BRP Group, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021; comparisons are with the three and nine months ended September 30, 2020, or December 31, 2020 for balance-sheet figures. The filing identifies the registrant as BRP Group, Inc.; the request metadata uses “Baldwin Insurance Group, Inc.”
Business context
BRP is an insurance distribution and services firm operating through Middle Market, Specialty, MainStreet, and Medicare groups. Its growth strategy relies on organic expansion and acquisitions (“Partnerships”). In the first nine months of 2021, it completed 10 business combinations for aggregate purchase consideration of $387.5 million.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Commissions and fees | $135.6 million | $65.8 million | $408.1 million | $171.3 million |
| Operating income (loss) | $(16.8) million | $(6.7) million | $6.3 million | $(8.2) million |
| Net loss | $(24.2) million | $(7.6) million | $(13.7) million | $(10.8) million |
| Net loss attributable to BRP Group | $(12.8) million | $(3.3) million | $(8.0) million | $(5.4) million |
| Basic and diluted loss per share | $(0.28) | $(0.10) | $(0.18) | $(0.22) |
| Adjusted EBITDA | $19.6 million | $10.9 million | $92.7 million | $33.3 million |
| Adjusted EBITDA margin | 14% | 17% | 23% | 19% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $27.0 million | $30.8 million |
Adjusted EBITDA and margin are non-GAAP measures. Organic revenue growth was 26% for Q3 and 24% for the nine-month period, as defined by the company.
Financial position and liquidity
- At September 30, 2021, cash and cash equivalents were $374.5 million and restricted cash was $47.0 million. Total current assets were $660.4 million versus current liabilities of $383.8 million.
- Total assets were $2.23 billion, up from $1.53 billion at December 31, 2020; goodwill was $885.3 million and intangible assets were $652.7 million.
- Balance-sheet debt included $120.0 million drawn on the revolving facility and $482.3 million of current and long-term debt carrying value. Related-party notes payable were a further $61.5 million, due in full April 2022.
- The $500 million term loan matures in 2027; its stated rate was 4.00% at quarter-end. The revolving facility was expanded to $475 million, with $355 million undrawn. The company reported compliance with its debt covenants.
- Cash and restricted cash increased $279.4 million during the first nine months, principally reflecting equity issuance and borrowing; investing activities used $223.6 million, including $218.8 million for business combinations.
Material changes and management commentary
- Revenue rose $69.7 million in Q3 and $236.8 million year to date. Acquisitions contributed $52.7 million and $195.9 million of those increases, respectively; organic growth contributed $17.0 million and $40.9 million.
- Higher compensation, other operating costs, amortization, contingent-consideration remeasurement, and interest expense offset revenue growth. Q3 adjusted EBITDA margin declined to 14% from 17%, while the nine-month margin rose to 23% from 19%.
- The September public offering of 9.2 million Class A shares generated approximately $269.4 million in net proceeds before $1.1 million of offering expenses; proceeds were used to purchase LLC units.
- Management said available cash, operating cash flow, and committed borrowing capacity should fund working capital and commitments for the foreseeable future, but further funding may be needed for its acquisition strategy. Additional funding may require debt or equity and may not be available on favorable terms.
- After quarter-end, BRP acquired K&S and JGS on October 1, with cash and equity consideration plus potential contingent consideration. On November 4, it announced an agreement to acquire WGB, expected to close December 1, subject to conditions.
Outlook, risks, and unusual items
- No specific financial guidance or quantified full-year outlook is provided. Management cautioned that COVID-19 effects remain uncertain; protocols also constrained Medicare agents’ in-person sales activity ahead of the 2021 enrollment period.
- Management cited higher loss ratios and challenges in the Florida homeowners market as weighing on contingent revenue in Middle Market and MainStreet.
- Contingent earnout liabilities totaled $180.9 million at quarter-end; the estimated maximum exposure was $682.6 million. A $23.2 million year-to-date fair-value increase was recognized in expense. The maximum is an estimate of potential contractual exposure, not the recorded liability.
- In September, BRP accelerated recognition of MSI’s maximum contingent earnout and converted $61.5 million into non-interest-bearing related-party notes due April 2022.
- Management concluded disclosure controls and procedures were not effective at quarter-end because previously reported material weaknesses in internal control over financial reporting remained unremediated. Remediation was underway, but the weaknesses would not be considered fully remediated until controls operated effectively and were formally tested.
- Ordinary-course legal matters were not expected by management to have a material adverse effect. The company also warned that acquisition execution, integration, financing needs, interest-rate exposure, and seasonality may affect results.
Most important facts for investors to verify
- Whether organic growth and acquired revenue contributions remain durable, and how acquisition-related costs affect underlying profitability.
- Cash conversion and working-capital trends, especially receivables growth relative to operating cash flow.
- Debt, interest costs, covenant headroom, and liquidity after the April 2022 related-party note payment and subsequent acquisitions.
- The assumptions and potential cash and equity impacts of contingent earnouts, including the gap between recorded liabilities and maximum exposure.
- Progress and formal testing of internal-control remediation, as well as the expected impact of adoption of lease accounting standards.