BRP Group, Inc. (Nasdaq: BRP) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are to fiscal 2022. The filing identifies the registrant as BRP Group, Inc. (the company now referred to in the request as Baldwin Insurance Group). This is an annual report, not a standalone fourth-quarter report.
Business context
BRP distributes commercial and personal insurance, employee benefits, Medicare, and related services through three Operating Groups: Insurance Advisory Solutions (IAS), Underwriting, Capacity & Technology Solutions (UCTS), and Mainstreet Insurance Solutions (MIS). It reported nearly 4,000 colleagues and operations in 24 states. Growth combines organic sales with acquisitions (“Partnerships”) and investment in its technology-enabled MGA platform.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $1,218.6 million | $980.7 million | +24% |
| Commissions and fees | $1,211.8 million | $980.7 million | +24% |
| Operating loss | $(42.6) million | $(31.1) million | Loss widened |
| Net loss | $(164.0) million | $(76.7) million | Loss widened |
| Net loss attributable to BRP Group | $(90.1) million | $(41.8) million | Loss widened |
| Adjusted EBITDA (non-GAAP) | $250.2 million | $196.5 million | +27% |
| Adjusted EBITDA margin (non-GAAP) | 21% | 20% | +1 percentage point |
| Operating cash flow | $44.6 million | $(2.5) million | Improved |
Revenue growth included $161.7 million of organic growth in core commissions and fees, $44.7 million from 2022 Partnerships without comparable prior-year revenue, and $25.5 million more profit-sharing and other revenue. Organic revenue growth was 19%, versus 23% in 2022. GAAP operating margin was approximately negative 3.5%; net margin was approximately negative 13.5%.
Expenses rose 25% to $1,261.1 million, led by commissions, compensation and benefits (+27%). The company recorded a $61.1 million expense from increased fair value of contingent consideration, compared with $32.3 million in 2022. Net interest expense rose 68% to $119.5 million amid higher rates and borrowings. Other income/expense was $(0.7) million, versus $26.1 million of income in 2022, which included a gain on interest-rate caps.
Segment highlights: IAS revenue increased 13% to $630.5 million and operating income rose 8% to $23.3 million. UCTS revenue increased 37% to $420.1 million, but operating income fell 22% to $27.1 million as expenses grew faster. MIS revenue increased 49% to $234.7 million and operating income rose 62% to $29.5 million. Segment results include intercompany eliminations at Corporate and Other.
Liquidity, debt and financial position
- At year-end, cash and cash equivalents were $116.2 million and restricted cash was $104.8 million. The company reported $259.0 million of available revolving borrowing capacity.
- Debt borrowings were $998.7 million under Term Loan B and $341.0 million under the revolving facility, approximately $1.34 billion combined. Year-end rates were 8.97% and 8.46%, respectively; debt is floating-rate and secured by substantially all relevant assets.
- Cash interest paid was $105.4 million; the filing reports total 2023 debt servicing costs of $394.9 million, including principal repayments of $284.4 million.
- Operating cash flow was $44.6 million; investing cash outflow was $21.9 million and financing cash outflow was $26.2 million. Cash, cash equivalents and restricted cash totaled $227.0 million at year-end.
- Estimated contingent earnout liabilities were $276.5 million, including $10.8 million required to be paid in cash; the rest could be settled in cash or stock at the company’s option. Undiscounted expected earnout payments were $309.0 million, with maximum estimated exposure of $607.4 million.
- The company was in compliance with its debt covenants at December 31, 2023. It stated that cash, operating cash flow and available borrowing were expected to fund working capital and commitments for the next 12 months and beyond.
Material changes, outlook and notable items
- No Partnerships were completed in 2023. Management anticipated relatively little Partnership activity in 2024, with acquisitions expected to be episodic; three 2022 Partnerships contributed $143.6 million of 2023 revenue.
- Management expected interest expense to increase slightly in 2024 if rates remained high. The filing does not provide quantitative revenue, earnings or margin guidance.
- BRP classified its specialty wholesale broker business as held for sale. In January 2024 it signed a definitive sale agreement for approximately $58.9 million of proceeds, with closing expected March 1, 2024, subject to customary conditions. The expected gain or loss was not yet determined; the business remained in continuing operations pending sale.
- Seasonality is material: revenue and Adjusted EBITDA are typically highest in the first quarter and lowest in the fourth quarter. Accordingly, annual results should not be read as a direct measure of Q4 performance.
- Management cited organic sales, renewals, rate and exposure growth, and MGA platform performance as revenue drivers. Risks include premium and commission-rate softness, carrier concentration, elevated interest costs, debt and earnout obligations, acquisition integration, regulation (especially Medicare), cybersecurity, and exposure to natural catastrophes and regional concentration.
- Contingent earnout valuation is a significant estimate and was the auditor’s critical audit matter. Goodwill was $1.41 billion and intangible assets were $1.02 billion; no impairment was recorded in 2023. Deferred tax assets of $140.1 million were fully offset by a valuation allowance.
- The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. Management assessed disclosure controls as effective.
Important facts for investors to verify
- Reconcile the reported annual growth and non-GAAP Adjusted EBITDA with GAAP losses, including the substantial add-backs and contingent-consideration expense.
- Track cash generation against floating-rate debt, interest costs, covenant requirements, and earnout settlements; confirm actual available revolver capacity and post-year-end borrowing activity.
- Verify completion and net proceeds of the specialty wholesale broker sale, and how the divestiture affects revenue, earnings and debt reduction.
- Monitor organic growth, retention, profit-sharing commissions and MGA performance, including whether organic growth stabilizes after slowing from 23% to 19%.
- Assess contingent earnout assumptions and outcomes: the $276.5 million recorded liability compares with $607.4 million maximum exposure.
- Review subsequent filings for 2024 guidance, segment realignment, and the effects of the FounderShield transfer from UCTS to IAS.