Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Business and Basis of Presentation
BRP Group, Inc. (“BRP Group” or the “Company”) was incorporated in the state of Delaware on July 1, 2019. BRP Group was formed for the purpose of completing an initial public offering of its common stock and related transactions in order to carry on the business of Baldwin Risk Partners, LLC (“BRP”) as a publicly-traded entity. On October 28, 2019, BRP Group completed an initial public offering of its Class A common stock (the “Initial Public Offering”) and became the sole managing member of BRP. The consolidated financial statements of BRP Group have been presented as a combination of the financial results of BRP Group and BRP as of the earliest period presented as discussed further under Principles of Consolidation below.
BRP Group is a diversified insurance agency and services organization that markets and sells insurance products and services to its customers throughout the U.S., although a significant portion of the Company’s business is concentrated in the southeastern U.S. BRP Group and its subsidiaries operate through four reportable segments (“Operating Groups”), including Middle Market, Specialty, MainStreet, and Medicare, which are discussed in more detail in Note 15.
Public Offering
On June 29, 2020, the Company completed a public offering of 13,225,000 shares of its Class A common stock, including 1,725,000 shares sold pursuant to the underwriters’ over-allotment option. The shares were sold at an offering price of $13.25 per share for net proceeds of $166.5 million after deducting underwriting discounts and commissions of $7.9 million and offering expenses of $798,000.
Principles of Consolidation
The consolidated financial statements include the accounts of BRP Group and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
As the sole manager of BRP, BRP Group operates and controls all the business and affairs of BRP, and has the sole voting interest in, and controls the management of, BRP. Accordingly, BRP Group began consolidating BRP in its consolidated financial statements as of the closing date of the Initial Public Offering, resulting in a noncontrolling interest related to the LLC Units held by BRP’s LLC members (the “LLC Units”) on its consolidated financial statements.
BRP and BRP Group were under the common control of the Company’s Chairman, Lowry Baldwin, before and immediately after the reorganization transactions undertaken in connection with the Initial Public Offering (the “Reorganization Transactions”). Prior to the Reorganization Transactions, Mr. Baldwin held a controlling interest in Baldwin Investment Group Holdings, LLC (“BIGH”), which was the controlling owner of BRP through its majority ownership of BRP’s common units. In addition, Mr. Baldwin was the sole shareholder of BRP Group. Upon reorganization, BRP Group became the sole managing member of BRP. Holders of the Class B common stock hold a majority of the voting power of BRP Group and stockholders of the then majority of the Class B common stock, including BIGH, executed a Voting Agreement in which they agreed to vote in the same manner as Mr. Baldwin. As a result, Mr. Baldwin continued to control BRP Group subsequent to the Initial Public Offering and Reorganization Transactions. Accordingly, we have accounted for the Reorganization Transactions as a transaction between entities under common control in accordance with Accounting Standards Codification (“ASC”) Topic 805-50, Business Combinations - Related Issues, under which the financial information of BRP Group has been combined with that of BRP as of the earliest period presented.
The Company has prepared these consolidated financial statements in accordance with ASC Topic 810, Consolidation (“Topic 810”). Topic 810 requires that if an enterprise is the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity should be included in the consolidated financial statements of the enterprise. The Company has recognized certain entities as variable interest entities of which the Company is the primary beneficiary and has included the accounts of these entities in the consolidated financial statements. Refer to Note 4 for additional information regarding the Company’s variable interest entities.
Topic 810 also requires that the equity of a noncontrolling interest shall be reported on the condensed consolidated balance sheets within total equity of the Company. Certain redeemable noncontrolling interests are reported on the condensed consolidated balance sheets as mezzanine equity. Topic 810 also requires revenues, expenses, gains, losses, net income or loss, and other comprehensive income or loss to be reported in the consolidated financial statements at consolidated amounts, which include amounts attributable to the owners of the parent and the noncontrolling interests.
Noncontrolling Interest
Noncontrolling interests are reported at historical cost basis adjusted for cumulative earnings or loss allocations and classified as a component of stockholders’ equity on the condensed consolidated balance sheets. Noncontrolling interest as presented as of September 30, 2020 and December 31, 2019 and for the nine months ended September 30, 2020 and 2019 consists of the noncontrolling interest holdings of BRP Group subsequent to the Company’s reorganization in connection with the Initial Public Offering. The controlling interest holdings of BRP for the period from January 1, 2019 through September 30, 2019 have been reclassified to noncontrolling interest holdings of BRP Group for presentation of activity for the three and nine months ended September 30, 2019.
Unaudited Interim Financial Reporting
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all the information and related notes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of recurring accruals, considered necessary for fair statement have been included. The accompanying balance sheet for the year ended December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by GAAP. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2020.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates underlying the accompanying consolidated financial statements include the application of guidance for revenue recognition, including determination of allowances for estimated policy cancellations, business combinations and purchase price allocation, impairment of long-lived assets including goodwill, and valuation of the Tax Receivable Agreement liability and share-based compensation.
Changes in Presentation
Certain prior year amounts have been reclassified to conform to current year presentation.
Recent Accounting Pronouncements
As an emerging growth company, the Jumpstart Our Business Startups (“JOBS”) Act permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to use this extended transition period and adopt certain new accounting standards on the private company timeline, which means that the Company’s financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards on a non-delayed basis. The Company has elected the extended transition period for the adoption of the Accounting Standards Updates (“ASUs”) below, except those where early adoption was both permitted and elected.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The guidance in ASU 2016-02 supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The FASB has subsequently issued several additional ASUs related to leases, which improved upon, provided interpretation of and transition relief for, the guidance issued in ASU 2016-02 and extended the adoption date for nonpublic business entities. This guidance is effective for the fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the full effect that the adoption of this standard will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements (“ASU 2016-13”), which amends the guidance for recognizing credit losses on financial instruments measured at amortized cost. ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The FASB has subsequently issued several additional ASUs related to credit losses, which improved upon, provided interpretation of and transition relief for, the guidance issued in ASU 2016-13 and extended the adoption date for nonpublic business entities. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the full effect that the adoption of this standard will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) (“Topic 820”): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This update modifies the disclosure requirements related to fair value measurement by removing certain disclosure requirements related to the fair value hierarchy. This update also modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted the guidance in ASU 2018-13 effective January 1, 2020, which impacted the presentation of the fair value measurements disclosure in Note 13 but did not otherwise impact the Company’s consolidated financial statements.
2. Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies from those that were disclosed for the year ended December 31, 2019 in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2020, except as noted below.
Self-Insurance Reserve
The Company converted to a self-insured health insurance plan beginning in March 2020 for which it carries an insurance program with specific retention levels or high per-claim deductibles for expected losses. The Company records a liability for all unresolved claims and for an estimate of incurred but not reported ("IBNR") claims at the anticipated cost that falls below its specified retention levels or per-claim deductible amounts. In establishing reserves, the Company considers actuarial assumptions and judgments regarding economic conditions and the frequency and severity of claims. The Company had an IBNR reserve of $1.1 million at September 30, 2020, which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. The Company manages this risk using high creditworthy financial institutions. Interest-bearing accounts and noninterest-bearing accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits exceed amounts insured by the FDIC. The Company has not experienced any losses from its deposits.
3. Business Combinations
The Company completed 11 business combinations for an aggregate purchase price of $317.7 million during the nine months ended September 30, 2020. In accordance with ASC Topic 805, Business Combinations (“Topic 805”), total consideration was first allocated to the fair value of assets acquired, including liabilities assumed, with the excess being recorded as goodwill. For financial statement purposes, goodwill is not amortized but rather is evaluated for impairment at least annually or more frequently if an event or change in circumstances occurs that indicates goodwill may be impaired. Goodwill is deductible for tax purposes and will be amortized over a period of 15 years.
The recorded purchase price for certain of the foregoing business combinations includes an estimation of the fair value of contingent consideration obligations associated with potential earnout provisions, which are generally based on recurring commissions and fees revenue. The contingent earnout consideration amounts identified in the tables below are measured at fair value within Level 3 of the fair value hierarchy as discussed further in Note 13. Any subsequent changes in the fair value of contingent earnout liabilities will be recorded in the condensed consolidated statements of comprehensive income (loss) when incurred.
The recorded purchase price for certain business combinations also includes an estimation of the fair value of noncontrolling interests, which are calculated based on a valuation of the entity with the relevant percentage applied.
The Company completed the following 11 business combinations during the nine months ended September 30, 2020:
•Lanier, a Middle Market Partner effective January 1, 2020, was made to expand the Company’s Middle Market presence in the healthcare, higher education, construction, property and non-profit businesses throughout Florida and other states.
•Highland, a Specialty Partner effective January 1, 2020, was made to expand the Company’s Specialty presence in the healthcare and cyber insurance businesses and to add capabilities within the real estate business.
•AgencyRM, a Medicare Partner effective February 1, 2020, was made to expand the Company’s Medicare business presence in Texas.
•VibrantUSA, a Medicare Partner effective February 1, 2020, was made to expand the Company’s Medicare business presence in Washington.
•IRP, a Middle Market Partner effective April 1, 2020, was made to expand the Company’s capabilities within the energy and infrastructure business.
•Southern Protective Group, a Middle Market Partner effective May 1, 2020, was made to expand the Company's risk consulting capabilities in the medical malpractice market.
•Pendulum, a Specialty Partner effective May 1, 2020, was made to expand the Company's specialty risk consulting capabilities in the long-term care and senior living markets.
•Rosenthal, a Middle Market Partner effective June 1, 2020, was made to expand the Company’s capabilities within the habitational real estate industry.
•TBA/RBA, a Middle Market Partner effective June 1, 2020, was made to expand the Company’s employee benefits business in Tennessee and across the Southeastern U.S.
•Fletcher, a Medicare Partner effective July 31, 2020, was made to expand the Company’s Medicare business presence in Washington.
•MIA, a Medicare Partner effective July 31, 2020, was made to expand the Company’s Medicare business presence in Tennessee.
The operating results of these business combinations have been included in the condensed consolidated statements of comprehensive income (loss) since their respective acquisition dates. The Company recognized total revenues and net income from these business combinations of $37.1 million and $3.0 million, respectively, for the nine months ended September 30, 2020.
Acquisition-related costs incurred in connection with these business combinations are recorded in other operating expenses in the condensed consolidated statements of comprehensive income (loss). The Company incurred acquisition-related costs from these business combinations of $1.7 million for the nine months ended September 30, 2020.
The table below provides a summary of the total consideration and the estimated purchase price allocations made for each of the business acquisitions that became effective during the nine months ended September 30, 2020. The "All Others" column includes amounts for the AgencyRM, VibrantUSA, Southern Protective Group, Pendulum, Fletcher and MIA business combinations.
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(in thousands)
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Lanier
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Highland
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IRP
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Rosenthal
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TBA/RBA
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All Others
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Totals
|
Cash consideration paid
|
$
|
24,450
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|
|
$
|
6,603
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|
|
$
|
26,223
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|
|
$
|
75,936
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|
|
$
|
76,272
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|
|
$
|
28,634
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|
|
$
|
238,118
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Fair value of contingent earnout consideration
|
1,628
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|
|
788
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|
|
5,521
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|
|
7,051
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|
|
7,000
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|
|
4,624
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|
|
26,612
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Fair value of equity interest
|
6,119
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|
4,500
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|
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7,535
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10,147
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21,427
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2,847
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52,575
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Deferred payment
|
—
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|
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—
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|
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—
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—
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|
300
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|
59
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|
359
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Total consideration
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$
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32,197
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$
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11,891
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$
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39,279
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$
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93,134
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$
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104,999
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|
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$
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36,164
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$
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317,664
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Cash
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$
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2,413
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$
|
1,542
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|
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$
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1,694
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|
|
$
|
954
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$
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—
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|
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$
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1,112
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$
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7,715
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Premiums, commissions and fees receivable
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2,494
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|
5,929
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|
3,229
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4,734
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8,731
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1,718
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|
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26,835
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Property and equipment
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294
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|
|
—
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|
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123
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|
|
—
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|
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—
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|
|
26
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|
|
443
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Other assets
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168
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13
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|
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11
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|
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11
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|
|
—
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|
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19
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|
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222
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Intangible assets
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—
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Purchased customer accounts
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4,312
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—
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6,250
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33,670
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53,900
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3,489
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101,621
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Distributor relationships
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—
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6,500
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—
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|
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—
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—
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|
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12,880
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|
|
19,380
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Carrier relationships
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—
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|
|
659
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—
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|
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—
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|
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—
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|
|
—
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|
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659
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Software
|
—
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|
|
—
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|
|
—
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|
|
—
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|
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—
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|
|
565
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|
|
565
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Trade names
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—
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|
|
214
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|
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—
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|
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939
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|
|
179
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|
|
77
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|
|
1,409
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Goodwill
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25,735
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|
4,276
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|
32,273
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|
56,253
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|
44,264
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17,125
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|
179,926
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Total assets acquired
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35,416
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19,133
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|
43,580
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|
96,561
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|
|
107,074
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|
|
37,011
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|
|
338,775
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Premiums and producer commissions payable
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(2,954)
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|
(6,374)
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(4,301)
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(3,427)
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(2,075)
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(586)
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|
(19,717)
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Accrued expenses and other current liabilities
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(265)
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(868)
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—
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—
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—
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(261)
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|
|
(1,394)
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Total liabilities acquired
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(3,219)
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|
(7,242)
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|
(4,301)
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(3,427)
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(2,075)
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(847)
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(21,111)
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Net assets acquired
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$
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32,197
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$
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11,891
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$
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39,279
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$
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93,134
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$
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104,999
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|
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$
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36,164
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$
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317,664
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Maximum potential contingent earnout consideration (1)
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$
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11,000
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$
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2,450
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$
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44,399
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$
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30,843
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$
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30,147
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$
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15,930
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$
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134,769
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__________
(1) IRP has an uncapped earnout. The maximum potential earnout consideration represented has been calculated assuming 50% compound annual revenue growth for three years.
Due to the complexity of valuing the consideration paid and the purchase price allocation and the timing of these activities, certain amounts included in the condensed consolidated financial statements may be provisional and subject to additional adjustments within the measurement period as permitted by Topic 805. Any measurement period adjustments related to prior period business combinations are reflected as current period adjustments in accordance with Topic 805.
The factors contributing to the recognition of the amount of goodwill are based on expanding business presence into new geographic locations and service markets, strategic benefits that are expected to be realized from acquiring the Partners’ assembled workforce in addition to other synergies gained from integrating the Partners’ operations into our consolidated structure.
The intangible assets acquired in connection with business combinations during the nine months ended September 30, 2020 have the following estimated weighted-average lives:
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Weighted-Average Life
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Purchased customer accounts
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19.3 years
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Distributor relationships
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20.0 years
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Carrier relationships
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0.8 years
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Software
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2.0 years
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Trade names
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4.3 years
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Future annual estimated amortization expense over the next five years for intangible assets acquired in connection with business combinations during the nine months ended September 30, 2020 is as follows:
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(in thousands)
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Amount
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For the remainder of 2020
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$
|
2,092
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|
2021
|
|
8,545
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2022
|
|
8,280
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2023
|
|
8,132
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2024
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|
7,942
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The following unaudited pro forma consolidated results of operations are provided for illustrative purposes only and have been presented as if the acquisitions of Lanier, Highland, AgencyRM, VibrantUSA, IRP, Southern Protective Group, Pendulum, Rosenthal, TBA/RBA, Fletcher and MIA occurred on January 1, 2019. This unaudited pro forma information should not be relied upon as being indicative of the historical results that would have been obtained if the acquisitions had occurred on that date, nor of the results that may be obtained in the future.
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For the Three Months
Ended September 30,
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For the Nine Months
Ended September 30,
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(in thousands, except per share data)
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|
2020
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2019
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|
2020
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|
2019
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Pro forma results:
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Revenues
|
|
$
|
66,075
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|
|
$
|
56,095
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|
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$
|
201,960
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|
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$
|
163,522
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|
Net income (loss)
|
|
(7,588)
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|
|
(3,448)
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|
|
(882)
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|
|
5,647
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Net loss attributable to BRP Group, Inc.
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|
(3,250)
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|
|
(320)
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Basic and diluted loss per share
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|
$
|
(0.10)
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|
|
|
|
$
|
(0.01)
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|
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Weighted-average shares of Class A common stock outstanding - basic and diluted
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|
33,107
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|
|
|
|
24,408
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|
|
|
4. Variable Interest Entities
Topic 810 requires a reporting entity to consolidate a variable interest entity (“VIE”) when the reporting entity has a variable interest or combination of variable interests that provide the entity with a controlling financial interest in the VIE. The Company continually assesses whether it has a controlling financial interest in each of its VIEs to determine if it is the primary beneficiary of the VIE and should, therefore, consolidate each of the VIEs. A reporting entity is considered to have a controlling financial interest in a VIE if it has (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb the losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.
The Company determined that it is the primary beneficiary of its VIEs, which, at September 30, 2019, included The Villages Insurance Partners, LLC (“TVIP”) and the Company’s joint ventures, BKS-IPEO JV Partners, LLC (“iPEO”), Laureate Insurance Partners, LLC (“Laureate”), BKS Smith, LLC (“Smith”), BKS MS, LLC (“Saunders”) and BKS Partners Galati Marine Solutions, LLC (“Galati”). In connection with the reorganization transactions and initial public offering in October 2019, the Company acquired the equity interests of TVIP and iPEO, which became wholly-owned subsidiaries of BRP and, accordingly, are no longer VIEs of the Company at September 30, 2020 and December 31, 2019. The Company has consolidated its VIEs into the consolidated financial statements.
Total revenues and expenses of the Company’s consolidated VIEs included in the condensed consolidated statements of comprehensive income (loss) were $180,000 and $159,000, respectively, for the three months ended September 30, 2020 and $3.3 million and $2.4 million, respectively, for the three months ended September 30, 2019. Total revenues and expenses of the Company’s consolidated VIEs included in the condensed consolidated statements of comprehensive income (loss) were $583,000 and $498,000, respectively, for the nine months ended September 30, 2020 and $11.1 million and $7.1 million, respectively, for the nine months ended September 30, 2019. The revenues and expenses of TVIP and iPEO are included in the revenues and expenses of the Company’s consolidated VIEs for the three and nine months ended September 30, 2019.
The assets of the consolidated VIEs can only be used to settle the obligations of the consolidated VIEs and the creditors of the liabilities of the consolidated VIEs do not have recourse to the Company. The following tables provide a summary of the carrying amounts of the assets and liabilities of the Company’s consolidated VIEs at each of the balance sheet dates:
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At September 30, 2020
|
(in thousands)
|
|
Laureate
|
|
Smith
|
|
Saunders
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Total
|
Assets
|
|
|
|
|
|
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|
Cash and cash equivalents
|
|
$
|
91
|
|
|
$
|
1
|
|
|
$
|
30
|
|
|
$
|
122
|
|
Premiums, commissions and fees receivable, net
|
|
6
|
|
|
64
|
|
|
83
|
|
|
153
|
|
Total current assets
|
|
97
|
|
|
65
|
|
|
113
|
|
|
275
|
|
Property and equipment, net
|
|
23
|
|
|
—
|
|
|
—
|
|
|
23
|
|
Other assets
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Total assets
|
|
$
|
125
|
|
|
$
|
65
|
|
|
$
|
113
|
|
|
$
|
303
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Premiums payable to insurance companies
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Producer commissions payable
|
|
—
|
|
|
—
|
|
|
19
|
|
|
19
|
|
Accrued expenses and other current liabilities
|
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
Total liabilities
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
(in thousands)
|
|
Laureate
|
|
Smith
|
|
Saunders
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
46
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
47
|
|
Premiums, commissions and fees receivable, net
|
|
—
|
|
|
44
|
|
|
31
|
|
|
75
|
|
Total current assets
|
|
46
|
|
|
45
|
|
|
31
|
|
|
122
|
|
Property and equipment, net
|
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
Other assets
|
|
5
|
|
|
—
|
|
|
2
|
|
|
7
|
|
Total assets
|
|
$
|
82
|
|
|
$
|
45
|
|
|
$
|
33
|
|
|
$
|
160
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Premiums payable to insurance companies
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
6
|
|
Producer commissions payable
|
|
2
|
|
|
5
|
|
|
8
|
|
|
15
|
|
Accrued expenses and other current liabilities
|
|
4
|
|
|
25
|
|
|
—
|
|
|
29
|
|
Total liabilities
|
|
$
|
9
|
|
|
$
|
30
|
|
|
$
|
11
|
|
|
$
|
50
|
|
5. Revenue
The following table provides disaggregated commissions and fees revenue by major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30,
|
|
For the Nine Months
Ended September 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Direct bill revenue (1)
|
|
$
|
26,996
|
|
|
$
|
17,664
|
|
|
$
|
77,535
|
|
|
$
|
53,258
|
|
Agency bill revenue (2)
|
|
28,130
|
|
|
14,253
|
|
|
64,815
|
|
|
31,084
|
|
Profit-sharing revenue (3)
|
|
3,535
|
|
|
1,587
|
|
|
11,285
|
|
|
7,877
|
|
Policy fee and installment fee revenue (4)
|
|
4,051
|
|
|
2,719
|
|
|
11,086
|
|
|
5,112
|
|
Consulting and service fee revenue (5)
|
|
720
|
|
|
1,111
|
|
|
2,228
|
|
|
2,337
|
|
Other income (6)
|
|
2,411
|
|
|
1,049
|
|
|
4,321
|
|
|
1,612
|
|
Total commissions and fees
|
|
$
|
65,843
|
|
|
$
|
38,383
|
|
|
$
|
171,270
|
|
|
$
|
101,280
|
|
__________
(1) Direct bill revenue represents commission revenue earned by facilitating the arrangement between individuals or businesses and Insurance Company Partners by providing insurance placement services to Clients, primarily for private risk management, commercial risk management, employee benefits and Medicare insurance types.
(2) Agency bill revenue primarily represents commission revenue earned by facilitating the arrangement between individuals or businesses and Insurance Company Partners by providing insurance placement services to Clients. The Company acts as an agent on behalf of the Client for the term of the insurance policy.
(3) Profit-sharing revenue represents bonus-type revenue that is earned by the Company as a sales incentive provided by certain Insurance Company Partners.
(4) Policy fee revenue represents revenue earned for acting in the capacity of an MGA on behalf of the Insurance Company Partner and fulfilling certain services including delivery of policy documents, processing payments and other administrative functions. Installment fee revenue represents revenue earned by the Company for providing payment processing services on behalf of the Insurance Company Partner related to policy premiums paid on an installment basis.
(5) Service fee revenue is earned by receiving negotiated fees in lieu of a commission and consulting revenue is earned by providing specialty insurance consulting.
(6) 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.
The application of ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), requires the use of management judgment. The following are the areas of most significant judgment as it relates to Topic 606:
•The Company considers the policyholders as representative of its customers in the majority of contractual relationships, with the exception of contracts in its Medicare operating segment, where the Insurance Company Partner is considered its customer.
•Contracts in the Medicare operating segment are multi-year arrangements in which the Company is entitled to renewal commissions. However, the Company has applied a constraint to renewal commission that limits revenue recognized on new policies to the policy year in effect, and revenue recognized on renewed policies to the receipt of periodic cash, when a risk of significant reversals exists based on: (i) insufficient history; and (ii) the influence of external factors outside of the Company’s control, including policyholder discretion over plans and Insurance Company Partner relationship, political influence, and a contractual provision, which limits the Company’s right to receive renewal commissions to ongoing compliance and regulatory approval of the relevant Insurance Company Partner and compliance with the Centers for Medicare and Medicaid Services.
•The Company recognizes separately contracted commissions revenue at the effective date of insurance placement and considers any ongoing interaction with the customer to be immaterial in the context of the contract.
•Variable consideration includes estimates of direct bill commissions, a reserve for policy cancellations and an estimate of profit-sharing revenue.
•Costs to obtain a contract are deferred and recognized over five years, which represents management’s estimate of the average period over which a Client maintains its initial coverage relationship with the original Insurance Company Partner.
•Due to the relatively short time period between the information gathering phase and binding insurance coverage, the Company has determined that costs to fulfill contracts are not significant. Therefore, costs to fulfill a contract are expensed as incurred.
6. Contract Assets and Liabilities
Contract assets arise when the Company recognizes revenue for amounts which have not yet been billed and contract liabilities relate to payments received in advance of performance under the contract before the transfer of a good or service to the customer. Contract assets are included in premiums, commissions and fees receivable, net and contract liabilities are included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. The balances of contract assets and liabilities arising from contracts with customers are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30, 2020
|
|
December 31, 2019
|
Contract assets
|
|
$
|
49,872
|
|
|
$
|
47,337
|
|
Contract liabilities
|
|
7,542
|
|
|
5,349
|
|
During the nine months ended September 30, 2020, the Company recognized revenue of $5.2 million related to the contract liabilities balance at December 31, 2019.
7. Deferred Commission Expense
The Company pays an incremental amount of compensation in the form of producer commissions on new business. In accordance with ASC Topic 340, Other Assets and Deferred Costs, these incremental costs are deferred and amortized over five years, which represents management’s estimate of the average benefit period. Deferred commission expense represents employee commissions that are capitalized and not yet expensed. The table below provides a rollforward of deferred commission expense for each of the three and nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30,
|
|
For the Nine Months
Ended September 30,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Balance at beginning of period
|
|
$
|
4,060
|
|
|
$
|
3,094
|
|
|
$
|
3,621
|
|
|
$
|
2,882
|
|
Costs capitalized
|
|
540
|
|
|
599
|
|
|
1,649
|
|
|
1,280
|
|
Amortization
|
|
(344)
|
|
|
(274)
|
|
|
(1,014)
|
|
|
(743)
|
|
Balance at end of period
|
|
$
|
4,256
|
|
|
$
|
3,419
|
|
|
$
|
4,256
|
|
|
$
|
3,419
|
|
8. Intangible Assets, Net and Goodwill
The Company recognizes certain separately identifiable intangible assets acquired in connection with business combinations and asset acquisitions. Refer to Note 3 for a summary of intangible assets acquired in connection with business combinations during the nine months ended September 30, 2020. Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
(in thousands)
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Purchased customer accounts
|
|
$
|
156,303
|
|
|
$
|
(15,692)
|
|
|
$
|
140,611
|
|
|
$
|
53,987
|
|
|
$
|
(9,143)
|
|
|
$
|
44,844
|
|
Software
|
|
31,161
|
|
|
(9,773)
|
|
|
21,388
|
|
|
30,590
|
|
|
(5,070)
|
|
|
25,520
|
|
Distributor relationships
|
|
32,380
|
|
|
(1,093)
|
|
|
31,287
|
|
|
13,000
|
|
|
(331)
|
|
|
12,669
|
|
Carrier relationships
|
|
7,859
|
|
|
(945)
|
|
|
6,914
|
|
|
7,200
|
|
|
(170)
|
|
|
7,030
|
|
Trade names
|
|
4,022
|
|
|
(667)
|
|
|
3,355
|
|
|
2,613
|
|
|
(226)
|
|
|
2,387
|
|
Totals
|
|
$
|
231,725
|
|
|
$
|
(28,170)
|
|
|
$
|
203,555
|
|
|
$
|
107,390
|
|
|
$
|
(14,940)
|
|
|
$
|
92,450
|
|
Amortization expense recorded for intangible assets was $5.2 million and $3.1 million for the three months ended September 30, 2020 and 2019, respectively, and $13.2 million and $6.8 million for the nine months ended September 30, 2020 and 2019, respectively.
Refer to Note 3 for a summary of goodwill recorded in connection with business combinations during the nine months ended September 30, 2020. The changes in carrying value of goodwill by Operating Group for the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Total
|
Balance at December 31, 2019
|
|
$
|
52,932
|
|
|
$
|
60,115
|
|
|
$
|
38,892
|
|
|
$
|
12,531
|
|
|
$
|
164,470
|
|
Goodwill of acquired businesses
|
|
165,266
|
|
|
6,267
|
|
|
—
|
|
|
8,393
|
|
|
179,926
|
|
Balance at September 30, 2020
|
|
$
|
218,198
|
|
|
$
|
66,382
|
|
|
$
|
38,892
|
|
|
$
|
20,924
|
|
|
$
|
344,396
|
|
9. Long-Term Debt
The Company has a syndicated credit agreement with JPMorgan as successor agent and lead arranger (the “Old JPM Credit Agreement”), which has a maturity date of September 23, 2024. At December 31, 2019, the Old JPM Credit Agreement provided for an aggregate borrowing capacity of $225.0 million under a revolving credit commitment (the “Revolving Credit Commitment”), of which no more than $65.0 million of the aggregate borrowing capacity is available for working capital purposes and the entirety of which is available to fund acquisitions.
On March 12, 2020, the Company entered into the Incremental Facility Amendment No. 1 to the Old JPM Credit Agreement to increase the aggregate borrowing capacity to $300.0 million. The Company capitalized debt issuance costs related to the amendment of $230,000 during the nine months ended September 30, 2020.
On June 18, 2020, the Company executed the Incremental Facility Amendment No. 3 to the Old JPM Credit Agreement, which (i) increased the aggregate borrowing capacity to $400.0 million and (ii) added a new lender to the syndicate. All other terms of the JPMorgan Credit Agreement remain unchanged. The Company capitalized debt issuance costs related to the amendment of $1.7 million during the nine months ended September 30, 2020.
At September 30, 2020 and December 31, 2019, the variable rate in effect for the Old JPM Credit Agreement was the London Interbank Offered Rate (“LIBOR”) due to a repricing option. The applicable interest rate on the Revolving Credit Commitment was 2.19% and 3.81% at September 30, 2020 and December 31, 2019, respectively.
The Old JPM Credit Agreement requires the Company to meet certain financial covenants and comply with customary affirmative and negative covenants as listed in the underlying agreement. The Company was in compliance with these covenants at September 30, 2020. Refer to Note 16 for changes to the Old JPM Credit Agreement subsequent to September 30, 2020.
10. Related Party Transactions
Commission Revenue
The Company serves as a broker for Holding Company of the Villages, Inc. (“Villages”), a related party entity. Commission revenue recorded as a result of these transactions was $339,000 and $537,000 for the three months ended September 30, 2020 and 2019, respectively, and $1.1 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively.
The Company serves as a broker for certain entities in which a member of our board of directors has a material interest. Commission revenue recorded as a result of these transactions was $119,000 and $152,000 for the three months ended September 30, 2020 and 2019, respectively, and $243,000 and $270,000 for the nine months ended September 30, 2020 and 2019, respectively.
Rent Expense
The Company has various agreements to lease office space from wholly-owned subsidiaries of Villages. Total rent expense incurred with respect to Villages and its wholly-owned subsidiaries was $128,000 and $125,000 for the three months ended September 30, 2020 and 2019, respectively, and $412,000 and $374,000 for the nine months ended September 30, 2020 and 2019, respectively.
The Company has various agreements to lease office space from other related parties. Total rent expense incurred with respect to related parties other than Villages was $368,000 and $156,000 for the three months ended September 30, 2020 and 2019, respectively, and $1.1 million and $454,000 for the nine months ended September 30, 2020 and 2019, respectively.
LLC Unit Redemptions
In connection with the public offering of our Class A common stock in June 2020, we repurchased 1,875,000 LLC Units from Lowry Baldwin, the Company's Chairman, 450,000 LLC Units from Elizabeth Krystyn, one of the Company's founders, and 150,000 LLC Units from Laura Sherman, one of the Company's founders, at a price per LLC Unit equal to the price per share paid by the underwriters in the public offering.
11. Share-Based Compensation
The Company has an Omnibus Incentive Plan (the “Omnibus Plan”) to motivate and reward employees (“Colleagues”) and other individuals to perform at the highest level and contribute significantly to the Company’s success, thereby furthering the best interests of its shareholders. The Omnibus Plan provides for the Company to make awards of 1,948,414 shares of Class A common stock at September 30, 2020. During the nine months ended September 30, 2020, the Company granted restricted stock under the Omnibus Plan to its non-employee directors, executives and Colleagues, including those executives and Colleagues who onboarded in connection with our Partnerships. Shares of restricted stock issued to directors and executives during the nine months ended September 30, 2020 generally vested immediately upon issuance while shares issued to Colleagues and Risk Advisors generally either cliff vest after 2 to 5 years or vest ratably over 3 to 5 years.
The following table summarizes the activity for non-vested awards granted by the Company under the Omnibus Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Grant-Date Fair Value Per Share
|
|
Weighted-Average Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at December 31, 2019
|
|
330,244
|
|
|
$
|
14.00
|
|
|
3.66
|
|
$
|
677
|
|
Granted
|
|
645,843
|
|
|
14.71
|
|
|
2.15
|
|
|
Vested and settled
|
|
(161,965)
|
|
|
11.45
|
|
|
|
|
54
|
|
Forfeited
|
|
(30,551)
|
|
|
14.14
|
|
|
|
|
|
Outstanding at September 30, 2020
|
|
783,571
|
|
|
$
|
15.11
|
|
|
2.64
|
|
$
|
7,683
|
|
The total fair value of shares that vested and settled during the nine months ended September 30, 2020 was $1.9 million.
The Company recognizes share-based compensation expense for the Omnibus Plan net of actual forfeitures. The Company recorded share-based compensation expense of $1.2 million and $2.5 million in connection with the Omnibus Plan and Management Incentive Units Plan for the three and nine months ended September 30, 2020, respectively, which is included in commissions, employee compensation and benefits expense in the condensed consolidated statements of comprehensive income (loss).
12. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income attributable to BRP Group, Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings (loss) per share is computed giving effect to all potentially dilutive shares of Class B common stock.
The shares of Class B common stock do not share in the earnings or losses attributable to BRP Group, and therefore, are not participating securities. Accordingly, a separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been included. The 45,247,711 shares of Class B common stock have been excluded in computing diluted net earnings per share because including them on an “if-converted” basis would have an anti-dilutive effect. In addition, the 783,571 shares of unvested restricted Class A common stock were excluded from the diluted calculation, as their inclusion would have been anti-dilutive as the Company was in a net loss position.
The following is a calculation of the basic and diluted weighted-average number of shares of Class A common stock outstanding and earnings per share for the three and nine months ended September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
For the Three Months Ended September 30, 2020
|
|
For the Nine Months Ended September 30, 2020
|
Basic and diluted net loss per share:
|
|
|
|
|
Net loss attributable to BRP Group, Inc.
|
|
$
|
(3,268)
|
|
|
$
|
(5,388)
|
|
Shares used for basic net loss per share:
|
|
|
|
|
Basic and diluted weighted-average shares of Class A common stock outstanding
|
|
33,098
|
|
24,371
|
Basic and diluted net loss per share
|
|
$
|
(0.10)
|
|
|
$
|
(0.22)
|
|
13. Fair Value Measurements
Topic 820 established a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy under Topic 820 are described below:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2: Inputs to the valuation methodology are quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Methodologies used for assets and liabilities measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019 are based on limited unobservable inputs. These methods may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis within each level of the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30, 2020
|
|
December 31, 2019
|
Level 3
|
|
|
|
|
Contingently returnable consideration
|
|
$
|
299
|
|
|
$
|
70
|
|
Level 3 Assets
|
|
$
|
299
|
|
|
$
|
70
|
|
|
|
|
|
|
Contingent earnout liabilities
|
|
$
|
85,388
|
|
|
$
|
48,769
|
|
Level 3 Liabilities
|
|
$
|
85,388
|
|
|
$
|
48,769
|
|
The Company’s contingently returnable consideration at September 30, 2020 and December 31, 2019 represents a contingent right of return from a Partner to reimburse the Company for a portion of the purchase price as part of the Partnership transaction. The fair value of the contingently returnable consideration is based on sales projections for the acquired entity, which are reassessed each reporting period. Based on the Company’s ongoing assessment of the fair value of contingently returnable consideration, the Company recorded a net increase in the estimated fair value of such asset of $229,000 for the nine months ended September 30, 2020. The Company has assessed the maximum refund relating to the contingently returnable consideration to be $1.3 million at September 30, 2020.
The fair value of contingent earnout liabilities is based on sales projections for the acquired entities, which are reassessed each reporting period. Based on the Company’s ongoing assessment of the fair value of contingent earnout liability, the Company recorded a net increase in the estimated fair value of such liabilities of $12.9 million for the nine months ended September 30, 2020. The Company has assessed the maximum estimated exposure to the contingent earnout liabilities to be $233.6 million at September 30, 2020.
The Company measures contingently returnable consideration and contingent earnout liabilities at fair value at each reporting period using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The Company uses a probability weighted value analysis as a valuation technique to convert future estimated cash flows to a single present value amount. The significant unobservable inputs used in the fair value measurements are sales projections over the earnout period, and the probability outcome percentages assigned to each scenario. Significant increases or decreases to either of these inputs would result in a significantly higher or lower asset or liability with a higher asset capped by the contractual maximum of the contingently returnable consideration and a higher liability capped by the contractual maximum of the contingent earnout liabilities. Ultimately, the asset and liability will be equivalent to the amount settled, and the difference between the fair value estimate and amount settled will be recorded in earnings for business combinations, or as a reduction of the cost of the assets acquired for asset acquisitions. Refer to Note 3 for additional information regarding contingently returnable consideration and contingent earnout consideration recorded in connection with business acquisitions.
The fair value of the contingent earnout liabilities is based on the present value of the expected future payments to be made to Partners in accordance with the provisions outlined in the respective purchase agreements, which is a Level 3 fair value measurement. In determining fair value, the Company estimates the Partner’s future performance using financial projections developed by management for the Partner and market participant assumptions that were derived for revenue growth or profitability based on earnings before income taxes, depreciation and amortization (“EBITDA”). Revenue and EBITDA growth rates generally ranged from 5% to 20%. The Company estimates future payments using the earnout formula and performance targets specified in each purchase agreement and these financial projections. These payments are discounted to present value using a risk-adjusted rate that takes into consideration market-based rates of return that reflect the ability of the Partner to achieve the targets. These discount rates generally ranged from 6.00% to 18.00%. Changes in financial projections, market participant assumptions for revenue growth and profitability, or the risk-adjusted discount rate, would result in a change in the fair value of contingent consideration.
The following table sets forth a summary of the changes in the fair value of the Company’s contingently returnable consideration and contingent earnout liabilities, which are measured at fair value on a recurring basis utilizing Level 3 assumptions in their valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
(in thousands)
|
|
Contingently Returnable Consideration
|
|
Contingent Earnout Liabilities
|
|
Contingent Earnout Liabilities
|
|
Contingently Returnable Consideration
|
|
Contingent Earnout Liabilities
|
|
Contingent Earnout Liabilities
|
Balance at beginning of period
|
|
$
|
387
|
|
|
$
|
78,535
|
|
|
$
|
31,111
|
|
|
$
|
70
|
|
|
$
|
48,769
|
|
|
$
|
9,249
|
|
Fair value of contingent consideration issuances
|
|
—
|
|
|
1,424
|
|
|
3,498
|
|
|
—
|
|
|
26,612
|
|
|
29,117
|
|
Change in fair value of contingent consideration
|
|
(88)
|
|
|
6,367
|
|
|
535
|
|
|
229
|
|
|
12,926
|
|
|
(3,222)
|
|
Payment of contingent consideration
|
|
—
|
|
|
(938)
|
|
|
—
|
|
|
—
|
|
|
(2,919)
|
|
|
—
|
|
Balance at end of period
|
|
$
|
299
|
|
|
$
|
85,388
|
|
|
$
|
35,144
|
|
|
$
|
299
|
|
|
$
|
85,388
|
|
|
$
|
35,144
|
|
Substantially all of the change in fair value of contingent consideration during the nine months ended September 30, 2020 and 2019 related to assets and liabilities that were held at the end of the respective periods.
Fair Value of Other Financial Instruments
The fair value of the Revolving Credit Commitment is classified as Level 2 within the fair value hierarchy. Fair value is based on an estimate using a discounted cash flow analysis based on current borrowing rates for similar types of borrowing arrangements. The fair value of the Revolving Credit Commitment was approximately $98.8 million at September 30, 2020 compared to a carrying value of $101.0 million. The carrying amount of the Revolving Credit Commitment of $40.4 million approximated fair value at December 31, 2019 as a result of the Old JPM Credit Agreement having been amended and restated at market terms on December 19, 2019.
14. Commitments and Contingencies
The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
15. Segment Information
BRP Group’s business is divided into four Operating Groups: Middle Market, Specialty, MainStreet, and Medicare.
•Middle Market provides private risk management, commercial risk management and employee benefits solutions for mid-to-large size businesses and high net worth individuals and families.
•Specialty represents a wholesale co-brokerage platform that delivers specialty insurers, professionals, individuals and niche industry businesses expanded access to exclusive specialty markets, capabilities and programs requiring complex underwriting and placement. Specialty also represents a leading technology platform, MGA of the Future, which is a national renter’s insurance product distributed via sub-agent partners and property management software providers, which has expanded distribution capabilities for new products through our wholesale and retail networks.
•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 agents.
In the Middle Market, MainStreet, and Specialty Operating Groups, the Company generates commissions and fees from insurance placement under both agency bill and direct bill arrangements. In addition, the Company generates 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 Operating Group only, the Company generates fees from service fee and consulting arrangements. Service fee arrangements are in place with certain customers in lieu of commission arrangements.
In the Medicare Operating Group, the Company generates commissions and fees in the form of direct bill insurance placement and marketing income. Marketing income is earned through co-branded marketing campaigns with the Company’s Insurance Company Partners.
The Company’s chief operating decision maker, the chief executive officer, uses net income before interest, taxes, depreciation, amortization, and one-time transactional-related expenses or non-recurring items to manage resources and make decisions about the business.
Summarized financial information concerning the Company’s Operating Groups is shown in the following tables. The Corporate and Other non-reportable segment includes any expenses not allocated to the Operating Groups and corporate-related items, including related party and third-party interest expense. Intersegment revenue and expenses are eliminated through the Corporate and Other column. Service center expenses and other overhead are allocated to the Company’s Operating Groups based on either revenue or headcount as applicable to each expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Commissions and fees
|
$
|
26,561
|
|
|
$
|
27,486
|
|
|
$
|
7,905
|
|
|
$
|
4,101
|
|
|
$
|
(210)
|
|
|
$
|
65,843
|
|
Net income (loss)
|
1,175
|
|
|
(1,278)
|
|
|
1,197
|
|
|
214
|
|
|
(8,923)
|
|
|
$
|
(7,615)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2019
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Commissions and fees
|
$
|
12,836
|
|
|
$
|
16,732
|
|
|
$
|
6,642
|
|
|
$
|
2,173
|
|
|
$
|
—
|
|
|
$
|
38,383
|
|
Net income (loss)
|
295
|
|
|
2,190
|
|
|
1,016
|
|
|
388
|
|
|
(6,195)
|
|
|
(2,306)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2020
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Commissions and fees
|
$
|
69,311
|
|
|
$
|
64,358
|
|
|
$
|
23,917
|
|
|
$
|
13,894
|
|
|
$
|
(210)
|
|
|
$
|
171,270
|
|
Net income (loss)
|
11,789
|
|
|
(6,190)
|
|
|
3,397
|
|
|
2,661
|
|
|
(22,424)
|
|
|
$
|
(10,767)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2019
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Commissions and fees
|
$
|
41,481
|
|
|
$
|
32,497
|
|
|
$
|
18,942
|
|
|
$
|
8,360
|
|
|
$
|
—
|
|
|
$
|
101,280
|
|
Net income (loss)
|
10,475
|
|
|
1,590
|
|
|
4,596
|
|
|
2,833
|
|
|
(15,017)
|
|
|
4,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Total assets at September 30, 2020
|
405,278
|
|
|
195,947
|
|
|
59,873
|
|
|
42,362
|
|
|
19,304
|
|
|
$
|
722,764
|
|
Total assets at December 31, 2019
|
105,353
|
|
|
154,983
|
|
|
60,253
|
|
|
17,533
|
|
|
60,646
|
|
|
398,768
|
|
16. Subsequent Events
On October 12, 2020, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of the State of Delaware to increase the number of authorized shares of Class B common stock from 50,000,000 to 100,000,000.
On October 14, 2020, the Company entered into a new credit agreement with JPMorgan Chase Bank, N.A., to provide new senior secured credit facilities in an aggregate principal amount of $800.0 million. The amount consists of (i) a new term loan facility in the principal amount of $400.0 million maturing in 2027 (the “Term Loan B”) and (ii) a new revolving credit facility with commitments in an aggregate principal amount of $400.0 million maturing in 2025 (the “Revolving Facility”). The Company used a portion of the proceeds from the Term Loan B to repay in full the Company’s obligations under its Old JPM Credit Agreement and concurrently terminated the existing agreement.
Interest rates under the Revolving Facility will remain the same as the interest rates under the Old JPM Credit Agreement, with borrowings accruing interest on amounts drawn at LIBOR plus 200 basis points (“bps”) to LIBOR plus 300 bps based on total net leverage ratio. The Term Loan B will bear interest at LIBOR plus 400 bps.
On November 5, 2020, the Company announced that Baldwin Krystyn Sherman Partners, LLC, a subsidiary of BRP Group, has entered into an agreement to acquire all of the outstanding equity interests of Insgroup, Inc., a Houston, Texas based provider of commercial property and casualty insurance, employee benefits, private risk services and surety to middle-market companies and individuals. The Partnership is expected to close on November 30, 2020, subject to certain closing conditions.