BRP(BRP) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited Q2 2021 financial statements show significant revenue growth from acquisitions, but increased operating expenses resulted in a net loss, while total assets and liabilities grew substantially Condensed Consolidated Balance Sheets As of June 30, 2021, total assets increased to $1.74 billion and total liabilities rose to $944.0 million, primarily due to acquisitions, increased debt, and contingent earnout liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $224,479 | $108,462 | | Goodwill | $671,826 | $651,502 | | Intangible assets, net | $547,227 | $554,320 | | Total Assets | $1,736,300 | $1,529,914 | | Liabilities & Equity | | | | Long-term debt, less current portion | $477,985 | $381,382 | | Contingent earnout liabilities | $178,252 | $164,819 | | Total Liabilities | $943,953 | $759,946 | | Total Stockholders' Equity | $792,174 | $769,870 | Condensed Consolidated Statements of Comprehensive Income (Loss) Q2 2021 revenues more than doubled to $119.7 million, but increased operating expenses led to a $20.1 million net loss, while the six-month period saw a net income of $10.5 million Statement of Comprehensive Income (Loss) Summary (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Commissions and fees | $119,706 | $51,268 | $272,534 | $105,427 | | Total operating expenses | $132,905 | $58,080 | $249,476 | $106,935 | | Operating income (loss) | ($13,199) | ($6,812) | $23,058 | ($1,508) | | Net income (loss) | ($20,104) | ($7,859) | $10,510 | ($3,152) | | Net income (loss) attributable to BRP Group, Inc. | ($9,756) | ($3,588) | $4,857 | ($2,120) | | Diluted earnings (loss) per share | ($0.22) | ($0.18) | $0.11 | ($0.11) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, operating activities provided $49.4 million in cash, investing activities used $27.6 million for acquisitions, and financing activities provided $112.2 million, resulting in a $134.0 million net cash increase Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $49,419 | $43,644 | | Net cash used in investing activities | ($27,607) | ($227,426) | | Net cash provided by financing activities | $112,150 | $317,147 | | Net increase in cash | $133,962 | $133,365 | - Cash used for business combinations significantly decreased to $24.3 million in the first six months of 2021, compared to $224.1 million in the same period of 2020[28] - Financing activities in 2021 were driven by $97.9 million in proceeds from long-term debt and $20.0 million from the revolving line of credit[28] In contrast, 2020 financing included $167.3 million from the issuance of Class A common stock[28] Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, business combinations, and debt structure, highlighting five acquisitions totaling $41.1 million, the Middle Market segment's revenue contribution, and the upsizing of credit facilities - The company completed five business combinations for an aggregate purchase price of $41.1 million during the six months ended June 30, 2021, adding $22.6 million in goodwill[46][56] - On June 2, 2021, the company entered into an amended credit agreement for a new $500 million senior secured term loan facility maturing in 2027, using a portion of the proceeds to repay the existing term loan[80] - The Middle Market segment is the largest revenue generator, accounting for $186.7 million (68% of total) in the first six months of 2021, up from $42.8 million (41% of total) in the prior year period[123][189] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2021's 133% revenue growth to acquisitions and 32% organic growth, with significant operating expense increases and credit facility upsizing supporting an active acquisition strategy, leading to a 143% increase in Adjusted EBITDA - For Q2 2021, commissions and fees increased by $68.4 million YoY, driven by a $51.9 million contribution from new partnerships and $16.5 million from organic growth[151] Organic Revenue Growth | Period | Organic Revenue Growth ($M) | Organic Revenue Growth % | | :--- | :--- | :--- | | Q2 2021 | $16.5 | 32% | | Q2 2020 | $6.1 | 19% | | YTD 2021 | $23.9 | 23% | | YTD 2020 | $7.6 | 12% | Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net income (loss) | ($20,104) | ($7,859) | | Adjusted EBITDA | $20,391 | $8,385 | | Adjusted EBITDA Margin | 17% | 16% | - The company completed five partnerships for an aggregate price of $41.1 million in the first six months of 2021[140] It also amended its credit agreement to increase its term loan to $500 million and its revolving facility to $475 million to fund its acquisition pipeline[141] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure on variable-rate debt, mitigated by interest rate cap agreements covering $300 million, while cyclical insurance premium pricing also affects revenues - The company has $500.0 million of floating-rate debt outstanding under its New Term Loan B as of June 30, 2021[240] - In March 2021, the company entered into three interest rate cap agreements with a notional amount of $300.0 million each to mitigate interest rate risk, limiting the rate exposure on that portion of debt to a maximum of 4.75%[241] - A 100 basis point increase in LIBOR would result in a $2.0 million increase in annual interest expense, considering the interest rate caps[241] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2021, due to material weaknesses, with remediation efforts underway, though financial statements are believed to be fairly presented - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were not effective as of June 30, 2021, due to material weaknesses in internal control over financial reporting[242] - Remediation actions are in progress, including improving control design over business combinations and revenue, implementing a new ERP system, and enhancing staff and training[244] - Management asserts that notwithstanding the material weaknesses, the consolidated financial statements in the report are fairly presented in conformity with GAAP[243] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various ordinary course legal actions, which management does not expect to materially adversely affect its financial position or operations - The company states that ongoing legal proceedings are not expected to have a material adverse effect on its financial condition[249] Risk Factors This section refers to risk factors previously disclosed in the Annual Report on Form 10-K filed March 11, 2021, with no new factors detailed in this report - The report directs readers to the risk factors outlined in the Annual Report on Form 10-K filed on March 11, 2021[250] Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered Class A and B common stock for acquisitions, exempt from registration, and repurchased shares from employees for tax withholding on vested grants - The company issued unregistered securities (Class A and Class B common stock) as partial consideration for multiple acquisitions, including those of Only Medicare Solutions, Mid-Continent, RogersGray, and FounderShield[251] - The issuance of these securities was exempt from registration under Section 4(a)(2) of the Securities Act as transactions not involving a public offering[252] - During the three months ended June 30, 2021, the company repurchased 35,296 shares from employees to cover required tax withholding on vested restricted stock[256] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[257] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including amendments to the credit agreement and certifications by the CEO and CFO