Reliance Global Group, Inc. — Q1 2022 Form 10-Q
Business context and period. This unaudited quarterly report covers the three months ended March 31, 2022, with comparisons to Q1 2021. Reliance operates insurance agencies focused on healthcare and property and casualty insurance, pursuing acquisitions alongside organic growth. It acquired Medigap on January 10, 2022, expanding its healthcare agency and insurance-marketing operations.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $4.236 million | $2.324 million |
| Operating expenses | $6.634 million | $2.809 million |
| Operating loss | $(2.398) million | $(0.485) million |
| Net income (loss) | $9.340 million | $(0.614) million |
| Net cash used in operations | $(0.343) million | $(0.647) million |
- Revenue increased approximately 82%, mainly reflecting acquisitions and additional operations. Operating expenses rose approximately 136%; salaries, general and administrative costs, marketing, and amortization all increased.
- Operating margin was approximately negative 56.6%, compared with negative 20.9% in Q1 2021. The filing does not report a gross margin measure.
- Net income included a $11.846 million non-cash gain from recognition and fair-value changes in warrant liabilities. Accordingly, reported net income does not reflect operating profitability or cash generation. Basic EPS was $0.13; diluted EPS was a loss of $0.42, reflecting the warrant-related deemed dividend and diluted-share calculation.
- Cash and restricted cash totaled $5.976 million at quarter-end ($5.491 million unrestricted cash). Current assets were $7.270 million and current liabilities $7.835 million, for a working-capital deficit of approximately $0.565 million and a current ratio of about 0.93.
- Net cash used in investing was $18.392 million, principally the $18.139 million cash portion of the Medigap acquisition. Financing provided $20.090 million, including $17.853 million net private-placement proceeds and $2.475 million from warrant exercises.
- At March 31, 2022, long-term debt was $7.779 million, including $0.918 million current; related-party loans were $0.343 million. Lease liabilities totaled $1.305 million, earn-out liabilities $4.221 million, and warrant liabilities $23.660 million. The warrant amount is a fair-value liability, not conventional borrowing.
Material changes and notable items
- Medigap was acquired for stated consideration of $20.096 million, comprising $18.139 million cash and 606,037 restricted shares. The preliminary allocation included $19.199 million goodwill; acquired Medigap generated $1.177 million revenue and a reported $0.148 million loss from January 10 through March 31.
- Compared with December 31, 2021, goodwill rose to $29.249 million and net intangibles to $11.895 million, largely due to Medigap. Stockholders’ equity moved from a $26.066 million deficit to $11.252 million, principally reflecting the January financing and warrant-related accounting. Total liabilities fell to $40.016 million, in part as the year-end warrant commitment was replaced by issued warrant liabilities; this should not be read simply as debt repayment.
- In January, Reliance raised approximately $20 million gross through a private placement of common and preferred shares and warrants. To address a Nasdaq listing-rule deficiency associated with the share issuances, the company exchanged 3,276,929 common shares for Series C prepaid warrants and issued 1,222,498 Series D prepaid warrants without additional consideration. The Series D warrants generated a $6.930 million deemed dividend for EPS purposes.
- Revenue concentration is notable: Priority Health accounted for 30% and LTC Global for 25% of Q1 2022 revenue; BlueCross BlueShield accounted for 10%. Management warns that loss of a significant customer could materially harm results.
Outlook, risks, and contingencies
- Management plans continued insurance-agency acquisitions and organic growth, including geographic expansion and market-share growth. It described its financial position and ability to raise capital as sufficient for the foreseeable future, despite the working-capital deficit and negative operating cash flow. No quantified earnings or revenue guidance was provided.
- On April 26, 2022, after quarter-end, the company closed the $7.5 million Barra & Associates acquisition. Funding included $6.52 million borrowed from Oak Street; the loan bears a variable rate initially at Prime plus 2.75%, then Prime plus 2.50%, and matures in 10 years.
- Risks include acquisition integration and execution, competition (including direct sales by insurers and technology entrants), customer concentration, seasonal enrollment patterns, and COVID-19-related operational uncertainty. Management said it had not observed a material COVID-19 financial impact but could not estimate future effects.
- Warrant and earn-out valuations rely on significant unobservable assumptions; changes can materially affect reported earnings. The company reported no material legal contingency accrual and stated that management did not expect ordinary-course claims to have a material adverse effect. Management assessed disclosure controls as effective at quarter-end.
Investor verification priorities
- Assess underlying operating performance separately from the $11.846 million non-cash warrant gain, warrant-related deemed dividend, and acquisition-related costs.
- Verify the terms, potential dilution, and future fair-value effects of the Series B, C, and D warrants and preferred shares.
- Review liquidity and debt capacity, including the working-capital deficit, operating cash burn, earn-out obligations, and Barra acquisition borrowing.
- Monitor Medigap integration, acquisition returns, goodwill and intangible-asset valuation, and the company’s ability to convert acquired revenue into operating profit and cash flow.
- Reconcile period-comparison figures: the financial statements report Q1 2021 revenue of $2.324 million, while one MD&A table displays $2.374 million. The statements and revenue note show $2.324 million.