Reliance Global Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The company acquires and operates insurance agencies, primarily in healthcare, Medicare, property and casualty insurance. It reported seven brokerage acquisitions to date; the quarter’s notable transaction was the May 1 acquisition of J.P. Kush and Associates.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $2.191 million, up 33% year over year | $4.515 million, up 24% |
| Operating loss | $1.105 million, versus $1.025 million | $1.590 million, versus $1.833 million |
| Net loss | $1.277 million, versus $1.138 million | $1.891 million, versus $2.118 million |
| Loss per share, basic and diluted | $0.12, versus $0.27 | $0.20, versus $0.51 |
| Operating margin | -50% (approximately) | -35% (approximately) |
- For the six-month period, operating cash flow was negative $1.493 million; investing cash flow was negative $1.762 million, principally reflecting the Kush acquisition and software development; financing cash flow was positive $9.558 million, largely from the February equity offering.
- At June 30, cash was $6.348 million and restricted cash was $0.484 million. Working capital was $6.205 million; current assets were $7.764 million and current liabilities $1.559 million.
- Long-term debt, including current maturities, was reported at $8.428 million, net of deferred financing costs. Related-party loans were $0.376 million; lease liabilities totaled approximately $1.190 million; and earn-out liabilities were $3.282 million.
- Total assets were $26.890 million, liabilities $13.677 million, and stockholders’ equity $13.214 million. Goodwill and net intangibles were $9.750 million and $6.747 million, respectively.
Changes versus prior period
- Revenue growth reflected agency acquisitions and acquired operations contributing for more of the period. Commission expense and salaries also rose, while quarterly G&A increased 11%, which the company attributed partly to Nasdaq-listing professional fees.
- Quarterly net loss widened despite higher revenue; for the six-month period, net loss narrowed. The company issued 2.070 million common shares and accompanying warrants in February and converted $3.8 million of related-party debt into common shares. Common shares outstanding rose to 10,944,439 at June 30, from 4,241,028 at year-end 2020.
- The Kush acquisition had a stated purchase price of $2.591 million, including $1.9 million cash, $50,000 in restricted shares, and contingent consideration. It added $0.989 million of goodwill.
- The filing revised prior-period information for immaterial corrections involving goodwill, retained earnings and accrued revenue, and reclassified purchased software to intangible assets.
Outlook, commentary and risks
- Management said the February offering and available liquidity were sufficient for the foreseeable future. It planned to pursue agency acquisitions, organic expansion, and growth of 5MinuteInsure.com. The platform was expected to launch in summer 2021; this is a stated expectation, not a quantified financial forecast.
- Management reported compliance with debt covenants at filing, while describing a prior covenant waiver and amendments. Oak Street debt carries financial and other covenants, including leverage limits and cross-default provisions; a default could permit acceleration.
- Revenue is seasonal, with Medicare and individual/family health enrollment concentrated in annual enrollment periods. Two carriers accounted for 58% of six-month revenue: Priority Health 33% and BlueCross BlueShield 25%. The company also described geographic concentration in Michigan, New Jersey, Montana and Ohio.
- Management said it had not seen a material COVID-19 financial impact, but could not reasonably estimate potential future effects. Other stated risks include acquisition execution and integration, access to financing, competition, cybersecurity and data privacy, regulation, and fluctuations in carrier commissions.
- No legal contingency was accrued; management said ordinary-course claims were not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty. The company reported no subsequent events through the filing date.
- The filing says disclosure controls were effective at June 30, while also noting a material weakness in the 2020 financial reporting and close process and a plan to address it by hiring an SEC reporting manager.
Important facts for investors to verify
- Reconcile the filing’s differing figures for offering proceeds: the cash flow statement reports $10.496 million from stock issuance, while MD&A describes approximately $11.1 million in net offering proceeds.
- Reconcile the operating cash-flow amount: the financial statement reports negative $1.493 million, while an MD&A cash-flow table gives negative $1.494 million.
- Review acquisition earn-out terms, valuation assumptions, goodwill and intangible-asset impairment exposure, and the performance of Kush and other acquired agencies.
- Monitor debt-covenant compliance, debt service, related-party financing and the company’s ability to fund its acquisition strategy without further dilution.
- Assess execution and commercial uptake of 5MinuteInsure.com, as well as carrier and regional revenue concentration and the status of the prior-period adjustments and control remediation.