BRP GROUP, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onMarch 1, 2022 . In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. Risk Factors and Note Regarding Forward-Looking Statements included elsewhere in this Quarterly Report on Form 10-Q and under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with theSEC onMarch 1, 2022 .
THE COMPANY
BRP Group, Inc. ("BRP Group ," the "Company," "we," "us" or "our") is an independent insurance distribution firm delivering tailored insurance and risk management insights and solutions that give our Clients the peace of mind to pursue their purpose, passion and dreams. We support our Clients, Colleagues,Insurance Company Partners and communities through the deployment of vanguard resources, technology and capital to drive organic and inorganic growth. When we consistently execute for these key stakeholders, we believe that the outcome is an increase in value for our fifth stakeholder, our shareholders. We are innovating the industry by taking a holistic and tailored approach to risk management, insurance and employee benefits. Our growth plan includes continuing to recruit, train and develop industry leading talent, continuing to add geographic representation, insurance product expertise and end-client industry expertise via our Partnership strategy, and the continued buildout of our MGA of the Future platform, which delivers proprietary, technology-enabled insurance solutions to our internalRisk Advisors as well as to a growing channel of external distribution partners. We are a destination employer supported by an award-winning culture, powered by exceptional people and fueled by industry-leading growth and innovation. We represent over 1,200,000 Clients acrossthe United States and internationally. Our more than 3,300 Colleagues include over 520Risk Advisors , who are fiercely independent, relentlessly competitive and "insurance geeks." We have approximately 125 offices in 21 states, all of which are equipped to provide diversified products and services to empower our Clients at every stage through our four Operating Groups. •Middle Market provides expertly-designed commercial risk management, employee benefits solutions and private risk management for mid-to-large-size businesses and high net worth individuals, as well as their families.
•MainStreet offers personal insurance, commercial insurance and life and health solutions to individuals and businesses in their communities.
•Medicare offers consultation for government assistance programs and solutions, including traditional Medicare and Medicare Advantage, to seniors and Medicare-eligible individuals through a network of primarily independent contractor agents. In theMedicare Operating Group , we generate commissions and fees in the form of direct bill insurance placement and marketing income. Marketing income is earned through co-branded marketing campaigns with ourInsurance Company Partners . •Specialty consists of two distinct businesses. Our specialty wholesale broker businesses deliver specialty insurers, professionals, individuals and niche industry businesses expanded access to exclusive specialty markets, capabilities and programs requiring complex underwriting and placement. Specialty also houses our MGA of the Future platform, in which we deliver proprietary, technology enabled insurance products that are then distributed (in many instances via technology and/or API integrations) internally via ourRisk Advisors in Middle Market and MainStreet and externally via select distribution partners, with a focus on sheltered channels where our products deliver speed, ease of use and certainty of execution, and example of which is our national embedded renter's insurance product sold at point of lease via integrations with property management software providers. In 2011, we adopted the "Azimuth" as our corporate constitution. Named after a historical navigation tool used to find "true north," the Azimuth asserts our core values, business basics and stakeholder promises. The ideals encompassed by the Azimuth support our mission to deliver indispensable, tailored insurance and risk management insights and solutions to our Clients. We strive to be regarded as the preeminent insurance advisory firm fueled by relationships, powered by people and exemplified by Client adoption and loyalty. This type of environment is upheld by the distinct vernacular we use to describe our services and culture. We are a firm, instead of an agency; we have Colleagues, instead of employees; we haveRisk Advisors , instead of producers/agents. We serve Clients instead of customers and we refer to our acquisitions as Partnerships. We refer to insurance brokerages that we have acquired, or in the case of asset acquisitions, the producers, as Partners.
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Seasonality
The insurance brokerage market is seasonal and our results of operations are somewhat affected by seasonal trends. Our Adjusted EBITDA and Adjusted EBITDA Margins are typically highest in the first quarter and lowest in the fourth quarter. This variation is primarily due to fluctuations in our revenues, while overhead remains consistent throughout the year. Our revenues are generally highest in the first quarter due to the impact of contingent payments received in the first quarter fromInsurance Company Partners that we cannot readily estimate before receipt without the risk of significant reversal and a higher degree of first quarter policy commencements and renewals in Medicare and certain Middle Market lines of business such as employee benefits and commercial. In addition, a higher proportion of our first quarter revenue is derived from our highest margin businesses. As discussed further below, the ongoing COVID-19 pandemic may continue to skew these general trends due to reduced amounts of new business and reductions in business from existing Clients related to the pandemic. Partnerships can significantly impact Adjusted EBITDA and Adjusted EBITDA Margins in a given year and may increase the amount of seasonality within the business, especially results attributable to Partnerships that have not been fully integrated into our business or owned by us for a full year.
PARTNERSHIPS
We utilize strategic acquisitions, which we refer to as Partnerships, to complement and expand our business. We source Partnerships through proprietary deal flow, competitive auctions and cultivated industry relationships. We are currently considering Partnership opportunities in all of our Operating Groups, including businesses to complement or expand our MGA of the Future that are valued at higher purchase price multiples than businesses in our other Operating Groups. The financial impact of Partnerships may affect the comparability of our results from period to period. Our acquisition strategy also entails certain risks, including the risks that we may not be able to successfully source, value, close, integrate and effectively manage businesses that we acquire. To mitigate that risk, we have a professional team focused on finding new Partners and integrating new Partnerships. We plan to execute on numerous Partnerships annually as it is a key pillar in our long-term growth strategy over the next seven years.
We completed two Partnerships for an aggregate purchase price of
We entered into Amendment No. 5 to the JPM Credit Agreement inMarch 2022 for an upsize of the aggregate principal amount of the revolving credit facility thereunder from$475.0 million to$600.0 million . This transaction provided us incremental capacity to assist in funding our Partnership pipeline with a reduction in our cost of capital.
NOVEL CORONAVIRUS (COVID-19)
The impact of the COVID-19 pandemic, including changes in consumer behavior, pandemic fears, and market downturns, as well as restrictions on business and individual activities, has created significant volatility in the global economy and led to severe restrictions on the level of economic activity around the world. Although COVID-19 vaccines are now broadly distributed and administered, there remains significant uncertainty concerning the magnitude of the impact and the duration of the COVID-19 pandemic. As new strains of COVID-19 develop, we may continue to experience disruptions to our business, including due to a reduction in our Clients` insurable exposure units and a delay in cash payments to us from our Clients orInsurance Company Partners . Further, the impacts of inflation on our and our Clients` businesses and the broader economy, which may be exacerbated by the economic recovery from the COVID-19 pandemic, may also impact our financial condition and results of operations. In addition, the uncertainties associated with the protective and preventive measures being put in place or recommended by both governmental entities and other businesses, among other uncertainties, may result in delays or modifications to our plans and initiatives. Our Clients and Colleagues are our first priority and we have taken steps to ensure their safety by implementing alternative working arrangement, with a significant part of our Colleagues working in remote or hybrid environments. As we began a phased reopening of ourU.S. offices in 2021, we provided guidelines on return to the office depending on the level of virus containment and local health and safety regulations in each geography. This has created and may continue to create additional risks and operational challenges and may require us to make additional investments of time and resources across our business, including to design, implement and enforce new workplace health and safety protocols, as well as investments in our IT systems to support a working environment that encompasses a mix of remote and in-person arrangements.
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During the pandemic, we have also funded the
We intend to continue to execute on our strategic plans and operational initiatives during the pandemic. However, given the uncertainty regarding the spread and severity of COVID-19 and its variant strains, the duration and scope of government measures, the nature of societal responses and the adverse effects on the national and global economy, the related financial impact on our business cannot be accurately predicted at this time. See Part I, Item 1A. "Risk Factors-The continued adverse effects of the COVID-19 pandemic and an indeterminate recovery period could result in declines in business and increases in claims that could adversely affect our business, financial condition and results of operations" in our Annual Report on Form 10-K filed with theSEC onMarch 1, 2022 .
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements for the three months endedMarch 31, 2022 and the related notes and other financial information included elsewhere in this report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with theSEC onMarch 1, 2022 .
The following is a discussion of our consolidated results of operations for the
three months ended
For the Three Months
Ended March 31,
(in thousands) 2022 2021 Variance
Revenues:
Commissions and fees Operating expenses: Commissions, employee compensation and benefits 153,750 89,375 64,375 Other operating expenses 36,442 16,875 19,567 Amortization expense 17,562 10,537 7,025 Change in fair value of contingent consideration (5,632) (1,503) (4,129) Depreciation expense 988 594 394 Total operating expenses 203,110 115,878 87,232 Operating income 39,738 36,950 2,788 Other income (expense): Interest expense, net (10,350) (5,643) (4,707) Other income, net 15,451 - 15,451 Total other income (expense) 5,101 (5,643) 10,744 Net income 44,839 31,307 13,532 Less: net income attributable to noncontrolling interests 21,970 16,001 5,969 Net income attributable to BRP Group, Inc.$ 22,869 $ 15,306 $ 7,563 24
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Commissions and Fees
We earn commissions and fees by facilitating the arrangement betweenInsurance Company Partners and individuals or businesses for the carrier to provide insurance to the insured party. Our commissions and fees are usually a percentage of the premium paid by the insured and generally depends on the type of insurance, the particular Insurance Company Partner and the nature of the services provided. Under certain arrangements with Clients, we earn pre-negotiated service fees in lieu of commissions. Additionally, we may also receive fromInsurance Company Partners a profit-sharing commission, or straight override, which represent forms of variable consideration associated with the placement of coverage and are based primarily on underwriting results, but may also contain considerations for volume, growth or retention. Commissions and fees increased$90.0 million for the three months endedMarch 31, 2022 as compared to the same period of 2021. This increase was related to amounts attributable to Partners acquired during 2021 and 2022 prior to their having reached the twelve-month owned mark (such amounts, the "Partnership Contribution") and organic growth. The Partnership Contribution accounted for$64.8 million of the increase to commissions and fees for the quarter, and organic growth accounted for$25.2 million of the increase for the quarter.
Major Sources of Commissions and Fees
The following table sets forth our commissions and fees by major source for the
periods indicated:
For the Three Months
Ended March 31,
(in thousands) 2022 2021 Variance
Direct bill revenue $ 131,660 $ 94,505 $ 37,155
Agency bill revenue 73,177 35,340 37,837
Profit-sharing revenue 15,012 10,292 4,720
Consulting and service fee revenue 14,337 7,007 7,330
Policy fee and installment fee revenue
5,708 4,476 1,232
Other income
2,954 1,208 1,746
Total commissions and fees $
242,848
Direct bill revenue represents commission revenue earned by providing insurance placement services to Clients, primarily for private risk management, commercial risk management, employee benefits and Medicare insurance types. Direct bill revenue increased by$37.2 million for the three months endedMarch 31, 2022 as compared to the same period of 2021. The Partnership Contribution accounted for$25.7 million of the increase to direct bill revenue for the quarter. Organic growth for direct bill revenue was$11.5 million for the quarter. Agency bill revenue primarily represents commission revenue earned by providing insurance placement services to clients wherein we act as an agent on behalf of the Client. Agency bill revenue increased$37.8 million for the three months endedMarch 31, 2022 as compared to the same period of 2021. The Partnership Contribution accounted for$27.7 million of the increase to agency bill revenue for the quarter. Organic growth for agency bill revenue was$10.1 million for the quarter. Profit-sharing revenue represents bonus-type or contingent revenue that is earned by us as a sales incentive provided by certainInsurance Company Partners . Profit-sharing revenue increased$4.7 million for the three months endedMarch 31, 2022 as compared to the same period of 2021 as a result of the Partnership Contribution of$3.6 million and organic growth of$1.1 million . Profit-sharing revenue was affected by higher loss ratios in our Middle Market and MainStreet Operating Groups, which is particularly acute in theFlorida homeowners marketplace. Consulting and service fee revenue represents fees received in lieu of a commission and specialty insurance consulting revenue. Consulting and service fee revenue increased$7.3 million for the three months endedMarch 31, 2022 as compared to the same period of 2021 as a result of the Partnership Contribution of$6.1 million and organic growth of$1.2 million . Policy fee and installment fee revenue represents revenue earned for acting in the capacity of an MGA and providing payment processing and services and other administrative functions on behalf ofInsurance Company Partners . Policy fee and installment fee revenue increased$1.2 million during the three months endedMarch 31, 2022 as compared to the same period of 2021 primarily due to organic growth. These fees are generated by ourSpecialty Operating Group .
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Commissions, Employee Compensation and Benefits
Commissions, employee compensation and benefits is our largest expense. It consists of (a) base compensation comprising salary, bonuses and benefits paid and payable to Colleagues, commissions paid to Colleagues and outside commissions paid to others; and (b) equity-based compensation associated with the grants of restricted and unrestricted stock awards to senior management, Colleagues,Risk Advisors and directors. We expect to continue to experience a general rise in commissions, employee compensation and benefits expense commensurate with expected growth in our revenue and headcount. We operate in competitive markets for human capital and need to maintain competitive compensation levels as we expand geographically and create new products and services. Our compensation arrangements with our employees contain significant bonus or commission components driven by the results of our operations. Therefore, as we grow commissions and fees, we expect compensation costs to rise. Commissions, employee compensation and benefits expenses increased$64.4 million for the three months endedMarch 31, 2022 as compared to the same period of 2021. The Partnership Contribution accounted for$36.9 million of the increase to commissions, employee compensation and benefits for the quarter. Share-based compensation expense increased$4.0 million , as a result of equity grants awarded to all newly hired Colleagues, including those who joined us through Partnerships, and grants to reward Colleagues, including members of senior management. The remaining increase in commissions, employee compensation and benefits expense can be attributed to higher commissions expense relating to our organic growth and higher compensation and benefits relating to hiring to support our growth.
Other Operating Expenses
Other operating expenses include travel, accounting, legal and other professional fees, placement fees, rent, office expenses and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations. Other operating expenses increased$19.6 million for the three months endedMarch 31, 2022 , which was primarily attributable to increases in professional fees of$4.8 million relating to Partnership transactions, debt raises and public filings, dues and subscriptions of$2.4 million from our investment in technology to support our growth, rent expense of$2.2 million relating to expansion of our operating locations, travel and entertainment of$2.0 million relating to Partnership travel and lodging costs, licenses and taxes of$1.4 million relating to revenue growth, colleague education and welfare of$1.3 million relating to investments in our Colleagues, advertising and marketing of$1.2 million and repairs and maintenance of$1.0 million .
Amortization Expense
Amortization expense increased$7.0 million for the three months endedMarch 31, 2022 as compared to the same period of 2021, which was driven by amortization related to Partners acquired over the past twelve months.
Change in Fair Value of Contingent Consideration
Change in fair value of contingent consideration was favorable$4.1 million due to$5.6 million gain for the three months endedMarch 31, 2022 as compared to a$1.5 million gain for the same period of 2021. The change in fair value of contingent consideration results from fluctuations in the value of the relevant measurement basis, normally revenue or EBITDA, of our Partners.
Interest Expense, Net
Interest expense, net increased$4.7 million for the three months endedMarch 31, 2022 as compared to the same period of 2021 resulting from higher average borrowings outstanding during the current year.
Other Income, Net
Other income, net was$15.5 million for the three months endedMarch 31, 2022 , primarily as a result of a fair value gain of$15.8 million recorded for our interest rate caps during the period in connection with rising interest rates and market estimates for future rate increases.
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NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA, Adjusted EBITDA Margin, Organic Revenue, Organic Revenue
Growth, Adjusted Net Income and Adjusted Diluted Earnings Per Share ("EPS"), are
not measures of financial performance under GAAP and should not be considered
substitutes for GAAP measures, including commissions and fees (for Organic
Revenue and Organic Revenue Growth), net income (loss) (for Adjusted EBITDA and
Adjusted EBITDA Margin) net income (loss) attributable to BRP Group, Inc. (for
Adjusted Net Income) or diluted earnings (loss) per share (for Adjusted Diluted
EPS), which we consider to be the most directly comparable GAAP measures. These
non-GAAP financial measures have limitations as analytical tools, and when
assessing our operating performance, you should not consider these non-GAAP
financial measures in isolation or as substitutes for commissions and fees, net
income (loss), net income (loss) attributable to BRP Group, Inc. or other
consolidated income statement data prepared in accordance with GAAP. Other
companies in our industry may define or calculate these non-GAAP financial
measures differently than we do, and accordingly these measures may not be
comparable to similarly titled measures used by other companies.
We define Adjusted EBITDA as net income (loss) before interest, taxes,
depreciation, amortization, change in fair value of contingent consideration and
certain items of income and expense, including share-based compensation expense,
transaction-related expenses related to Partnerships, severance, and certain
non-recurring costs, including those related to raising capital. We believe that
Adjusted EBITDA is an appropriate measure of operating performance because it
eliminates the impact of expenses that do not relate to business performance,
and that the presentation of this measure enhances an investor's understanding
of our financial performance.
Adjusted EBITDA Margin is Adjusted EBITDA divided by commissions and fees.
Adjusted EBITDA Margin is a key metric used by management and our board of
directors to assess our financial performance. We believe that Adjusted EBITDA
Margin is an appropriate measure of operating performance because it eliminates
the impact of expenses that do not relate to business performance, and that the
presentation of this measure enhances an investor's understanding of our
financial performance. We believe that Adjusted EBITDA Margin is helpful in
measuring profitability of operations on a consolidated level.
Adjusted EBITDA and Adjusted EBITDA Margin have important limitations as analytical tools. For example, Adjusted EBITDA and Adjusted EBITDA Margin:
•do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
•do not reflect changes in, or cash requirements for, our working capital needs;
•do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations;
•do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
•do not reflect share-based compensation expense and other non-cash charges; and
•exclude certain tax payments that may represent a reduction in cash available to us.
We calculate Organic Revenue Growth based on commissions and fees for the relevant period by excluding the first twelve months of commissions and fees generated from new Partners. Organic Revenue Growth is the change in Organic Revenue period-to-period, with prior period results adjusted for Organic Revenues that were excluded in the prior period because the relevant Partners had not yet reached the twelve-month owned mark, but which have reached the twelve-month owned mark in the current period. For example, revenues from a Partner acquired onJune 1, 2021 are excluded from Organic Revenue for 2021. However, afterJune 1, 2022 , results fromJune 1, 2021 toDecember 31, 2021 for such Partners are compared to results fromJune 1, 2022 toDecember 31, 2022 for purposes of calculating Organic Revenue Growth in 2022. Organic Revenue Growth is a key metric used by management and our board of directors to assess our financial performance. We believe that Organic Revenue and Organic Revenue Growth are appropriate measures of operating performance as they allow investors to measure, analyze and compare growth in a meaningful and consistent manner. Adjusted Net Income is presented for the purpose of calculating Adjusted Diluted EPS. We define Adjusted Net Income as net income (loss) attributable toBRP Group, Inc. adjusted for depreciation, amortization, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, transaction-related expenses related to Partnerships, severance, and certain non-recurring costs that, in the opinion of management, significantly affect the period-over-period assessment of operating results, and the related tax effect of those adjustments.
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Adjusted Diluted EPS measures our per share earnings excluding certain expenses as discussed above and assuming all shares of Class B common stock were exchanged for Class A common stock. Adjusted Diluted EPS is calculated as Adjusted Net Income divided by adjusted dilutive weighted-average shares outstanding. We believe Adjusted Diluted EPS is useful to investors because it enables them to better evaluate per share operating performance across reporting periods.
Adjusted EBITDA and Adjusted EBITDA Margin
The following table reconciles Adjusted EBITDA and Adjusted EBITDA Margin to net
income, which we consider to be the most directly comparable GAAP financial
measure:
For the Three Months
Ended March 31,
(in thousands, except percentages) 2022 2021(1)
Commissions and fees $ 242,848 $ 152,828
Net income $ 44,839 $ 31,307
Adjustments to net income:
Amortization expense 17,562 10,537
Change in fair value of interest rate caps (15,810) -
Interest expense, net 10,350 5,643
Transaction-related Partnership expenses 8,216 2,445
Share-based compensation 7,564 3,542
Change in fair value of contingent consideration (5,632) (1,503)
Depreciation expense 988 594
Severance 222 -
Other(2) 4,633 859
Adjusted EBITDA $ 72,932 $ 53,424
Adjusted EBITDA Margin 30 % 35 %
__________
(1) We revised operating expenses for the three months ended March 31, 2021 to
reflect the adoption of Topic 842 as described further in Note 1 to the
condensed consolidated financial statements included in Item 1. Financial
Statements. This adjustment affected net income and Adjusted EBITDA values.
(2) Other addbacks to Adjusted EBITDA include non-recurring recruiting costs,
non-recurring remediation efforts, non-recurring professional fees and
litigation costs, and non-recurring bonuses.
Organic Revenue and Organic Revenue Growth
The following table reconciles Organic Revenue and Organic Revenue Growth to
commissions and fees, which we consider to be the most directly comparable GAAP
financial measure:
For the Three Months
Ended March 31,
(in thousands, except percentages) 2022 2021
Commissions and fees $
242,848
Partnership commissions and fees(1) (64,777) (91,215)
Organic Revenue $
178,071
Organic Revenue Growth(2) $
25,181
Organic Revenue Growth %(2) 16 % 14 %
__________
(1) Includes the first twelve months of such commissions and fees generated from newly acquired Partners. (2) Organic Revenue Growth for the three months endedMarch 31, 2021 used to calculate Organic Revenue for the three months endedMarch 31, 2022 was$152.9 million , which is adjusted to reflect revenues from Partnerships that reached the twelve-month owned mark during the three months endedMarch 31, 2022 .
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Adjusted Net Income and Adjusted Diluted EPS
The following table reconciles Adjusted Net Income to net income attributable to
For the Three Months
Ended March 31,
(in thousands, except per share data) 2022 2021(1)(2)
Net income attributable to BRP Group, Inc. $ 22,869 $ 15,306
Net income attributable to noncontrolling interests 21,970 16,001
Amortization expense 17,562 10,537
Change in fair value of interest rate caps (15,810) -
Transaction-related Partnership expenses 8,216 2,445
Share-based compensation 7,564 3,542
Change in fair value of contingent consideration (5,632) (1,503)
Amortization of deferred financing costs 1,286 693
Depreciation 988 594
Severance 222 -
Other(3) 4,633 859
Adjusted pre-tax income 63,868 48,474
Adjusted income taxes(4) 6,323 4,799
Adjusted Net Income $ 57,545 $ 43,675 Weighted-average shares of Class A common stock outstanding - diluted
58,716 45,783
Exchange of Class B shares(5) 56,269 49,789
Adjusted dilutive weighted-average shares outstanding 114,985 95,572
Adjusted Diluted EPS $ 0.50 $ 0.46
Diluted earnings per share $ 0.39 $ 0.33
Other adjustments to earnings per share 0.16 0.18
Adjusted income taxes per share (0.05) (0.05)
Adjusted Diluted EPS $ 0.50 $ 0.46
___________
(1) We revised operating expenses for the three months ended March 31, 2021 to
reflect the adoption of Topic 842 as described further in Note 1 to the
condensed consolidated financial statements included in Item 1. Financial
Statements This adjustment affected net income attributable to BRP Group, Inc.
and Adjusted Net Income values as well as diluted earnings per share and
Adjusted Diluted EPS.
(2) Calculation was adjusted in the fourth quarter of 2021 to include
depreciation. Prior year amounts have been conformed to current year
presentation.
(3) Other addbacks to Adjusted EBITDA include non-recurring recruiting costs,
non-recurring remediation efforts, non-recurring professional fees and
litigation costs, and non-recurring bonuses.
(4) Represents corporate income taxes at assumed effective tax rate of 9.9%
applied to adjusted pre-tax income.
(5) Assumes the full exchange of Class B shares for Class A common stock
pursuant to the Amended LLC Agreement.
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OPERATING GROUP RESULTS
Commissions and Fees
In the Middle Market, MainStreet and Specialty Operating Groups, we generate commissions and fees from insurance placement under both agency bill and direct bill arrangements. In addition, we generate profit-sharing income in each of those segments based on either the underlying Book of Business or performance, such as loss ratios. In the Middle Market and Specialty Operating Groups, we generate fees from service fee and consulting arrangements. Service fee arrangements are in place with certain customers in lieu of commission arrangements. In theSpecialty Operating Group , we generate policy fee and installment fee revenue for acting in the capacity of an MGA and fulfilling certain services on behalf ofInsurance Company Partners . In theMedicare Operating Group , we generate commissions and fees in the form of direct bill insurance placement and marketing income. Marketing income is earned through co-branded marketing campaigns with ourInsurance Company Partners . The following table sets forth our commissions and fees byOperating Group and for Corporate and Other by amount and as a percentage of our commissions and fees: Commissions and Fees byOperating Group (in
thousands, except percentages)
For the Three Months
Ended March 31,
2022 2021 Variance
Percent of Percent of
Operating Group Amount Business Amount Business Amount %
Middle Market $ 171,403 70 % $ 110,555 72 % $ 60,848 55 %
Specialty 49,523 20 % 25,082 17 % 24,441 97 %
MainStreet 9,277 4 % 8,222 5 % 1,055 13 %
Medicare 13,681 6 % 9,452 6 % 4,229 45 %
Corporate and Other (1,036) - % (483) - % (553) 114 %
$ 242,848 $ 152,828 $ 90,020
Commissions and fees for our Middle Market Operating Group increased $60.8
million for the three months ended March 31, 2022 as compared to the same period
of 2021 as a result of the Partnership Contribution of $46.9 million and organic
growth of $13.9 million concentrated in base commissions and fees.
Commissions and fees for our Specialty Operating Group increased $24.4 million
for the three months ended March 31, 2022 as compared to the same period of 2021
as a result of the Partnership Contribution of $16.7 million and organic growth
of $7.7 million , which is attributable to growth in our renter's insurance
product.
Commissions and fees for our MainStreet Operating Group increased $1.1 million
for the three months ended March 31, 2022 as compared to the same period of 2021
as a result of organic growth, primarily related to base commissions and fees.
Commissions and fees for our Medicare Operating Group increased $4.2 million for
the three months ended March 31, 2022 as compared to the same period of 2021 as
a result of organic growth of $2.5 million and the Partnership Contribution of
$1.7 million .
Revenue reported for Corporate and Other relates to the elimination of
intercompany revenue. During the three months ended March 31, 2022 , the Middle
Market Operating Group recorded intercompany commissions and fees from activity
with the Specialty Operating Group of $0.3 million ; the Specialty Operating
Group recorded intercompany commissions and fees revenue from activity with
itself of $0.1 million ; the MainStreet Operating Group recorded intercompany
commissions and fees from activity with the Middle Market Operating Group of
less than $0.1 million ; and the Medicare Operating Group recorded intercompany
commissions and fees from activity with itself of $0.6 million . These amounts
were eliminated through Corporate and Other.
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Commissions, Employee Compensation and Benefits
The following table sets forth our commissions, employee compensation and
benefits by
Commissions, Employee Compensation and Benefits by Operating Group (in thousands, except percentages)
For the Three Months
Ended March 31,
2022 2021 Variance
Percent of Percent of
Operating Group Amount Business Amount Business Amount %
Middle Market $ 94,790 62 % $ 56,742 63 % $ 38,048 67 %
Specialty 34,676 22 % 17,952 20 % 16,724 93 %
MainStreet 7,504 5 % 5,146 6 % 2,358 46 %
Medicare 7,369 5 % 4,578 5 % 2,791 61 %
Corporate and Other 9,411 6 % 4,957 6 % 4,454 90 %
$ 153,750 $ 89,375 $ 64,375
Commissions, employee compensation and benefits expenses increased across all
Operating Groups for the three months ended March 31, 2022 as compared to the
same period of 2021. The Partnership Contribution accounted for $26.5 million ,
$9.9 million and $0.5 million of the increase to commissions, employee
compensation and benefits expenses in the Middle Market, Specialty and Medicare
Operating Groups, respectively. Commissions, employee compensation and benefits
expenses also increased across all Operating Groups as a result of continued
investments in hiring for our Growth Services team to support our growth, which
costs are primarily allocated among the Operating Groups, and continued
investment in sales and service talent.
Commissions, employee compensation and benefits expenses for Corporate and Other
increased $4.5 million for the three months ended March 31, 2022 as compared to
the same period of 2021 as a result of continued investments in hiring to
support our growth and additional share-based compensation expense.
Other Operating Expenses
The following table sets forth our other operating expenses byOperating Group and for Corporate and Other by amount and as a percentage of our other operating expenses: Other Operating Expenses byOperating Group (in
thousands, except percentages)
For the Three Months
Ended March 31,
2022 2021 Variance
Percent of Percent of
Operating Group Amount Business Amount Business Amount %
Middle Market $ 14,509 40 % $ 7,600 45 % $ 6,909 91 %
Specialty 5,380 15 % 1,867 11 % 3,513 188 %
MainStreet 3,006 8 % 1,035 6 % 1,971 190 %
Medicare 1,142 3 % 1,372 8 % (230) (17) %
Corporate and Other 12,405 34 % 5,001 30 % 7,404 148 %
$ 36,442 $ 16,875 $ 19,567
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Other operating expenses for ourMiddle Market Operating Group increased$6.9 million for the three months endedMarch 31, 2022 as compared to the same period of 2021 driven by higher costs for travel and entertainment of$1.3 million , rent expense of$1.3 million , professional fees of$1.1 million , dues and subscriptions of$0.7 million , advertising and marketing of$0.6 million and colleague education and welfare of$0.5 million . Other operating expenses for ourSpecialty Operating Group increased$3.5 million for the three months endedMarch 31, 2022 as compared to the same period of 2021 driven by higher costs for professional fees of$0.8 million , advertising and marketing of$0.4 million , travel and entertainment, dues and subscriptions and rent expense of$0.3 million each, and colleague education and welfare, consulting fees, and licenses and taxes of$0.2 million each. Other operating expenses for ourMainStreet Operating Group increased$2.0 million for the three months endedMarch 31, 2022 as compared to the same period of 2021 driven by higher professional fees. Other operating expenses for ourMedicare Operating Group decreased$0.2 million for the three months endedMarch 31, 2022 as compared to the same period of 2021 driven by lower professional fees. The increases in our operating costs are related to our growth, both organically and through Partnerships, during the previous twelve months. Other operating expenses in Corporate and Other increased$7.4 million for the three months endedMarch 31, 2022 as compared to the same period of 2021 due to higher costs for professional fees of$1.9 million , dues and subscriptions of$1.3 million , licenses and taxes of$1.0 million , consulting fees of$0.7 million , recruiting expense of$0.7 million and colleague education and welfare of$0.5 million . Amortization Expense
The following table sets forth our amortization by
Amortization Expense by Operating Group (in thousands, except percentages)
For the Three Months
Ended March 31,
2022 2021 Variance
Percent of Percent of
Operating Group Amount Business Amount Business Amount %
Middle Market $ 12,548 72 % $ 7,449 71 % $ 5,099 68 %
Specialty 4,193 24 % 2,309 22 % 1,884 82 %
MainStreet 393 2 % 416 4 % (23) (6) %
Medicare 427 2 % 363 3 % 64 18 %
Corporate and Other 1 - % - - % 1 - %
$ 17,562 $ 10,537 $ 7,025
Amortization expense increased for our Middle Market and Specialty Operating
Groups for the three months ended March 31, 2022 as compared to the same period
of 2021 driven by amortization related to Partners acquired over the past twelve
months. Amortization expense for the MainStreet and Medicare Operating Groups
was relatively flat.
Change in Fair Value of Contingent Consideration
The following table sets forth our change in fair value of contingent
consideration by
Change in Fair Value of Contingent Consideration by Operating Group (in thousands, except percentages)
For the Three Months
Ended March 31,
2022 2021 Variance
Percent of Percent of
Operating Group Amount Business Amount Business Amount %
Middle Market $ (6,055) 108 % $ (3,523) 234 % $ (2,532) 72 %
Specialty (183) 3 % 1,035 (69) % (1,218) (118) %
MainStreet 180 (3) % 193 (13) % (13) (7) %
Medicare 426 (8) % 792 (53) % (366) (46) %
$ (5,632) $ (1,503) $ (4,129)
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The change in fair value of contingent consideration results from fluctuations in the value of the relevant measurement basis, normally revenue or EBITDA of our Partners.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs for the foreseeable future will include cash to (i) provide capital to facilitate the organic growth of our business and to fund future Partnerships, (ii) pay operating expenses, including cash compensation to our employees and expenses related to being a public company, (iii) make payments under the Tax Receivable Agreement, (iv) pay interest and principal due on borrowings under the JPM Credit Agreement, (v) pay contingent earnout liabilities and related short-term notes payable dueApril 2022 , and (vi) pay income taxes. We have historically financed our operations and funded our debt service through the sale of our insurance products and services. In addition, we have financed significant cash needs to fund growth through the acquisition of Partners through debt and equity financing. AtMarch 31, 2022 , our cash and cash equivalents were$156.8 million . We believe that our cash and cash equivalents, cash flow from operations and available borrowings under the JPM Credit Agreement will be sufficient to fund our working capital and meet our commitments for the foreseeable future. However, we expect that we will require additional funding to continue to execute on our Partnership strategy. Such funding could include the incurrence of additional debt and the issuance of equity. Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term Partnership strategy. If we are not able to raise funds when needed, we could be forced to delay or reduce the number of Partnerships that we complete.
JPM Credit Agreement
As ofDecember 31, 2021 , our credit agreement withJPMorgan Chase Bank, N.A ., provided for senior secured credit facilities in an aggregate principal amount of$1.325 billion (the "JPM Credit Agreement"), which consisted of (i) a term loan facility in the principal amount of$850.0 million maturing in 2027 (the "Term Loan B") and (ii) a revolving credit facility with commitments in an aggregate principal amount of$475.0 million maturing in 2025 (the "Revolving Facility"). OnMarch 28, 2022 , the Company entered into Amendment No. 5 to the JPM Credit Agreement, under which (i) the aggregate principal amount of the Revolving Facility was increased from$475.0 million to$600.0 million and (ii) the interest rate on the Revolving Facility changed to the Secured Overnight Financing Rate ("SOFR"), plus a credit spread adjustment of 10 basis points ("bps"), plus an amount between 200 bps and 300 bps based on the total net leverage ratio, (iii) the total net leverage ratio covenant increased to 7.0x consolidated EBITDA and (iv) the maturity of the Revolving Facility was extended toApril 1, 2027 . The other terms of the Revolving Facility and the terms of the Term Loan B remained unchanged. The Term Loan B bears interest at LIBOR plus 350 bps, subject to a LIBOR floor of 50 bps. The applicable interest rate on the Term Loan B atMarch 31, 2022 was 4.00%. Borrowings under the Revolving Facility accrue interest at SOFR plus 210 bps to SOFR plus 310 bps based on total net leverage ratio. BRP will pay a letter of credit fee equal to the margin then in effect with respect to SOFR loans under the Revolving Facility multiplied by the daily amount available to be drawn under any letter of credit, a fronting fee and any customary documentary and processing charges for any letter of credit issued under the JPM Credit Agreement. The outstanding borrowings on the Revolving Facility of$75.0 million had an applicable interest rate of 3.35% atMarch 31, 2022 . The Revolving Facility is also subject to a commitment fee of 0.40% on the unused capacity atMarch 31, 2022 . We subsequently increased our borrowings under the Revolving Facility to$530.0 million . The Revolving Facility and the Term Loan B are collateralized by a first priority lien on substantially all the assets of BRP, including a pledge of all equity securities of certain of its subsidiaries. The JPM Credit Agreement contains covenants that, among other things, restrict our ability to make certain restricted payments, incur additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in certain transactions with affiliates, change our business, make certain investments or restrict BRP's ability to make dividends or other distributions toBRP Group . In addition, the JPM Credit Agreement contains financial covenants requiring us to maintain our Total First Lien Net Leverage Ratio (as defined in the JPM Credit Agreement) at or below 7.00 to 1.00.
33
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Contractual Obligations and Commitments
The following table represents our contractual obligations, aggregated by type, atMarch 31, 2022 : Payments Due by Period Less than More than (in thousands) Total 1 year 1-3 years 3-5 years 5 years Operating leases (1)$ 97,189 $ 16,064
1,175,516 106,143 88,263 86,900 894,210
Maximum future acquisition contingency
payments (3) 968,996 66,075 892,921 10,000 -
Total $ 2,241,701 $ 188,282 $ 1,011,375 $ 121,606 $ 920,438
__________
(1) The Company leases facilities and equipment under noncancelable operating
leases. Rent expense was $6.1 million and $4.0 million for the three months
ended March 31, 2022 and 2021, respectively.
(2) Represents scheduled debt obligations and estimated interest payments under
the JPM Credit Agreement and obligations under our related party notes payable.
(3) Includes $227.8 million of current and non-current estimated contingent
earnout liabilities at March 31, 2022 .
Tax Receivable Agreement
We expect to obtain an increase in our share of our tax basis of the assets when BRP's LLC Units are redeemed or exchanged for shares ofBRP Group's Class A common stock. This increase in tax basis may have the effect of reducing the future amounts paid to various tax authorities. The increase in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. We have a Tax Receivable Agreement that provides for the payment by us to the parties to the Tax Receivable Agreement of 85% of the amount of cash savings, if any, inU.S. federal, state and local income tax or franchise tax that we actually realize as a result of (i) any increase in tax basis inBRP Group's assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement. During the three months endedMarch 31, 2022 , we redeemed 70,000 LLC Units of BRP on a one-for-one basis for shares of Class A common stock and cancelled the corresponding shares of Class B common stock, which triggered an increase inBRP Group's tax basis but did not result in a tax benefit to the LLC Unit holders.
SOURCES AND USES OF CASH
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated:
For the Three Months
Ended March 31,
(in thousands) 2022 2021 Variance
Net cash provided by (used in) operating activities
(3,132) (18,358) 15,226
Net cash provided by (used in) financing activities 22,736
(4,404) 27,140
Net increase (decrease) in cash and cash equivalents and restricted cash
16,171 (19,475) 35,646
Cash and cash equivalents and restricted cash at
beginning of period 227,737 142,022 85,715
Cash and cash equivalents and restricted cash at end of period
$ 243,908
Operating Activities
The primary sources and uses of cash for operating activities are net income adjusted for non-cash items and changes in assets and liabilities, or operating working capital. Net cash provided by operating activities decreased$6.7 million for the first quarter of 2022 as compared to the same period of 2021 primarily as a result of payments of contingent earnout consideration in excess of purchase price accrual. 34
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Investing Activities
The primary sources and uses of cash for investing activities relate to cash consideration paid to fund Partnerships and other investments, as well as capital expenditures. Net cash used in investing activities decreased$15.2 million for the first quarter of 2022 as compared to the same period of 2021 driven by a decrease in cash consideration paid for business combinations and assets acquisitions of$16.7 million .
Financing Activities
The primary sources and uses of cash for financing activities relate to the issuance of our Class A common stock, borrowings from and repayment to our credit agreements, payment of debt issuance costs, payment of contingent earnout consideration, and other equity transactions. Net cash provided by financing activities increased$27.1 million for the first quarter of 2022 as compared to the same period of 2021 primarily as a result of borrowings on our revolving line of credit of$40.0 million during the first quarter of 2022, offset in part by payments of contingent earnout consideration up to amount of purchase price accrual of$14.0 million . CRITICAL ACCOUNTING ESTIMATES In preparing our financial statements in accordance with GAAP, we are required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, expenses, disclosure of contingent assets and liabilities and accompanying disclosures. We evaluate our estimates and assumptions on an ongoing basis. These estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances; although, actual results may differ from these estimates and assumptions. To the extent that there are differences between our estimates and actual results, our financial condition, results of operations and cash flows will be affected. There have been no material changes in our critical accounting policies during the three months endedMarch 31, 2022 as compared to those disclosed in the Critical Accounting Estimates section under Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K filed with theSEC onMarch 1, 2022 .
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer to Note 1 to our condensed consolidated financial statements included in Item 1. Financial Statements of this report for a discussion of recent accounting pronouncements that may impact us.
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