Business context and reporting period
The filing is BRP Group, Inc.’s Form 10-K for the fiscal year ended December 31, 2019, filed March 24, 2020. The request metadata names Baldwin Insurance Group, but the filing identifies the registrant as BRP Group, Inc. (Nasdaq: BRP). BRP is an insurance distribution firm with Middle Market, Specialty, MainStreet and Medicare operating groups. Its October 2019 IPO and related reorganization made BRP Group the public holding company for Baldwin Risk Partners, LLC.
Key financial results
Amounts below are in millions of dollars unless otherwise noted. Fiscal-year comparisons are 2019 versus 2018; Q4 figures are unaudited.
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue (commissions and fees) | $137.8 | $79.9 |
| Operating income (loss) | $(5.1) | $9.5 |
| Net income (loss), consolidated | $(22.5) | $2.7 |
| Net income (loss) attributable to BRP Group, Inc. | $(8.7) | $(0.6) |
| Adjusted EBITDA (non-GAAP) | $28.5 | $16.0 |
| Adjusted EBITDA margin (non-GAAP) | 21% | 20% |
| Organic revenue growth (non-GAAP) | 10% | 18% |
| Net cash from operating activities | $12.0 | $11.8 |
| Net cash used in investing activities | $(101.0) | $(42.5) |
| Net cash from financing activities | $152.1 | $35.6 |
At year-end, cash and cash equivalents were $67.7 million, restricted cash was $3.4 million, total assets were $398.8 million and total liabilities were $161.5 million. Debt outstanding was $40.4 million, all under the revolving JPMorgan facility; the Villages related-party facility had been repaid and terminated. The JPMorgan facility had $225 million of capacity at year-end, with $65 million limited to working-capital uses and the remainder available for permitted acquisitions. The balance carried a 3.81% variable rate at year-end and was secured by substantially all company assets.
Fourth-quarter 2019 revenue was $36.6 million, operating loss was $18.5 million and consolidated net loss was $26.9 million. The company says results are seasonal, with Adjusted EBITDA and its margin typically highest in Q1 and lowest in Q4.
Material changes versus 2018
- Revenue rose 73%, primarily from 2019 Partnerships, which contributed $43.0 million, organic growth of $7.8 million and a full-year contribution from 2018 acquisitions. Organic revenue growth slowed to 10% from 18%.
- Operating expenses increased 103% to $142.9 million, exceeding revenue. Notable drivers included acquisition-related costs and compensation, higher amortization, $10.8 million of expense from changes in contingent consideration fair value, and IPO-related expenses.
- Net loss replaced 2018 net income. In addition to operating losses, 2019 included $10.6 million of net interest expense and a $6.7 million loss on debt extinguishment, largely associated with refinancing and repayment of the Villages facility.
- Six Partnerships were completed during 2019 for an aggregate purchase price of $174.1 million. Goodwill increased to $164.5 million from $65.8 million, and intangible assets, net, increased to $92.5 million from $29.7 million.
- The IPO generated $241.4 million of net proceeds after discounts and offering expenses as described in the filing. Proceeds supported the reorganization, repayment of Villages debt and acquisition funding.
Outlook, risks and unusual items
- No specific numerical revenue, earnings or margin guidance is provided. Management describes Partnerships as a central growth strategy and expects ongoing public-company and operating costs to increase.
- Management expected higher loss ratios in Middle Market and MainStreet to reduce contingent revenue in the first half of 2020, with base commissions and fees expected to increase toward late 2020 and into 2021.
- COVID-19 was identified as a material uncertainty. The filing says its financial impact could not then be accurately predicted. On March 12, 2020, the company increased facility capacity to $300 million and drew $20 million for working capital in response to the pandemic.
- Material risks include acquisition integration and funding, insurance premium and commission cycles, contingent commission variability, dependence on insurer partners, geographic concentration in the Southeast, catastrophe exposure, Medicare regulation, cybersecurity and retention of key personnel.
- Contingent earnout liabilities were $48.8 million at year-end, with maximum estimated exposure of $103.9 million. The 2019 change in fair value of contingent consideration was a $10.8 million expense, driven principally by revised expectations for MSI.
- The company reported four continuing material weaknesses in internal control over financial reporting and concluded its disclosure controls were not effective at December 31, 2019. Management was implementing remediation; the external auditor expressed no opinion on internal-control effectiveness. The financial-statement audit opinion was unqualified.
- The Tax Receivable Agreement requires payment to pre-IPO LLC members of 85% of qualifying realized tax savings. Pre-IPO LLC members held approximately 69% of BRP’s LLC units at year-end; the dual-class structure and stockholders agreement give them substantial influence over corporate decisions.
- Management stated that ordinary-course legal matters were not expected to have a material adverse effect on financial position, results or liquidity.
Important facts for investors to verify
- Reconcile GAAP losses with Adjusted EBITDA and assess the recurring cash and economic costs excluded from that non-GAAP measure.
- Review organic growth, acquisition contributions, integration progress and the valuation and earnout assumptions for recent Partnerships, particularly MSI.
- Check post-year-end cash, debt draws, facility availability, covenant compliance and the impact of COVID-19 on operations and insurer/client activity.
- Track remediation of the four material weaknesses and whether subsequent filings report effective controls.
- Assess dilution and governance implications of LLC-unit exchanges, Class B voting power, acquisition consideration in equity and the 85% Tax Receivable Agreement.