Reliance Global Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The unaudited consolidated company operates insurance agencies, principally in health and property-and-casualty lines, and pursues growth through acquisitions and its online 5MinuteInsure platform.
Financial performance and liquidity
| Metric | Three months ended Sept. 30, 2021 | Three months ended Sept. 30, 2020 | Nine months ended Sept. 30, 2021 | Nine months ended Sept. 30, 2020 |
|---|---|---|---|---|
| Revenue | $2.582 million | $1.680 million | $7.096 million | $5.326 million |
| Operating loss | $0.475 million | $1.092 million | $2.065 million | $2.925 million |
| Net loss | $0.595 million | $1.232 million | $2.486 million | $3.350 million |
| Loss per share, basic and diluted | $0.05 | $0.30 | $0.25 | $0.80 |
- Revenue increased 54% in Q3 and 33% year to date; management attributed growth primarily to acquired agencies. Operating and net losses narrowed year over year. Operating margin improved to approximately negative 18% in Q3 and negative 29% for the nine months, from negative 65% and negative 55%, respectively.
- Operating cash use was $1.304 million for the nine months, versus $1.454 million in 2020. Investing cash use was $1.964 million, mainly for the Kush acquisition and software. Financing provided $8.878 million, primarily from the February equity offering. Cash and restricted cash increased $5.610 million to $6.139 million.
- At September 30, cash was $5.655 million, restricted cash $0.484 million, working capital $5.274 million, and stockholders’ equity $12.765 million. Current assets were $7.333 million and current liabilities $2.059 million.
- Long-term debt, net of financing costs and including its current portion, was $8.216 million; related-party loans were $0.365 million. Total liabilities were $13.464 million. Oak Street debt is secured and subject to financial and other covenants.
Changes, outlook and notable matters
- Q3 expense changes included higher commissions, salaries, marketing, and depreciation and amortization, offset by lower general and administrative expense. For the nine months, general and administrative expense also declined, while commission, payroll, and amortization costs rose.
- The company acquired J.P. Kush and Associates on May 1, 2021, for stated total consideration of approximately $2.591 million, including $1.9 million cash, restricted shares, and contingent earn-out consideration. The acquisition added goodwill and identifiable intangible assets.
- Management said it planned over the following 12 months to expand 5MinuteInsure, continue selective insurance-agency acquisitions, and grow existing operations geographically and through market share. The platform was live, licensed in 46 states and the District of Columbia, and offering 16 carriers. No specific financial guidance was provided.
- Management described liquidity as sufficient for the foreseeable future, while reporting ongoing losses and operating cash use. It cited potential COVID-19 disruption but said it had not seen a material financial impact to date; the duration and effects remained uncertain.
- Priority Health and BlueCross BlueShield accounted for 30% and 25% of nine-month 2021 revenue, respectively. The company identifies customer concentration, regional exposure, acquisition execution, cybersecurity, regulation, and insurance-market competition as risks.
- The company disclosed immaterial prior-period adjustments involving goodwill, retained earnings, and accrued revenue, and reclassified purchased software to intangible assets. It said a prior material weakness in financial reporting and close processes was mitigated by hiring an SEC reporting manager; management concluded disclosure controls were effective as of September 30, 2021.
- The February offering and other equity transactions materially increased share count; a related party converted $3.8 million of debt into common shares. Reliance Holdings remained a significant shareholder and related-party lender. The filing gives differing offering net-proceeds figures: approximately $10.496 million in the cash-flow/equity disclosures and approximately $11.1 million in MD&A.
Investor verification priorities
- Reconcile the offering’s reported net proceeds and confirm how much was available after offering costs.
- Assess recurring operating cash burn, acquisition-driven revenue growth, and the company’s path to profitability.
- Review Oak Street covenant compliance, maturity schedule, security and default provisions, and related-party debt and control arrangements.
- Evaluate acquisition earn-outs, integration results, goodwill and intangible-asset valuations, and the potential for impairment.
- Monitor revenue concentration, 5MinuteInsure adoption and economics, share dilution, and the stated risks from regulation, cybersecurity, and COVID-19.