BRP Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. The filing is for BRP Group, Inc. (Nasdaq: BRP); this differs from the company name in the request metadata.
Business context
BRP is a U.S.-focused insurance distribution and services firm operating in Middle Market, Specialty, MainStreet and Medicare. Its growth strategy combines organic expansion with acquisitions (“Partnerships”). The company completed 11 acquisitions during the first nine months of 2020, with aggregate purchase consideration of $317.7 million.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Commissions and fees revenue | $65.8 million | $38.4 million | $171.3 million | $101.3 million |
| Operating income (loss) | ($6.7 million) | $1.5 million | ($8.2 million) | $13.5 million |
| Net income (loss), consolidated | ($7.6 million) | ($2.3 million) | ($10.8 million) | $4.5 million |
| Net income (loss) attributable to BRP Group, Inc. | ($3.3 million) | $0 | ($5.4 million) | $0 |
| Adjusted EBITDA (non-GAAP) | $10.9 million | $7.4 million | $33.3 million | $22.7 million |
| Adjusted EBITDA margin (non-GAAP) | 17% | 19% | 19% | 22% |
Revenue rose 71.5% in Q3 and 69.1% year to date. Management attributed $19.6 million of Q3 and $54.6 million of year-to-date revenue growth to acquisitions; organic revenue growth was 20% and 15%, respectively. GAAP losses reflected, among other items, higher operating costs and fair-value increases in acquisition earnouts. Basic and diluted loss per share attributable to BRP Group was $0.10 for Q3 and $0.22 for the nine-month period.
Cash flow and liquidity: Nine-month operating cash flow was $30.8 million, versus $14.6 million in 2019. Investing activities used $235.2 million, primarily for acquisitions; financing activities provided $191.4 million. Cash and cash equivalents were $50.2 million at September 30, 2020, with restricted cash of $7.8 million. The company had $101.0 million outstanding on its revolving credit facility at quarter-end; the applicable rate was 2.19%, and the company reported compliance with its covenants.
Total assets were $722.8 million, including $344.4 million of goodwill and $203.6 million of net intangible assets. Contingent earnout liabilities totaled $85.4 million at fair value, with maximum estimated exposure of $233.6 million.
Material changes and unusual items
- Acquisition activity drove substantial growth in revenue, goodwill, intangible assets and debt. The 11 acquired businesses contributed $37.1 million of revenue and $3.0 million of net income for the period since their acquisition dates.
- Contingent consideration fair-value expense was $6.5 million in Q3 2020 and $12.7 million for the nine months, compared with $0.5 million and a $3.2 million gain, respectively, in the comparable 2019 periods.
- On June 29, BRP completed a public offering of 13.225 million Class A shares at $13.25 per share, generating $166.5 million in net proceeds before certain related unit repurchases described in the filing.
- After quarter-end, on October 14, the company entered into new senior secured facilities totaling $800 million: a $400 million term loan due 2027 and a $400 million revolving facility due 2025. The term loan proceeds were used in part to repay the prior credit agreement. The filing expects interest expense to increase under the new agreement.
- On November 5, BRP announced an agreement to acquire Insgroup, with closing expected November 30 subject to conditions. Stated consideration included $100.4 million cash, 154,695 Class A shares and 3,790,020 LLC units, subject to an election affecting the equity mix.
Outlook, commentary and risks
The filing provides no quantified financial guidance. Management said it intends to continue its acquisition strategy and believes cash, operating cash flow and available borrowing capacity will fund working capital and commitments for the foreseeable future, while noting that further funding may be needed for continued acquisitions.
Management cautioned that COVID-19’s duration and economic effects were uncertain and could reduce client exposures, new business and retention. Remote work was implemented for most colleagues. The company also cited possible impacts on Medicare sales during the 2021 enrollment period. Management expected Florida rate pressure to support base commissions and fees toward late 2020 and into 2021, but warned that it could also harm client retention; profit-sharing revenue could remain pressured.
Disclosure controls and procedures were deemed ineffective at September 30, 2020 because four previously identified material weaknesses in internal control over financial reporting remained. Management reported remediation work was ongoing. The company also disclosed ordinary-course legal matters, which management did not expect to have a material adverse effect.
Investor verification priorities
- Assess the sources and durability of revenue growth, distinguishing acquired-business contributions from organic growth and considering COVID-related effects.
- Review acquisition integration, purchase accounting and earnout assumptions, including the $85.4 million recorded liability and $233.6 million maximum estimated exposure.
- Verify the post-quarter-end debt draw, repayment of the prior facility, borrowing availability, interest costs and compliance with the new credit agreement’s covenants.
- Track progress in remediating the four material weaknesses and improving disclosure controls.
- Evaluate the quality of earnings and cash generation alongside non-GAAP adjustments; adjusted EBITDA excludes items including amortization, contingent consideration changes and certain acquisition-related costs.
- Monitor COVID-19 effects, Florida market conditions, retention, Medicare enrollment and the announced Insgroup acquisition’s closing and financing.