Business context and reporting period
BRP Group, Inc. (the registrant named in the filing; the request metadata identifies Baldwin Insurance Group, Inc.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. BRP is a U.S. insurance distribution and services firm operating through Middle Market, Specialty, MainStreet and Medicare groups. It reported approximately 2,100 colleagues, 100 offices in 18 states and more than 600,000 clients.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Commissions and fees | $119.7 million | $51.3 million | $272.5 million | $105.4 million |
| Operating income (loss) | ($13.2 million) | ($6.8 million) | $23.1 million | ($1.5 million) |
| Net income (loss), consolidated | ($20.1 million) | ($7.9 million) | $10.5 million | ($3.2 million) |
| Net income (loss) attributable to BRP Group | ($9.8 million) | ($3.6 million) | $4.9 million | ($2.1 million) |
| Adjusted EBITDA (non-GAAP) | $20.4 million | $8.4 million | $73.1 million | $22.4 million |
| Adjusted EBITDA margin (non-GAAP) | 17% | 16% | 27% | 21% |
Revenue increased 133% in Q2 and 158% in the first half. Management attributed the increases to acquisitions (“Partnership Contribution”) and organic growth. Organic revenue growth was 32% in Q2 and 23% for the first half, compared with 19% and 12%, respectively, in the prior-year comparable periods. GAAP diluted EPS was ($0.22) in Q2 and $0.11 for the first half; Adjusted Diluted EPS, a non-GAAP measure, was $0.14 and $0.58, respectively.
Operating cash flow for the first half was $49.4 million, versus $43.6 million a year earlier. Investing used $27.6 million, compared with $227.4 million, largely reflecting lower acquisition cash spending; financing provided $112.2 million, versus $317.1 million. Cash and cash equivalents were $224.5 million at June 30; restricted cash was another $51.5 million. Current assets were $490.8 million and current liabilities $354.8 million.
Debt at June 30 included a $500 million term loan and $20 million drawn on the revolving facility. The term loan bore interest at 4.00%; the revolver borrowing rate was 2.34%. The company reported covenant compliance. It had $178.3 million of recorded contingent earnout liabilities, with maximum estimated exposure of $531.0 million. Management said cash, operating cash flow and available credit should fund working capital and commitments for the foreseeable future, while noting that continued acquisition activity may require additional debt or equity funding.
Material changes versus prior comparable periods
- Acquisition-related revenue contributed $51.9 million of Q2 and $143.1 million of first-half revenue increases; organic growth contributed $16.5 million and $23.9 million, respectively.
- Q2 consolidated net loss widened to $20.1 million from $7.9 million. The quarter included a $13.3 million increase in fair value of contingent consideration, higher interest expense and higher compensation and amortization costs.
- First-half results shifted to consolidated net income of $10.5 million from a $3.2 million loss. Interest expense rose to $11.5 million from $1.6 million.
- Middle Market accounted for 64% of Q2 revenue; Specialty revenue growth was supported by renter’s insurance and Connected Risk Solutions. Specialty’s MGA of the Future policies in force increased 36% year over year to 605,295.
- In June, BRP refinanced its existing term loan with a new $500 million term loan. In August, after quarter-end, it increased revolving-facility commitments from $400 million to $475 million.
Outlook, risks and unusual items
The filing provides no specific numerical revenue or earnings guidance. Management described acquisitions as a central long-term growth strategy and said it intended to continue pursuing them; results may be affected by acquisition timing, integration and seasonality. The company typically has its strongest Adjusted EBITDA and margins in the first quarter and weakest in the fourth.
Management said the financial effect of COVID-19 remained uncertain. Continuing protocols had constrained Medicare agents’ in-person sales activity, and management cited higher loss ratios and challenges in Florida homeowners insurance as pressure on profit-sharing revenue. It also noted that insurance pricing cycles, interest rates, acquisition funding and execution, and contingent earnout valuations may affect results. The company had interest-rate caps and estimated that, considering the caps, a 100-basis-point LIBOR increase would raise annual interest expense by $2.0 million.
Five acquisitions completed in the first half for aggregate purchase consideration of $41.1 million. Subsequent to quarter-end, BRP announced acquisitions including RogersGray, FounderShield and The Capital Group; purchase-price allocations were not yet finalized. Ordinary-course legal matters were not expected by management to have a material adverse effect. The company reported that disclosure controls and procedures were not effective at June 30 because of previously disclosed material weaknesses; remediation was in progress and not yet considered complete.
Important facts for investors to verify
- Assess how much reported growth reflects acquired businesses versus sustainable organic growth, and how acquisition integration affects margins and cash generation.
- Review the size, timing and valuation sensitivity of contingent earnouts, including the $178.3 million recorded liability and $531.0 million maximum exposure.
- Monitor debt, interest costs, covenant headroom and the need for additional financing to support acquisitions.
- Track whether the reported internal-control material weaknesses are fully remediated and controls become effective.
- Distinguish GAAP earnings and cash flows from management’s non-GAAP Adjusted EBITDA and Adjusted Diluted EPS measures.