Baldwin Insurance Group, Inc. annual report, FY2020

Business context and reporting period

This is BRP Group, Inc.’s Form 10-K for the fiscal year ended December 31, 2020—not a quarterly report. The filing describes an independent insurance distribution firm operating through Middle Market, Specialty, MainStreet and Medicare groups. It reported approximately 1,525 colleagues and operations in 18 states.

The filing identifies the registrant as BRP Group, Inc.; the requested company name, Baldwin Insurance Group, does not match the registrant name shown in this filing.

Financial performance and liquidity

Revenue increased 75% year over year: $81.3 million came from acquired Partners before their first 12 months of ownership, and $21.8 million from organic growth. Operating expenses rose 84% to $262.9 million, outpacing revenue growth. Adjusted EBITDA increased, but margin declined by three percentage points. GAAP diluted loss per share was $0.58, versus $0.48 in 2019.

At year-end, cash and cash equivalents were $108.5 million, restricted cash was $33.6 million, total assets were $1.53 billion, and total equity was $769.9 million. Total debt was $385.4 million on the balance sheet; the term loan’s outstanding principal was $399.0 million before unamortized debt costs. A $400 million revolving facility was undrawn at year-end. Operating cash flow was $36.8 million; investing cash outflow was $677.8 million, mainly reflecting acquisitions, and financing cash inflow was $711.9 million.

Material changes versus the prior year

• Completed 16 Partnerships for aggregate purchase consideration of approximately $1.0 billion, compared with six Partnerships costing $174.1 million in 2019. Acquisitions added $487.0 million of goodwill and $480.0 million of gross intangible assets.
• Raised $449.7 million of net primary proceeds through two 2020 public offerings and borrowed $400.0 million under a new term loan. The new senior secured facilities total $800.0 million, including a $400.0 million revolver.
• Goodwill increased to $651.5 million from $164.5 million; net intangible assets rose to $554.3 million from $92.5 million.
• Interest expense declined 26% to $7.9 million, while the 2019 $6.7 million loss on debt extinguishment did not recur.
• Contingent consideration fair-value expense rose to $20.5 million from $10.8 million. The Specialty group recorded a substantial increase in estimated earnout liability tied mainly to MSI’s growth.

Outlook, risks and unusual items

No specific consolidated revenue, earnings or margin guidance is provided. Management said it expected to continue its acquisition strategy and believed cash, operating cash flow and available borrowing capacity would fund working capital and commitments for the foreseeable future, while noting further funding may be needed for acquisitions. Management reported that Florida rate pressure could lift base commissions and fees in 2021 but might also reduce client retention. COVID-related limits on in-person Medicare sales were already reducing lead flow and affecting new-business sales for the 2021 Annual Enrollment Period.

Key risks include COVID-19 and economic disruption; insurance premium and commission cyclicality; acquisition execution and integration; regional concentration in the Southeast; dependence on insurers, including one partner responsible for about 13% of 2020 core commissions; and floating-rate debt. The credit agreement requires a Total First Lien Net Leverage Ratio no higher than 5.00:1.00 and Debt Service Coverage Ratio of at least 2.25:1.00; the company reported compliance at year-end. The filing estimates maximum future acquisition contingent payments of $527.1 million, including $164.8 million of recorded earnout liabilities.

Management concluded that four previously identified material weaknesses in internal control over financial reporting remained at December 31, 2020, and that disclosure controls were ineffective. The weaknesses concern accounting staffing, financial reporting policies and procedures, accounting for complex transactions, and IT general controls. The independent auditor gave an unqualified opinion on the financial statements but did not audit internal control effectiveness. Management reported no goodwill impairment in 2020; goodwill represented 43% of total assets. Ordinary-course legal matters were not expected by management to materially affect financial position, results or liquidity. The company does not currently pay dividends outside of tax payments.

Most important facts for investors to verify

• How much reported growth and future profitability depend on acquisitions versus sustainable organic growth, and whether acquired businesses meet integration and return expectations.
• The expected timing and cash impact of contingent earnouts, including potential payments materially above the amount currently recorded.
• Debt capacity, covenant headroom, floating-rate exposure and the ability to fund future acquisitions without material dilution or additional leverage.
• Progress remediating the four material weaknesses and the operational reliability of financial reporting and IT controls.
• Whether goodwill and acquired intangibles remain recoverable, and how COVID-19, Florida market conditions and Medicare enrollment restrictions affect revenue and retention.
• Non-GAAP measures alongside GAAP results: Adjusted EBITDA excludes items including interest, amortization, contingent consideration remeasurement and certain transaction costs.