Patriot National Reports Results for the Fourth Quarter and

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News Desk 2018
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Patriot National Reports Results for the Fourth Quarter and Year Ended December 31, 2016; Provides 2017 Outlook

FORT LAUDERDALE, Fla., March 14, 2017 (GLOBE NEWSWIRE) -- Patriot National, Inc . (NYSE: PN ), (“Patriot National” or “the Company”) a leading provider of technology and outsourcing solutions, today announced its financial results for the fourth quarter and full year ended December 31, 2016.

Financial Summary:

For the Quarter Ended December 31, 2016: (Comparisons correspond to the prior-year period)

  • Total Revenues decreased 15.3% to $51.5 million
  • Total Fee Income decreased 15.4% to $51.5 million
  • GAAP Net Loss of $20.3 million, or $0.65 per diluted share
  • Adjusted Loss 1 of $1.4 million, or $0.05 per diluted share
  • Adjusted EBITDA 1 of $6.3 million, down 57.0%
  • Operating Cash Flow 1 of $1.3 million, down 76.3%

For the Year Ended December 31, 2016: (Comparisons to the corresponding prior-year period)

  • Total Revenues of $232.8 million and Fee Income of $233.0 million, up 11.0% and 11.1%, respectively
  • GAAP Net Loss of $0.8 million, or $0.03 per share
  • Adjusted Earnings 1 of $10.3 million, or $0.38 per diluted share, down 48.6% and 49.3%, respectively
  • Adjusted EBITDA 1 of $44.1 million, down 14.4%
  • Operating Cash Flow 1 of $31.7 million, down 14.6%

1 References to non-GAAP financial measures as defined in Regulation G of SEC rules, including Adjusted EBITDA, Adjusted Earnings and Operating Cash Flow, are included in this press release. A reconciliation of this supplemental non-GAAP financial information to the Company's GAAP information is contained in the accompanying financial tables. We present such non-GAAP supplemental financial information, as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company’s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, the Company’s consolidated financial statements.

Recent Developments:

  • On December 1, 2016, Patriot National expanded its relationship with one of its major, non-related party carrier clients and now provides them with a wide variety of services.
  • On December 13, 2016, Patriot National launched a regional program with QBE Insurance Group to write workers' compensation and employers' liability insurance policies for hospitality, healthcare, property management and manufacturing accounts in 12 states.
  • On February 27, 2017, Patriot National announced that an independent special committee of its Board of Directors entered into an agreement with Guarantee Insurance Group (“GIG”) and Steven Mariano, Chairman, Chief Executive Officer and majority owner of GIG, and its wholly-owned subsidiary Guarantee Insurance Company (“GIC”).  This agreement expands the exclusivity and extends the term by not less than ten years of our existing service agreements with GIC and includes an agreement as to certain corporate governance and financial covenants with respect to GIG, GIC (subject to regulatory approval) and the Company in exchange for $30 million. The transaction was approved by the independent special committee of the Company’s Board of Directors and by the independent directors of the Board. The special committee engaged separate independent legal counsel and financial advisors in connection with the agreement.
  • Four new independent directors were appointed to Patriot National’s Board of Directors including James O’Brien and Sean Bidic on November 17, 2016, and Michael Purcell and Jeffrey Rohr on January 5, 2017.

Management Commentary:

“Our results for the fourth quarter and the year were disappointing and, frankly, we did not execute as well as we hoped,” said Steven M. Mariano, Chief Executive Officer of Patriot National. In 2017, we have dedicated all of our resources to delivering profitable organic growth from our core businesses – workers’ compensation insurance services and technology. We believe a focused approach combined with improved execution and expense management across the Company is the most realistic way to improve our financial performance. We are optimistic about 2017. We have a solid plan and a very strong platform to build upon.”

Operating Results

Three Months Ended December 31, 2016

Total fee income was $51.5 million for the fourth quarter of 2016, a decrease of 15.4% compared with $60.9 million in the fourth quarter of 2015. The decrease in fee income during the fourth quarter of 2016 reflects weaker than expected results across the Company’s businesses. Organic fee income was $50.3 million for the fourth quarter of 2016, a decrease of 17.3% compared with $60.9 million in the fourth quarter of 2015. “Organic fee income” is defined as fee income earned after the first four quarters of fee income generated by each acquisition.

Total expenses for the fourth quarter of 2016 were $84.6 million, compared with $59.6 million in the fourth quarter of 2015. The increase was largely attributable to a $17.7 million goodwill impairment charge relating to the 2015 acquisition of Global HR Research and a write down of $3.7 million of other assets, primarily related to amounts owed to the Company under a third-party settlement agreement. In addition, fourth quarter 2016 expenses included $2.7 million in transaction bonuses paid to certain executives upon closing the new credit facility, and incurred in connection with our efforts to seek and evaluate strategic alternatives, and $2.0 million in costs related to extinguishment of debt.

Fourth quarter 2016 GAAP net loss was $20.3 million, or $0.65 per diluted share, compared to a net loss of $5.4 million, or $0.19 per diluted share in the fourth quarter of 2015.  Weighted average diluted shares were 31.3 million on a GAAP basis, which includes 4.9 million shares relating to the warrants associated with the PIPE financing as discussed in the Company’s previous 10-Q (the “Warrants”); and 26.4 million shares excluding the Warrants on a non-GAAP basis respectively. It is important to note that pursuant to the Back-to-Back Agreement between the Company and Mr. Mariano, Mr. Mariano has agreed to tender any shares back to the Company for any shares delivered by the Company pursuant to the Warrant Agreement.

Adjusted Loss for the fourth quarter of 2016 was $1.4 million, or $0.05 per diluted share, compared with Adjusted Earnings of $5.5 million, or $0.19 per diluted share, in the fourth quarter of 2015.  In calculating the weighted average diluted shares, the Warrants previously mentioned have been excluded. Patriot National defines Adjusted Earnings and Adjusted Earnings Per Share as net income (loss) adjusted for cost for debt payoff, non-cash stock compensation costs, net realized gains (losses) on investments, increase (decrease) in fair value of warrant redemption liability, acquisition costs, claims settlements cost, litigation fees, severance expense, public offering costs, costs for strategic alternatives, goodwill impairment, write-down of other assets, and the income tax effect related to reconciling items.   

Adjusted EBITDA for the fourth quarter of 2016 was $6.3 million, compared to Adjusted EBITDA of $14.6 million for the fourth quarter of 2015. Patriot National defines Adjusted EBITDA as net income (loss) adjusted for income tax, interest, depreciation and amortization, net realized gains (losses) on investments, increase (decrease) in fair value of warrant redemption liability, costs for debt payoff, non-cash stock compensation costs, acquisition costs, claims settlement cost, litigation fees, severance expense and public offering costs, and costs for strategic alternatives, goodwill impairment, and write-down of other assets.

Operating Cash Flow for the fourth quarter of 2016 was $1.3 million, compared to $5.6 million for the fourth quarter of 2015. Patriot National defines Operating Cash Flow as Adjusted EBITDA less income tax expense, interest expense and capital expenditures.

As of December 31, 2016, the Company had $91.9 million in cash and approximately $238.5 million of debt outstanding, net of deferred loan fees.

Full Year Ended December 31, 2016

Total revenues were $232.8 million for the twelve months ended December 31, 2016, compared with $209.7 million in the same period a year ago.  Total fee income was $233.0 million for the twelve months ended December 31, 2016, an increase of 11.1% compared to $209.8 million for the corresponding prior-year period.  The increase in fee income during the twelve months ended 2016 was primarily due to acquisitions closed during the twelve months ended December 31, 2016 and 2015. Organic fee income of $204.1 million declined 2.7% year-over-year. “Organic fee income” is defined as fee income earned after the first four quarters of fee income generated by each acquisition.

Total expenses for the twelve months ended December 31, 2016 were $252.3 million, compared with $210.1 million in the corresponding prior-year period. The increase was largely attributable to a $17.7 million goodwill impairment charge relating to our 2015 acquisition of Global HR Research and write down of $3.7 million of other assets, primarily related to amounts owed to us under a third-party settlement agreement. In addition, 2016 expenses included $2.7 million in transaction bonuses paid to certain executives upon closing the new credit facility, and incurred in connection with our efforts to seek and evaluate strategic alternatives, $2.0 million in costs related to extinguishment of debt and expenses attributable to acquisitions closed during the twelve months ended December 31, 2016 and 2015.

For the twelve months ended December 31, 2016, GAAP net loss was $0.8 million or $0.03 per share, compared with GAAP net loss of $5.4 million, or $0.20 per share, for the twelve months ended December 31, 2015. Adjusted Earnings for the twelve months ended December 31, 2016 were $10.3 million, or $0.38 per diluted share, compared with Adjusted Earnings of $20.1 million, or $0.75 per diluted share, in the prior-year period.

For the twelve months ended December 31, 2016, Adjusted EBITDA decreased to $44.1 million, down from $51.5 million for the twelve months ended December 31, 2015. Operating Cash Flow for the twelve months ended December 31, 2016 was $31.7 million, compared to Operating Cash Flow of $37.1 million for the same period a year ago.

 

Summary Financial Results
 
  Financial Summary
  (In thousands, except per share amounts)
  (Unaudited)
                           
                           
      Three Months Ended December 31,   Twelve Months Ended December 31,
                           
  In thousands, except per share amounts     2016       2015     Change     2016       2015     Change
  Total Revenues  GAAP   $ 51,535     $ 60,872     (15.3 %)   $ 232,834     $ 209,720     11.0 %
                           
  Total Fee Income   $ 51,473     $ 60,852     (15.4 %)   $ 233,030     $ 209,764     11.1 %
  Organic   $ 50,319     $ 60,852     (17.3 %)   $ 204,143     $ 209,764     (2.7 %)
  Acquisitions   $ 1,154     $ -     n/a   $ 28,887     $ -     n/a
                           
  Net Income (Loss)  GAAP   $ (20,253 )   $ (5,367 )   n/a   $ (817 )   $ (5,375 )   n/a
  Earnings (Loss) per diluted share   $ (0.65 )   $ (0.19 )   n/a   $ (0.03 )   $ (0.20 )   n/a
                           
  Adjusted EBITDA (1)   $ 6,292     $ 14,626     (57.0 %)   $ 44,055     $ 51,464     (14.4 %)
  Adjusted EBITDA margins     12.2 %     24.0 %   (49.1 %)     18.9 %     24.5 %   (22.9 %)
                           
  Adjusted Earnings (Loss) (1)   $ (1,394 )   $ 5,453     n/a   $ 10,315     $ 20,069     (48.6 %)
  Adjusted Earnings (Loss) Diluted EPS   $ (0.05 )   $ 0.19     n/a   $ 0.38     $ 0.75     (49.3 %)
                           
  Operating Cash Flow (1)   $ 1,336     $ 5,636     (76.3 %)   $ 31,681     $ 37,117     (14.6 %)
                           

(1) Reconciliation of GAAP to Non-GAAP Financial Measures is provided in the following financial tables. 

Outlook

Patriot National is providing its full year 2017 Outlook for anticipated results. The Outlook provided is based on a number of assumptions that it believes are reasonable at the time of this press release. Information regarding potential risks that could cause the actual results to differ from these forward-looking statements is set forth below and in Patriot National’s filings with the Securities and Exchange Commission.

For the full year ending December 31, 2017, Patriot National currently expects the following financial results.

             
          2017  
  In millions:       Guidance Range  
             
  Total Fee Income       $224 - $236  
             
  GAAP Net Income       $1 - $5  
             
  Adjusted Earnings       $3 - $7  
             
  Adjusted EBITDA       $45 - $52  
             
  Operating Cash Flows       $21 - $25  
             

Patriot National expects fee income in the first half of 2017 to be slightly down from 2016 levels with growth occurring in the back half of the year. In addition, 2017 guidance assumes no contribution from new carriers or M&A activity.

Conference Call and Webcast

A conference call and audio webcast with analysts and investors will be held on Tuesday, March 14, 2017 at 9:00 a.m. Eastern Time, to discuss the Company’s results.

  • Live conference call: 1-844-881-0136 (domestic) or 1-412-317-6745 (international)
  • Conference call replay available through April 14, 2017: 1-877-344-7529 (domestic) or 1-412-317-0088 (international)
  • Replay access code: 10101555
  • Live and archived webcast: ir.patnat.com

About Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, this press release provides information regarding Adjusted earnings and earnings per share (non-GAAP adjusted), Operating Cash Flow and Adjusted EBITDA.

A reconciliation of GAAP net income (loss) to both Adjusted earnings and Adjusted EBITDA can be found in the accompanying table. Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. Patriot National compensates for these limitations by relying primarily on its GAAP results and using Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA only as a supplement.

We have presented Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA in this release because they are key measures used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans.  In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA can provide useful measures for period-to-period comparisons of our core business.  Accordingly, we believe that Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under GAAP.  Some of these limitations are as follows:

  • Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;  
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or tax payments that may represent a reduction in cash available to us;  
  • Operating Cash Flow does not reflect changes in working capital that may represent a reduction in cash available to us; and  
  • Other companies, including companies in our industry, may calculate Adjusted Earnings or Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.

About Patriot National

Patriot National, Inc. is a national provider of comprehensive technology and outsourcing solutions that help insurance companies and employers mitigate risk, comply with complex regulations and save time and money. Patriot National provides general agency services, technology outsourcing, software solutions, specialty underwriting and policyholder services, claims administration services, self-funded health plans and employment pre-screening services to its insurance carrier clients, employers and other clients. Patriot National is headquartered in Fort Lauderdale, Florida.  For more information about Patriot National, please visit www.patnat.com .

Forward Looking Statements

This press release may include statements that may be deemed to be forward-looking statements, including statements regarding our belief that a focused approach combined with improved execution and expense management across the Company is the most realistic way to improve our financial performance, our belief regarding expense savings, and expectations regarding fee income and our 2017 outlook. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “positioned,” “outlook,” “Guidance,” and similar expressions are used to identify these forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties, and there are important factors that could cause actual results to differ materially from those indicated in these statements, including the following:  the effect on our business if Guarantee Insurance terminates its agreement with us, ceases to offer workers’ compensation products, ceases operations, including due to bankruptcy, liquidity or other financial difficulties or failure to comply with insurance regulations; potential conflicts of interest resulting from Mr. Mariano’s control of Guarantee Insurance; past and potential future net losses; potential further impairment of goodwill and intangible assets; potential inability to meet our debt service obligations; the effect on our business of restrictive covenants under our Credit Agreement and the potential failure to comply with such covenants; a potential adverse outcome of the litigation filed against us; a potential adverse impact on our operations of general economic and labor market conditions and trends in the insurance industry, including cyclicality; potential decrease of premium rates, on which a significant portion of our fee revenue is based; potential decline of workers’ compensation claims  in frequency or severity; development of unfavorable market conditions or regulatory environment in Florida, California, New Jersey, Georgia, New York and Pennsylvania, where our business is concentrated; potential inability to grow our business organically; potential failure to sustain our relationships with independent retail agencies; potential changes in the healthcare industry; potential failure to comply with applicable regulation or adapt to new regulatory and legislative initiatives; inability to compete effectively; failure or inadequate performance of our information processing systems; cyber-attacks or other security breaches involving our or our clients’ computer systems;, as well as those matters contained in our filings with the Securities and Exchange Commission. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance or events and that results may differ materially from statements made in or suggested by the forward-looking statements contained in this press release. Any forward-looking statement that we may make in this press release speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments.

FINANCIAL TABLES TO FOLLOW

                       
  Patriot National, Inc.    
  Consolidated Statement of Operations    
  (In thousands, except per share amounts)    
  (Unaudited)    
                       
                       
      Three Months Ended December 31,   Twelve Months Ended December 31,    
                       
  In thousands, except per share amounts     2016       2015       2016       2015      
                       
  Revenues                    
  Total Fee Income   $ 51,473     $ 60,852     $ 233,030     $ 209,764      
  Net investment income     62       50       99       135      
  Net losses on investments     -       (30 )     (295 )     (179 )    
  Total Revenues     51,535       60,872       232,834       209,720      
                       
  Expenses                    
  Salaries and related expenses     24,640       23,846       94,070       77,628      
  Commission expense     10,235       10,323       46,227       35,879      
  Outsourced services     3,252       4,611       14,377       12,234      
  Other operating expenses     12,399       9,341       41,732       34,593      
  Acquisition costs     725       2,409       2,133       6,781      
  Interest expense, including deferred loan fees     4,091       1,186       8,434       3,917      
  Depreciation and amortization     4,538       4,502       18,698       14,577      
  Stock compensation expense     1,357       1,996       5,095       10,787      
  Costs related to extinguishment of debt     2,010       -       2,010       13,681      
  Goodwill impairment     17,683       -       17,683       -      
  Write-down of other assets     3,654       -       3,654       -      
  Decrease in fair value of warrant redemption liability     -       (25 )     -       (1,410 )    
  Public offering costs     -       1,229       104       1,229      
  Increase (Decrease) in FV of Earn-out liability     -       827       (1,913 )     827      
  Gain on financing transaction     -       (609 )     -       (609 )    
  Total Expenses     84,584       59,636       252,304       210,114      
                       
  Net income (loss) before income tax expense     (33,049 )     1,236       (19,470 )     (394 )    
  Income tax (benefit) expense     (12,714 )     6,604       (18,674 )     4,871      
  Net Income (Loss) Including Non-Controlling Interest in Subsidiary     (20,335 )     (5,368 )     (796 )     (5,265 )    
  Net income attributable to non-controlling interest in subsidiary     (82 )     (1 )     21       110      
  Net Income (Loss)   $ (20,253 )   $ (5,367 )   $ (817 )   $ (5,375 )    
                       
  Earnings (Loss) Per Common Share                    
  Basic   $ (0.65 )   $ (0.19 )   $ (0.03 )   $ (0.20 )    
  Diluted     (0.65 )     (0.19 )     (0.03 )     (0.20 )    
                       
  Weighted Average Common Shares                    
  Basic     31,312       27,668       30,240       26,425      
  Diluted     31,312       27,668       30,240       26,425      
                       
                       
  Consolidated Balance Sheets            
  (In thousands)            
  (Unaudited)            
                       
                       
      December 31,   December 31,            
  In thousands     2016       2015              
  Assets                    
  Current Assets                    
  Cash   $ 91,893     $ 8,372              
  Short term investments     -       3,173              
  Total cash and investments     91,893       11,545              
  Restricted cash     18,549       16,055              
  Fee income receivable     8,915       8,159              
  Fee income receivable from related party     46,757       27,036              
  Net receivable from related parties     3,609       499              
  Advance on facilitation agreement     1,411       -              
  Other current assets     1,954       2,046              
  Total current assets     173,088       65,340              
  Fixed assets, net     5,682       5,092              
  Goodwill     105,298       118,141              
  Intangible assets     70,819       75,681              
  Forward purchase asset     28,655       28,120              
  Deferred tax asset, net     22,905       -              
  Advance on facilitation agreement     -       2,000              
  Other long term assets     11,057       11,428              
  Total Assets   $ 417,504     $ 305,802              
                       
  Liabilities and Stockholders' Equity (Deficit)                    
  Liabilities                    
  Deferred claims administration services income   $ 9,233     $ 10,639              
  Net advanced claims reimbursements     3,436       1,835              
  Income taxes payable     2,457       2,996              
  Current earn-out payable     2,252       10,556              
  Accounts payable, accrued expenses and other liabilities     46,955       32,809              
  Dividend payable     66,137       -              
  Deferred purchase consideration     -       6,128              
  Revolver borrowings outstanding     -       18,032              
  Current portion of notes payable     7,000       5,500              
  Current portion of capital lease obligation     -       2,232              
  Total current liabilities     137,470       90,727              
  Earn-out payable     5,940       1,827              
  Notes payable, net of deferred loan fees of $11,538 and $2,352     231,462       98,648              
  Warrant redemption liability     28,655       28,120              
  Total liabilities     403,527       219,322              
                       
  Stockholders' Equity (Deficit)                    
  Total Patriot National, Inc. Stockholders' Equity (Deficit)     14,191       86,715              
  Less non-controlling interest     (214 )     (235 )            
  Total Stockholders' Equity (Deficit)     13,977       86,480              
  Total Liabilities and Stockholders' Equity (Deficit)   $ 417,504     $ 305,802              
                       
                       
  Reconciliation of GAAP to Non-GAAP Financial Measures    
  (In thousands)    
  (Unaudited)    
                       
      Three Months Ended December 31,   Twelve Months Ended December 31,    
                       
  In thousands     2016       2015       2016       2015      
                       
  Reconciliation from Net Income (Loss) to Adjusted EBITDA:                    
  Net Income (Loss)   $ (20,253 )   $ (5,367 )   $ (817 )   $ (5,375 )    
  Income tax (benefit) expense     (12,714 )     6,604       (18,674 )     4,871      
  Interest expense     4,091       1,186       8,434       3,917      
  Depreciation and amortization     4,538       4,502       18,698       14,577      
  EBITDA     (24,338 )     6,925       7,641       17,990      
  Net losses on investments     -       30       295       179      
  Severance expense     317       1,844       2,020       2,016      
  Stock compensation expense     1,357       1,996       5,095       10,787      
  Acquisition costs (1)     725       2,409       2,133       6,781      
  Costs for strategic alternatives (2)     4,164       -       4,164       -      
  Claims settlement cost (3)     -       -       449       -      
  Litigation fees (4)     720       -       720       -      
  Costs related to extinguishment of debt (5)     2,010       -       2,010       13,681      
  Goodwill impairment (6)     17,683       -       17,683       -      
  Write-down of other assets (7)     3,654       -       3,654       -      
  Decrease in fair value of warrant redemption liability     -       (25 )     -       (1,410 )    
  Increase (Decrease) in fair value of earn-out liability     -       827       (1,913 )     827      
  Gain on financing transaction (8)     -       (609 )     -       (609 )    
  Gain on disposal of fixed assets     -       -       -       (7 )    
  Public offering costs (9)     -       1,229       104       1,229      
  Adjusted EBITDA   $ 6,292     $ 14,626     $ 44,055     $ 51,464      
                       
  Calculation of Adjusted EBITDA margins:                    
  Total Fee Income   $ 51,473     $ 60,852     $ 233,030     $ 209,764      
  Adjusted EBITDA   $ 6,292     $ 14,626     $ 44,055     $ 51,464      
  Adjusted EBITDA margins     12.2 %     24.0 %     18.9 %     24.5 %    
                       
  Total Fee Income   $ 51,473     $ 60,852     $ 233,030     $ 209,764      
  Adjusted EBITDA Less transaction bonuses paid to executives of $2.7 million   $ 3,630     $ 14,626     $ 41,393     $ 51,464      
  Adjusted EBITDA margins     7.1 %     24.0 %     17.8 %     24.5 %    
                       
                       
                       
      Three Months Ended December 31,   Twelve Months Ended December 31,    
                       
  In thousands, except per share amounts     2016       2015       2016       2015      
                       
  Reconciliation from Net Income (Loss) to Adjusted Earnings:                    
  Net Income (Loss)   $ (20,253 )   $ (5,367 )   $ (817 )   $ (5,375 )    
  Net income attributable to non-controlling interest in subsidiary     (82 )     (1 )     21       110      
  Income tax (benefit) expense     (12,714 )     6,604       (18,674 )     4,871      
  Net income (loss) before income tax expense     (33,049 )     1,236       (19,470 )     (394 )    
                       
  Adjustments to Net income (loss) before income tax expense:                    
  Net losses on investments     -       30       295       179      
  Severance expense     317       1,844       2,020       2,016      
  Stock compensation expense     1,357       1,996       5,095       10,787      
  Acquisition costs (1)     725       2,409       2,133       6,781      
  Costs for strategic alternatives (2)     4,164       -       4,164       -      
  Claims settlement cost (3)     -       -       449       -      
  Litigation fees (4)     720       -       720       -      
  Costs related to extinguishment of debt (5)     2,010       -       2,010       13,681      
  Goodwill impairment (6)     17,683       -       17,683       -      
  Write-down of other assets (7)     3,654       -       3,654       -      
  Decrease in fair value of warrant redemption liability     -       (25 )     -       (1,410 )    
  Increase (Decrease) in fair value of earn-out liability     -       827       (1,913 )     827      
  Gain on financing transaction (8)     -       (609 )     -       (609 )    
  Gain on disposal of fixed assets     -       -       -       (7 )    
  Public offering costs (9)     -       1,229       104       1,229      
  Total     30,630       7,701       36,414       33,474      
                       
  Adjusted net income (loss) before income tax expense     (2,419 )     8,937       16,944       33,080      
  Income tax (benefit) expense at statutory rate     (943 )     3,485       6,608       12,901      
  Adjusted net income (loss) including non-controlling interest in subsidiary     (1,476 )     5,452       10,336       20,179      
  Net income attributable to non-controlling interest in subsidiary     (82 )     (1 )     21       110      
  Adjusted Earnings (Loss)   $ (1,394 )   $ 5,453     $ 10,315     $ 20,069      
                       
  Calculation of Adjusted Earnings (Loss) Per Common Share                    
  Basic   $ (0.05 )   $ 0.20     $ 0.39     $ 0.76      
  Diluted     (0.05 )     0.19       0.38       0.75      
                       
  Weighted Average Common Shares Outstanding                    
  Basic     26,423       27,668       26,660       26,425      
  Diluted     26,423       28,015       26,860       26,652      
                       
  Statutory Tax Rate     39.0 %     39.0 %     39.0 %     39.0 %    
                       
  Adjusted Earnings (Loss), less transaction bonuses paid to executives of $2.7 million:                
  Adjusted net income (loss) before income tax expense, less transaction   bonuses paid to executives of $2.7 million     (5,081 )     8,937       14,282       33,080      
  Income tax (benefit) expense at statutory rate     (1,982 )     3,485       5,570       12,901      
  Adjusted net income (loss) including non-controlling interest in subsidiary     (3,099 )     5,452       8,712       20,179      
  Net income attributable to non-controlling interest in subsidiary     (82 )     (1 )     21       110      
  Adjusted Earnings (Loss) less transaction bonuses paid to executives   of $2.7 million   $ (3,017 )   $ 5,453     $ 8,691     $ 20,069      
                       
  Calculation of Adjusted Earnings (Loss) Per Common Share                    
  Basic   $ (0.11 )   $ 0.20     $ 0.33     $ 0.76      
  Diluted     (0.11 )     0.19       0.32       0.75      
                       
                       
                       
  Reconciliation from Net Income (Loss) to Operating Cash Flow:                    
  Net Income (Loss)   $ (20,253 )   $ (5,367 )   $ (817 )   $ (5,375 )    
  Income tax (benefit) expense     (12,714 )     6,604       (18,674 )     4,871      
  Interest expense     4,091       1,186       8,434       3,917      
  Depreciation and amortization     4,538       4,502       18,698       14,577      
  EBITDA     (24,338 )     6,925       7,641       17,990      
  Net losses on investments     -       30       295       179      
  Severance expense     317       1,844       2,020       2,016      
  Stock compensation expense     1,357       1,996       5,095       10,787      
  Acquisition costs (1)     725       2,409       2,133       6,781      
  Costs for strategic alternatives (2)     4,164       -       4,164       -      
  Claims settlement cost (3)     -       -       449       -      
  Litigation fees (4)     720       -       720       -      
  Costs related to extinguishment of debt (5)     2,010       -       2,010       13,681      
  Goodwill impairment (6)     17,683       -       17,683       -      
  Write-down of other assets (7)     3,654       -       3,654       -      
  Decrease in fair value of warrant redemption liability     -       (25 )     -       (1,410 )    
  Increase (Decrease) in fair value of earn-out liability     -       827       (1,913 )     827      
  Gain on financing transaction (8)     -       (609 )     -       (609 )    
  Gain on disposal of fixed assets     -       -       -       (7 )    
  Public offering costs (9)     -       1,229       104       1,229      
  Adjusted EBITDA     6,292       14,626       44,055       51,464      
  Less: Income tax expense     -       (6,604 )     -       (4,871 )    
  Less: Cash interest expense     (3,634 )     (1,019 )     (7,504 )     (3,544 )    
  Less: Purchase of fixed assets and other long-term assets     (1,322 )     (1,367 )     (4,870 )     (5,932 )    
  Operating Cash Flow (10)   $ 1,336     $ 5,636     $ 31,681     $ 37,117      
                       
  Operating Cash Flow less transaction bonuses paid to executives of $2.7 million (10)   $ (1,326 )   $ 5,636     $ 29,019     $ 37,117      
                       
                       

(1)  Acquisition costs were primarily comprised of salaries for a dedicated internal Mergers and Acquisitions staff, payments pursuant to the Acquisition Incentive Plan, professional costs and other fees associated with finding and closing acquisitions. Salaries and incentive payments represented $0.3 million and $2.1 million for the three months ended December 31, 2016 and 2015, respectively, and $1.4 million and $5.1 million for the twelve months ended December 31, 2016 and 2015, respectively. (2)  Costs for strategic initiatives primarily represents (a) $1.5 million of third party costs incurred in connection with our efforts to seek and evaluate strategic alternatives, including legal and banking fees and (b) $2.7 million in transaction bonuses paid to certain executives in connection with the consummation of our new credit facility in 2016. (3)  Claims settlement represents amounts paid to settle a penalty assessment resulting from a compliance audit by the state of California for the fiscal years of 2012 through 2015. (4)  Legal fees incurred in connection with the Delaware litigation. (5)  Costs related to extinguishment of debt include $2.0 million write-off of deferred financing fees in connection with the repayment of the senior secured credit facility with BMO Harris Bank N.A. (“BMO”) on November 9, 2016, $4.3 million of early payment penalties and $9.3 million associated with the write-off of related deferred financing fees and original issue discounts in connection with the repayment of all outstanding debt under our prior loan agreement with the PennantPark Entities, as lenders and our prior credit agreement with UBS Securities LLC and the lenders party thereto on January 22, 2015, with a portion of the proceeds from our initial public offering. (6)  Goodwill impairment represents a reduction in the fair value of assets for Global HR Research LLC, which was acquired on August 1, 2015. (7)  Write-down of other assets represents a $3.1 million reserve for amounts owed to us under a third-party settlement agreement and $0.6 million reserve related to assets acquired from Brandywine Insurance Advisors, LLC on May 22, 2015. (8)  Gain on financing transaction represents the change in fair value as a result of the rescission and exchange agreements. (9)  Public offering costs incurred related to our secondary offering that was withdrawn on October 20, 2015. (10)  Operating Cash Flow is defined as Adjusted EBITDA less income tax expense, interest expense, and capital expenditures.

2017 Guidance Non-GAAP Reconciliation
             
          2017  
  In millions:       Guidance Range  
             
  Total Fee Income       $224 - $236  
             
  GAAP Net Income       $1 - $5  
             
  Adjusted Earnings       $3 - $7  
             
  Adjusted EBITDA       $45 - $52  
             
  Operating Cash Flows       $21 - $25  
             
             
             
             
  Reconciliation from Net Income to Adjusted Earnings:          
  Net Income       $1 - $5  
  Income tax expense       1 - 3  
  Income before tax       2 - 8  
  Adjustments to net income before tax:          
  Stock compensation expense       3  
  Adjusted net income before tax       5 - 11  
  Income tax expense at statutory rate       2 - 4  
  Adjusted Earnings       $3 - $7  
             
  Reconciliation from Net Income to Adjusted EBITDA:          
  Net Income       $1 - $5  
  Interest expense       19 - 20  
  Income tax expense       1 - 3  
  Depreciation and amortization       21  
  Stock compensation expense       3  
  Adjusted EBITDA       $45 - $52  
             
  Reconciliation from Net Income to Operating Cash Flow:          
  Net Income       $1 - $5  
  Interest expense       19 - 20  
  Income tax expense       1 - 3  
  Depreciation and amortization       21  
  Stock compensation expense       3  
  Adjusted EBITDA       45 - 52  
  Less: Income tax expense       (1) - (3)  
  Less: Cash interest expense       (20) - (21)  
  Less: Purchase of fixed assets and other long-term assets       (4 )  
  Operating Cash Flow       $21 - $25  

Media and Investor Contact: Cindy Campbell Director of Investor Relations Patriot National, Inc. (954) 670-2907 CCampbell@patnat.com

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