BWIN 10-Q

Baldwin Insurance Group, Inc. (BWIN)

10-Q 2022-11-07 For: 2022-09-30

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Amended LLC Agreement						Third Amended and Restated Limited Liability Company Agreement of Baldwin Risk Partners, LLC, as amended
Book of Business						Insurance policies bound by us on behalf of our Clients
bps						Basis points
Clients						Our insureds
Colleagues						Our employees
Exchange Act						Securities Exchange Act of 1934, as amended
Insurance Company Partners						Insurance companies with which we have a contractual relationship
JPM Credit Agreement						Credit Agreement, dated as of October 14, 2020, between Baldwin Risk Partners, LLC, as borrower, JPMorgan Chase Bank, N.A., as the Administrative Agent, the Guarantors party thereto, the Lenders party thereto and the Issuing Lenders party thereto, as amended by the Amendment No. 1 to Credit Agreement dated as of May 7, 2021, Amendment No. 2 to Credit Agreement dated as of June 2, 2021, Amendment No. 3 to Credit Agreement dated as of August 6, 2021, Amendment No. 4 to Credit Agreement dated as of December 16, 2021 and Amendment No. 5 to Credit Agreement dated as of March 28, 2022
LIBOR						London Interbank Offered Rate
MGA						Managing General Agent
MSI						Millennial Specialty Insurance, a 2019 Partner
Operating Groups						Our reportable segments
Partners						Companies that we have acquired, or in the case of asset acquisitions, the producers
Partnerships						Strategic acquisitions made by the Company
Risk Advisors						Our producers
SEC						U.S. Securities and Exchange Commission
Securities Act						Securities Act of 1933, as amended
SOFR						Secured Overnight Financing Rate
Tax Receivable Agreement						Tax Receivable Agreement between BRP Group, Inc. and the holders of LLC Units in Baldwin Risk Partners, LLC entered into on October 28, 2019


(in thousands, except share and per share data)	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	158,600	$	138,292
Restricted cash	92,017		89,445
Premiums, commissions and fees receivable, net	446,112		340,837
Prepaid expenses and other current assets	12,318		8,151
Due from related parties	1,844		1,668
Total current assets	710,891		578,393
Property and equipment, net	24,500		17,474
Right-of-use assets	98,049		81,646
Other assets	39,890		25,586
Intangible assets, net	1,118,129		944,467
Goodwill	1,420,929		1,228,741
Total assets	$	3,412,388	$	2,876,307
Liabilities, Mezzanine Equity and Stockholders’ Equity
Current liabilities:
Premiums payable to insurance companies	$	356,671	$	310,045
Producer commissions payable	60,789		41,833
Accrued expenses and other current liabilities	114,198		92,223
Related party notes payable	—		61,500
Current portion of contingent earnout liabilities	41,645		35,088
Total current liabilities	573,303		540,689
Revolving line of credit	527,000		35,000
Long-term debt, less current portion	810,973		814,614
Contingent earnout liabilities, less current portion	187,969		223,501
Operating lease liabilities, less current portion	88,749		71,357
Other liabilities	330		3,590
Total liabilities	2,188,324		1,688,751
Commitments and contingencies (Note 14)
Mezzanine equity:
Redeemable noncontrolling interest	424		269
Stockholders’ equity:
Class A common stock, par value $0.01 per share, 300,000,000 shares authorized; 61,227,330 and 58,602,859 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	612		586
Class B common stock, par value $0.0001 per share, 100,000,000 shares authorized; 54,611,484 and 56,338,051 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	5		6
Additional paid-in capital	699,415		663,002
Accumulated deficit	(48,274)		(54,992)
Stockholder notes receivable	(63)		(219)
Total stockholders’ equity attributable to BRP Group, Inc.	651,695		608,383
Noncontrolling interest	571,945		578,904
Total stockholders’ equity	1,223,640		1,187,287
Total liabilities, mezzanine equity and stockholders’ equity	$	3,412,388	$	2,876,307


(in thousands)	September 30, 2022		December 31, 2021
Assets of Consolidated Variable Interest Entities That Can Only be Used to Settle the Obligations of Consolidated Variable Interest Entities:
Cash and cash equivalents	$	239	$	303
Premiums, commissions and fees receivable, net	356		272
Total current assets	595		575
Property and equipment, net	11		15
Other assets	5		5
Total assets	$	611	$	595
Liabilities of Consolidated Variable Interest Entities for Which Creditors Do Not Have Recourse to the Company:
Premiums payable to insurance companies	$	38	$	—
Producer commissions payable	45		41
Accrued expenses and other current liabilities	1		4
Total liabilities	$	84	$	45


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except share and per share data)	2022		2021		2022		2021
Revenues:
Commissions and fees	$	259,368	$	135,556	$	734,676	$	408,090

Operating expenses:
Commissions, employee compensation and benefits	195,920		100,081		522,518		278,521
Other operating expenses	47,212		27,968		124,424		64,380
Amortization expense	23,180		12,596		59,912		33,875
Change in fair value of contingent consideration	21,695		11,341		(10,809)		23,163
Depreciation expense	1,216		753		3,309		1,920
Total operating expenses	289,223		152,739		699,354		401,859

Operating income (loss)	(29,855)		(17,183)		35,322		6,231

Other income (expense):
Interest expense, net	(20,766)		(6,940)		(45,748)		(18,431)
Other income (expense), net	3,914		(478)		25,151		(1,535)
Total other expense	(16,852)		(7,418)		(20,597)		(19,966)

Net income (loss)	(46,707)		(24,601)		14,725		(13,735)
Less: net income (loss) attributable to noncontrolling interests	(21,914)		(11,389)		8,007		(5,736)
Net income (loss) attributable to BRP Group, Inc.	$	(24,793)	$	(13,212)	$	6,718	$	(7,999)

Comprehensive income (loss)	$	(46,707)	$	(24,601)	$	14,725	$	(13,735)
Comprehensive income (loss) attributable to noncontrolling interests	(21,914)		(11,389)		8,007		(5,736)
Comprehensive income (loss) attributable to BRP Group, Inc.	(24,793)		(13,212)		6,718		(7,999)

Basic earnings (loss) per share	$	(0.43)	$	(0.28)	$	0.12	$	(0.18)
Diluted earnings (loss) per share	$	(0.43)	$	(0.28)	$	0.11	$	(0.18)
Weighted-average shares of Class A common stock outstanding - basic	57,282,132		46,446,254		56,430,095		45,132,217
Weighted-average shares of Class A common stock outstanding - diluted	57,282,132		46,446,254		59,895,371		45,132,217


For the Three Months Ended September 30, 2022
	Stockholders’ Equity																Mezzanine Equity
	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholder Notes Receivable		Non-controlling Interest		Total		Redeemable Non-controlling Interest
(in thousands, except share data)	Shares	Amount		Shares	Amount
Balance at June 30, 2022	60,122,842	$	601	55,442,435	$	6	$	683,331	$	(23,481)	$	(131)	$	599,209	$	1,259,535	$	350
Net income (loss)	—	—		—	—		—		(24,793)		—		(21,988)		(46,781)		74
Equity issued in business combinations	129,182	1		—	—		(66)		—		—		3,014		2,949		—
Share-based compensation, net of forfeitures	114,925	1		29,430	—		7,871		—		—		(3)		7,869		—
Redemption of Class B common stock	860,381	9		(860,381)	(1)		8,279		—		—		(8,287)		—		—
Repayment of stockholder notes receivable	—	—		—	—		—		—		68		—		68		—
Balance at September 30, 2022	61,227,330	$	612	54,611,484	$	5	$	699,415	$	(48,274)	$	(63)	$	571,945	$	1,223,640	$	424


☒			Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934


☐			Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934


For the Nine Months Ended September 30, 2022
	Stockholders’ Equity																Mezzanine Equity
	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholder Notes Receivable		Non-controlling Interest		Total		Redeemable Non-controlling Interest
(in thousands, except share data)	Shares	Amount		Shares	Amount
Balance at December 31, 2021	58,602,859	$	586	56,338,051	$	6	$	663,002	$	(54,992)	$	(219)	$	578,904	$	1,187,287	$	269
Net income	—	—		—	—		—		6,718		—		7,852		14,570		155
Equity issued in business combinations	226,338	2		—	—		(4,331)		—		—		9,148		4,819		—
Share-based compensation, net of forfeitures	663,565	6		29,430	—		22,488		—		—		(1,365)		21,129		—
Redemption and cancellation of Class B common stock	1,734,568	18		(1,755,997)	(1)		18,256		—		—		(18,273)		—		—
Tax distributions to BRP LLC members	—	—		—	—		—		—		—		(4,321)		(4,321)		—
Repayment of stockholder notes receivable	—	—		—	—		—		—		156		—		156		—
Balance at September 30, 2022	61,227,330	$	612	54,611,484	$	5	$	699,415	$	(48,274)	$	(63)	$	571,945	$	1,223,640	$	424


	For the Three Months Ended September 30, 2021						For the Nine Months Ended September 30, 2021
(in thousands, except per share data)	As Previously Reported		Effect of Adoption of Topic 842		As Adjusted		As Previously Reported		Effect of Adoption of Topic 842		As Adjusted
Operating expenses:
Other operating expenses	$	27,589	$	379	$	27,968	$	64,357	$	23	$	64,380
Total operating expenses	152,360		379		152,739		401,836		23		401,859
Operating income (loss)	(16,804)		(379)		(17,183)		6,254		(23)		6,231
Net loss	(24,222)		(379)		(24,601)		(13,712)		(23)		(13,735)
Net loss attributable to BRP Group, Inc.	(12,833)		(379)		(13,212)		(7,976)		(23)		(7,999)
Basic loss per share	$	(0.28)	$	—	$	(0.28)	$	(0.18)	$	—	$	(0.18)
Diluted loss per share	$	(0.28)	$	—	$	(0.28)	$	(0.18)	$	—	$	(0.18)


(in thousands)	Westwood		All Others(1)		Totals
Cash consideration paid	$	372,939	$	17,415	$	390,354
Fair value of contingent earnout consideration	12,724		3,771		16,495
Fair value of equity interest	—		4,819		4,819
Deferred payment	—		3,716		3,716
Total consideration	$	385,663	$	29,721	$	415,384

Cash	$	658	$	1,727	$	2,385
Restricted cash	50		—		50
Premiums, commissions and fees receivable	4,225		157		4,382
Other assets	392		1,281		1,673
Intangible assets	209,200		15,124		224,324
Goodwill	174,727		14,006		188,733
Total assets acquired	389,252		32,295		421,547
Premiums payable to insurance companies	(218)		—		(218)
Producer commissions payable	(2,488)		—		(2,488)
Other liabilities	(883)		(2,574)		(3,457)
Total liabilities acquired	(3,589)		(2,574)		(6,163)
Net assets acquired	$	385,663	$	29,721	$	415,384

Maximum potential contingent earnout consideration	$	15,000	$	12,294	$	27,294


(in thousands, except weighted-average lives)	Amount		Weighted-Average Life
Purchased customer accounts	$	30,600	20.0 years
Distributor relationships	159,800		20.0 years
Software	29,500		5.0 years
Trade names	4,424		4.9 years


(in thousands)	Amount
For the remainder of 2022	$	4,453
2023	20,140
2024	22,349
2025	23,940
2026	24,231
2027	18,565


(in thousands)	Middle Market		Specialty		MainStreet		Medicare		Total
Balance at December 31, 2021	$	901,127	$	264,018	$	38,892	$	24,704	$	1,228,741
Goodwill of acquired businesses	—		6,865		174,727		7,141		188,733
Measurement period adjustments(1)	2,939		516		—		—		3,455
Balance at September 30, 2022	$	904,066	$	271,399	$	213,619	$	31,845	$	1,420,929


	Shares	Weighted-Average Grant-Date Fair Value Per Share
Outstanding at December 31, 2021	3,215,731	$	28.83
Granted	1,048,937	26.62
Vested and settled	(545,204)	25.53
Forfeited	(92,533)	26.52
Outstanding at September 30, 2022	3,626,931	28.77


	Fair Value Hierarchy	September 30, 2022				December 31, 2021
		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Long-term debt(1)	Level 2	$	840,241	$	800,330	$	846,623	$	870,120
Revolving line of credit	Level 2	527,000		501,967		35,000		33,968


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Direct bill revenue(1)	$	111,369	$	58,582	$	336,563	$	203,302
Agency bill revenue(2)	92,895		53,495		255,087		136,271
Profit-sharing revenue(3)	15,044		8,105		49,422		26,572
Consulting and service fee revenue(4)	17,572		7,893		44,097		22,470
Policy fee and installment fee revenue(5)	18,036		5,146		37,163		14,414
Other income(6)	4,452		2,335		12,344		5,061
Total commissions and fees	$	259,368	$	135,556	$	734,676	$	408,090


	September 30, 2022						December 31, 2021
(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Purchased customer accounts	$	885,401	$	(94,268)	$	791,133	$	851,445	$	(54,481)	$	796,964
Distributor relationships	260,421		(11,418)		249,003		100,621		(3,814)		96,807
Software	77,138		(27,178)		49,960		41,743		(18,265)		23,478
Trade names	28,613		(6,909)		21,704		24,189		(3,583)		20,606
Carrier relationships	7,859		(1,530)		6,329		7,859		(1,247)		6,612
Totals	$	1,259,432	$	(141,303)	$	1,118,129	$	1,025,857	$	(81,390)	$	944,467


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands, except percentages)	2022			2021			2022			2021
Commissions and fees	$	259,368		$	135,556		$	734,676		$	408,090

Net income (loss)	$	(46,707)		$	(24,601)		$	14,725		$	(13,735)
Adjustments to net income (loss):
Amortization expense	23,180			12,596			59,912			33,875
Interest expense, net	20,766			6,940			45,748			18,431
Transaction-related Partnership and integration expenses	12,128			5,556			29,552			11,226
Share-based compensation	8,388			3,834			26,065			11,921
(Gain) loss on interest rate caps	(4,151)			334			(25,420)			1,159
Change in fair value of contingent consideration	21,695			11,341			(10,809)			23,163
Depreciation expense	1,216			753			3,309			1,920
Severance	260			481			1,135			481
Other(1)	5,109			1,951			13,083			4,222
Adjusted EBITDA	$	41,884		$	19,185		$	157,300		$	92,663
Adjusted EBITDA Margin	16		%	14		%	21		%	23		%


Commissions and Fees by Operating Group (in thousands, except percentages)
	For the Three Months Ended September 30,												For the Nine Months Ended September 30,
	2022				2021				Variance				2022				2021				Variance
Operating Group	Amount		Percent of Business		Amount		Percent of Business		Amount		%		Amount		Percent of Business		Amount		Percent of Business		Amount		%
Middle Market	$	130,216	50	%	$	80,087	60	%	$	50,129	63	%	$	433,151	59	%	$	266,751	65	%	$	166,400	62	%
Specialty	97,929		38	%	41,986		31	%	55,943		133	%	221,753		30	%	97,173		24	%	124,580		128	%
MainStreet	39,894		15	%	8,760		6	%	31,134		355	%	78,601		11	%	25,558		6	%	53,043		208	%
Medicare	7,890		3	%	5,665		4	%	2,225		39	%	28,166		4	%	20,269		5	%	7,897		39	%
Corporate and Other	(16,561)		(6)	%	(942)		(1)	%	(15,619)		n/m		(26,995)		(4)	%	(1,661)		—	%	(25,334)		n/m
	$	259,368			$	135,556			$	123,812			$	734,676			$	408,090			$	326,586


Other Operating Expenses by Operating Group (in thousands, except percentages)
	For the Three Months Ended September 30,												For the Nine Months Ended September 30,
	2022				2021				Variance				2022				2021				Variance
Operating Group	Amount		Percent of Business		Amount		Percent of Business		Amount		%		Amount		Percent of Business		Amount		Percent of Business		Amount		%
Middle Market	$	20,130	43	%	$	13,749	49	%	$	6,381	46	%	$	52,703	42	%	$	31,579	49	%	$	21,124	67	%
Specialty	8,031		17	%	4,343		16	%	3,688		85	%	21,184		17	%	8,386		13	%	12,798		153	%
MainStreet	4,422		9	%	1,169		4	%	3,253		278	%	11,969		10	%	3,464		5	%	8,505		246	%
Medicare	1,778		4	%	1,134		4	%	644		57	%	4,497		4	%	3,621		6	%	876		24	%
Corporate and Other	12,851		27	%	7,573		27	%	5,278		70	%	34,071		27	%	17,330		27	%	16,741		97	%
	$	47,212			$	27,968			$	19,244			$	124,424			$	64,380			$	60,044


Amortization Expense by Operating Group (in thousands, except percentages)
	For the Three Months Ended September 30,												For the Nine Months Ended September 30,
	2022				2021				Variance				2022				2021				Variance
Operating Group	Amount		Percent of Business		Amount		Percent of Business		Amount		%		Amount		Percent of Business		Amount		Percent of Business		Amount		%
Middle Market	$	12,576	55	%	$	8,811	70	%	$	3,765	43	%	$	37,660	63	%	$	23,722	69	%	$	13,938	59	%
Specialty	4,275		18	%	2,936		23	%	1,339		46	%	12,689		21	%	7,663		23	%	5,026		66	%
MainStreet	5,869		25	%	395		3	%	5,474		n/m		8,275		14	%	1,221		4	%	7,054		n/m
Medicare	459		2	%	452		4	%	7		2	%	1,284		2	%	1,266		4	%	18		1	%
Corporate and Other	1		—	%	2		—	%	(1)		—	%	4		—	%	3		—	%	1		—	%
	$	23,180			$	12,596			$	10,584			$	59,912			$	33,875			$	26,037


	Payments Due by Period
(in thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating leases(1)	$	120,554	$	17,982	$	36,810	$	32,474	$	33,288
Debt obligations payable(2)	1,769,375		92,821		184,043		692,956		799,555
Maximum future contingent payment obligation(3)	980,505		150,802		819,703		10,000		—
USF Grant	5,260		520		1,388		1,720		1,632
Total	$	2,875,694	$	262,125	$	1,041,944	$	737,150	$	834,475


	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Value that may yet be Purchased under the Plans or Programs
July 1, 2022 to July 31, 2022	21,911	$	25.15	—	$	—
August 1, 2022 to August 31, 2022	18,024	27.80		—	—
September 1, 2022 to September 30, 2022	2,162	31.68		—	—
Total	42,097	$	26.62	—	$	—


Exhibit No.						Description of Exhibit
31.1*						Certification of the Registrant’s Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934
31.2*						Certification of the Registrant’s Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934
32**						Certification of the Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*						XBRL Instance Document
101.SCH*						XBRL Taxonomy Extension Schema Document
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document
104*						Cover Page Interactive Data File (formatted in inline XBRL and included in Exhibit 101)


		BRP GROUP, INC.

Date: November 7, 2022	By:	/s/ Trevor L. Baldwin
		Trevor L. Baldwin
		Chief Executive Officer

Date: November 7, 2022	By:	/s/ Bradford L. Hale
		Bradford L. Hale
		Chief Financial Officer