BRP Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. The filing identifies the registrant as BRP Group, Inc.; the request metadata uses Baldwin Insurance Group, Inc.
Business context and results
BRP is an insurance distribution and services company operating through Middle Market, Specialty, MainStreet and Medicare. Growth includes acquisitions (“Partnerships”) as well as organic expansion. Three acquisitions closed in the first nine months of 2022 for aggregate consideration of $415.4 million, including Westwood, Venture Captive Management and National Health Plans & Benefits Agency.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Commissions and fees | $259.4 million | $135.6 million | $734.7 million | $408.1 million |
| Operating income (loss) | $(29.9) million | $(17.2) million | $35.3 million | $6.2 million |
| Net income (loss) | $(46.7) million | $(24.6) million | $14.7 million | $(13.7) million |
| Net income (loss) attributable to BRP | $(24.8) million | $(13.2) million | $6.7 million | $(8.0) million |
| Adjusted EBITDA / margin | $41.9 million / 16% | $19.2 million / 14% | $157.3 million / 21% | $92.7 million / 23% |
Revenue rose approximately 91% in Q3 and 80% year to date. Management attributed the increases to acquired businesses and organic growth: acquisitions contributed $85.8 million of Q3 growth and $234.8 million year-to-date; organic growth contributed $38.0 million and $91.8 million, respectively. Organic revenue growth was 28% for Q3 and 22% year to date. Adjusted EBITDA and other adjusted measures are non-GAAP; BRP cautions they have limitations and should not replace GAAP results.
Cash flow, debt and liquidity
- Operating cash flow was $(16.7) million for the first nine months of 2022, versus $27.0 million in 2021. The company cited cash payments on contingent earnouts, higher receivables and revenue growth.
- Investing cash flow was $(407.5) million, principally reflecting $387.9 million of cash paid for business combinations and $15.4 million of capital expenditures.
- Financing cash flow was $447.0 million, including $492.0 million of net revolving-credit borrowings and $47.2 million of earnout payments within the purchase-price accrual.
- At September 30, cash and cash equivalents were $158.6 million and restricted cash was $92.0 million. BRP reported $73.0 million of available revolving-credit capacity.
- Debt included $840.2 million under the term loan and $527.0 million under the revolving facility. Applicable rates were 6.26% and 6.07%, respectively. The company was in compliance with its credit covenants.
- Management stated that cash, operating cash flow and available borrowing capacity should be sufficient for working capital and commitments over the next 12 months and beyond; it may seek additional debt or equity financing to support growth.
Material changes, outlook and risks
- Interest expense rose to $20.8 million in Q3 and $45.7 million year to date, compared with $6.9 million and $18.4 million, reflecting higher borrowings and benchmark rates. Following the sale of three interest-rate caps, a 100-basis-point rate increase was estimated to add $10.7 million to annual interest expense; about $1.1 billion of debt remained exposed to rate movements.
- Other income included $25.4 million of year-to-date gains on interest-rate caps, including a realized gain associated with cap sales. The nine-month GAAP profit also reflected a $10.8 million gain from a reduction in contingent-consideration fair value; Q3 instead recorded a $21.7 million expense from an increase in that fair value.
- Estimated contingent earnout liabilities were $229.6 million; maximum potential future contingent payments were approximately $980.5 million. Estimates depend on projections and other Level 3 inputs, and actual settlements may differ.
- BRP accrued $1.5 million for a probable settlement of disputes alleging restrictive-covenant violations, with an estimated loss range of $1.5 million to $1.8 million. Management said other ordinary-course legal matters were not expected to have a material adverse effect.
- The company committed $5.3 million to the University of South Florida through October 2028; the filing anticipated the board chair would fund half. No payments had been made by quarter-end.
- Management reported that disclosure controls and procedures were not effective at September 30, 2022 because of material weaknesses previously described in the 2021 Form 10-K. Management nevertheless concluded the financial statements were fairly presented. Nine recent Partnerships were excluded from the internal-control assessment under SEC staff guidance.
- The filing gives no specific financial guidance. Management describes continued acquisition activity and investment in organic growth, talent, technology and its MGA platform as strategic priorities. Results are seasonal, with adjusted EBITDA and margins typically highest in Q1 and lowest in Q4.
Important facts for investors to verify
- Progress and effectiveness of remediation of the disclosed material weaknesses, and the financial controls of recently acquired businesses.
- Whether organic growth and margins can be sustained as acquisition contributions roll off and compensation, technology and integration costs increase.
- Cash conversion, receivables collection and the cash requirements of contingent earnouts and other acquisition obligations.
- Exposure to floating interest rates, available revolver capacity and covenant headroom as debt costs rise.
- Assumptions supporting contingent earnout valuations and the outcome of the restrictive-covenant disputes.