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 3,400 Colleagues include over 520Risk Advisors , who are fiercely independent, relentlessly competitive and "insurance geeks." We have approximately 125 offices in 22 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$396.4 million during the six months endedJune 30, 2022 and five Partnerships for an aggregate purchase price of$41.1 million during the six months endedJune 30, 2021 . Partnerships completed during 2022 added$4.4 million of premiums, commissions and fees receivable,$212.2 million of intangible assets and$183.0 million of goodwill to the condensed consolidated balance sheet. 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.
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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.
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 AND SIX 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 and six months endedJune 30, 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 .
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The following is a discussion of our consolidated results of operations for the
three and six months ended
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(in thousands) 2022 2021 Variance 2022 2021 Variance
Revenues:
Commissions and fees $ 232,460 $ 119,706 $ 112,754 $ 475,308 $ 272,534 $ 202,774
Operating expenses:
Commissions, employee compensation
and benefits 172,848 89,065 83,783 326,598 178,440 148,158
Other operating expenses 40,770 19,537 21,233 77,212 36,412 40,800
Amortization expense 19,170 10,742 8,428 36,732 21,279 15,453
Change in fair value of contingent
consideration (26,872) 13,325 (40,197) (32,504) 11,822 (44,326)
Depreciation expense 1,105 573 532 2,093 1,167 926
Total operating expenses 207,021 133,242 73,779 410,131 249,120 161,011
Operating income (loss) 25,439 (13,536) 38,975 65,177 23,414 41,763
Other income (expense):
Interest expense, net (14,632) (5,848) (8,784) (24,982) (11,491) (13,491)
Other income (expense), net 5,786 (1,057) 6,843 21,237 (1,057) 22,294
Total other expense (8,846) (6,905) (1,941) (3,745) (12,548) 8,803
Net income (loss) 16,593 (20,441) 37,034 61,432 10,866 50,566
Less: net income (loss)
attributable to noncontrolling
interests 7,951 (10,348) 18,299 29,921 5,653 24,268
Net income (loss) attributable to
BRP Group, Inc. $ 8,642 $ (10,093) $ 18,735 $ 31,511 $ 5,213 $ 26,298
Commissions and Fees
We earn commissions and fees by facilitating the arrangement between Insurance
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 from Insurance 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 $112.8 million and $202.8 million for the three
and six months ended June 30, 2022 as compared to the same period of 2021,
respectively. 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 $84.2 million and $149.0 million of
the increase to commissions and fees for the quarter and year-to-date periods,
respectively, and organic growth accounted for $28.6 million and $53.8 million
of the increase for the quarter and year-to-date periods, respectively.
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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 For the Six Months
Ended June 30, Ended June 30,
(in thousands) 2022 2021 Variance 2022 2021 Variance
Direct bill revenue $ 93,534 $ 50,358 $ 43,176 $ 225,194 $ 144,863 $ 80,331
Agency bill revenue 89,015 47,293 41,722 162,192 82,633 79,559
Profit-sharing revenue 19,366 8,175 11,191 34,378 18,467 15,911
Consulting and service fee revenue 12,188 7,570 4,618 26,525 14,577 11,948
Policy fee and installment fee
revenue 13,419 4,792 8,627 19,127 9,268 9,859
Other income 4,938 1,518 3,420 7,892 2,726 5,166
Total commissions and fees $ 232,460 $ 119,706 $ 112,754 $ 475,308 $ 272,534 $ 202,774
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 $43.2 million and $80.3 million for the three and six
months ended June 30, 2022 as compared to the same periods of 2021,
respectively. The Partnership Contribution accounted for $36.5 million and $62.1
million of the increase to direct bill revenue for the quarter and year-to-date
periods, respectively. Organic growth for direct bill revenue was $6.7 million
and $18.2 million for the quarter and year-to-date periods, respectively.
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 $41.7 million and $79.6 million for
the three and six months ended June 30, 2022 as compared to the same periods of
2021, respectively. The Partnership Contribution accounted for $34.4 million and
$62.2 million of the increase to agency bill revenue for the quarter and
year-to-date periods, respectively. Organic growth for agency bill revenue was
$7.3 million and $17.4 million for the quarter and year-to-date periods,
respectively.
Profit-sharing revenue represents bonus-type or contingent revenue that is
earned by us as a sales incentive provided by certain Insurance Company
Partners . Profit-sharing revenue increased $11.2 million and $15.9 million for
the three and six months ended June 30, 2022 as compared to the same periods of
2021, respectively, as a result of the Partnership Contribution of $5.8 million
and $9.4 million , respectively, and organic growth of $5.4 million and $6.5
million , respectively. Profit-sharing revenue was affected by higher loss ratios
in our Middle Market and MainStreet Operating Groups, which is particularly
acute in the Florida 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 $4.6 million and $11.9 million for the three and six
months ended June 30, 2022 as compared to the same periods of 2021,
respectively, as a result of the Partnership Contribution of $3.5 million and
$9.6 million , respectively, and organic growth of $1.1 million and $2.3 million ,
respectively.
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 of Insurance Company Partners . Policy fee and
installment fee revenue increased $8.6 million and $9.9 million during the three
and six months ended June 30, 2022 as compared to the same periods of 2021,
respectively, largely due to organic growth. These fees are generated by our
Specialty Operating Group .
Other income consists of Medicare marketing income that is based on agreed-upon
cost reimbursement for fulfilling specific targeted marketing campaigns in
addition to other ancillary income and premium financing income generated across
all Operating Groups. Other income increased $3.4 million and $5.2 million for
the three and six months ended June 30, 2022 as compared to the same periods of
2021, respectively.
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.
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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$83.8 million and$148.2 million for the three and six months endedJune 30, 2022 as compared to the same periods of 2021, respectively. The Partnership Contribution accounted for$45.4 million and$82.3 million of the increase to commissions, employee compensation and benefits for the quarter and year-to-date periods, respectively. Share-based compensation expense increased$5.6 million and$9.6 million , respectively, 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$21.2 million for the three months endedJune 30, 2022 as compared to the same period of 2021, which was primarily attributable to increases in professional fees of$6.7 million relating to Partnership transactions, debt raises and public filings, dues and subscriptions of$4.6 million from our investment in technology to support our growth, rent expense of$3.6 million relating to expansion of our operating locations, colleague education and welfare of$3.2 million relating to investments in our Colleagues, travel and entertainment of$2.4 million relating to Partnership travel and lodging costs, licenses and taxes of$1.6 million relating to revenue growth, and advertising and marketing and repairs and maintenance of$1.4 million each. These increases were partially offset by a decrease in consulting fees of$6.3 million . Other operating expenses increased$40.8 million for the six months endedJune 30, 2022 as compared to the same period of 2021, which was primarily attributable to increases in professional fees of$11.5 million relating to Partnership transactions, debt raises and public filings, dues and subscriptions of$6.9 million from our investment in technology to support our growth, rent expense of$5.7 million relating to expansion of our operating locations, travel and entertainment of$4.5 million relating to Partnership travel and lodging costs, colleague education and welfare of$4.5 million relating to investments in our Colleagues, licenses and taxes of$3.0 million relating to revenue growth, advertising and marketing of$2.6 million and repairs and maintenance of$2.4 million . These increases were partially offset by a decrease in consulting fees of$5.5 million . Amortization Expense Amortization expense increased$8.4 million and$15.5 million for the three and six months endedJune 30, 2022 as compared to the same period of 2021, respectively, which was driven by amortization of intangible assets recorded in connection with Partnerships over the past twelve months.
Change in Fair Value of Contingent Consideration
Change in fair value of contingent consideration was a$26.9 million gain for the three months endedJune 30, 2022 as compared to a$13.3 million loss for the same period of 2021. Change in fair value of contingent consideration was a$32.5 million gain for the six months endedJune 30, 2022 as compared to a$11.8 million loss for the same period of 2021. The change in fair value of contingent consideration for 2022 was impacted by high market volatility, rising interest rates and changes in growth trends of certain partners, which resulted in the reduction of contingent earnout consideration values.
Depreciation Expense
Depreciation expense increased
Interest Expense, Net
Interest expense, net increased$8.8 million and$13.5 million for the three and six months endedJune 30, 2022 as compared to the same periods of 2021, respectively, resulting from higher average borrowings outstanding, offset in part by lower average interest rates, during 2022.
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Other Income, Net
Other income, net was
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 to include commissions and fees that were excluded from Organic Revenue 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. 33
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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. We believe that Adjusted Net Income is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate to business performance. 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 For the Six Months
Ended June 30, Ended June 30,
(in thousands, except percentages) 2022 2021 2022 2021
Commissions and fees $ 232,460 $ 119,706 $ 475,308 $ 272,534
Net income (loss) $ 16,593 $ (20,441) $ 61,432 $ 10,866
Adjustments to net income (loss):
Amortization expense 19,170 10,742 36,732 21,279
Change in fair value of contingent
consideration (26,872) 13,325 (32,504) 11,822
Interest expense, net 14,632 5,848 24,982 11,491
Change in fair value of interest rate caps (5,459) 825 (21,269) 825
Share-based compensation 10,113 4,545 17,677 8,087
Transaction-related Partnership expenses 9,208 3,225 17,424 5,670
Depreciation expense 1,105 573 2,093 1,167
Severance 653 - 875 -
Other(1) 3,341 1,412 7,974 2,271
Adjusted EBITDA $ 42,484 $ 20,054 $ 115,416 $ 73,478
Adjusted EBITDA Margin 18 % 17 % 24 % 27 %
__________(1) Other addbacks to Adjusted EBITDA include certain expenses that are considered to be non-recurring or non-operational, including certain recruiting costs, remediation efforts, professional fees and litigation costs, and 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 For the Six Months
Ended June 30, Ended June 30,
(in thousands, except percentages) 2022 2021 2022 2021
Commissions and fees $ 232,460 $ 119,706 Partnership commissions and fees(1) (84,186) (51,893)
(148,963) (143,108) Organic Revenue$ 148,274 $ 67,813 $ 326,345 $ 129,426 Organic Revenue Growth(2)$ 28,630 $ 16,482 $ 53,811 $ 23,929 Organic Revenue Growth %(2) 24 % 32 % 20 % 23 %
__________
(1) Includes the first twelve months of such commissions and fees generated from newly acquired Partners.
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(2) Organic Revenue Growth for the three and six months endedJune 30, 2021 used to calculate Organic Revenue for the three and six months endedJune 30, 2022 was$119.6 million and$272.5 million , respectively, which is adjusted to reflect revenues from Partnerships that reached the twelve-month owned mark during the three and six months endedJune 30, 2022 .
Adjusted Net Income and Adjusted Diluted EPS
The following table reconciles Adjusted Net Income to net income attributable toBRP Group, Inc. and reconciles Adjusted Diluted EPS to diluted earnings per share, which we consider to be the most directly comparable GAAP financial measures: For the Three Months For the Six Months Ended June 30, Ended June 30, (in thousands, except per share data) 2022 2021(1) 2022 2021(1) Net income (loss) attributable to BRP Group, Inc.$ 8,642 $ (10,093) $ 31,511 $ 5,213 Net income (loss) attributable to noncontrolling interests 7,951 (10,348) 29,921 5,653 Amortization expense 19,170 10,742 36,732 21,279 Change in fair value of contingent consideration (26,872) 13,325 (32,504) 11,822 Change in fair value of interest rate caps (5,459) 825 (21,269) 825 Share-based compensation 10,113 4,545 17,677 8,087 Transaction-related Partnership expenses 9,208 3,225 17,424 5,670 Amortization of deferred financing costs 1,188 750 2,474 1,443 Depreciation 1,105 573 2,093 1,167 Severance 653 - 875 - Other(2) 3,341 1,412 7,974 2,271 Adjusted pre-tax income 29,040 14,956 92,908 63,430 Adjusted income taxes(3) 2,875 1,481 9,198 6,280 Adjusted Net Income$ 26,165 $ 13,475 $ 83,710 $ 57,150 Weighted-average shares of Class A common stock outstanding - diluted 59,859 44,671 59,354 46,160 Dilutive effect of unvested restricted shares of Class A common stock - 1,862 - - Exchange of Class B shares(4) 55,864 49,600 56,065 49,694 Adjusted dilutive weighted-average shares outstanding 115,723 96,133 115,419 95,854 Adjusted Diluted EPS$ 0.23 $ 0.14 $ 0.73 $ 0.60 Diluted earnings (loss) per share$ 0.14 $ (0.23) $ 0.53 $ 0.11 Effect of exchange of Class B shares and net income (loss) attributable to noncontrolling interests per share - 0.02 - - Other adjustments to earnings (loss) per share 0.11 0.37 0.28 0.56 Adjusted income taxes per share (0.02) (0.02) (0.08) (0.07) Adjusted Diluted EPS$ 0.23 $ 0.14 $ 0.73 $ 0.60 ___________ (1) Calculation was adjusted in the fourth quarter of 2021 to include depreciation. Prior year amounts have been conformed to current year presentation. (2) Other addbacks to Adjusted Net Income include certain expenses that are considered to be non-recurring or non-operational, including certain recruiting costs, remediation efforts, professional fees and litigation costs, and bonuses. (3) Represents corporate income taxes at assumed effective tax rate of 9.9% applied to adjusted pre-tax income. (4) 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 by
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2022 2021 Variance 2022 2021 Variance
Percent of Percent of Percent of Percent of
Operating Group Amount Business Amount Business Amount % Amount Business Amount Business Amount %
Middle Market $ 131,532 56 % $ 76,109 64 % $ 55,423 73 % $ 302,935 64 % $ 186,664 68 % $ 116,271 62 %
Specialty 74,301 32 % 30,105 25 % 44,196 147 % 123,824 26 % 55,187 20 % 68,637 124 %
MainStreet 29,430 13 % 8,576 7 % 20,854 243 % 38,707 8 % 16,798 6 % 21,909 130 %
Medicare 6,595 3 % 5,152 4 % 1,443 28 % 20,276 4 % 14,604 5 % 5,672 39 %
Corporate and Other (9,398) (4) % (236) - % (9,162) n/m (10,434) (2) % (719) - % (9,715) n/m
$ 232,460 $ 119,706 $ 112,754 $ 475,308 $ 272,534 $ 202,774
__________
n/m not meaningful
Commissions and fees for our Middle Market Operating Group increased $55.4
million for the second quarter of 2022 as compared to the same period of 2021 as
a result of the Partnership Contribution of $46.8 million and organic growth of
$8.6 million . Organic growth included $4.6 million related to base commissions
and fees and $4.0 million related to contingent revenue.
Commissions and fees for our Middle Market Operating Group increased $116.3
million for the first half of 2022 as compared to the same period of 2021 as a
result of the Partnership Contribution of $93.9 million and organic growth of
$22.4 million . Organic growth included $18.7 million related to base commissions
and fees and $4.2 million related to contingent revenue.
Commissions and fees for our Specialty Operating Group increased $44.2 million
for the second quarter of 2022 as compared to the same period of 2021 as a
result of the Partnership Contribution of $28.2 million and organic growth of
$16.0 million , which is attributable to growth in our renter's and homeowner's
insurance products and base commissions.
Commissions and fees for our Specialty Operating Group increased $68.6 million
for the first half of 2022 as compared to the same period of 2021 as a result of
the Partnership Contribution of $44.9 million and organic growth of $23.7
million , which is primarily attributable to growth in our renter's and
homeowner's insurance products and base commissions.
Commissions and fees for our MainStreet Operating Group increased $20.9 million
for the second quarter of 2022 as compared to the same period of 2021 as a
result of the Partnership Contribution of $18.1 million and organic growth of
$2.8 million , primarily related to base commissions and fees.
Commissions and fees for our MainStreet Operating Group increased $21.9 million
for the first half of 2022 as compared to the same period of 2021 as a result of
the Partnership Contribution of $18.0 million and organic growth of $3.9
million , primarily related to base commissions and fees.
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Commissions and fees for ourMedicare Operating Group increased$1.4 million for the second quarter of 2022 as compared to the same period of 2021 as a result of organic growth of$1.2 million and the Partnership Contribution of$0.2 million . Commissions and fees for ourMedicare Operating Group increased$5.7 million for the first half of 2022 as compared to the same period of 2021 as a result of organic growth of$3.7 million and the Partnership Contribution of$2.0 million . Revenue reported for Corporate and Other relates to the elimination of intercompany revenue. During the second quarter of 2022, theMiddle Market Operating Group recorded intercompany commissions and fees from activity with theSpecialty Operating Group of$0.4 million ; theSpecialty Operating Group recorded intercompany commissions and fees revenue from activity with theMainStreet Operating Group and itself of$8.6 million ; theMainStreet Operating Group recorded intercompany commissions and fees from activity with the Middle Market and Specialty Operating Groups of less than$0.1 million ; and theMedicare Operating Group recorded intercompany commissions and fees from activity with itself of$0.3 million . These amounts were eliminated through Corporate and Other. During the first half of 2022, theMiddle Market Operating Group recorded intercompany commissions and fees from activity with theSpecialty Operating Group of$0.6 million ; theSpecialty Operating Group recorded intercompany commissions and fees revenue from activity with theMainStreet Operating Group and itself of$8.8 million ; theMainStreet Operating Group recorded intercompany commissions and fees from activity with the Middle Market and Specialty Operating Groups of less than$0.2 million ; and theMedicare Operating Group recorded intercompany commissions and fees from activity with itself of$0.8 million .
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 For the Six Months
Ended June 30, Ended June 30,
2022 2021 Variance 2022 2021 Variance
Percent of Percent of Percent of Percent of
Operating Group Amount Business Amount Business Amount % Amount Business Amount Business Amount %
Middle Market $ 92,398 53 % $ 50,980 57 % $ 41,418 81 % $ 187,188 57 % $ 107,722 60 % $ 79,466 74 %
Specialty 52,861 31 % 22,427 25 % 30,434 136 % 87,537 27 % 40,379 23 % 47,158 117 %
MainStreet 17,204 10 % 5,880 7 % 11,324 193 % 24,708 7 % 11,026 6 % 13,682 124 %
Medicare 4,777 3 % 3,775 4 % 1,002 27 % 12,146 4 % 8,353 5 % 3,793 45 %
Corporate and Other 5,608 3 % 6,003 7 % (395) (7) % 15,019 5 % 10,960 6 % 4,059 37 %
$ 172,848 $ 89,065 $ 83,783 $ 326,598 $ 178,440 $ 148,158
Commissions, employee compensation and benefits expenses increased across all
Operating Groups for the second quarter of 2022 as compared to the same period
of 2021. The Partnership Contribution accounted for $26.6 million , $10.1
million , $8.5 million and $0.2 million of the increase to commissions, employee
compensation and benefits expenses in the Middle Market, Specialty, MainStreet
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 increased across all
Operating Groups for the first half of 2022 as compared to the same period of
2021. The Partnership Contribution accounted for $53.1 million , $20.0 million ,
$8.5 million and $0.7 million of the increase to commissions, employee
compensation and benefits expenses in the Middle Market, Specialty, MainStreet
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.
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Commissions, employee compensation and benefits expenses for Corporate and Other increased$4.1 million for the first half of 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 by
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2022 2021 Variance 2022 2021 Variance
Percent of Percent of Percent of Percent of
Operating Group Amount Business Amount Business Amount % Amount Business Amount Business Amount %
Middle Market $ 18,064 44 % $ 10,230 52 % $ 7,834 77 % $ 32,573 42 % $ 17,830 49 % $ 14,743 83 %
Specialty 7,773 19 % 2,176 11 % 5,597 257 % 13,153 17 % 4,043 11 % 9,110 225 %
MainStreet 4,541 11 % 1,260 6 % 3,281 260 % 7,547 10 % 2,295 6 % 5,252 229 %
Medicare 1,577 4 % 1,115 6 % 462 41 % 2,719 4 % 2,487 7 % 232 9 %
Corporate and Other 8,815 22 % 4,756 24 % 4,059 85 % 21,220 27 % 9,757 27 % 11,463 117 %
$ 40,770 $ 19,537 $ 21,233 $ 77,212 $ 36,412 $ 40,800
Other operating expenses for our Middle Market Operating Group increased $7.8
million for the second quarter of 2022 as compared to the same period of 2021
driven by higher costs for dues and subscriptions of $3.0 million , rent expense
of $2.5 million , travel and entertainment of $1.4 million , colleague education
and welfare of $1.3 million and professional fees of $1.1 million , offset in
part by a decrease in consulting fees of $2.2 million . Other operating expenses
for our Specialty Operating Group increased $5.6 million for the second quarter
of 2022 as compared to the same period of 2021 driven by higher costs for
professional fees of $1.2 million , dues and subscriptions of $0.9 million , rent
expense and colleague education and welfare of $0.4 million each, and travel and
entertainment, recruiting, and advertising and marketing of $0.3 million each.
Other operating expenses for our MainStreet Operating Group increased $3.3
million for the second quarter of 2022 as compared to the same period of 2021
driven by higher rent expense of $1.0 million , professional fees and advertising
and marketing of $0.4 million each, and recruiting and dues and subscriptions of
$0.3 million each. Other operating expenses for our Medicare Operating Group
increased $0.5 million for the second quarter of 2022 as compared to the same
period of 2021 driven by higher professional fees of $0.4 million and
advertising and marketing of $0.2 million , offset in part by a decrease in
consulting fees of $0.3 million . The increases in our operating costs are
related to our growth, both organically and through Partnerships, during the
previous twelve months.
Other operating expenses for our Middle Market Operating Group increased $14.7
million for the first half of 2022 as compared to the same period of 2021 driven
by higher costs for rent expense of $3.9 million , dues and subscriptions of $3.7
million , travel and entertainment of $2.7 million , professional fees of $2.1
million , colleague education and welfare of $1.8 million and advertising and
marketing of $1.0 million , offset in part by a decrease in consulting fees of
$2.3 million . Other operating expenses for our Specialty Operating Group
increased $9.1 million for the first half of 2022 as compared to the same period
of 2021 driven by higher costs for professional fees of $2.0 million , dues and
subscriptions of $1.1 million , advertising and marketing of $0.7 million , and
rent expense, colleague education and welfare, licenses and taxes, and travel
and entertainment of $0.6 million each. Other operating expenses for our
MainStreet Operating Group increased $5.3 million for the first half of 2022 as
compared to the same period of 2021 driven by higher professional fees of $1.7
million , rent expense of $1.1 million , advertising and marketing of $0.5 million
and dues and subscriptions of $0.4 million . Other operating expenses for our
Medicare Operating Group increased $0.2 million for the first half of 2022 as
compared to the same period of 2021 driven by higher costs for advertising and
marketing of $0.3 million and professional fees of $0.2 million , offset in part
by a decrease in consulting fees of $0.4 million . 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 $4.1 million for the
second quarter of 2022 as compared to the same period of 2021 due to higher
costs for professional fees of $3.6 million , colleague education and welfare of
$1.3 million and repairs and maintenance of $1.0 million . These increases were
partially offset by a decrease in consulting fees of $3.7 million .
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Other operating expenses in Corporate and Other increased$11.5 million for the first half of 2022 as compared to the same period of 2021 due to higher costs for professional fees of$5.5 million , colleague education and welfare of$1.9 million , dues and subscriptions and licenses and taxes of$1.6 million each, repairs and maintenance of$1.4 million and recruiting expense and travel and entertainment of$1.1 million each. These increases were partially offset by a decrease in consulting fees of$3.0 million .
Amortization Expense
The following table sets forth our amortization by
Amortization Expense
by
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2022 2021 Variance 2022 2021 Variance
Percent of Percent of Percent of Percent of
Operating Group Amount Business Amount Business Amount % Amount Business Amount Business Amount %
Middle Market $ 12,536 65 % $ 7,462 69 % $ 5,074 68 % $ 25,084 68 % $ 14,911 70 % $ 10,173 68 %
Specialty 4,221 22 % 2,418 23 % 1,803 75 % 8,414 23 % 4,727 22 % 3,687 78 %
MainStreet 2,013 11 % 410 4 % 1,603 n/m 2,406 7 % 826 4 % 1,580 191 %
Medicare 398 2 % 451 4 % (53) (12) % 825 2 % 814 4 % 11 1 %
Corporate and Other 2 - % 1 - % 1 - % 3 - % 1 - % 2 - %
$ 19,170 $ 10,742 $ 8,428 $ 36,732 $ 21,279 $ 15,453
__________
n/m not meaningful
Amortization expense increased for our Middle Market, Specialty and MainStreet
Operating Groups for the three and six months ended June 30, 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 Medicare Operating Group
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 For the Six Months
Ended June 30, Ended June 30,
2022 2021 Variance 2022 2021 Variance
Percent of Percent of Percent of Percent of
Operating Group Amount Business Amount Business Amount % Amount Business Amount Business Amount %
Middle Market $ (24,957) 93 % $ 12,569 94 % $ (37,526) n/m $ (31,012) 95 % $ 9,046 77 % $ (40,058) n/m
Specialty (1,714) 6 % 1,448 11 % (3,162) (218) % (1,897) 6 % 2,483 21 % (4,380) (176) %
MainStreet 258 (1) % (19) - % 277 n/m 438 (1) % 174 1 % 264 152 %
Medicare (459) 2 % (673) (5) % 214 (32) % (33) - % 119 1 % (152) (128) %
$ (26,872) $ 13,325 $ (40,197) $ (32,504) $ 11,822 $ (44,326) __________ n/m not meaningful The change in fair value of contingent consideration for 2022 was impacted by high market volatility, rising interest rates and changes in growth trends of certain partners, which resulted in the reduction of contingent earnout consideration values.
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LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs for the next twelve months 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 (vi) pay 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. AtJune 30, 2022 , our cash and cash equivalents were$183.4 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 next twelve months and beyond. 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 JPM Credit Agreement provided for senior secured credit facilities in an aggregate principal amount of$1.325 billion , 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 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 atJune 30, 2022 was 4.69%. 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$525.0 million had an applicable interest rate of 4.50% atJune 30, 2022 . The Revolving Facility is also subject to a commitment fee of 0.40% on the unused capacity atJune 30, 2022 . The Revolving Facility and the Term Loan B are collateralized by a first priority lien on substantially all the assets of BRP, including a pledge of all equity securities of certain of its subsidiaries. The JPM Credit Agreement contains covenants that, among other things, restrict our ability to make certain restricted payments, incur additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in certain transactions with affiliates, change our business, make certain investments or restrict BRP's ability to make dividends or other distributions toBRP Group . In addition, the JPM Credit Agreement contains financial covenants requiring us to maintain our Total First Lien Net Leverage Ratio (as defined in the JPM Credit Agreement) at or below 7.00 to 1.00.
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Contractual Obligations and Commitments
The following table represents our contractual obligations, aggregated by type, atJune 30, 2022 : Payments Due by Period Less than More than (in thousands) Total 1 year 1-3 years 3-5 years 5 years Operating leases(1)$ 102,590 $ 16,010
1,683,130 71,453 141,708 659,284 810,685
Maximum future acquisition contingency
payments(3) 980,944 154,458 816,486 10,000 -
Total $ 2,766,664 $ 241,921 $ 989,679 $ 696,235 $ 838,829
__________
(1) The Company leases facilities and equipment under noncancelable operating
leases. Rent expense was $12.8 million and $7.4 million for the six months ended
June 30, 2022 and 2021, respectively.
(2) Represents scheduled debt obligations and estimated interest payments under
the JPM Credit Agreement.
(3) Includes $210.0 million of current and non-current estimated contingent
earnout liabilities at June 30, 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 six months endedJune 30, 2022 , we redeemed 874,187 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 Six Months
Ended June 30,
(in thousands) 2022 2021 Variance
Net cash provided by (used in) operating activities
(389,895) (27,607) (362,288)
Net cash provided by financing activities 450,730 112,150 338,580
Net increase in cash and cash equivalents and
restricted cash 56,194 133,962 (77,768)
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 $ 283,931 $ 275,984 $ 7,947
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. Net cash
provided by operating activities decreased $54.1 million for the first half of
2022 as compared to the same period of 2021 driven by a decrease in cash
relating to payments of contingent earnout consideration and related party notes
payable. Payment of contingent earnout consideration in excess of the liability
recognized at the acquisition date of $47.8 million is captured as an operating
cash flow during 2022 and is reflective of Partnerships that have outperformed
on our platform since the date of Partnership. Cash also decreased from a higher
balance in premiums, commissions and fees receivable of $26.0 million resulting
from revenue growth and the timing of revenue recognition under direct bill
policies in employee benefits for which payment is received monthly through the
duration of the year. These decreases were partially offset by an increase in
cash from a higher balance in accounts payable, accrued expenses and other
current liabilities of $16.3 million related, in part, to the aforementioned
revenue growth and higher premiums receivable balance.
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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 increased$362.3 million for the first half of 2022 as compared to the same period of 2021 driven by an increase in cash consideration paid for Partnership activity of$354.8 million due to our having completed our largest Partnership to date during the second quarter of 2022. 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$338.6 million for the first half of 2022 as compared to the same period of 2021 primarily as a result of an increase in net borrowings on our credit facilities of$368.8 million , offset in part by an increase in payments of contingent earnout consideration up to the amount of purchase price accrual of$42.4 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 endedJune 30, 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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