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National Financial Partners Corp. (NYSE:NFP)

Q1 2011 Earnings Call Transcript

May 3, 2011 8:00 a.m. ET

Executives

Abbe Goldstein - SVP of IR

Jessica Bibliowicz - CEO

Doug Hammond - COO

Donna Blank - CFO

Analysts

Mark Finkelstein - Macquarie

Andrew Kligerman - UBS

Teague Sanders - Citi

Ed Spehar - Bank of America/Merrill Lynch

Robert Roell - PioneerPath Capital

Dan Mazur - Harvest Capital

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2011 NFP earnings conference call. My name is Tanya and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will facilitate a question-and answer-session towards the end of the presentation. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Abbe Goldstein.

Abbe Goldstein

Good morning and thank you all for joining us on our first quarter 2011 earnings conference call.

During this call, management may make certain statements regarding their expectations and projections for NFP, relating to future results and events, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's current views with respect to future results and events, and are subject to risks and uncertainties that could cause actual results and events to differ materially from those contemplated by a forward-looking statement.

Forward-looking statements speak only as of the date on which they are made. NFP expressly disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. We refer you to the risk factors described in NFP's filings with the SEC such as NFP's Annual Report on Form 10-K for the year ended December 31, 2010.

Our first quarter earnings conference call will be accompanied by a presentation that is available for electronic download on NFP's website at nfp.com/ir or upon connecting to the audio webcast of this call at the same website.

A reconciliation of the non-GAAP measures discussed on this call can be found in the presentation or in the quarterly financial supplement, which is available on the investor relations section of NFP's website.

At this time, I’d like now like to turn the call over to our CEO, Jessica Bibliowicz and her presentation starts on Slide 7.

Jessica Bibliowicz

Before I review our first quarter results, I’d like to discuss our capital allocation strategy. We are committed to a balanced approach for using our cash flow, including strategic acquisitions and major stock buyback and reinvestments in our businesses.

First we are focused on acquisition and expect to use approximately 50 million of cash for acquisitions in 2011. We are targeting strategic acquisitions in the Corporate Client Group that enhance our product and service capabilities, particularly in property and casualty.

This year, while we have already closed a few sub-acquisitions, we expect primary acquisitions to pose in the second half of the year and do not expect to use any stock for acquisitions. Second; we intend to institute a major repurchase program.

We have authorization to buyback up to 50 million of NFP stock. Donna will review the amendment to our credit agreement that now allow us to proceed with this significant buyback.

We believe that our capital allocation strategy, which is a combination of acquisitions, repurchase program and reinvestment in our business, enhance the shareholder value by building scale and recurring revenue and efficiently uses our strong cash balances.

Now turning our attention back to the first quarter results; we reported revenue growth 3.5% and organic revenue growth of 5.1%. We generated positive organic growth in each of business segments. We continue to solid results in our Corporate Client Group, strengthen our Advisor Services Group and wealth management businesses and challenges in life insurance.

Turning to slide 8; you can see NFP’s three business segments and their percentage revenue contribution to the company in the first quarter of 2011. The Corporate Client Group represented 41% of total revenue, with 2.4% organic growth.

The Individual Client Group represented 33%, with 0.6% organic growth and our Advisor Services Group represented the remaining 26% with 16.8% organic growth.

Now turning to CCG on slide 9. During the quarter our core benefit business performance was steady, but we pressure on certain specialty lines, as Doug will describe in more detail in a few minutes.

Looking ahead, we expect organic growth for CCG to be approximately 3% to 4% for 2011, following organic growth of 5.8% in 2010.

We expect that adjusted EBITDA margins in CCG for the year to be generally consistent with 2010. There is likely to be typical quarterly variability and seasonality with the second quarter historically having lower margins.

These estimates do not include primary acquisitions in CCG that may occur in the second half of 2011.

The Individual Client Group, specifically the life insurance business continued to have weak results in the first quarter. Two years estate tax regulations were put in place late last year which created some clarity in the market.

However, even though we have started to see a modest improvement in our sales pipeline, consistent trends and case closings have yet to emerge. Our Wealth Management businesses continues to have strong performance in the first quarter, and now represents 19% of ICG's revenue, an increase from 17% in the first quarter of 2010.

Growth in wealth management was driven by market performance and client acquisition.

Turning to the Advisor Services Group; we are focused on recruiting, as we continue to see advisor in transition in the market place. Looking forward, we expect organic growth for ASG to be between 13% and 15% for 2011, following 17.7 in 2010.

We expect adjusted EBITDA margins to remain steady with last year, as we continue to invest in this business in order to build scale for leverage in the future. There is likely to be typical variability from quarter-to-quarter in ASGs results.

Turning to slide 10; a key focus of ours over the last several years has been to enhance the stability of our revenues and earnings. While the Corporate Client Group represents the biggest component of recurring revenue, all three of our business segments include recurring revenue component.

In the first quarter of 2011, recurring revenue accounted for 63% of total revenue, an increase from 61% in the first quarter of 2010.

At this time, I would like to turn the call over to our Chief Operating Officer, Doug Hammond.

Doug Hammond

This morning I will briefly discuss certain factors driving our performance. Turning to slide 12, we saw modest revenue improvement in CCG for the quarter, as we continue to navigate a challenging economic and regulatory environment.

While the performance our core employee benefits business was solid, the performance of the overall CCG segment was impacted by a profit contingency that was significantly lower than last year at one our specialty managing general underwriters.

In addition, CCGs commission expense increased in the quarter, as one of our businesses ramped up a higher commission administrative business. These factors led to a compression in our adjusted EBITDA margin from 20.4% in the first quarter of 2010 to 18.8% in the first quarter of this year.

As Jessica mentioned, we expect the adjusted EBITDA margins in CCG for the year to be generally consistent with 2010. There is likely to be typical quarterly variability and seasonality with the second quarter historically having lower margins.

These estimates do not include primary acquisitions in CCG that may occur in the second half of 2011.

As it relates to the overall performance of CCG, the broader industry trends discussed last quarter continues. The medical loss ration debate is ongoing and medical inflation particularly in the smaller group market persists.

Our clients demand for sophisticated and creative employee benefit advice is increasing and continues to present opportunities. Our progress on CCGs primary initiatives continues.

We are institutionalizing CCG under a common brand and organizing our businesses in to coordinated regional hubs in order to leverage its scale and quality in the markets we serve, and we continue to push diversification in our practices and in particular in to lines of business where NFP offers centralized P&C, 401(k), and executive benefit solutions to our benefit service platform.

Turning to ICG; while our wealth management business continued to perform well, ICGs performance was largely driven by challenges in our life insurance market.

We are beginning to see larger chases returning to our pipeline, but they are generally accompanied by longer sales cycles. With no new developments on the estate tax reform, we believe the window created by the estate tax law now with 20 months remaining, is continuing to generate interest and starting to motivate wealthier buyers.

Our net membership totals within our two largest wholesale channels continue to increase as our recruiting initiatives are advancing and independent advisors search for a leading industry partner to assist their businesses in these challenging times.

As noted, our wealth management business continued to be impacted by positive market drivers including financial market performance and improved investor sentiment.

Expenses in ICG were up moderately in the quarter driven mainly by planned spending in our stronger performing ICG businesses, including wealth management and our wholesale life business that concentrates on the institutional market.

In ASG, our strong revenue performance was driven by an increase in fee and trail revenue on a larger asset base. Assets under management grew in the quarter by 16.3% to 9.9 billion due to new assets, financial market performance, and advisor recruiting.

ASGs performance has benefited from our technology investments; that are focused on supporting the daily activities of financial advisors and their staff. ASG offers unique levels of integration between asset management platforms, multiple custodians and traditional brokerage platforms, and powering advisors to manage their business with more ease and increase their time with clients and prospects.

The flexibility of our offering allows us to serve multiple points in the spectrum of the advisor profiles. B/D advisors who use our broker dealer and RIA, Hybrid advisors that use our B/D and their own RIA and pure independent RIAs seeking to benefit from our technology, service and scale.

As Jessica mentioned we expect strong organic growth in ASG this year, we also expect adjusted EBITDA margins to be steady with last year, as we committed to investing more in our recruiting and marketing initiatives.

Now I’ll turn the call over to our CFO, Donna Blank.

Donna Blank

Turning to slide 14; first quarter 2011 cash earnings was $18.5 million or $0.41 per diluted share compared with $22 million or $0.50 per diluted share in the first quarter of 2010. NFP reported first quarter 2011 net income of $6.9 million compared with net income of $7 million in the same period last year.

Cash earnings and net income included the impact of the interim effective tax rate of 48.6% for the first quarter, 2011, which was higher than the 44.3% in the first quarter of 2010, due to changes in uncertain tax positions and tax return adjustments.

I will review our expectations for taxes in a few minutes.

The quarters’ results were also impacted by changes to incentive plans for principal.

Adjusted EBITDA in the first quarter of 2011 was $24 million compared to $27.6 million in the same period last year. As a percentage of revenue, the adjusted EBITDA margin was 10.3% compared to 12.3% in the first quarter of last year.

Now turning to slide 15, we believe that it is most relevant to review our management fees on a segment basis, because NFP has a different priority interest percentage in each of these segments.

On average NFP’s priority interest in CCG was 60.6% and was 46.3% for ICG. Therefore on an annual basis on average, the basis management fees excluding the impact of incentives should run at approximately 39% in CCG and 54% in ICG, reflecting the principal’s interest in the earnings of each subsidiary.

Total management fees will likely be different from the average, due to difference in performance, incentive programs and priority interest levels across the businesses within each segment.

For the first quarter of 2011 CCG management fee percentage was 36.6%, including a 0.9% PIP accrual, compared with 36.8% including a negative 1.2% PIP in the first quarter 2010.

The increase in the PIP was attributable to a change in the methodology used to recognize the expense, and an increase in the target. This increase in the expense was largely offset by a decline in the stock based compensation from the LTIP program, where the RSU vesting was accelerated was principals in September, 2010.

For the first quarter of 2011, ICG management fee percentage was 53.2%, including a 0.2% PIP accrual, compared with 44.9% including a negative 13.8% PIP in the prior year period. The increase in the total management fee percentage for ICG is also attributable to the same increase in the target, and the change in the methodology for recognizing this expense.

We expect the combine 2011 PIP accrual will be in the range of 1.5% to 2.5% of adjusted income before management fees; lower than the 3.6% for the prior PIP that from 4Q ’09 through 3Q ’10, due to the increase in the incentive targets.

This increase in the incentive targets explains the variants and the cumulative fourth quarter, first quarter PIP percentage for the business.

Turning to taxes, the effective tax rate for the first quarter, 2011 was 48.6%, which was higher than the 44.3% effective tax rate in the first quarter last year, due to changes in uncertain tax position and tax return adjustments.

For the full year 2011, we are updating our effective tax rate expectation to 42% for the year, excluding impairment.

In terms of the quarterly rates, we expect the first quarter, 2011 will be the high point for the year, with the rate remaining in the mid-40s in the second quarter and then trending down closer to 40% in the second half of 2011.

Turning to slide 16, cash flow from operations for the first quarter was negative 5.9 million, compared to positive 4.9 million for the same period last year.

First quarter cash flow is typically the weakest for the year, because it includes seasonal payment to principals for above target performance in the prior year. This year’s cash flow was also impacted by the payment of a large case that was recognized at the end of the prior year.

Lastly, turning to slide 17, we are very pleased to announce that we entered into an amendment to our credit agreement with our lenders.

Highlights of this amendment include; changing the definition of the consolidated fixed charges to exclude up to $50 million in share repurchases for any four consecutive quarters; establishing conditions for $50 million maximum threshold for share repurchases; improving the consolidated fixed charge coverage ratio covenant level from a minimum of two times to a minimum of 1.5 times.

In addition, we have Board authorization to repurchase up to $50 million of our stock. We expect to repurchase shares from time-to-time in the open market, subject to market and other considerations. We report on the repurchase program each quarter.

We are now able to balance our uses of cash and direct capital to shareholders through our repurchase plan, while maintaining financial flexibility to make acquisitions and to reinvest in the company for a long term growth.

I’d now like to open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instruction). Our first question will come from the line of Mark Finkelstein with Macquarie. Please proceed with your question.

Mark Finkelstein - Macquarie

Jessica in your opening remarks, I heard you say that you expect to close up to 50 million of acquisitions in 2011. But I also think I heard you say that you don’t expect to use any cash.

The first question is, did I hear that correctly? The second question is, just knowing how much you have on the balance sheet and what at least I expect to generate during 2011, why does that make sense even with the buybacks.

Jessica Bibliowicz

Yeah, I think you did misunderstand me. We will be using only cash for acquisitions. So what we talked about which is consistent with what we’ve been saying is that we would use $50 million in cash for acquisitions we do not intend to use stock at this time.

So we will be actually using the cash for the acquisitions, and its our expectation if we are to close deals this year, would more likely be in the second half of the year and we are looking very closely at strategic acquisitions that will help reinforce our recurring revenue with a particular focus on the world of P&C, so we can continue to build the cross out.

It is cash, so it’s cash for acquisitions and it’s the repurchase of up to 50 million NFP stock.

Mark Finkelstein - Macquarie

Another clarification, may be this is for Donna. In thinking about the one and a half times’ fixed charged covered ratio. Do you think you could spend all 50 on buybacks in 2011 and still meet that one and a half threshold?

Donna Blank

Well the 50 for share repurchase is not included in the ration at all. But with the covenant level being lower, there are certainly additional room for fixed charges like capital expenditures or potentially dividend at some point.

Jessica Bibliowicz

The 50 million is for a 12 month. That’s in the facility, and based on trading volume and such would take a longer than through 2011, but we are on a reasonable plan.

Mark Finkelstein - Macquarie

May be just a follow-up to that is, is it your anticipation that over the next 12 months you would spend the $50 million?

Donna Blank

That’s the anticipation; of course it’s just that it takes time to do all of these share repurchases and our trading volume is late, so we’ll take our time.

Mark Finkelstein - Macquarie

Just finally on the Corporate Client Group. Can you just talk through what you are seeing in terms of the medical business and whether you are actually seeing commissions under pressure? What is the magnitude of the pressure and how is it affecting your outlook on margins.

Doug Hammond

We talked a little bit about the MLR and its impact on the potential MLR and its impact our business. As it relates to this quarter, our poor health and welfare business was actually quite good. The performance this quarter was undermined a bit by profit continued to payment in one of our managing general underwriters.

That really drove things. It was not on the medical, it was not as a result of reduction of commission. While we see the impact of commissions slightly in certain market segments, particularly in smaller group market; we haven’t seen it across the board and we haven’t seen it consistently.

There are some trends moving towards commission payouts by some carriers net of commission driving more towards a consulting type arrangement and a fee based arrangement, but I am seeing that trend for quite some time and dealing with it.

Operator

Our next question comes from the line of Andrew Kligerman with UBS. Please proceed with your question.

Andrew Kligerman - UBS

Two questions. In slide 9 you didn’t provide an outlook with regards Individual Client Group, but you did for Corporate and Advisor, which seemed pretty solid. Is there too much pressure there? Could you be seeing a drop off?

Jessica Bibliowicz

I am sorry, could just, we were breaking up a little bit. I had trouble.

Andrew Kligerman - UBS

You never provide an outlook for Individual Client Group, so what kind of revenue growth do you anticipate there?

Jessica Bibliowicz

Our comments were around, we were beginning to see some improvement, but it really is a little bit hard for us to call a trend at this point. It’s nice to see some improvements, but because its not consistent, we just don’t have as clearer trend as we can see with the other areas.

Doug Hammond

I would also say that the exemption levels are driving a lot of the cases that are in the pipeline to higher levels. They are much more complex to manage the closed process with the coordination of advisors or ultra high network individuals, and there is a tremendous degree of volatility associated with that because the compensation levels of those high levels are big. So predictability becomes very difficult.

Andrew Kligerman - UBS

Got it. Just going back to the PIP approval, it was 0.7% in the quarter, the previous run rate was 3-4, and then Donna had said the new accrual rate is now going o be 1.5% to 2.5% for the balance of the year.

I think you said increased target, but is it more a function of just not making the previous targets; sometimes there is no need to accrue.

Give a little clarity on how this [plays] out.

Donna Blank

To the extent that the business grew under the prior PIP, the target was reset at that level. So it is an increase in the target. That means that the accrual rate is likely to be smaller.

Remember the first quarter is generally the lightest which is why its at under 1%, but through the rest of the year we expect it to trend upwards like it normally does.

Andrew Kligerman - UBS

So you’ve bumped up the target and hence you don’t need to accrue this much, that’s one of the [reasons].

Donna Blank

Well the accrual is a reflection of how much we expect to alternately pay out, and with higher targets it harder to achieve.

Doug Hammond

Remember Andrew that the target on the original PIP when it was first instituted were coming off of a very low period, and then the funds performed through that, so they reset it at a higher level.

Andrew Kligerman - UBS

When was the last time you set that accrual rate though. I think you set a quarter or two ago at 3% to 4%. That’s why I am kind of surprised its currently lower.

Donna Blank

The 3% to 4%, when we put that estimate together it was based on the historical run rate on incentives overall, especially the ongoing incentive program. We were a little bit tentative with that rate. We came in at that rate for the old PIP that ended in the third quarter of 2010.

Then as we reached at the target, we realized we were in fact setting goals that were more aggressive for the firms and that we are expecting a lower accrual rate.

Jessica Bibliowicz

One of the concepts we had talked about in doing the annual PIP targets was that they would be set off of where the firms actually were, and they have to keep growing to achieve it.

Andrew Kligerman - UBS

And the producers are all good with that?

Jessica Bibliowicz

They understand.

Andrew Kligerman - UBS

Understand, okay.

Jessica Bibliowicz

Everybody would love targets that are easier. But I think its about the growth and our firms are working hard together.

Andrew Kligerman - UBS

Then just lastly M&A. Jessica you mentioned probably that 15 million in cash might get spend towards the second half of the year. How confident are you in the pipeline and in getting that done.

Jessica Bibliowicz

What I would say is that the pipeline is healthy. There are very constructive conversations, but actual prediction on the closing on the deal is probably not a great thing to do. But we are pleased with the discussions we are having.

I will say this Andrew and this is an important comment that everybody knows. It is an extremely competitive time in that market place and it’s really about somebody seeing the value of the NFP relationship.

It’s not just about doing deals, its about doing the right deals and not getting pushed in the wrong direction because of the competitive environment we are in.

It’s a tough a environment, but I think our value proposition is pretty strong.

Operator

Our next question comes from the line of Teague Sanders with Citi. Please proceed with your question.

Teague Sanders - Citi

I just had a question around the ASG segment, and I was wondering if you could talk a little bit about some of the leverage points within there. I know you are doing that out a little bit but the margin continues to remain pretty flat. Can you just talk about where the leverage might come from where the leverage might come from or well as might expect to see some.

Jessica Bibliowicz

May be I will start on it and Doug will finish. But one thing about the margin that I think is important to point out is that if you go back in to 2009, you would actually see a negative margin that because of the building and the scale has moved in to the positive 4ish territory.

We believe that over time it is the building of scale that will create margin improvement. But as Doug mentioned in his comment, this is the first year that we are actively recruiting on the outside not just through acquisitions and through membership but we have marketing and other expenses in there to really get this program underway.

Which is why we think the margins will be generally consistent with last year’s margins, and then as we build production we will begin to see the build up of scale in that business. But we do want people to think about it beyond 2011.

Teague Sanders - Citi

Is that in to the 2013-2014 or is it something may be in 2012.

Jessica Bibliowicz

It’s early for us to predict it, but we look at this as sort of the year where we are really building up the capabilities through the marketing and sales there. So I’d like to begin to see the sales growth in 2012.

Operator

Our next question comes from the line of Ed Spehar with Bank of America- Merrill Lynch.

Ed Spehar - Bank of America/Merrill Lynch

A couple of questions. On the new PIP accrual expectation of 1.5% to 2.5%; could you talk about how that varies between the Corporate Client Group and the Individual Client Group?

Jessica Bibliowicz

I think you’ve seen that the accrual rate on a percentage basis of income before management fees is lower in the Corporate Client Group and that’s just because the growth rates are more moderate in that business to the extent that we achieve targets in the ICG, that a more volatile business and the accrual rates are higher.

We saw that with the old PIP as well. But you can just look at the history we’ve provided and that’s a good gauge on the relative accrual rates.

Ed Spehar - Bank of America/Merrill Lynch

What I am trying to get at is, was there a surprise more so in one segment versus the other in terms of where the new PIP is. In terms of understanding the targets, are the producers in the Individual Client Group more likely to be troubled by the new PIP in the Corporate Client Group or is the expectation consistent.

When you think about this being resaid; I know you said they understand it. But were there more surprises in one segment versus the other.

Jessica Bibliowicz

I wouldn’t view it as surprises; as firms performed in the prior year’s PIP then the target is going to be reset to where that performance is. So the better a firm is the higher their goal will be for the next period.

As you saw in the accruals from last year, there were some very strong PIP performance in the ICG group. So they are going to see the highest recessed target. I wouldn’t view it as a surprise as to how they function.

Doug Hammond

It was not in consistent with what we’ve done historically in the company with the ongoing incentive plan in the early days, where after a three year period it was reset up to a higher level based on the performance of the firm. So their understanding of that is consistent and their response is consistent.

Ed Spehar - Bank of America/Merrill Lynch

Do they know where it gets reset to before it actually happens based on what the performance was.

Jessica Bibliowicz

Yes, absolutely.

Ed Spehar - Bank of America/Merrill Lynch

I wanted to get a little bit more clarification on the expectation on commission levels in a post healthcare environment. I think you talked about opportunities that are created by healthcare reform.

But if you look at just the commission that you think that you are going to receive from your customer base, have we seen anything or what the expectation - nothing in this first quarter sounds significant, but what’s the expectation for the year, because we’ve already seen some pretty significant changes in commission levels on the individual health business.

Doug Hammond

Certainly, we are big in the individual market and the small group market as I said. We have seen some pressure in certain market. Again it hasn’t been across the board and where we’ve seen the pressure, we’ve been able to offset it.

We’ve consolidated some of our small group practices, increased sort of our general agency and bonus arrangements with the carriers because for them to business with us on the basis. So, so far, we are just not seeing it impacting US on a consistent basis.

We are also seeing a continued trend of medical inflation. In summary that’s offset by a push towards capitated fees, but not as much as sort of the benefits that we are seeing on the increases, particularly in the small group.

Recently there was a huge study and the increases for healthcare costs were about 8.8% over 6% projected for last year. So that also continues to offset. As I said the performance on the health and welfare side of the Corporate Client Group business was quite good, and some of that’s driven by a move towards consulting arrangements and some of it is driven off of just ongoing improving and growth in the businesses.

Ed Spehar - Bank of America/Merrill Lynch

If in insurance we are looking to change commission levels, how much advance notice of that would you get, and have you received any indication of major partners that are changing commission levels going forward.

Doug Hammond

UHC had issued something this year. They’ve indicated to us that on group it’s in excess of 100 plus. They might start phasing it in, paying net of commission. Effective January 12, they announced that for the market.

Again on the larger groups, many of those relationships are on a consulting fee basis anyway and they do tend to sort of notify us. But it hasn’t been sort of across the board in our local markets that we are seeing announcements on commission reductions.

A lot of the commission reduction talk is driven off of the discussions around the MLR debate and right now there’s a pretty significant debate on including a proposed bill to extract the compensation outside of the MLR calculations.

So, where that all falls in terms of the MLR and what’s included or not is still uncertain.

Jessica Bibliowicz

But it also because there is no clear trend on it. One of the things that Doug talked about in his comment is to make sure that we really are trying to take advantage of regional scale as well cross-selling; so that we can build the revenues to the extent that there is more of an impact in the future.

But right now there just no clear trends.

Ed Spehar - Bank of America/Merrill Lynch

When you think about the cash level on the balance sheet that you want to hold; what are those targets versus what they were historically?

Donna Blank

You saw the year we were paying down the debt. We kept around $50 million each quarter which is probably the targeted level ultimately, the minimum level I would say.

Obviously we have a lot more than that at this point, and we therefore have the flexibility to do both the share repurchase as well as the acquisition.

Jessica Bibliowicz

The position to be in for shareholders.

Operator

Our next question comes from the line of Robert Roell with PioneerPath Capital. Please proceed with your question.

Robert Roell - PioneerPath Capital

Excellent news on the credit agreement. Couple of questions on it. The $50 million for 12 month period, how would you envision the cadence of buybacks. Would you envision it to be equal over four quarters or more lumpy that that?

Donna Blank

We’ll see how it goes. As we said we announce each quarter how we are progressing.

Robert Roell - PioneerPath Capital

Having excluded from fixed charges leaves you a lot of flexibility actually even more on getting the ratio reduced by half a point. So is there a timeframe where you might introduce a dividend in there? What are your thoughts on it?

Clearly most of the [capital return] will be buyback with 50 million out there. But what are your thoughts on the dividend specifically.

Jessica Bibliowicz

Obviously we are announcing at this point, but we do like to have in the flexibility of making future decisions regarding that, depending upon what should we think is in the better interest of the shareholders. So it’s a good position to be in, but there is nothing announced now, other than the 50 million buyback and the continued acquisition.

Robert Roell - PioneerPath Capital

On the businesses themselves; commission and fee expense, just a couple of questions. In CCG it was up as a percentage of revenue. Is there anything to that specifically? Would you expect that level that it was at to continue?

Doug Hammond

It’s driven almost exclusively by one business, and that business launched a business that basically outsources temporary employees who are at projects. Assuming the trajectory of that business remains and assuming the level of businesses consistent, than as a result of that business we would expect the commission levels to continue.

I would say though, just one cautionary point is that, that business is highly concentrated with one client; and if that client falls off, we could see a drop quickly in the commission expenses.

We don’t necessarily expect that to happen, but it’s a client that has quite a seasonal business, so it’s a possibility. So we’ll continue up there what’s going on with that business quarter-to-quarter, so you can get a sense of what’s happening on the commission side.

Robert Roell - PioneerPath Capital

Also staying within CCG; how big in dollars or percentage points was that actual change year-over-year in the contingent that moved the margin.

Doug Hammond

It was pretty significant. It was in the millions of dollars.

Robert Roell - PioneerPath Capital

Can you be more specific?

Doug Hammond

It was over $3 million.

Jessica Bibliowicz

Just a comment. In the third quarter of last year, we had same store in CCG of 9.6 and we normalized it back to the 5% level. So it’s sort of a similar type anomaly. You are just going to have some noise in there.

Donna Blank

Just higher margin worth of business, as you can get volatility.

Jessica Bibliowicz

We just want to be clear there. That’s where we said the 3% to 4% organic growth contemplates that and the general strength in the business.

Robert Roell - PioneerPath Capital

In ASG just a question on operating leverage and investment spending. It seems like with the business growing revenue that fast, there would certainly seem to be some room to allow some level of operating leverage to come through in the P&L versus investing all of it.

What are your thoughts on allowing at least some small level of positive operating leverage in that business in or at around before 2012.

Doug Hammond

It’s important to understand that that business historically was a business that solely catered to internal distribution. There was nothing built within that business that drove the recruitment and the management of services for a larger scale distribution force.

The strategic change in that business was that we would recruit externally and compete in the independent channel in addition to serving our internal distribution in order ultimately to be able to leverage the scale of the broker-dealer.

The first stage of that endeavor was a significant investment on the technology side; so that the business was able to manage and compete effectively in the market place.

The next state is really devoted towards the build out of a recruiting infrastructure to accelerate the reps and the advisors that come to the platform and what was virtually non-existent.

So the build out this year which is very important for the growth moving forward in 2012 is for us to build out those capabilities very aggressively this year and then move towards performance where there is more leverage and margin enhance in 2012.

Robert Roell - PioneerPath Capital

One other question on that business; the commission and fee expense in that business was also up in percentage terms against revenue. Is there something specific driving that?

Donna Blank

It was a marginal increase in the rate; and depending on how much of the revenue is coming and it will fluctuate a little bit.

Jessica Bibliowicz

But no repricing trend or anything like that.

Robert Roell - PioneerPath Capital

And my final question is on M&A. You talked about cash consideration, which is great, but can you remind us of what your thinking is on price paid and accretion and what you would ideally be hoping to accomplish in one of these transactions.

Jessica Bibliowicz

Price paid right now is sort of premature for us to talk about that. Obviously we do look through to accretion on these transactions. But also importantly we are looking to the strategic aspect of it, how an individual business can integrate in to NFP and provide particularly as we think about the world of property and casualty, cross-selling in to the existing relationships that we have in particularly the corporate mid-market.

So we look at it in two ways, obviously around the accretion but also in the strategic value to growing the franchise of NFP and taking advantage of the very strong corporate relationships that our firms have.

Operator

Our next question comes from the line of Dan Mazur with Harvest Capital. Please proceed with your question.

Dan Mazur - Harvest Capital

Great news on the buyback. Just wanted to see if there’s anything changed on your outlook of your cash flow generation this year. I think you previously hinted at the $ 100 million to $120 million range.

Donna Blank

We’ve talked about stable margins in the businesses and that would translate in to stable cash flow.

Dan Mazur - Harvest Capital

If that’s case in probably three or four quarters, we’ll be looking at the $80 million to $90 million of excess cash flow above that 50 million. It is the preferred message to kind of right size the cash position you think of dividend or do you just want to wait out and see how the M&A pipeline looks.

Donna Blank

What you’ve seen is we’ve been pretty deliberate and thoughtful in the way we’ve rolled out our capital plans and we’ll access the situation as it evolves. So right now we want a nice balance between the acquisitions and the share repurchase, as that evolves. We see what the future brings; and we’ll make our decision at that point.

Operator

Our next question comes as follow-up from the line of Ed Spehar with Bank of America/ Merrill Lynch. Please proceed with your question.

Ed Spehar - Bank of America/ Merrill Lynch

Jessica I know this is premature to talk about prices paid on acquisitions; but just a question. Historically you used to pay five to six times cash flow. I am wondering when you look at the deals historically that you did in property casualty.

Historically were they towards the upper or lower end of that range? Then a follow-up to that would be; considering there is some level of excitement about a potential cycle turn in property casualty, and I am wondering if you are seeing any impact in terms of how aggressive the competition is for any types of deals in the property casualty sector.

Jessica Bibliowicz

Both great point. I think that we did some (inaudible) but not too many primary acquisitions one can see, but all of the recurring revenue businesses were definitely at the high end of that five to six or higher.

But you are right, and I tried to capture some of this in my comment earlier. It is a competitive environment; so being disciplined you would view definitely view multiples at this point north of six; but being discipline is important.

But I also think NFP sort of a unique role as a partner to a property and casualty firm and its willingness to cross-sell to its corporate client base and to some of the opportunities that a company could have, not just on the potential hardening of that market, but also client acquisitions or partnerships with our firms.

So we think it’s a pretty interesting place for the right firm to actually build our future with.

Operator

This concludes our question-and-answer session. I would now like to hand the conference back over to Jessica Bibliowicz for closing remarks.

Jessica Bibliowicz

Thank you all very much. We really appreciate your attention on this call and wish you all a very good day. Thank you.

Operator

Thank your for attending today’s conference. This concludes the presentation; you may now disconnect and have a great day.

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