BRP Group, Inc. — FY 2022 Form 10-K
Entity note: The filing identifies the registrant as BRP Group, Inc. (Nasdaq: BRP), not Baldwin Insurance Group, Inc. The reporting period is the fiscal year ended December 31, 2022; the filing does not provide standalone fourth-quarter results.
Business context
BRP is an insurance distribution firm operating across Middle Market, Specialty, MainStreet and Medicare. It earns commissions and fees from insurance placement, advisory services and managing general agency activities. The company reported more than 1.2 million clients, over 3,800 colleagues and approximately 125 offices in 23 states.
Financial performance
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Commissions and fees | $980.7 million | $567.3 million | Up 73%; $280.7 million of the increase came from recently acquired Partners and $132.6 million from organic growth. |
| Organic revenue growth | 23% | 22% | Non-GAAP measure; organic revenue was $700.1 million. |
| Operating loss | $(31.1) million | $(31.6) million | Nearly unchanged despite substantial revenue growth. |
| Net loss | $(76.7) million | $(58.1) million | Loss attributable to BRP Group was $(41.8) million; diluted loss per share was $0.74. |
| Adjusted EBITDA | $196.5 million | $112.9 million | Up $83.6 million; adjusted EBITDA margin remained 20%. Both are non-GAAP measures. |
| Net cash from operating activities | $(2.5) million | $40.1 million | Lower principally due to earnout payments and increased receivables. |
| Cash and cash equivalents | $118.1 million | $138.3 million | Also held $112.4 million of restricted cash, generally collected premiums payable to insurers. |
| Debt | $1.343 billion principal outstanding | — | $838.1 million term loan and $505.0 million revolver; $95.0 million revolver capacity remained available. |
Material changes and unusual items
- Three Partnerships were completed in 2022 for aggregate consideration of $413.8 million, including Westwood, Venture Captive Management and National Health Plans & Benefits Agency. Acquisitions contributed $82.1 million of revenue and $24.9 million of net income from their respective acquisition dates.
- Interest expense, net, rose 164% to $71.1 million, reflecting higher borrowing and rates. The applicable year-end rates were 7.79% on the term loan and 7.41% on the revolver. Management expected interest expense to increase further in 2023 as a result of rate hikes.
- Other income included a $26.2 million gain on interest-rate caps. The company reported a $32.3 million expense from changes in contingent consideration fair value.
- Cash used in investing was $414.4 million, mainly for acquisitions; cash provided by financing was $419.6 million, largely reflecting net revolver borrowing. Year-end cash, including restricted cash, was $230.5 million.
- Maximum potential future acquisition earnout payments were $954.3 million, versus recorded contingent earnout liabilities of $266.9 million. Some amounts may be settled in stock at the company’s option.
Outlook, risks and contingencies
- Management said 2023 Partnership activity was expected to be very limited, with opportunities pursued again in 2024 and beyond; future acquisitions may be episodic. No numerical revenue, earnings or cash-flow guidance is provided.
- Management believed cash, operating cash flow and available borrowings would be sufficient for working capital and commitments for the next 12 months and beyond. This outlook depends on cash generation and access to borrowing; the credit agreement restricts distributions and other actions.
- Key risks include variable-rate debt and refinancing exposure; insurance premium and commission cyclicality; acquisition integration and earnout obligations; competition for talent; regulatory requirements, especially for Medicare marketing; cybersecurity and privacy; and exposure to regional disasters, including hurricanes in Florida.
- BRP recorded a full valuation allowance against $103.9 million of deferred tax assets. Under its Tax Receivable Agreement, BRP Group may owe former LLC members 85% of realized tax savings, if any.
- Management and the auditor reported effective internal control over financial reporting at year-end. The 2022 assessment excluded three recently acquired businesses, which represented approximately 8% of revenue and less than 1% of total assets. Prior-year material weaknesses were reported as remediated.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. A $1.7 million settlement of restrictive-covenant disputes was accrued in 2022 and settled in the first quarter of 2023.
- Beginning in January 2023, MainStreet and Medicare were combined into one operating segment; the company also rebranded Middle Market and Specialty. 2023 quarterly filings were expected to present retrospectively revised segment information.
Investor verification priorities
- Reconcile GAAP losses and negative operating cash flow with non-GAAP adjusted EBITDA, including the adjustments used and their cash implications.
- Assess debt-service capacity under higher variable rates, including the effect of interest-rate caps, covenant headroom and the $95.0 million remaining revolver availability.
- Review the timing, assumptions and potential cash or share settlement of the $266.9 million recorded earnouts and up to $954.3 million of maximum contingent payments.
- Evaluate acquisition-related growth and integration, particularly the contribution of acquired businesses versus organic growth and the expected pause in 2023 Partnerships.
- Check subsequent filings for revised segment reporting and developments in tax assets, Tax Receivable Agreement obligations, and acquired-business internal controls.