Reliance Global Group, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The company operates insurance agencies and insurance technology platforms, pursuing growth through acquisitions and organic expansion. Figures below are unaudited.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.28 million | $2.82 million | $10.41 million | $8.73 million |
| Operating loss | $1.44 million | $1.33 million | $4.28 million | $5.45 million |
| Net income (loss) | $(0.14) million | $6.12 million | $(2.98) million | $25.96 million |
| Operating cash flow, continuing and discontinued operations | Not presented by quarter | $(0.02) million | $(2.18) million |
- Revenue increased 16% in Q3 and 19% for the first nine months. Management attributed growth mainly to organic expansion; nine-month growth also reflected RELI Exchange, added in 2022.
- Operating loss margins were approximately 44% for Q3 and 41% for the nine-month period, compared with approximately 47% and 62%, respectively, in the prior-year periods. The filing does not present gross profit or gross margin.
- Net results include substantial non-cash gains from revaluing warrant liabilities: $1.72 million in Q3 and $4.39 million year to date in 2023, versus $7.92 million and $32.40 million in 2022. These gains materially affect comparisons and are not operating cash generation.
- At September 30, cash was $1.78 million and restricted cash was $1.41 million. Current assets of $4.70 million exceeded current liabilities of $3.90 million, leaving working capital of approximately $0.80 million. Stockholders’ equity was $13.86 million.
- Total liabilities were $17.85 million. Long-term debt was $12.73 million gross ($1.35 million current and $11.38 million noncurrent); related-party loans and convertible debt, lease liabilities, and other financing obligations were also outstanding. Warrant liabilities were $1.58 million.
Material changes and unusual items
- Medigap was discontinued effective April 17, 2023, following recurring losses, including greater-than-expected revenue chargebacks. The company recorded approximately $4.4 million of impairment losses in discontinued operations for the nine months, partly offset by a $2.9 million settlement payment received in July. The nine-month discontinued-operations loss was $1.85 million.
- The March 2023 private placement generated approximately $3.45 million net proceeds. The company also sold its remaining NSURE shares for $0.9 million in April.
- Shares outstanding increased from 1,219,573 at December 31, 2022, to 2,304,375 at September 30, 2023; the filing reports 2,473,859 at November 13. Issuances included a private placement, earn-out settlements, debt conversion, and service and stock-award shares. A 1-for-15 reverse split took effect in February 2023.
- Q3 general and administrative expense rose 22%, partly due to an unfavorable earn-out fair-value adjustment. Year-to-date G&A declined 13%, which management attributed to cost controls. Interest expense increased year over year.
Outlook, risks and contingencies
- Management plans to pursue insurance acquisitions and organic growth over the next 12 months, including geographic and market-share expansion. No quantitative revenue, earnings, or cash-flow guidance is provided.
- Management reported positive working capital and stated it believes its financial position and ability to raise capital are reasonable and sufficient, and that substantial doubt about going concern does not exist. It also cautioned that debt or equity financing may not be available on acceptable terms.
- Revenue concentration is significant: Priority Health represented 44% of Q3 revenue and 37% year to date; BlueCross BlueShield represented 21% and 14%, respectively. The filing warns that loss of a significant customer could materially harm results.
- Management identifies intense competition, potential direct-to-consumer sales by insurers, technology entrants, and inflation-related labor, benefit, and lease costs as business risks.
- Disclosure controls were deemed ineffective as of September 30 because of a material weakness related to earnings-per-share calculations. The company used outside specialists to assist with EPS reporting. Management said previously disclosed risk factors had no material changes.
- Ordinary-course legal claims remain; management does not expect them to have a material adverse effect and recorded no legal contingency. The Medigap settlement resolved specified disputes, while a disputed alleged debt claim by a third party was not released under the settlement.
Important facts for investors to verify
- Whether revenue growth can translate into lower operating losses and sustainable cash generation, excluding non-cash warrant remeasurement gains.
- The terms, amortization, variable interest rates, and maturity schedule of debt, along with related-party obligations and potential liquidity needs.
- The effects of customer concentration and the discontinued Medigap business, including any remaining exposure or obligations.
- Potential dilution from outstanding warrants and earn-out arrangements; the filing reports a subsequent October 3 exercise of 168,594 Series E warrants.
- Progress in remediating the EPS-related material weakness and improving disclosure controls.