Reliance Global Group, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed April 4, 2024. This is an annual report, not a standalone fourth-quarter results report. The company manages insurance agencies and operates the RELI Exchange and 5MinuteInsure digital platforms, emphasizing acquisitions and organic growth.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue (commission income) | $13.73 million | $11.76 million |
| Operating loss | $13.88 million | $6.58 million |
| Net income (loss) | $(12.01) million | $6.47 million |
| Adjusted EBITDA (non-GAAP) | $(0.69) million | $(2.77) million |
| Cash used in operating activities | $0.85 million | $3.19 million |
| Cash and restricted cash, year-end | $2.74 million | $1.91 million |
| Working capital | $1.19 million | $(4.58) million |
| Long-term debt, gross | $12.42 million | $13.47 million |
- Revenue increased 17%, which management attributed mainly to organic growth and agency acquisitions. Commission expense rose 19%; salaries were broadly flat, while general and administrative expense fell 18%.
- Operating loss included a $7.59 million goodwill impairment. Net results also included a $5.50 million noncash gain from changes in warrant fair value and a $1.98 million loss from discontinued operations. FY2022 net income included a much larger $29.06 million warrant fair-value gain; therefore, reported net income comparisons are significantly affected by noncash items.
- Adjusted EBITDA is a company-defined non-GAAP measure. Its loss narrowed by about $2.08 million, or 75%, year over year. The filing attributes the improvement to revenue growth, lower G&A and acquisition-related costs, and the One-Firm cost-streamlining approach.
- Year-end cash includes $1.41 million of restricted cash; reported unrestricted cash was $1.33 million. Current assets were $4.38 million and current liabilities were $3.19 million. Financing cash flow was $0.97 million, including equity and warrant proceeds, partly offset by debt and other repayments.
- Total assets were $23.02 million, total liabilities $15.87 million, and stockholders’ equity $7.15 million at December 31, 2023. Cash used in investing activities was not required to fund an acquisition in 2023; the company received $0.90 million from selling its remaining NSURE investment and spent about $0.19 million on property, equipment and intangible assets.
Business developments and material changes
- The company reported commission revenue of $10.83 million from medical insurance, $2.74 million from property and casualty, and $0.17 million from life insurance. Priority Health accounted for 35% of revenue and BlueCross BlueShield 15%.
- The company discontinued and wound down Medigap in 2023 after recurring losses and greater-than-expected chargebacks. A settlement produced $2.76 million of net recovery, but the company recorded a $4.83 million Medigap goodwill impairment and other asset write-offs. Medigap-related operations reported a $1.98 million loss for the year.
- Year-end goodwill was $6.69 million, down from $14.29 million, following the separate $7.59 million impairment of continuing-operations goodwill. Intangible assets were $11.04 million, compared with $13.44 million a year earlier.
- The company completed a 1-for-15 reverse stock split in February 2023 and raised approximately $3.45 million net in a March private placement. It also raised net proceeds through warrant exercises. Common shares outstanding increased from 1.22 million at year-end 2022 to 4.76 million at year-end 2023; the filing reports 5.69 million shares outstanding as of April 4, 2024.
- At year-end, the company had 4.21 million Series G warrants outstanding and 1.73 million unissued abeyance shares. The filing describes subsequent 2024 conversions and intended issuance of the remaining abeyance shares. In February 2024, it also established an at-the-market program of up to $858,637; it had sold 187,614 shares under the program for net proceeds of $124,649 by the filing’s reporting.
Liquidity, debt, outlook and risks
- Most long-term debt is Oak Street borrowing with variable rates tied to prime plus a margin; scheduled 2024 maturities were $1.39 million. The company stated it was in compliance with its financial covenants at December 31, 2023. Debt agreements include financial, cross-default and management/ownership covenants, and default could permit acceleration.
- Management plans to pursue further insurance acquisitions and organic expansion over the following 12 months, but provided no quantified revenue, earnings or cash-flow guidance. Management stated it believed available financial resources and ability to raise capital were reasonable and sufficient and that substantial doubt about continuing as a going concern was not raised. Financing availability is not assured.
- Nasdaq notified the company in January 2024 that its share price had remained below the $1.00 minimum bid requirement for 30 consecutive business days. The filing states the company had until July 10, 2024 to regain compliance; the notice did not immediately suspend trading.
- Management identified a material weakness in disclosure controls relating to goodwill and earnings per share and concluded disclosure controls and procedures were not effective at year-end. The auditor issued an unqualified opinion on the financial statements but was not engaged to audit internal control over financial reporting.
- Other highlighted risks include acquisition integration and financing, concentration of revenue in a limited number of states and carriers, variable-rate borrowing, competition, regulation and licensing, cybersecurity and data privacy, and potential errors-and-omissions claims. The company reported no legal-contingency accrual at year-end and management did not expect existing matters to have a material adverse effect.
- The filing says cash is held at one financial institution and may exceed FDIC insurance limits. The company does not expect to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Whether core agency growth can translate into positive operating earnings and cash flow, apart from noncash fair-value gains, impairments and discontinued-operation effects.
- The assumptions and valuation methods behind the $7.59 million goodwill impairment, and the carrying value and performance of remaining goodwill and intangible assets.
- Near-term liquidity, restricted-cash availability, debt maturities, variable interest costs, covenant compliance and access to additional financing.
- Actual dilution from warrants, abeyance shares, equity compensation and the at-the-market program; reconcile the 4.76 million year-end shares with the 5.69 million reported on April 4, 2024.
- Progress in remediating the material weakness in goodwill and EPS reporting, and whether Nasdaq’s minimum-bid compliance was regained by the stated deadline.
- Revenue concentration: the filing reports all FY2023 revenue from operations in specified regions and 50% from its two largest named carriers. Confirm the company’s geographic and carrier diversification plans and results.
- The filing gives differing counts of acquired agencies and platform coverage states in different sections; verify the current figures and the scope of each count.