BRP Group, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. BRP Group, Inc. (Nasdaq: BRP) is an insurance distribution and services company. This unaudited filing covers the three and six months ended June 30, 2023; the comparable periods are 2022. The registrant named in the filing is BRP Group, Inc.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Commissions and fees | $297.2 million | $232.5 million | $627.6 million | $475.3 million |
| Operating income (loss) | $(16.5) million | $25.4 million | $(12.9) million | $65.2 million |
| Net income (loss) | $(43.7) million | $16.6 million | $(69.5) million | $61.4 million |
| Net income (loss) attributable to BRP Group | $(23.9) million | $8.6 million | $(38.0) million | $31.5 million |
| Diluted EPS | $(0.40) | $0.14 | $(0.64) | $0.53 |
| Adjusted EBITDA | $61.6 million | $42.5 million | $140.6 million | $115.4 million |
| Adjusted EBITDA margin | 21% | 18% | 22% | 24% |
Revenue and growth. Commissions and fees increased 28% year over year in Q2 and 32% in the first half. Management attributed the increases to organic growth and revenue from 2022 acquisitions that had not yet reached the 12-month ownership mark. Organic revenue growth was 22% in both periods, versus 24% in Q2 2022 and 20% in the first half of 2022. Q2 growth was led by Underwriting, Capacity & Technology Solutions (UCTS) and Mainstreet Insurance Solutions.
Cash flow and liquidity. Operating cash flow was $35.4 million for the first half, compared with $(4.6) million in 2022. Investing cash outflow was $10.6 million, versus $389.9 million, primarily reflecting no Partnership acquisitions in 2023 compared with $396.4 million of 2022 Partnerships. Financing cash outflow was $42.4 million. Cash and cash equivalents were $105.5 million and restricted cash was $107.4 million at June 30. The company reported $130 million of available revolving capacity and said available cash, operating cash flow and borrowing capacity should cover working capital and commitments for the next 12 months and beyond.
Debt. At June 30, the company had $833.9 million of Term Loan B borrowings and $470.0 million drawn on its $600 million revolving facility. Applicable rates were 8.65% and 8.21%, respectively. The Term Loan B transitioned from LIBOR to term SOFR effective July 1, 2023; the revolving facility terms were unchanged. The company was in compliance with its debt covenants at quarter-end. Interest expense increased to $29.1 million in Q2 and $57.0 million in the first half. Management expected interest expense to continue rising in 2023 as rates affect its floating-rate debt.
Material changes, outlook and risks
- Profitability reversal: GAAP operating and net results moved from profits to losses year over year. A key driver was the change in fair value of contingent consideration: a $16.4 million Q2 loss and $41.2 million first-half loss in 2023, versus gains of $26.9 million and $32.5 million in 2022. The 2023 losses reflected updated growth trends for certain acquired Partners and earnouts nearing measurement dates.
- Costs and margins: Compensation and benefits rose 30% in Q2 and 40% in the first half, reflecting growth, acquisition contribution, investment in products and distribution, inflation, and higher share-based compensation. Adjusted EBITDA increased in dollars, but first-half adjusted margin declined from 24% to 22%.
- Contingent consideration: Earnout liabilities were $294.3 million at quarter-end; maximum estimated exposure was $899.8 million. Of the recorded liability, $18.0 million must be settled in cash; the remainder may be settled in cash or stock at the company’s option. The fair value depends on management projections and other significant unobservable assumptions.
- Interest-rate exposure: Interest-rate caps covered $300 million of debt at a 1.50% maximum base rate and $1.2 billion at a 7.00% maximum base rate. Even after considering the caps, a 100-basis-point rate increase was estimated to add $10.0 million to annual interest expense.
- Business outlook: The filing gives no specific full-year revenue or earnings guidance. Management described ongoing investment in organic growth, the MGA of the Future platform and distribution, and identified Partnerships as a long-term growth strategy. No Partnerships were completed in the first half of 2023.
- Other matters: The company disclosed ordinary-course legal claims that management did not expect to materially affect financial position, results or liquidity. It also had a $4.7 million commitment to the University of South Florida through October 2028; the Board Chair is expected to fund half. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported revenue growth is sustainable organic growth versus prior-year acquisition contribution, and whether growth trends across operating groups continue.
- Whether higher interest costs, floating-rate debt and available revolver capacity affect cash generation, covenant headroom or financing needs.
- How contingent earnout estimates change as acquired businesses perform and measurement dates approach, including the amount ultimately settled in cash or stock.
- How GAAP losses compare with adjusted results and the size, recurrence and cash implications of items excluded from non-GAAP measures.
- Whether the company’s stated liquidity outlook remains supported by operating cash flow, working-capital needs and future Partnership or earnout payments.