BRP Group, Inc. (BRP) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The filing identifies the registrant as BRP Group, Inc., a diversified U.S. insurance distribution firm operating through Middle Market, Specialty, MainStreet and Medicare groups.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Commissions and fees revenue | $232.5M | $119.7M | $475.3M | $272.5M |
| Operating income (loss) | $25.4M | $(13.5)M | $65.2M | $23.4M |
| Net income (loss) | $16.6M | $(20.4)M | $61.4M | $10.9M |
| Net income attributable to BRP Group | $8.6M | $(10.1)M | $31.5M | $5.2M |
| Diluted EPS | $0.14 | $(0.23) | $0.53 | $0.11 |
| Adjusted EBITDA / margin | $42.5M / 18% | $20.1M / 17% | $115.4M / 24% | $73.5M / 27% |
- Revenue increased 94% in Q2 and 74% year to date. Management attributed $84.2M of Q2 and $149.0M of first-half growth to acquired businesses within their first 12 months of ownership; organic revenue growth was $28.6M (24%) and $53.8M (20%), respectively.
- Q2 operating results included a $26.9M gain from a lower fair value of contingent earnout consideration; first-half gain was $32.5M. Interest-rate cap fair-value gains were $5.5M for Q2 and $21.3M year to date. These items materially affected reported earnings.
- Cash and cash equivalents were $183.4M at June 30, up from $138.3M at year-end; restricted cash was $100.5M. First-half operating cash flow was negative $4.6M, versus positive $49.4M a year earlier. Investing cash use was $389.9M, primarily for acquisitions; financing provided $450.7M.
- Total assets were $3.41B. Debt borrowings were $842.4M under the term loan and $525.0M under the revolver; the revolver commitment was increased to $600M, leaving $75M of nominal unused capacity at period-end. The company reported covenant compliance. The leverage covenant limit is 7.0x; the filing does not provide a clear actual leverage ratio.
Changes, outlook and notable items
- Two first-half acquisitions, Westwood Insurance Agency and Venture Captive Management, had aggregate consideration of $396.4M, including $379.4M cash consideration. They added $183.0M of goodwill and $212.2M of intangible assets. An additional acquisition for $17.3M upfront consideration closed August 1, 2022.
- Revenue growth was broad-based, led by Middle Market and Specialty. However, profit-sharing revenue was affected by higher loss ratios, particularly in Florida homeowners insurance. Management cited rising interest rates, market volatility and changing acquired-partner growth trends in reducing contingent earnout valuations.
- Management said available cash, operating cash flow and credit-facility availability should meet working-capital and commitment needs for the next 12 months and beyond, but expects it may need additional funding to continue acquisitions. No specific earnings or revenue guidance is provided.
- Interest expense increased with higher average borrowings. The company sold three interest-rate caps in May, increasing exposure to rate rises; management estimated a 100-basis-point increase in LIBOR and SOFR would raise annual credit-agreement interest expense by $11.6M, after considering the remaining cap.
- Disclosure controls and procedures were deemed ineffective as of June 30 because of material weaknesses previously reported in the 2021 Form 10-K. Management nevertheless concluded the interim financial statements fairly present the company’s financial position and results. It excluded 13 recent acquisitions from its controls assessment; those acquisitions represented approximately 30% of first-half revenue.
- A $5.5M commissions-expense error identified in Q1 was corrected as a Q2 out-of-period adjustment; it affected Q2 presentation but not first-half expense. Ordinary-course legal matters were not expected by management to have a material adverse effect. The company also committed $5.3M to the University of South Florida through 2028.
Investor facts to verify
- How much reported earnings growth is supported by recurring operations versus earnout and interest-rate-cap fair-value gains?
- Can the company sustain organic growth and margins as acquisition contributions mature, given first-half adjusted EBITDA margin declined to 24% from 27%?
- What are actual net leverage, interest-rate sensitivity and liquidity headroom after acquisition spending and contingent payments?
- What is the status and remediation timeline for the material weaknesses in internal control, including controls at recently acquired businesses?
- How will higher loss ratios in Florida homeowners insurance affect profit-sharing revenue, and what are the eventual cash costs of contingent earnouts?