BRP Group, Inc. — Q1 2021 Form 10-Q
Filing identity: The supplied filing names BRP Group, Inc. as the registrant, rather than Baldwin Insurance Group, Inc. The reporting period is the three months ended March 31, 2021; amounts below are in U.S. dollars.
Business context and results
BRP is an insurance distribution and services firm operating through Middle Market, Specialty, MainStreet, and Medicare. Growth is driven by organic expansion and acquisitions, which the company calls “Partnerships.” Management notes that results are seasonal, typically strongest in the first quarter.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Commissions and fees revenue | $152.8 million | $54.2 million |
| Operating income | $36.3 million | $5.3 million |
| Net income | $30.6 million | $4.7 million |
| Net income attributable to BRP Group | $14.6 million | $1.5 million |
| Basic / diluted EPS | $0.33 / $0.32 | $0.08 / $0.07 |
| Adjusted EBITDA (non-GAAP) | $52.7 million | $14.0 million |
| Adjusted EBITDA margin (non-GAAP) | 35% | 26% |
Financial position and cash flows
- Cash and cash equivalents were $90.5 million at March 31, 2021; restricted cash was an additional $32.0 million. Cash and cash equivalents declined $17.9 million from year-end 2020.
- Operating cash flow was $3.3 million, versus $5.0 million in Q1 2020. Investing used $18.4 million, mainly for acquisitions; financing used $4.4 million. Cash, cash equivalents, and restricted cash decreased $19.5 million during the quarter.
- Debt principal outstanding under the term loan was approximately $398 million, with a 4.75% interest rate. The balance sheet reports current and long-term debt totaling approximately $384.8 million, net of unamortized discount and issuance costs. The $400 million revolving facility had no borrowings at quarter-end.
- Total assets were $1.58 billion and total liabilities were $771.4 million. Premiums, commissions, and fees receivable rose to $206.6 million from $155.5 million at year-end, reflecting revenue growth and collection timing.
Material changes and drivers
- Revenue increased $98.7 million year over year. Acquisitions made during the prior twelve months and Q1 2021 contributed $91.2 million of the increase; reported organic revenue growth was 14%.
- Middle Market revenue rose $88.5 million, largely from acquisitions. Specialty revenue increased $7.7 million, including organic growth in renter’s insurance. MainStreet revenue was nearly flat, while Medicare revenue rose $3.0 million, primarily from acquisitions.
- Higher loss ratios, particularly in Florida homeowners markets, reduced contingent/profit-sharing revenue in Middle Market and MainStreet. Medicare sales were also affected by COVID-19 social-distancing protocols.
- Commissions, employee compensation, and benefits increased $54.8 million, while other operating expenses rose $8.7 million. Amortization increased $6.9 million, principally from acquired businesses. Net interest expense increased $5.1 million following the 2020 debt refinancing.
- The company completed two acquisitions for total consideration of $26.7 million: LeaseTrack and Medicare Help Now. Acquired goodwill was $17.4 million; maximum potential earnout consideration for these deals was $11.0 million.
Outlook, risks, and unusual items
- Management said cash, operating cash flow, and available credit were expected to fund working capital and commitments for the foreseeable future, but additional funding may be needed to continue its acquisition strategy. Funding could include more debt or equity; availability and terms are not assured.
- On May 7, 2021, after quarter-end, the company amended its credit agreement: the maximum first-lien net leverage covenant increased from 5.00x to 6.00x, and the minimum debt-service coverage covenant was removed. The company reported compliance with the covenants in effect at March 31.
- Interest-rate caps covered $300 million of debt. The filing estimates that a 100-basis-point LIBOR increase at quarter-end would raise annual interest expense by $1.0 million, considering the caps and loan terms.
- Contingent earnout liabilities were $165.3 million; management estimated maximum exposure of $525.7 million. Their fair value depends on Level 3 assumptions, including acquired businesses’ sales and profitability projections.
- COVID-19 remained a source of uncertainty, with potential effects on client activity, exposure units, new business, and company initiatives. Management said the financial impact could not be accurately predicted.
- Management concluded disclosure controls and procedures were not effective at March 31, 2021 because of material weaknesses in internal control over financial reporting identified in the 2020 Form 10-K; remediation was ongoing.
- The company reported ordinary-course legal claims and said their disposition was not expected to have a material adverse effect. Q1 results also included a $1.5 million benefit from a decrease in the fair value of contingent consideration.
Important facts for investors to verify
- Confirm the registrant’s identity and whether this filing corresponds to the company named in the request.
- Assess how much reported growth and profitability depends on acquired businesses versus organic performance, and how acquisition integration affects expenses and cash generation.
- Review the May 2021 covenant amendment, leverage and debt-service capacity, interest-rate exposure, and available revolver capacity.
- Track receivables and operating cash conversion, contingent earnout estimates and potential payments, and funding needs for future acquisitions.
- Review the status of internal-control remediation and the filing’s referenced risk factors and COVID-19 uncertainties.