.

Speaker 3

Such change is not reported through P and L, but represents a benefit to Ambac common shareholders that is required to be reflected in EPS. Consolidated adjusted net loss was $6,000,000 or $0.12 per diluted share for the fourth quarter compared to adjusted net income of $4,000,000 or $0.1 per diluted share in the fourth quarter of twenty twenty three. Our results for the fourth quarter of twenty twenty four were impacted by several notable items, including Absarada approximately $9,000,000 of intangible amortization, up from $1,000,000 largely on account of the Beat acquisition. At AFG, eight million dollars of other non operating losses and acquisition related expenses incurred at AFG, including the write down of a minority investment and some capitalized software expenses. And at Serata, six million dollars of interest expense on short term debt related to the acquisition of BEAT that will be repaid from the proceeds of the sale of the legacy financial guarantee business.

Speaker 3

The majority of these items were incurred in connection with the continued expansion and growth in our Specialty P and Z business. Verada Premiums Place grew 309% to $2.00 $5,000,000 and total revenue increased by 257% to $44,000,000 compared to the fourth quarter of twenty twenty three. For the year, total revenues grew to $99,000,000 or 93% compared to 2023. The growth in the quarter was driven primarily by the acquisition of BEAT Capital and strength in Specialty Commercial Auto, partially offset by some softness in A and H. The consolidated adjusted EBITDA margin before the impact of non controlling interest was twenty two point three percent and nineteen point eight percent for the quarter and year respectively compared to 14.222.3% for the fourth quarter and full year 2023 respectively.

Speaker 3

As previously outlined, adjusted EBITDA, a new non GAAP metric, adjusted EBITDA for acquisition expenses, equity compensation, severance and restructuring costs along with other non operating items. After the impact of non controlling interest, adjusted EBITDA to Ambac common shareholders represents the current earnings power to investors, which was $5,300,000 and $13,200,000 for the quarter and year respectively, compared to $1,400,000 and $9,400,000 for the fourth quarter and full year of 2023 respectively. If looked at on a margin basis, adjusted EBITDA to Ambac common shareholders will be lower by the impact of non controlling interest. So for instance, the full year 2024 adjusted EBITDA margin was 19.8%, while the adjusted EBITDA margin to common shareholders was 13.5%. We understand that this can risk leading to some confusion.

Speaker 3

However, we believe there is sufficient value in recognizing these distinctions. This quarter's Insurance Distribution segment results were affected by several items worth highlighting. During the quarter, de novo start up expenses impacted adjusted EBITDA by approximately $3,800,000 and adjusted EBITDA to common shareholders by $2,400,000 While these losses suppress earnings in the short term, they are an investment which will help drive future organic growth. There will be variability in these start up expenses, but they will diminish relative to overall results as we continue to grow. We incurred $1,500,000 of net foreign exchange gains as BEAT's functional currency is the pound.

Speaker 3

Since BEAT does a significant amount of business in U. S. Dollars and other currencies, we will experience foreign exchange gains and losses associated with the value of the pound. BEAT historically hedges approximately 50% of its estimated exposure. Everspan's net premiums written were a negative $3,000,000 in the quarter, down from $37,000,000 in the prior year period due to the non renewal of a personal lines NSA Reinsurance program, triggering return premiums of $19,000,000 and the shift of the commercial auto program from a net retained to a fully fronted program.

Speaker 3

For the year, gross and net premium written were $383,000,000 and $89,000,000 up 4011% respectively. Earned premium and program fees were $19,000,000 to $4,000,000 down 24% and up 62% respectively from the fourth quarter of twenty twenty three resulting from the shift in program dynamics I noted earlier. The loss ratio of 51.9% in the fourth quarter of twenty twenty four improved from 67.4% in the fourth quarter of twenty twenty three. The quarter benefited from favorable development across a number of programs and improved diversity in the net retained book. Despite this improvement, the result included prior accident year development in the quarter of 8.6% with approximately 3.3 percentage points of that stemming from a management decision to reserve to the high end of the actuarial range on runoff programs.

Speaker 3

Runoff programs can be more volatile than active programs and therefore management believes that this decision was prudent. The total impact to the quarter of this reserve shift was $1,000,000 or 5.4 points of loss ratio. The expense ratio of 44.6% in the fourth quarter of twenty twenty four was up from 32.9% in the prior year quarter, with the increase mostly driven by changes to sliding scale commissions, which are recorded against acquisition costs and linked to loss performance. For the fourth quarter of twenty twenty four, sliding scale commissions produced an expense ratio charge of 14.9% compared to a benefit of 1.2% last year. The resulting combined ratio for the fourth quarter was 96.5%, an improvement of three eighty basis points from the respective prior year period.

Speaker 3

The year to date combined ratio of 101.6% is down four ninety basis points from 106.5% last year to date. For the quarter, EverestSpan produced just under $3,000,000 of adjusted EBITDA to common stockholders compared to just over $1,000,000 for the fourth quarter of twenty twenty three. For the year, EverestSpan produced over $5,000,000 of adjusted EBITDA to common stockholders compared to just under $1,000,000 for 2023. As previously mentioned, we switched to health for sale accounting for the legacy business in the fourth quarter. For the quarter and year, the net loss from discontinued operations totaled $526,000,000 and $497,000,000 respectively.

Speaker 3

During the fourth quarter of twenty twenty four, our discontinued operations produced a net profit of $44,000,000 which was mostly driven by higher discount rates favorably impacting incurred losses, which partially offset the $570,000,000 estimated loss on sale. AFG on a stand alone basis, excluding investments and subsidiaries, had cash investments and net receivables of approximately $119,000,000 or $2.56 per share as of the end of the fourth quarter. I will now turn the call back to Claude for some closing remarks. Thank you, David.

Speaker 2

As we reflect on 2024 and look ahead to 2025 and beyond, I am proud of what our team has accomplished and even more excited by the prospects of Ambac's future. I believe Ambac offers a unique value proposition in the market to both our MGA partners and to investors alike, being a business dedicated to the specialty MGA and delegated authority program space. We expect that this differentiation will become more visible with the separation of our legacy financial guarantee business. Given the timing for the close of our legacy business, we will be revisiting our 2025 guidance following the close. However, we remain focused and believe on track towards achieving our long term goals of strong organic growth and generating $80,000,000 to $90,000,000 of adjusted EBITDA to Ambac common shareholders in 2028.

Speaker 2

I look forward to updating you on our progress in the coming quarters. Operator, please open the call for questions.

Operator

Thank The first question comes from the line of Deepak Sarpangal from Repertoire Partners. Please go ahead.

Speaker 4

Hi Claude, David, Hey Chuck, good morning. Two questions, one on the distribution side and one on the specialty P and C side. On the distribution business, the you called out a couple of specific lines, in the market, short term medical and another one that were weaker. Do you expect that to persist? And how should we think about, the prospects for that?

Speaker 4

Is that temporary? Is that going to be offset, etcetera? And then my question on the specialty P and C side was, I was quite positively surprised by the kind of continued progress there and the combined ratio. Do is that expected to be sustainable or how do you expect that the combined ratio to evolve there? It seemed like really great progress recently, but is that is there anything temporary there?

Speaker 4

Or how should that look going forward?

Speaker 2

Hey, good morning, Deepak. It's Claude here. Thanks for your questions. Starting with the distribution, yes, the areas that we saw some softening and some contraction based on market conditions were employer stop loss and short term medical. And in the employer stop loss area, we've seen a lot of deterioration in that sector of the A and H market.

Speaker 2

And it's been pretty widespread, so we could consider that more of a macro trend. But we do believe that there could be some stabilization coming in the near future. So that's something that we're keeping an eye on, but staying disciplined in terms of the selection of risk and the pricing of risk in that segment.

Speaker 3

In

Speaker 2

terms of short term medical, that's an area that had some challenges around the past administration, but we do believe it's one that will revert back to a more steady state in the coming quarters with the new administration in place. So I think we feel pretty positive on that one. But overall, on the A and H segment, I'd just like to say that we are growing significantly across various areas in A and H. It's really the ESL that's been the biggest challenge that we've seen in the marketplace. I'll let David handle the second question.

Speaker 3

Thanks, Deepak. So in terms of Everspan, I think our focus really is on profitability of that business. Growth is important, but profit is our focus. And for the quarter, there was certainly some programs we saw improvement on. There were some programs, as I mentioned in some of the remarks, that we saw our deterioration on.

Speaker 3

And that's ultimately what a balanced book normally would how it normally behave. So I think when we look at our effective loss ratios, looking through what we booked to in the quarter and what we experienced in terms of sliding scales and the like, which offset some of the benefit of on the loss ratio. We're looking at effective loss ratios in the mid-60s and that's very much in line with our long term goals for Everspan. So we view that as something that we're shooting for. There's always going to be some variability based on developments in the markets and whether there is certain losses that incurred.

Speaker 3

But over the long term, the performance of the quarter is consistent with our long term objectives of the business.

Speaker 4

Got it. Thanks. Well, looking forward to the final close of the legacy business sale as I suspect you are as well.

Speaker 2

We are as well, Deepak.

Speaker 4

Sounds great. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Ladies and gentlemen, as there are no further questions, that concludes the question and answer session. And also the conference of Ambac Financial Group has now concluded. Thank you for your participation. You may now disconnect your lines.

Powered by Quartr
Earnings Conference Call
Cepton Q4 2024
00:00 / 00:00