Reliance Global Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company operates insurance agencies and related insurance technology platforms, pursuing growth through acquisitions and organic expansion.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $4.21 million | $2.19 million | $8.44 million | $4.51 million |
| Operating loss | $1.94 million | $1.10 million | $4.34 million | $1.59 million |
| Net income (loss) | $10.50 million | ($1.28 million) | $19.84 million | ($1.89 million) |
| Basic EPS | $0.56 | ($0.12) | $0.75 | ($0.20) |
| Diluted EPS | ($0.10) | ($0.12) | ($0.59) | ($0.20) |
- Revenue increased 92% in Q2 and 87% for the first half, primarily reflecting expanded operations and acquisitions. Operating expenses rose faster than revenue; the operating loss widened in both comparisons.
- Reported net income depended on non-cash gains from changes in fair value of warrant liabilities: $12.63 million in Q2 and $24.48 million for the first half. Excluding these gains, the reported operating results remained loss-making. Diluted EPS was negative because the warrant gains were removed from the diluted EPS numerator, and the first-half calculation also reflected a $6.93 million deemed dividend.
- Operating cash flow was negative $1.31 million for the first half, compared with negative $1.49 million a year earlier. Investing cash outflow was $24.63 million, mainly for acquisitions; financing provided $25.71 million.
- At June 30, cash was $2.98 million and restricted cash $1.42 million. Current assets of $6.10 million were below current liabilities of $9.47 million, for a $3.37 million working-capital deficit. Management cited the January capital raise and ability to raise capital as supporting liquidity.
- Long-term debt was $13.87 million, including current maturities; related-party loans and short-term financing added approximately $0.71 million. Total liabilities were $35.37 million and stockholders’ equity was $21.93 million.
Material changes and notable transactions
- Completed the Medigap acquisition in January for stated consideration of $20.10 million, including $18.14 million cash and 606,037 shares. Acquired Medigap contributed $2.54 million revenue and a $0.41 million loss from acquisition through June 30, according to the filing.
- Acquired Barra in April for $7.73 million: $6.00 million paid at closing, $1.13 million deferred, and an estimated $0.60 million earn-out. The closing payment was funded in part by a $6.52 million Oak Street loan. Barra contributed $0.27 million revenue and a $0.04 million loss through June 30.
- January’s private placement generated approximately $20 million gross and $17.85 million net proceeds. The transaction included common stock, preferred stock, and warrants; subsequent warrant exchanges were part of the company’s Nasdaq remediation plan. The company reported that Series C warrants were exercised in Q2.
- Goodwill rose to $33.49 million from $10.05 million at year-end, largely reflecting Medigap and Barra; net intangible assets rose to $14.75 million from $7.08 million. These balances and acquisition valuations involve significant estimates.
Outlook, risks and other matters
- Management said it planned to pursue further insurance acquisitions and organic growth, including geographic and market-share expansion. It also described 5MinuteInsure.com and the RELI Exchange agency network; RELI Exchange’s agent roster reportedly grew by more than 30% in its first three months. No quantified financial guidance was provided.
- Customer concentration is material: LTC Global represented 30% of Q2 revenue; Priority Health represented 20%. For the first half, LTC Global was 28%, Priority Health 25%, and BlueCross BlueShield 10%. The filing warns that losing a significant customer could materially affect the business.
- Other risks include competitive pressure, acquisition integration and valuation, significant goodwill and intangible assets, warrant-liability volatility, and liquidity needs amid operating cash outflows and a working-capital deficit. Management said it had not observed a material COVID-19 impact but continued to monitor related uncertainties.
- The company disclosed ordinary-course legal claims, with no contingencies accrued; management did not expect a material adverse outcome. It reported no material changes to previously disclosed risk factors and concluded disclosure controls were effective as of June 30, 2022.
- The company revised certain prior-period amounts for immaterial corrections involving purchase-price allocations, accrued revenue, and equity accounts.
Key facts for investors to verify
- How much of earnings and EPS reflects recurring operations versus non-cash warrant fair-value gains and the deemed dividend.
- Post-acquisition revenue, profitability, integration progress, and the assumptions underlying goodwill and intangible-asset valuations.
- Cash availability, restricted-cash requirements, debt service and covenant terms, and the company’s ability to fund operations and its acquisition strategy.
- Whether major carrier/customer relationships remain stable, given the disclosed revenue concentration.
- Warrant terms, potential dilution, and the status of Nasdaq listing-rule remediation.