Greetings. Welcome to Tiptree, Inc. Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Sandra Bell, Chief Financial Officer. Thank you. You may begin.

Good morning, and welcome to our year-end 2020 earnings call. We are joined today by our Executive Chairman, Michael Barnes. You can find the slides that accompany this review on our Investor Relations website. Please note that some of our comments today will contain forward-looking statements based on our current view of our business and actual future results may differ materially. Please see our most recent SEC filings, which identify the principal risks and uncertainties that could affect future performance. Before I turn the call over to Michael, just a few additional housekeeping items. Today, we will discuss certain adjusted or non-GAAP financial measures which are described in more detail in this morning's presentation. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our SEC filings, the appendix to our presentation and posted on our website. With that, I will turn the call over to Michael.

Thank you, Sandra, and good morning to everyone. Despite the many challenges this past year as a result of COVID-19, our controlled operating businesses continued to grow profitably in 2020, demonstrating the resilience of our diversified operations. Revenues, excluding mark-to-market, increased 17% and adjusted net income of $51.4 million, increased 86% from the prior year. That being said, Tiptree's total return for 2020, as measured by change in book value per share plus dividends paid, was negative 4%, primarily due to an unrealized loss on our holdings in Invesque, Inc., our real estate investment company focused on senior care properties, a sector hit particularly hard by the pandemic. Even with this decline, we believe that Tiptree's overall intrinsic value increased significantly in 2020 and is materially greater than our GAAP book value would suggest. For our insurance and mortgage businesses, production and sales volumes are at all-time highs as management and employees have adapted well to the new environment, staying dedicated to serving our customers while continuing to pursue new opportunities. In addition, our investments in shipping were stable for the year. And for the first few months of 2021, we are in an environment of unseasonably high charter rates as a result of the current technical imbalance in global shipping supply and demand. Given our confidence in the strength of these core operating trends, Tiptree repurchased close to 2.4 million shares in 2020, representing approximately 7% of the outstanding shares at year-end 2019. These repurchases were executed throughout the year at an average 43% discount to book value per share. In combination with shares that senior management has directly purchased in open market transactions, insider ownership has increased to approximately 32% as of December 31, 2020. In our insurance business, the Fortegra management team continues to execute on its…

Thank you, Michael. On Page 4 of the presentation, we highlight the company's key financial metrics for the fourth quarter and total year 2020. Net income before noncontrolling interest for the quarter was $16.2 million, an increase of $11.6 million over the prior year, driven by continued growth in our insurance business and strong performance in our mortgage operations. The net loss for the year was $25.2 million, driven by unrealized mark-to-market losses on our holdings of Invesque. Excluding investment gains and losses, revenues were up 18% for the quarter and 17% for the total year, driven by improvement in insurance top line results, including contributions from our warranty acquisition and increased volumes and margins in our mortgage business. Adjusted net income for the quarter was $16.2 million, up 54% from the prior year. For the total year 2020, that same metric was $51.4 million, up 86% compared to 2019. The growth in both periods was driven by the same factors that supported improvement in revenues. On the bottom of the page, we show a bridge from adjusted net income to total pretax income highlighting the key differences between the 2 metrics. Book value per share as of year-end 2020 was $10.90, which represented a decrease of 5.4% versus the prior year, primarily due to negative marks on equities. Book value per share increased 5.2% in the fourth quarter of 2020, driven by net income and share buybacks during the quarter. Our capital and liquidity position remains strong, with cash and cash equivalents of $136.9 million as of the end of the year including $80 million held outside our statutory insurance companies. On Page 5, we have updated our KPI trends. For 2020, we have refined our key operating related non-GAAP measure, moving from operating EBITDA to adjusted net income.…

Thanks, Sandra. Our 2020 results have demonstrated the benefits from our diversified portfolio of controlled operating businesses. In our insurance operations, the capital light, fee-generating warranty programs complement our niche specialty insurance focus. And with the addition of Fortegra's specialty, we have added substantial capacity and excess and surplus lines to complement our growth in admitted programs. The earnings strength of our mortgage business in a low interest rate environment serves as a great example of the embedded upside optionality and diversity of our capital allocation. And despite the uncertainty in the economy, our liquidity remains strong. During 2020, we refinanced our borrowing facilities across the company, extending maturities and increasing capacity to support growth. As we look forward, we believe Tiptree is well positioned to continue executing on our long-term growth objectives. With that, we will open the line for questions.

[Operator Instructions] Our first question is from Walter Schenker with MAZ Partners.

This is for Michael. It's sort of a long-winded question, but there is 0 chance Tiptree will ever get the valuation it deserves as long as you have 2 very disparate operations between Tiptree Capital, which is a hedge fund where virtually anything goes and a very outstanding insurance business. As you pointed out, the insurance business alone [indiscernible] freestanding, I would argue itself for more than twice on a per share basis, where the total company is now trading. Why wouldn't you split the company, why won't you split the company now that it's big enough on insurance into 2 pieces to create shareholder value?

Walter, thanks for joining today, and I think it's an excellent question. I'll tell you that, first, I agree with your -- with the back of the envelope valuation sort of determination in terms of the insurance company, having substantial value relative to what our GAAP book might state. And we do recognize that. I hear your point about the fact that we do have our Tiptree Capital, which is opportunistic and focuses on best allocation of capital. And I will say, we are always revealing how we can best provide value to our Tiptree shareholders. We take everything into consideration. We have certainly been watching the markets in terms of the valuations that insurers have right now, particularly in our category. So I will tell you that we are always reviewing options, and it is our priority to provide value to Tiptree shareholders. I think I'll leave my comments at that.

Okay. And then for Sandra, just one other question, there are always a lot of moving pieces in your quarterly reports. In looking at an outstanding fourth quarter, operationally, if I -- as you present non-GAAP operational earnings, what was in the fourth quarter which was singularly atypical so that I can't -- why can't I then look at the fourth quarter and say, this is, again, at least from an insurance standpoint, a base going forward. And therefore, for the next year, and you're not going to forecast, but if I do that and I grow some, I would expect the year to be something on the order of 4x where the fourth quarter was. I realize on the capital mortgage had a great year. Invesque is going to do somewhat better. Shipping is doing better, but those are all different pieces and hard to forecast.

Thank you, Walter. Nice to have you on the call. So your observations are right on. The first half of the year was obscured a little bit by the impact on Invesque, and then the COVID related slowdown across the country. I agree with you 100% on the insurance side. We have a little bit of seasonality in the second half of the year just because things like going back-to-school, the way autos are bought. But I think if you take the fourth quarter, which is also reflective of the growth and annualizes the way you're thinking about, it is a good trajectory for the insurance business specifically. I will say on the mortgage side, we are continuing to see strong volumes consistent with both the low interest rate environment and obviously, the uptick in home prices. So the big difference in the fourth quarter, to be perfectly honest, was the operating performance wasn't obscured by either of those first 2 factors I mentioned.

Okay. And so my last comment, and I'm smiling, but I do that a lot, and it's giving me an opportunity to buy stock, too. I guess the good news about having a convoluted, hard to understand company is it's allowed insiders of the company and investors to buy stock at what seems to be a silly price relative to the values of the pieces.

[Operator Instructions] Our next question is from Alex [indiscernible]

Just 2 quick ones. Could you guys comment a little bit on -- you made a small acquisition, it looks like in December or early January on the insurance side. Could you talk about that, your framework for making acquisitions at insurance specifically and some of the criteria that you look for? And if you're able to comment on just valuation ranges that you typically try to pay? And then the second question is just on capital allocation. You've been clear in the past, but I'm just curious if there's any update. If I look back over the past few years, outside of the great warranty purchase that you made this last year, the capital was deployed in really interesting ways, shipping was a big one. And so I guess kind of going forward, can you just help us understand where you guys sort of see the market now and what the best uses of capitals are today from your perspective, looking over the next couple of years?

Sandra, why don't I start and then Sandra, I'll ask you to add anything to my answer. But Alex, first, thanks for the question. Both good questions. And I'll start with acquisitions. So we are always looking to acquire add on businesses, bolt-on acquisitions that complement our existing operations and where we see, obviously, a value creation, ideally from either a preexisting relationship, which often our acquisitions come from or where we can acquire it with very little capital commitment and which is additive in terms of overall fee income. And so we are always looking for acquisitions, bolt-on acquisitions. And if you see through our history, that has been something, I'd say, that's been consistent. The Smart Auto being 1 of the more significant we've made in the last year, and you've seen that be very accretive to overall returns. I'd say that's true across all of our investments, all of our businesses, although insurance has been, I'd say, 1 of those that's been most opportunistic. As it relates to the allocation of capital, we are fully allocated, I'd say, in terms of our businesses, although we do like keeping a fair amount of liquidity, as was previously noted. We are always looking for opportunities to allocate capital. And I think I already characterized our focus, which I did in our comments earlier, we are always looking for positive cash flowing operating businesses with repeatable income, great management teams, scalability but if there's, I'd say, a characteristic we're always looking for in our businesses, it's to have a good return on capital in a normal environment ideally limitations on downside or countercyclical relative to recessions, like our warranty business has some element of. And you'd see in our mortgage business with lower rates having some elements of but what we're always looking for is the ability to have embedded optionality with, I'd say, a skewed upside in terms of the opportunity set. I think we've seen that certainly in our warranty business. We've seen that just more recently in our mortgage business. That is always what we are looking for. Right now, I think some of the best returns on capital that we're getting are from our existing businesses. So to the extent we can continue to provide capital as required to our existing businesses, that's our first priority, acquisitions as part of that, and then we are also always looking for new acquisitions. To date, I'd say that we have not seen a lot that we find attractive in terms of new acquisitions as well as our desire to support our existing operations. Sandra, do you want to add anything to that?

I'll just add 1 quick thing. Alex, to your first question, a small acquisition we made at the end of the year was to basically add a direct-to-consumer channel to our auto warranty business. So it's very complementary to the platform we bought in Smart AutoCare. And it's a good example of how we're looking for capital-light warranty type businesses to continue to generate cash flow that allows us to use our capital much more efficiently, for example, in the context of the E&S business that we are growing in a hardening market. So I just note, it's a good example about how we think about acquisitions, particularly in the warranty -- in the Fortegra business.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Sandra Bell for closing remarks.

Thank you, Jen. And thank you, everyone, for joining us today. As always, if you have any questions, please feel free to reach out to me directly. This concludes our conference call for the year-end 2020. Thank you.

Thank you. This concludes today's call. You may disconnect your lines at this time, and thank you for your participation.