BRP(BRP) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Presents BRP Group's unaudited condensed consolidated financial statements, including balance sheets, comprehensive loss, cash flows, and notes Condensed Consolidated Balance Sheets Balance sheet as of September 30, 2021, shows total assets grew 46% to $2.23 billion and liabilities to $1.12 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $374,450 | $108,462 | | Intangible assets, net | $652,723 | $554,320 | | Goodwill | $885,321 | $651,502 | | Total assets | $2,233,109 | $1,529,914 | | Liabilities & Equity | | | | Long-term debt, less current portion | $477,341 | $381,382 | | Total liabilities | $1,121,394 | $759,946 | | Total stockholders' equity | $1,111,492 | $769,870 | Condensed Consolidated Statements of Comprehensive Loss Q3 2021 revenues more than doubled to $135.6 million, but net loss widened to $24.2 million due to higher expenses Performance Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Commissions and fees | $135,556 | $65,843 | $408,090 | $171,270 | | Operating income (loss) | $(16,804) | $(6,670) | $6,254 | $(8,178) | | Net loss | $(24,222) | $(7,615) | $(13,712) | $(10,767) | | Basic and diluted loss per share | $(0.28) | $(0.10) | $(0.18) | $(0.22) | Condensed Consolidated Statements of Cash Flows Net cash increased by $279.4 million for the nine months, driven by $476.0 million from financing activities Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $27,041 | $30,771 | | Net cash used in investing activities | $(223,581) | $(235,233) | | Net cash provided by financing activities | $475,955 | $191,389 | | Net increase (decrease) in cash | $279,415 | $(13,073) | - Financing activities were significantly boosted by $269.4 million in net proceeds from a Class A common stock issuance and $120.0 million from a revolving line of credit[29] Notes to Condensed Consolidated Financial Statements Notes detail ten business combinations for $387.5 million, a $269.4 million equity offering, and subsequent acquisitions - The company completed ten business combinations for an aggregate purchase price of $387.5 million during the first nine months of 2021, contributing to a $235.5 million increase in goodwill[50][60] - In September 2021, a public offering of 9.2 million shares of Class A common stock generated net proceeds of approximately $269.4 million[38] - Subsequent to the quarter end, on October 1, 2021, the company acquired K&S Insurance Agency and Jacobson, Goldfarb & Scott, Inc. (JGS), using a combination of cash and equity[132][133] - The company's business is divided into four operating groups: Middle Market, Specialty, MainStreet, and Medicare[121] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A attributes strong revenue growth to acquisitions and organic growth, analyzing expenses and non-GAAP measures Results of Operations Q3 2021 revenues grew 106% to $135.6 million due to acquisitions and organic growth, but operating expenses increased significantly Q3 2021 Revenue Growth Drivers (in millions) | Component | Amount | | :--- | :--- | | Partnership Contribution | $52.7 | | Organic Growth | $17.0 | | Total Increase | $69.7 | Nine Months 2021 Revenue Growth Drivers (in millions) | Component | Amount | | :--- | :--- | | Partnership Contribution | $195.9 | | Organic Growth | $40.9 | | Total Increase | $236.8 | - Commissions, employee compensation and benefits expenses increased by $51.6 million for Q3 2021, with $28.6 million from acquisitions and the remainder from higher share-based compensation, commissions on organic growth, and hiring[167] - Interest expense increased by $6.0 million in Q3 2021 due to higher average borrowings and interest rates under the new JPM Credit Agreement[174] Non-GAAP Financial Measures Non-GAAP measures show Q3 2021 Organic Revenue Growth at 26% and Adjusted EBITDA at $19.6 million, with varying margins Key Non-GAAP Metrics | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Organic Revenue Growth % | 26% | 20% | 24% | 15% | | Adjusted EBITDA | $19.6M | $10.9M | $92.7M | $33.3M | | Adjusted EBITDA Margin | 14% | 17% | 23% | 19% | | Adjusted Diluted EPS | $0.11 | $0.11 | $0.69 | $0.39 | Operating Group Results Q3 2021 Middle Market revenue grew 202% to $80.1 million from acquisitions; Specialty revenue increased 53% with strong organic growth Q3 2021 Revenue by Operating Group (in millions) | Operating Group | Revenue | YoY Growth | | :--- | :--- | :--- | | Middle Market | $80.1 | 202% | | Specialty | $42.0 | 53% | | MainStreet | $8.8 | 11% | | Medicare | $5.7 | 38% | - The Specialty segment's MGA of the Future platform grew policies in force by 32% year-over-year to 661,946 at September 30, 2021[199] - The Middle Market segment's Q3 revenue growth of $53.5 million was composed of a $48.2 million contribution from acquisitions and $5.3 million in organic growth[196] Liquidity and Capital Resources As of September 30, 2021, the company had $374.5 million in cash, bolstered by a $269.4 million equity offering and new debt facilities - The company had $374.5 million in cash and cash equivalents at September 30, 2021[221] - A September 2021 public offering of Class A common stock generated net proceeds of $269.4 million[222] - The JPM Credit Agreement was amended to provide a new $500 million term loan and an upsized $475 million revolving credit facility[224] Contractual Obligations as of Sep 30, 2021 (in thousands) | Obligation Type | Total | | :--- | :--- | | Operating leases | $81,394 | | Debt obligations payable | $744,451 | | Maximum future acquisition contingency payments | $682,564 | | Total | $1,508,409 | Quantitative and Qualitative Disclosures about Market Risk Primary market risk is interest rate exposure on $498.8 million variable-rate debt, mitigated by interest rate caps - The primary market risk is interest rate risk on its $498.8 million of variable-rate term loan debt[248] - The company uses interest rate cap agreements to mitigate risk; a 100 bps increase in LIBOR would increase annual interest expense by an estimated $2.4 million[249] - The New Term Loan B has a LIBOR floor of 50 bps, meaning the interest rate will only change if LIBOR fluctuates above that floor[249] Controls and Procedures Disclosure controls were not effective as of September 30, 2021, due to material weaknesses, but remediation efforts are underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to ongoing material weaknesses in internal control over financial reporting[250] - Remediation efforts are underway, including implementing a new ERP system, improving control design, and augmenting staff[253] - Notwithstanding the material weaknesses, management concluded that the consolidated financial statements are fairly presented in all material respects[251] PART II. OTHER INFORMATION Legal Proceedings Ongoing legal proceedings are not expected to have a material adverse effect on the company's financial condition or results - The company states that ongoing legal proceedings are not expected to have a material adverse effect on its financial condition or results[257] Risk Factors Refers readers to the detailed risk factors outlined in the Annual Report on Form 10-K filed on March 11, 2021 - The report directs readers to the Risk Factors section of the Annual Report on Form 10-K filed on March 11, 2021 for a detailed discussion of risks[258] Unregistered Sales of Equity Securities and Use of Proceeds Unregistered Class A and B common stock were issued for acquisitions, and Class A shares were repurchased for tax withholding - The company issued unregistered shares of Class A and Class B common stock as partial consideration for multiple acquisitions, including RogersGray, FounderShield, and The Capital Group, between July and October 2021[259] - These securities were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act[260] - The company repurchased 18,017 shares of Class A common stock from employees to cover tax withholding obligations related to vested equity awards[264][265] Other Items (Defaults, Mine Safety, Other Info, Exhibits) The company reported no defaults on senior securities and no mine safety disclosures, with a list of exhibits provided - The company reported no defaults on senior securities[266] - Mine safety disclosures were not applicable[267]