The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K. 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 in the Annual Report on Form 10-K. THE COMPANYBRP Group, Inc. ("BRP Group ," the "Company," "we," "us" or "our") is a rapidly growing independent insurance distribution firm delivering 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 and capital to drive organic and inorganic growth. We are innovating the industry by taking a holistic and tailored approach to risk management, insurance and employee benefits. Our growth plan includes increased geographic representation across theU.S. , expanded client value propositions and new lines of insurance to meet the needs of evolving lifestyles, business risks and healthcare funding. 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 600,000 Clients acrossthe United States and internationally. Our 1,700 Colleagues include approximately 340Risk Advisors ,who are fiercely independent, relentlessly competitive and "insurance geeks." We have over 80 offices in 18 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 private risk management, commercial risk management and employee benefits solutions 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 to seniors and Medicare-eligible individuals through a network of agents. •Specialty delivers specialty insurers, professionals, individuals and niche industry businesses expanded access to exclusive specialty markets, capabilities and programs requiring complex underwriting and placement. 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. 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 COVID-19 pandemic may 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.
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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 ten years. We completed two Partnerships for an aggregate purchase price of$26.7 million during the three months endedMarch 31, 2021 and four Partnerships for an aggregate purchase price of$59.7 million during the three months endedMarch 31, 2020 . Partnerships completed during 2021 added$0.7 million of premiums, commissions and fees receivable,$8.7 million of intangible assets and$17.4 million of goodwill to the condensed consolidated balance sheet. For additional information on the Partnerships that we have completed during 2021, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1. Financial Statements of this report. NOVEL CORONAVIRUS (COVID-19) InMarch 2020 , theWorld Health Organization declared a novel strain of the coronavirus, COVID-19, a pandemic. This COVID-19 outbreak has become increasingly widespread and severely restricted the level of economic activity around the world. In response to this outbreak, the governments of many countries, states, cities and other geographic regions, including inthe United States , have taken preventive or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forgo their time outside of their homes. Our Clients and Colleagues are our first priority and we have taken steps to ensure their safety by implementing a remote work environment for the majority of our Colleagues without disruption to Client service. We have funded theBRP True North Colleague Fund to assist with relief for COVID-19 and other qualifying disasters for our Colleagues experiencing extraordinary hardship and are currently matching Colleague donations dollar-for dollar. 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, the duration and scope of the government shutdowns, 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. The national and global economies have rapidly contracted as a result of COVID-19. The decreased level of economic activity is leading to, and is likely to continue to lead to, a decline in exposure units and rising unemployment. 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. See Part I, Item 1A. "Risk Factors - The ongoing novel coronavirus (COVID-19) pandemic could and resulting government actions (including travel bans, lock downs, maximum occupancy limits and similar actions) 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 11, 2021 . RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDEDMARCH 31, 2021 AND 2020 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, 2021 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 11, 2021 .
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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) 2021 2020 Variance Revenues: Commissions and fees
Operating expenses: Commissions, employee compensation and benefits 89,375 34,548 54,827 Other operating expenses 17,568 8,885 8,683 Amortization expense 10,537 3,596 6,941 Change in fair value of contingent consideration (1,503) 1,661 (3,164) Depreciation expense 594 165 429 Total operating expenses 116,571 48,855 67,716 Operating income 36,257 5,304 30,953 Interest expense, net (5,643) (585) (5,058) Income before income taxes 30,614 4,719 25,895 Income tax provision - 12 (12) Net income 30,614 4,707 25,907 Less: net income attributable to noncontrolling interests 16,001 3,239 12,762 Net income attributable to BRP Group, Inc.$ 14,613 $ 1,468 $ 13,145 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 by$98.7 million for the three months endedMarch 31, 2021 as compared to the same period of 2020. This increase was related to amounts attributable to Partners acquired during 2020 and 2021 prior to their having reached the twelve-month owned mark (such amounts, the "Partnership Contribution") and organic growth. The Partnership Contribution accounted for$91.2 million of the increase to commissions and fees for the quarter and organic growth accounted for$7.4 million .
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Major Sources of Commissions and Fees The following table sets forth our commissions and fees by major source for the periods indicated: For the Three Months Ended March 31, (in thousands) 2021 2020 Variance Direct bill revenue$ 94,505 $ 28,109 $ 66,396 Agency bill revenue 33,946 16,429 17,517 Profit-sharing revenue 10,292 5,124 5,168 Policy fee and installment fee revenue
4,476 3,382 1,094
Consulting and service fee revenue 1,394 715 679 Other income 8,215 400 7,815 Total commissions and fees
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$66.4 million for the three months endedMarch 31, 2021 as compared to the same period of 2020. The Partnership Contribution accounted for$64.0 million of the increase to direct bill revenue for the quarter. Organic growth for direct bill revenue was$2.4 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 by$17.5 million for the three months endedMarch 31, 2021 as compared to the same period of 2020. The Partnership Contribution accounted for$14.2 million of the increase to agency bill revenue for the quarter. Organic growth for agency bill revenue was$3.3 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 by$5.2 million for the three months endedMarch 31, 2021 as compared to the same period of 2020 as a result of the Partnership Contribution of$5.4 million offset in part by organic growth of$(0.2) 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. 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 by$1.1 million during the three months endedMarch 31, 2021 as compared to the same period of 2020 from our "MGA of the Future," which resides in ourSpecialty 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 fee income and premium financing income generated across all Operating Groups. Other income increased by$7.8 million for the three months endedMarch 31, 2021 as compared to the same period of 2020. The Partnership Contribution accounted for$7.7 million and organic growth comprised$0.1 million . 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 interest awards to senior management,Risk Advisors and executives. We expect to continue to experience a general rise in commissions, employee compensation and benefits expense commensurate with expected growth in our sales and headcount and as a result of increasing employee compensation related to ongoing public company costs. 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.
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Commissions, employee compensation and benefits expenses increased by$54.8 million for the three months endedMarch 31, 2021 as compared to the same period of 2020. The Partnership Contribution accounted for$43.7 million of the increase to commissions, employee compensation and benefits for the quarter. Share-based compensation expense increased$2.4 million as a result of equity grants awarded to all newly hired Colleagues, including thosewho 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 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, depreciation 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. In addition, we have invested in the expansion of ourTampa offices to accommodate our growth plans, which has resulted in an increase to rent expense beginning inApril 2020 . Certain corporate expenses are allocated to the Operating Groups. Other operating expenses increased by$8.7 million for the three months endedMarch 31, 2021 as compared to the same periods of 2020, which was primarily attributable to increases in rent expense of$2.7 million relating to expansion of our corporate offices and operating locations, dues and subscriptions of$1.5 million from our investment in technology to support our growth, consulting of$0.9 million , software and internet of$0.7 million relating to Partnerswho joined us in 2020, professional fees of$0.5 million related to Partnership transactions and public company costs, licenses and taxes of$0.5 million and advertising and marketing of$0.4 million . Amortization Expense Amortization expense increased by$6.9 million for the three months endedMarch 31, 2021 as compared to the same period of 2020, which was driven by amortization related to Partners acquired over the past twelve months. Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration was$(1.5) million for the three months endedMarch 31, 2021 as compared to$1.7 million for the same period of 2020. 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 by$5.1 million for the three months endedMarch 31, 2021 as compared to the same period of 2020 resulting from$398.0 million in debt outstanding at a 4.75% interest rate during the first quarter of 2021 under the JPM Credit Agreement. By comparison, we had average outstanding debt of approximately$50.4 million with an average interest rate of approximately 3.41% during the first quarter of 2020. FINANCIAL CONDITION - COMPARISON OFMARCH 31, 2021 TODECEMBER 31, 2020 Our total assets and total liabilities increased$47.1 million and$11.4 million , respectively, atMarch 31, 2021 as compared toDecember 31, 2020 . The most significant changes in assets and liabilities are described below. Cash and cash equivalents decreased$17.9 million as a result of operating, investing and financing activities illustrated in the condensed consolidated statement of cash flows. Premiums, commissions and fees receivable, net increased$51.1 million as a result of 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.Goodwill increased$17.6 million as a result of our first quarter 2021 Partnerships and measurement period adjustments for certain of our 2020 Partnerships. Premiums payable to insurance companies and producer commissions payable increased$8.0 million and$9.5 million , respectively, as a result of revenue growth.
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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 toBRP 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 toBRP 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. Adjusted EBITDA eliminates the effects of financing, depreciation, amortization and change in fair value of contingent consideration. 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 including 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 reach the twelve-month owned mark in the current period. For example, revenues from a Partner acquired onJune 1, 2020 are excluded from Organic Revenue for 2020. However, afterJune 1, 2021 , results fromJune 1, 2020 toDecember 31, 2020 for such Partners are compared to results fromJune 1, 2021 toDecember 31, 2021 for purposes of calculating Organic Revenue Growth in 2021. 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 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 including 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 to Adjusted EBITDA and Adjusted EBITDA Margin: For the
Three Months
Ended March 31, (in thousands, except percentages) 2021 2020 Commissions and fees$ 152,828 $ 54,159 Net income$ 30,614 $ 4,707 Adjustments to net income: Amortization expense 10,537 3,596 Interest expense, net 5,643 585 Share-based compensation 3,542 1,139 Transaction-related Partnership expenses 2,445 1,848 Change in fair value of contingent consideration (1,503) 1,661 Depreciation expense 594 165 Severance related to Partnership activity - 53 Income tax provision - 12 Other 859 266 Adjusted EBITDA$ 52,731 $ 14,032 Adjusted EBITDA Margin 35 % 26 % Organic Revenue and Organic Revenue Growth The following table reconciles Organic Revenue to commissions and fees, which we consider to be the most directly comparable GAAP financial measure to Organic Revenue: For the Three Months Ended March 31, (in thousands, except percentages) 2021 2020 Commissions and fees $
152,828
Partnership commissions and fees (1)
(91,215) (22,868)
Organic Revenue $
61,613
Organic Revenue Growth (2) $
7,447
Organic Revenue Growth % (2) 14 % 5 %
__________
(1) Includes the first twelve months of such commissions and fees generated from newly acquired Partners. Amount is reduced by approximately$830,000 for the timing of certain cash receipts that were fully constrained under ASC 606 in the post-partnership period for our partnership with Agency RM, which closedFebruary 1, 2020 . (2) Organic Revenue for the three months endedMarch 31, 2020 used to calculate Organic Revenue Growth for the three months endedMarch 31, 2021 was$54.2 million , which is adjusted to reflect revenues from Partnerships that reached the twelve-month owned mark during the three months endedMarch 31, 2021 .
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Adjusted Net Income and Adjusted Diluted EPS The following table reconciles Adjusted Net Income to net income attributable toBRP Group, Inc. and reconciles Adjusted Diluted EPS to diluted earnings per share attributable toBRP Group, Inc. Class A common stock: For the Three Months Ended March 31, (in thousands, except per share data) 2021 2020 Net income attributable to BRP Group, Inc.$ 14,613 $ 1,468 Net income attributable to noncontrolling interests 16,001 3,239 Amortization expense 10,537 3,596 Share-based compensation 3,542 1,139 Transaction-related Partnership expenses 2,445 1,848 Change in fair value of contingent consideration (1,503) 1,661 Amortization of deferred financing costs 693 76 Severance related to Partnership activity - 53 Other 859 266 Adjusted pre-tax income 47,187 13,346 Adjusted income taxes (1) 4,672 1,321 Adjusted Net Income$ 42,515 $ 12,025
Weighted-average shares of Class A common stock outstanding - diluted
45,783 19,816 Exchange of Class B shares (2) 49,789 43,541 Adjusted dilutive weighted-average shares outstanding 95,572 63,357 Adjusted Diluted EPS$ 0.44 $ 0.19 Diluted earnings per share$ 0.32 $ 0.07 Other adjustments to earnings per share 0.17 0.14 Adjusted income taxes per share (0.05) (0.02) Adjusted Diluted EPS$ 0.44 $ 0.19 ___________ (1) Represents corporate income taxes at assumed effective tax rate of 9.9% applied to adjusted pre-tax income. (2) Assumes the full exchange of Class B shares for Class A common stock pursuant to the Third Amended and Restated Limited Liability Company Agreement of BRP, as amended (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 theMiddle Market Operating Group only, we generate fees from service fee and consulting arrangements. Service fee arrangements are in place with certain customers in lieu of commission arrangements. 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 by amount and as a percentage of our commissions and fees: Commissions and Fees by Operating Group (in thousands) For the Three Months Ended March 31, 2021 2020 Variance Percent of Percent of Operating Group Amount Business Amount Business Amount % Middle Market$ 110,555 72 %$ 22,032 41 %$ 88,523 n/m Specialty 25,082 16 % 17,416 32 % 7,666 44 % MainStreet 8,222 5 % 8,308 15 % (86) (1) % Medicare 9,452 6 % 6,403 12 % 3,049 48 %
Corporate and Other (483) - % - - % (483) - %$ 152,828 $ 54,159 $ 98,669
__________
n/m not meaningful Commissions and fees for ourMiddle Market Operating Group increased$88.5 million for the first quarter of 2021 as compared to the same period of 2020 as a result of the Partnership Contribution of$87.1 million and organic growth of$1.4 million . Middle Market experienced organic growth in base commissions and fees of$1.7 million . This was offset in part by a decrease in organic contingent revenue of$0.3 million resulting from higher loss ratios due to challenges in theFlorida insurance marketplace. Commissions and fees for ourSpecialty Operating Group increased$7.7 million for the first quarter of 2021 as compared to the same period of 2020 as a result of organic growth of$6.9 million , primarily attributable to growth in our renter's insurance product in addition to the Partnership Contribution of$0.8 million . Commissions and fees for ourMainStreet Operating Group decreased$0.1 million for the first quarter of 2021 as compared to the same period of 2020. MainStreet had a decrease in organic contingent revenue of$0.8 million resulting from higher loss ratios due to challenges in theFlorida insurance marketplace, which was offset in part by organic growth in base commissions and fees of$0.7 million . Commissions and fees for ourMedicare Operating Group increased$3.0 million for the first quarter of 2021 as compared to the same period of 2020 as a result of the Partnership Contribution of$3.2 million , partially offset by a loss of$0.2 million organically. Continued COVID-19 protocols, including social distancing, reduced our Medicare agents' ability to meet person-to-person in our normal venues, which impacted our ability to sell new business during the 2021 Annual Enrollment Period. Revenue reported for Corporate and Other relates to the elimination of intercompany revenue.The Middle Market Operating Group recorded intercompany commissions and fees from activity with theSpecialty Operating Group of$0.4 million ; theMainStreet Operating Group recorded intercompany commissions and fees from activity with theMiddle Market Operating Group of$30,000 ; and theMedicare Operating Group recorded intercompany commissions and fees from activity within theMedicare Operating Group of$0.1 million . These amounts were eliminated through Corporate and Other.
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Policies in force for Specialty's MGA of the Future grew by 164,594, or 41%, to 566,114 atMarch 31, 2021 from 401,520 atMarch 31, 2020 . Commissions, Employee Compensation and Benefits The following table sets forth our commissions, employee compensation and benefits byOperating Group by amount and as a percentage of our commissions, employee compensation and benefits: Commissions, Employee Compensation and
Benefits by
For the Three Months Ended March 31, 2021 2020 Variance Percent of Percent ofOperating Group Amount Business Amount Business Amount % Middle Market$ 56,742 63 %$ 12,620 37 %$ 44,122 350 % Specialty 17,952 20 % 12,801 37 % 5,151 40 % MainStreet 5,146 6 % 3,962 11 % 1,184 30 % Medicare 4,578 5 % 3,016 9 % 1,562 52 % Corporate and Other 4,957 6 % 2,149 6 % 2,808 131 %$ 89,375 $ 34,548 $ 54,827 Commissions, employee compensation and benefits expenses increased across all Operating Groups for the three months endedMarch 31, 2021 as compared to the same period of 2020. The Partnership Contribution accounted for$41.4 million and$0.7 million of the increase to commissions, employee compensation and benefits expenses in the Middle Market and Specialty Operating Groups, respectively, and significantly all of theMedicare Operating Group's commissions, employee compensation and benefits expenses. Commissions, employee compensation and benefits expenses also increased in the Middle Market, Specialty and MainStreet Operating Groups as a result of continued investments in Growth Services 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 as a result of hiring new roles necessary as a public company and due to$2.4 million of additional share-based compensation expense incurred during the quarter. Other Operating Expenses The following table sets forth our other operating expenses byOperating Group by amount and as a percentage of our other operating expenses: Other Operating Expenses by Operating Group
(in thousands)
For the Three Months Ended March 31, 2021 2020 Variance Percent of Percent of Operating Group Amount Business Amount Business Amount % Middle Market$ 8,025 46 %$ 2,741 31 %$ 5,284 193 % Specialty 1,921 11 % 1,483 17 % 438 30 % MainStreet 1,092 6 % 997 11 % 95 10 % Medicare 1,407 8 % 790 9 % 617 78 % Corporate and Other 5,123 29 % 2,874 32 % 2,249 78 %$ 17,568 $ 8,885 $ 8,683 33
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Other operating expenses for ourMiddle Market Operating Group increased$5.3 million driven by higher costs for rent expense of$2.0 million , and dues and subscriptions of$0.9 million , software and internet of$0.7 million and consulting of$0.5 million , offset in part by lower professional fees of$0.6 million . Other operating expenses for ourSpecialty Operating Group increased$0.4 million driven by higher costs for bank charges of$0.1 million , rent expense of$0.1 million and consulting of$0.1 million . Other operating expenses for ourMedicare Operating Group increased$0.6 million driven by higher costs for advertising and marketing of$0.2 million and professional fees of$0.1 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$2.2 million due to higher costs for professional fees of$1.1 million , dues and subscriptions of$0.5 million and rent expense of$0.5 million related to expansion of ourTampa offices. Amortization Expense The following table sets forth our amortization byOperating Group by amount and as a percentage of our amortization: Amortization Expense by Operating Group (in thousands) For the Three Months Ended March 31, 2021 2020 Variance Percent of Percent of Operating Group Amount Business Amount Business Amount % Middle Market$ 7,449 71 %$ 571 16 %$ 6,878 n/m Specialty 2,309 22 % 2,366 66 % (57) (2) % MainStreet 416 4 % 431 12 % (15) (3) % Medicare 363 3 % 225 6 % 138 61 % Corporate and Other - - % 3 - % (3) (100) %$ 10,537 $ 3,596 $ 6,941 __________ n/m not meaningful Amortization expense increased for our Middle Market and Medicare Operating Groups for the three months endedMarch 31, 2021 as compared to the same period of 2020 driven by amortization related to Partners acquired over the past twelve months. Amortization for the remaining groups was relatively flat. Change in Fair Value of Contingent Consideration The following table sets forth our change in fair value of contingent consideration byOperating Group by amount and as a percentage of our change in fair value of contingent consideration: Change in Fair Value of Contingent
Consideration by
For the Three Months Ended March 31, 2021 2020 Variance Percent of Percent ofOperating Group Amount Business Amount Business Amount % Middle Market$ (3,523) 234 %$ (2,166) (130) %$ (1,357) 63 % Specialty 1,035 (69) % 2,447 147 % (1,412) (58) % MainStreet 193 (13) % 1,627 98 % (1,434) (88) % Medicare 792 (53) % (247) (15) % 1,039 n/m$ (1,503) $ 1,661 $ (3,164) __________ n/m not meaningful 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.
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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 (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 financed significant cash needs to fund growth through the acquisition of Partners through debt and equity financing. AtMarch 31, 2021 , our cash and cash equivalents were$90.5 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 OnOctober 14, 2020 , we entered into the JPM Credit Agreement withJPMorgan Chase Bank, N.A ., to provide senior secured credit facilities in an aggregate principal amount of$800.0 million . The amount consists of (i) a term loan facility in the principal amount of$400.0 million maturing in 2027 (the "Term Loan B") and (ii) a revolving credit facility with commitments in an aggregate principal amount of$400.0 million maturing in 2025 (the "Revolving Facility"). The Revolving Facility and the remaining proceeds of the Term Loan B are available to finance working capital needs and for other general corporate purposes of BRP and certain of its subsidiaries (including acquisitions and other investments permitted under the JPM Credit Agreement. The Term Loan B bears interest at LIBOR plus 400 bps with a floor of 4.75%. The applicable interest rate on the Term Loan B atDecember 31, 2020 was 4.75%. Borrowings under the Revolving Facility accrue interest at LIBOR plus 200 basis points ("bps") to LIBOR plus 300 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 LIBOR 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 principal balance of the Term Loan B is required to be repaid in equal quarterly installments equal to 0.25% of the original principal amount of the Term Loan B beginning with the fiscal quarter endingDecember 31, 2020 , the balance of which is due at maturity. The Revolving Facility is not subject to amortization. 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 5.00 to 1.00 and Debt Service Coverage Ratio (as defined in the JPM Credit Agreement) at or above 2.25 to 1.00. OnMay 7, 2021 , the Company entered into an amendment to the JPM Credit Agreement, under which (a) the financial covenant requiring the Company to maintain a Total First Lien Net Leverage Ratio at or below 5.00 to 1.00 was amended to increase such level to 6.00 to 1.00, and (b) the financial covenant requiring the Company to maintain a Debt Service Coverage Ratio at or above 2.25 to 1.00 was removed. 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.
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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, 2021 , we redeemed 112,739 LLC Units 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) 2021 2020 Variance Net cash provided by operating activities$ 3,287 $ 4,971 $ (1,684) Net cash used in investing activities (18,358) (39,888) 21,530
Net cash provided by (used in) financing activities (4,404)
19,811 (24,215) Net decrease in cash and cash equivalents and restricted cash (19,475) (15,106) (4,369) Cash and cash equivalents and restricted cash at beginning of period 142,022 71,071 70,951
Cash and cash equivalents and restricted cash at end of period
$ 122,547
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$1.7 million for the three months endedMarch 31, 2021 as compared to the same period of 2020 driven by a decrease in operating cash relating to a higher balance in premiums, commissions and fees receivable driven by 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, partially offset by increases in cash resulting from a net increase in net income adjusted for noncash items and increases in operating liabilities balances. 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$21.5 million for the three months endedMarch 31, 2021 as compared to the same period of 2020. Cash consideration paid to fund Partnerships decreased$21.9 million as a result of a decrease in the size of the aggregate Partnerships we completed during the first quarter of 2021 compared to the same period of 2020. 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 (used in) financing activities decreased$24.2 million for the three months endedMarch 31, 2021 as compared to the same period of 2020 primarily as a result of a decrease in net borrowings on our credit facilities of$21.0 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.
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There have been no material changes in our critical accounting policies during the three months endedMarch 31, 2021 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 11, 2021 . EMERGING GROWTH COMPANY STATUS We are an emerging growth company, as defined in the Jumpstart Our Business Startups ("JOBS") Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We have also elected to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments, if applicable. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than$1.07 billion in annual revenue, we have more than$700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than$1.0 billion of non-convertible debt securities over a three-year period. RECENT ACCOUNTING PRONOUNCEMENTS Please refer to Note 1 to our condensed consolidated financial statements included in Part I, Item 1. Financial Statements of this report for a discussion of recent accounting pronouncements that may impact us.
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