Greetings. Welcome to the Tiptree Inc.’s First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’d now turn the conference over to your host, Ms. Sandra Bell, Chief Financial Officer. Thank you, ma’am. You may begin.

Good morning, and welcome to our first quarter 2022 earnings call. We are joined today by our Executive Chairman, Michael Barnes; and CEO, Jonathan Ilany. 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. In addition, 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.

Thanks, Sandra. Good morning and welcome to our earnings call. In the first quarter, our operating businesses continued to produce excellent returns, with revenues increasing 10% to 325 million and adjusted net income improving 17% to 15 million. Fortegra posted another great quarter, with premiums and equivalents of 601 million, 26% growth from the prior year led by strength in the admitted and E&S insurance lines. The business continues to experience hard markets for its specialty E&S lines, which contributed to the record quarterly adjusted net income of 21 million and return on equity of 28%. In early April, Fortegra also added a bolt on acquisition in the UK for just over $15 million of net cash consideration, further establishing its footprint in the European auto warranty sector. The Warburg regulatory approval process remains on track and we expect to close within the second quarter. We anticipate using investment proceeds for additional growth capital in Fortegra’s specialty lines and to repay Tiptree’s corporate debt facility. Like many of our peers, our investments experienced negative mark to market for the quarter, both within our insurance investment portfolio and on our investment shares. We are likely to experience such volatility from quarter-to-quarter on publicly traded bonds and stocks. And therefore, we tend to look at performance over a much longer time horizon. Our fixed income portfolio remains conservatively positioned with a AA+ rating and a 2.5 year weighted average duration. We feel confident that the majority of the unrealized losses from this quarter will be recovered over the coming years as bonds mature. As the portfolio grows, and we reinvest maturing securities, the rising interest rate environment as we observed in the first quarter could be a meaningful driver of income over time. As of the end of the quarter, our investment…

Thank you, Michael. On page three of the presentation, we highlight Tiptree’s key financial metrics for the first quarter 2022 compared to the prior year period. We incurred a net loss just shy of $1 million in the quarter, resulting from unrealized losses on investments, which was partially offset by continued growth in the insurance business and positive performance in our shipping operations. Excluding investment gains and losses, revenues were up 25% for the quarter, driven by organic growth in insurance operations and increases in vessel charter rates. Adjusted net income for the quarter was 15.5 million, representing a 15.8% annualized adjusted return on average equity. The value per share of $10.51 decreased by 4.9% for the quarter, primarily a result of unrealized losses on our fixed income securities driven by higher interest rate environments. Our businesses continue to produce strong operating cash flows, which gives us the ability to hold these securities to maturity. The higher interest rate environment allows us to invest new money and improved yields, which we expect will be a benefit over the long term. Turning to page four, we highlight Tiptree’s sum of the parts value reflecting the impact of Warburg’s 200 million investment in Fortegra. Based on the transaction multiple of trailing 12 months adjusted net income, which is implicit in Warburg’s investment, Tiptree’s retained ownership on Fortegra, on an as converted basis, represents approximately 739 million, or $20 per diluted Tiptree share, 140 million of proceeds will go to tip the Tiptree Holding Company to fully repay outstanding debt, with the remaining to be deployed as gross capital within Fortegra. After the transaction closes, when you include the book value of Tiptree Capital and Holding Company assets, we believe Tiptree’s sum of the parts value to be approximately $26 per diluted share.…

Thanks, Sandra. The diversification of our businesses supported the strong operational results in the first quarter. Fortegra posted record adjusted net income and return on equity. Given the strong pipeline and favorable market conditions, we expect this profitable growth to continue. Within the shipping sector, both bulker and tanker markets are performing well, which provides us the opportunity to drive near term returns. And we remain focused on deploying capital with the objective of long-term shareholder value appreciation. With that, we will open the line for questions.

[Operator Instructions] Our first question comes from a line of Alex Vezendan with Veradace Capital. You may proceed with your question.

Hey, guys, great job. Just one for me. You know, we really appreciate companies like yours, where management is really aligned with shareholders and Michael, you and the rest of the team own a lot of stock. And so that that really helps and the compensation agreement that you guys have last year, has some great IRR targets, and it’s long term and it, again, really aligns you guys with shareholders. The question I have is just kind of going forward, do you guys have a framework of how we should think about dilution or grants kind of going forward and what they would look like? And I’m asking that in light of the proposal to increase the incentive shares in the proxy statement and so I’m kind of thinking how we should think about what the cadence of grants looks like going forward. Thanks, guys.

Yeah. Thank you, Alex, and I appreciate your comments. We actually did try to take our -- put forth a thoughtful incentive plan. As our businesses have changed, as our stock price has appreciated, we wanted to create an incentive, that to your point, really aligned senior management with shareholders. Already were the largest shareholders, I’m going to continue to own my shares and will likely be exercising an old warrant that’s coming up and coming due soon to increase my ownership. So I’m going to continue to be a strong owner and, as relates to dilution, I’m going to be the number one person wanting to avoid seeing our shareholders diluted, particularly, me, I’ll say. And in that regard, one of the things we changed in our incentive plan a bit over a year ago was also changing the allocation of our issues are restricted units to two other officers. We gave them an option to elect to participate up to a percentage of a year-end bonus with a matching, if they agreed to lock in, to not have those vests for a three year period. So we look at that also as opposed to forcing our issues upon individuals. Oftentimes, we didn’t like seeing those getting sold in the market. So we liked an alignment and a long term objectives of our senior management and senior officers. As it relates to other types of allocations of shares, we do have a liquidity conversion option on certain of our subs, as they hit incentive targets to that into Tiptree shares, which will provide them over time some liquidity and what would otherwise be private ownership of their of their subs or of our subs. But we don’t want to see any material dilution to shareholders, other than as a result of our businesses hitting their targets. And so these are incentive units that are meant to be allocated based upon success in our businesses. I think that answers the question, but I’ll ask if you have any follow up to that?

That’s -- I think that is a great high level, maybe I’ll just be super blunt. Do you guys envision -- last year, I think the grants totaled something like 10%, they were definitely performance based and there were high IRR targets associated with it. I think the request for increasing the shares a lot of now it’s something like 10% again. Do you see -- do you envision kind of material grants in the next three to five years of -- we’ll be seeing more than 5% of shares being issued in any given year?

Yeah, let’s be clear -- let me just answer Sandra, then I’m happy for you to add to it. Let’s be clear in creating the sort of stepped incentive plan that we put in place last year, it’s low allocate -- your correct, the amounts, ultimately, if we were to achieve all of the targets over an extended period of time, it would result in that amount of shares being issued, I think you referenced around 10% depending on what other shares are outstanding as we go along. But to be specific, only a small amount was achieved and hitting the first target. As we hit other targets at higher levels, it is an incentive to hit those targets by allocating increasing amount of shares. I want to see the bulk of the shares come in the last two, three targets, which are $45.60 [Phonetic], at the higher end of those last two targets, dollars per share. So hitting those targets would result over a 10 year period and about a 19% IRR, that was approximately the IRR target. The proxy that just went out is actually approving shares to allow for that incentive plan. I wouldn’t view it as duplicative and correct me if I’m wrong, Sandra, but I’ll let Sandra why don’t you go ahead and answer that.

Michael, that’s actually what I was just going to say. Alex, they are to support the grants that were given last year, we didn’t have enough shares to cover those. So that’s the sole purpose of that $4 million.

Perfect. Got it. That is really helpful. Thank you guys so much for the time and great work.

Sure. Thank you, Alex. I appreciate it.

Our next question comes from the line of Walter Schenker with MAZ Partners. You may proceed with your question.

Hi, Michael. Hi, Sandra.

Hi, Walter.

First, congratulations on selling one of the ocean going ships, we’re a fifth of the way there, Michael, four more to go.

It’s an opportunistic environment for our drybulk sector. We will always look at taking ships off the table and then be patient in reallocating.

I mean, you’ve gone through enough of these calls and you’ve spoken to enough of us investors, it is so clear that the stock selling at half or less than half of what you reasonably put a valuation per share on that a major part of the disconnect is the diversity of the capital side of the business, not the Fortegra side of the business. Question on mortgage side, which I am not very familiar with, it is at least to me somewhat clear, if you listen to Powell it should be reasonably clear, that the interest rates are going to be moving higher, mortgage rates have already started to move higher, liquidity is going to not be pumped into the system, and may even be drained due to the runoff. In that environment, what changes from what we just saw in the mortgage business or we’ve seen the best of times and I understand servicing becomes more valuable as an asset. But from an earnings standpoint, again, you’ve done this a long time, in that environment, which I’ve laid out, which may or may not come to pass, what’s the outlook for the mortgage business over the next couple of years, from an earnings standpoint? Not forecast, just a general way of looking at it.

Yeah, we’re certainly not going to give guidance, but I’ll tell you how we look at it. Look, first, this is an area that I’d say amongst the senior officers of Tiptree, it’s an area that we have been deeply embedded in for all of our careers. So in the case of Jonathan Ilany, myself, Sandra, this is an area that we’ve been focused on for the last 30 to 40 years for each of us. So it’s an area we know well, we’ve got a great team at Reliance, I’d say one of the one of the most seasoned veteran teams out there in the mortgage origination business. What we’ve been doing, as we have anticipated that rates may be rising, given all the liquidity being pumped into the system these last few years, was building out our servicing book. Servicing does two things, it not only serves as a protection of the downside as rates rise and as refinancings become less common, but when you do have refi that allows us a high percentage of recapture in origination. Reliance’s business is primarily in refinancing and as a result of that, as you see home price appreciation, we see that -- we anticipate that we’re going to continue to see originations as people want to take money out of their home. So in spite of rates going up, it doesn’t mean the business comes to a dead stop, it means that it’s going to be more focused on refis, which is exactly how we’re positioned. Our servicing book will serve to protect this and it’s done well, and you’ll see that in the first quarter here in terms of our results. And when I look at the business, other than our servicing books, which occupies more than half of…

Okay. Although just as a comment in passing, the only person who didn’t refi over the last three years is death because approximately every 15 minutes, on the radio, you hear an ad for somebody telling you need to refi while rates are low, you need to refi before rates go up. And so I would think refis will continue but at a fairly limited basis. But I haven’t been doing this for 40 years, I’ve been doing other stuff.

You know, Walter, but one of the things I’ll say is we’re in a -- we’re in a relatively healthy job environment, and as the job report this morning certainly showed, there’s good employment in this country, wages continued to step up, we’ve got a relatively healthy consumer, and there’s going to continue to be new home formation, there’s going to be continue to be moved -- people that move, there’s going to continue to be people that want to send the kids to school, put on in addition, etc. You’ll see refis continue as they have in the history of this country. So we like our business. It’s a capital light business relatively and so we want to continue in this business.

And just last question, once the which is supposed to happen this quarter, the transaction for the investment in Fortegra takes place, and 100 plus million get -- go up to the parent, I know historically the company has bought back a lot of stock, the stock is under half of what you think the value is, as you can’t speak for the board, you can speak for yourself, you may not want to, what is your view about buying stock at under 50% of your conservative or realistic value per share funding [Multiple Speakers] half of the year, or pick a time frame?

I’m going to get you been amongst one of the largest -- we’ve probably bought back more shares of Tiptree over the last decade than most companies out there. So it’s been an area of focus for us as we see it trading at a significant discount to intrinsic. We’ve been fortunate that we bought back a lot of the shares at a discount even our GAAP book value and we felt our intrinsic was well in excess of our GAAP book value. So we are always going to evaluate where we’re trading, cash availability, need for that cash and other in building our businesses to we’re always going to look to optimize the use of cash on hand, it is hard to pass up when you see our shares trading at half of intrinsic value. So we will consider that when looking at allocating capital. But we also want to make sure we maintain liquidity and that we’re conservative, and we have capital to allocate when we want to grow. So we’re going to just always be monitoring that but it is always on our radar to consider buying back shares.

Thank you.

Ladies and gentlemen, we have reached the end of today’s question answer session. I would like to turn this call back over to Ms. Sandra Bell for closing remarks.

Thank you, Laura, 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 first quarter 2022 conference call.

You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.