Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Business and Basis of Presentation
BRP Group, Inc. (“BRP Group”) was incorporated in the state of Delaware on July 1, 2019. 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 Operating Groups, including Middle Market, Specialty, MainStreet, and Medicare, which are discussed in more detail in Note 15. The term the “Company” refers to BRP Group and its consolidated subsidiaries.
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 Baldwin Risk Partners, LLC (“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 consolidates BRP in its consolidated financial statements, resulting in a noncontrolling interest related to the membership interests of BRP (the “LLC Units”) held by BRP’s LLC members in its consolidated financial statements.
The Company has prepared these consolidated financial statements in accordance with Accounting Standards Codification (“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.
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, 2020 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, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2021.
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; the determination of fair value in relation to business combinations and purchase price allocation; impairment of long-lived assets including goodwill; valuation of the Tax Receivable Agreement liability and income taxes; and share-based compensation.
Recent Accounting Pronouncements
As an emerging growth company, the Jumpstart Our Business Startups Act of 2012 (the “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 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.
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, 2020 in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2021, except as noted below.
Derivative Instruments
The Company utilizes derivative financial instruments, consisting of interest rate caps, to manage the Company’s interest rate exposure. Derivative instruments are recognized as assets or liabilities at fair value on the condensed consolidated balance sheets. The Company has not designated these derivatives as hedging instruments for accounting purposes and, accordingly, the changes in fair value of these derivatives are recognized in earnings. Cash payments and receipts under the derivative instruments are classified within cash flows from financing activities on the accompanying statements of cash flows. The Company does not use derivative instruments for trading or speculative purposes.
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 five business combinations for an aggregate purchase price of $41.1 million during the six months ended June 30, 2021. 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 most business combinations includes an estimation of the fair value of contingent consideration obligations associated with potential earnout provisions, which are generally based on recurring 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 many business combinations also includes an estimation of the fair value of equity interests, which is calculated based on the value of the Company’s Class A common stock on the closing date taking into account a discount for lack of marketability. Any equity interests granted in shares of Class B common stock also include an upward adjustment for the cash flow associated with the Tax Receivable Agreement.
The Company completed the following business combinations during the six months ended June 30, 2021:
•LeaseTrack Services LLC and Effective Coverage LLC (“LeaseTrack”), a Specialty Partner effective February 1, 2021, was made to provide a complementary service offering to the MGA of the Future’s Master Tenant product for property managers and distribution partners.
•Riley Financial, Inc. (operating as “Medicare Help Now”), a Medicare Partner effective March 1, 2021, was made to further bolster the Company’s Medicare business presence in the Pacific Northwest.
•Tim Altman, Inc. (operating as “Only Medicare Solutions”), a Medicare Partner effective April 1, 2021, was made to expand the Company’s Pacific Northwest Medicare Advantage presence.
•Seniors’ Insurance Services of Washington, Inc. (“Seniors’ Insurance Services”), a Medicare Partner effective April 30, 2021, was made to strengthen and expand the Company’s Medicare presence in the Pacific Northwest.
•Mid-Continent Companies, Ltd. and Mid-Continent Securities Ltd. (“Mid-Continent”), a Middle Market Partner effective April 30, 2021, was made to expand the Company’s capabilities and Middle Market presence in Texas.
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 loss from these business combinations of $2.3 million and $785,000, respectively, for the six months ended June 30, 2021.
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 $835,000 for the six months ended June 30, 2021.
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 consolidated financial statements may be provisional and subject to additional adjustments within the measurement period as permitted by Topic 805. Specifically, the Company's valuations of premiums, commissions and fees receivable in accordance with Topic 606 are estimates subject to change based on relevant factors over the policy period. The valuations of intangible assets are also estimates based on assumptions of factors such as discount rates and growth rates. Accordingly, these assets are subject to measurement period adjustments as determined after the passage of time. Any measurement period adjustments related to prior period business combinations are reflected as current period adjustments in accordance with Topic 805. Refer to Note 8 for information regarding measurement period adjustments recorded during the six months ended June 30, 2021.
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 six months ended June 30, 2021. The “All Others” column includes amounts for the Medicare Help Now, Only Medicare Solutions, Seniors’ Insurance Services and Mid-Continent business combinations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
LeaseTrack
|
|
All Others
|
|
Totals
|
Cash consideration paid
|
$
|
12,984
|
|
|
$
|
14,021
|
|
|
$
|
27,005
|
|
Fair value of contingent earnout consideration
|
6,116
|
|
|
1,648
|
|
|
7,764
|
|
Fair value of equity interest
|
1,652
|
|
|
2,062
|
|
|
3,714
|
|
Deferred payment
|
—
|
|
|
2,592
|
|
|
2,592
|
|
Total consideration
|
$
|
20,752
|
|
|
$
|
20,323
|
|
|
$
|
41,075
|
|
|
|
|
|
|
|
Cash
|
$
|
100
|
|
|
$
|
155
|
|
|
$
|
255
|
|
Restricted cash
|
2
|
|
—
|
|
|
2
|
|
Premiums, commissions and fees receivable
|
729
|
|
|
1,077
|
|
|
1,806
|
|
Property and equipment
|
43
|
|
|
—
|
|
|
43
|
|
Other assets
|
—
|
|
|
13
|
|
|
13
|
|
Intangible assets
|
5,200
|
|
|
11,797
|
|
|
16,997
|
|
Goodwill
|
15,026
|
|
|
7,553
|
|
|
22,579
|
|
Total assets acquired
|
21,100
|
|
|
20,595
|
|
|
41,695
|
|
Premiums payable to insurance companies
|
(318)
|
|
|
—
|
|
|
(318)
|
|
Producer commissions payable
|
(4)
|
|
|
(268)
|
|
|
(272)
|
|
Accrued expenses and other current liabilities
|
(26)
|
|
|
(4)
|
|
|
(30)
|
|
Total liabilities acquired
|
(348)
|
|
|
(272)
|
|
|
(620)
|
|
Net assets acquired
|
$
|
20,752
|
|
|
$
|
20,323
|
|
|
$
|
41,075
|
|
|
|
|
|
|
|
Maximum potential contingent earnout consideration
|
$
|
8,500
|
|
|
$
|
10,462
|
|
|
$
|
18,962
|
|
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 expected to be realized from acquiring the Partners’ assembled workforce and technology, 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 six months ended June 30, 2021 have the following values and estimated weighted-average lives:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except weighted-average lives)
|
Amount
|
|
Weighted-Average Life
|
Purchased customer accounts
|
$
|
9,669
|
|
|
17.9 years
|
Distributor relationships
|
4,858
|
|
|
20.0 years
|
Software
|
2,095
|
|
|
5.0 years
|
Trade names
|
375
|
|
|
4.6 years
|
Future annual estimated amortization expense over the next five years for intangible assets acquired in connection with business combinations during the six months ended June 30, 2021 is as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amount
|
For the remainder of 2021
|
|
$
|
568
|
|
2022
|
|
1,297
|
|
2023
|
|
1,265
|
|
2024
|
|
1,320
|
|
2025
|
|
1,391
|
|
The following unaudited pro forma consolidated results of operations are provided for illustrative purposes only and have been presented as if the acquisitions of LeaseTrack, Medicare Help Now, Only Medicare Solutions, Seniors’ Insurance Services and Mid-Continent occurred on January 1, 2020. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended June 30,
|
|
For the Six Months
Ended June 30,
|
(in thousands, except per share data)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Pro forma results:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
120,195
|
|
|
$
|
52,880
|
|
|
$
|
276,248
|
|
|
$
|
110,724
|
|
Net income (loss)
|
|
(20,028)
|
|
|
(8,055)
|
|
|
12,081
|
|
|
(1,329)
|
|
Net income (loss) attributable to BRP Group, Inc.
|
|
(9,719)
|
|
|
(3,656)
|
|
|
5,614
|
|
|
(1,518)
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.22)
|
|
|
$
|
(0.18)
|
|
|
$
|
0.13
|
|
|
$
|
(0.08)
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.22)
|
|
|
$
|
(0.18)
|
|
|
$
|
0.12
|
|
|
$
|
(0.08)
|
|
Weighted-average shares of Class A common stock outstanding - basic
|
|
44,686
|
|
|
20,642
|
|
|
44,537
|
|
|
20,176
|
|
Weighted-average shares of Class A common stock outstanding - diluted
|
|
44,686
|
|
|
20,642
|
|
|
46,239
|
|
|
20,176
|
|
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 June 30, 2021 and December 31, 2020, include Laureate Insurance Partners, LLC (“Laureate”), BKS Smith, LLC (“Smith”), BKS MS, LLC (“Saunders”) and BKS Partners Galati Marine Solutions, LLC (“Galati”). 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 $250,000 and $161,000, respectively, for the three months ended June 30, 2021 and $165,000 and $150,000, respectively, for the three months ended June 30, 2020. Total revenues and expenses of the Company’s consolidated VIEs included in the condensed consolidated statements of comprehensive income (loss) were $463,000 and $317,000, respectively, for the six months ended June 30, 2021 and $403,000 and $339,000, respectively, for the six months ended June 30, 2020.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
(in thousands)
|
|
Laureate
|
|
Smith
|
|
Saunders
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
193
|
|
|
$
|
9
|
|
|
$
|
26
|
|
|
$
|
228
|
|
Premiums, commissions and fees receivable, net
|
|
—
|
|
|
120
|
|
|
105
|
|
|
225
|
|
Total current assets
|
|
193
|
|
|
129
|
|
|
131
|
|
|
453
|
|
Property and equipment, net
|
|
19
|
|
|
—
|
|
|
—
|
|
|
19
|
|
Other assets
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Total assets
|
|
$
|
217
|
|
|
$
|
129
|
|
|
$
|
131
|
|
|
$
|
477
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Premiums payable to insurance companies
|
|
$
|
4
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
36
|
|
Producer commissions payable
|
|
20
|
|
|
—
|
|
|
18
|
|
|
38
|
|
Accrued expenses and other current liabilities
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Total liabilities
|
|
$
|
36
|
|
|
$
|
32
|
|
|
$
|
18
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2020
|
(in thousands)
|
|
Laureate
|
|
Smith
|
|
Saunders
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
120
|
|
|
$
|
5
|
|
|
$
|
18
|
|
|
$
|
143
|
|
Premiums, commissions and fees receivable, net
|
|
3
|
|
|
52
|
|
|
75
|
|
|
130
|
|
Total current assets
|
|
123
|
|
|
57
|
|
|
93
|
|
|
273
|
|
Property and equipment, net
|
|
21
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Other assets
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Total assets
|
|
$
|
149
|
|
|
$
|
57
|
|
|
$
|
93
|
|
|
$
|
299
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Premiums payable to insurance companies
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
5
|
|
Producer commissions payable
|
|
—
|
|
|
4
|
|
|
13
|
|
|
17
|
|
Accrued expenses and other current liabilities
|
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Total liabilities
|
|
$
|
14
|
|
|
$
|
4
|
|
|
$
|
14
|
|
|
$
|
32
|
|
5. Revenue
The following table provides disaggregated commissions and fees revenue by major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended June 30,
|
|
For the Six Months
Ended June 30,
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Direct bill revenue (1)
|
|
$
|
50,358
|
|
|
$
|
22,430
|
|
|
$
|
144,863
|
|
|
$
|
50,539
|
|
Agency bill revenue (2)
|
|
47,293
|
|
|
20,256
|
|
|
82,633
|
|
|
36,685
|
|
Profit-sharing revenue (3)
|
|
8,175
|
|
|
2,626
|
|
|
18,467
|
|
|
7,750
|
|
Policy fee and installment fee revenue (4)
|
|
4,792
|
|
|
3,653
|
|
|
9,268
|
|
|
7,035
|
|
Consulting and service fee revenue (5)
|
|
5,726
|
|
|
793
|
|
|
11,006
|
|
|
1,508
|
|
Other income (6)
|
|
3,362
|
|
|
1,510
|
|
|
6,297
|
|
|
1,910
|
|
Total commissions and fees
|
|
$
|
119,706
|
|
|
$
|
51,268
|
|
|
$
|
272,534
|
|
|
$
|
105,427
|
|
__________
(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)
|
|
June 30, 2021
|
|
December 31, 2020
|
Contract assets
|
|
$
|
129,999
|
|
|
$
|
80,213
|
|
Contract liabilities
|
|
17,778
|
|
|
11,606
|
|
During the six months ended June 30, 2021, the Company recognized revenue of $10.5 million related to the contract liabilities balance at December 31, 2020.
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 for new business. Deferred commission expense represents employee commissions that are capitalized and not yet expensed and are included in other assets on the condensed consolidated balance sheets. The table below provides a rollforward of deferred commission expense for each of the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended June 30,
|
|
For the Six Months
Ended June 30,
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Balance at beginning of period
|
|
$
|
5,164
|
|
|
$
|
3,792
|
|
|
$
|
4,751
|
|
|
$
|
3,621
|
|
Costs capitalized
|
|
1,351
|
|
|
617
|
|
|
2,186
|
|
|
1,109
|
|
Amortization
|
|
(479)
|
|
|
(349)
|
|
|
(901)
|
|
|
(670)
|
|
Balance at end of period
|
|
$
|
6,036
|
|
|
$
|
4,060
|
|
|
$
|
6,036
|
|
|
$
|
4,060
|
|
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 six months ended June 30, 2021. Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
(in thousands)
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Purchased customer accounts (1)
|
|
$
|
508,613
|
|
|
$
|
(34,370)
|
|
|
$
|
474,243
|
|
|
$
|
501,512
|
|
|
$
|
(18,604)
|
|
|
$
|
482,908
|
|
Distributor relationships
|
|
37,238
|
|
|
(2,157)
|
|
|
35,081
|
|
|
32,380
|
|
|
(1,377)
|
|
|
31,003
|
|
Software
|
|
32,828
|
|
|
(14,182)
|
|
|
18,646
|
|
|
30,828
|
|
|
(10,801)
|
|
|
20,027
|
|
Trade names (1)
|
|
14,658
|
|
|
(2,145)
|
|
|
12,513
|
|
|
14,439
|
|
|
(932)
|
|
|
13,507
|
|
Carrier relationships
|
|
7,859
|
|
|
(1,115)
|
|
|
6,744
|
|
|
7,859
|
|
|
(984)
|
|
|
6,875
|
|
Totals
|
|
$
|
601,196
|
|
|
$
|
(53,969)
|
|
|
$
|
547,227
|
|
|
$
|
587,018
|
|
|
$
|
(32,698)
|
|
|
$
|
554,320
|
|
__________
(1) During the six months ended June 30, 2021, the Company recorded measurement period adjustments relating to certain businesses acquired in the fourth quarter of 2020, which decreased purchased customer accounts and trade names by $4.6 million and $156,000, respectively.
Amortization expense recorded for intangible assets was $10.7 million and $4.5 million for the three months ended June 30, 2021 and 2020, respectively, and $21.3 million and $8.0 million for the six months ended June 30, 2021 and 2020, respectively.
Refer to Note 3 for a summary of goodwill recorded in connection with business combinations during the six months ended June 30, 2021. 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, 2020
|
|
$
|
526,858
|
|
|
$
|
65,319
|
|
|
$
|
38,892
|
|
|
$
|
20,433
|
|
|
$
|
651,502
|
|
Goodwill of acquired businesses
|
|
3,374
|
|
|
15,026
|
|
|
—
|
|
|
4,179
|
|
|
22,579
|
|
Measurement period adjustments (1)
|
|
(2,255)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,255)
|
|
Balance at June 30, 2021
|
|
$
|
527,977
|
|
|
$
|
80,345
|
|
|
$
|
38,892
|
|
|
$
|
24,612
|
|
|
$
|
671,826
|
|
__________
(1) Measurement period adjustments relating to businesses acquired in the fourth quarter of 2020 increased accrued expenses and other current liabilities by $93,000, decreased property and equipment by $124,000 and decreased cash consideration by $2.5 million.
9. Long-Term Debt
On October 14, 2020, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A to provide senior secured credit facilities in an aggregate principal amount of $800.0 million (the "JPM Credit Agreement"), which consisted of (i) a term loan facility in the principal amount of $400.0 million maturing in 2027 (the “Existing Term Loan B”) and (ii) a revolving credit facility with commitments in an aggregate principal amount of $400.0 million maturing in 2025 (the “Revolving Facility”).
The Existing Term Loan B accrued interest at LIBOR plus 400 basis points (“bps”) with a floor of 4.75%. Borrowings under the Revolving Facility accrue interest at LIBOR plus 200 bps to LIBOR plus 300 bps based on the total net leverage ratio. The outstanding borrowings on the Revolving Facility of $20.0 million had an applicable interest rate of 2.34% at June 30, 2021. In addition, the Revolving Facility is subject to a commitment fee of 0.30%.
On May 7, 2021, the Company entered into Amendment No. 1 to the JPM Credit Agreement, under which (a) the financial covenant requiring the Company to maintain a Total First Lien Net Leverage Ratio (as defined in the JPM Credit Agreement) at or below 5.00 to 1.00 was amended to increase such level to 6.00 to 1.00, and (b) the financial covenant requiring the Company to maintain a Debt Service Coverage Ratio (as defined in the JPM Credit Agreement) at or above 2.25 to 1.00 was removed.
On June 2, 2021, the Company entered into Amendment No. 2 to the JPM Credit Agreement to provide for a new senior secured first lien term loan facility in an aggregate principal amount of $500.0 million maturing in 2027 (the “New Term Loan B”). The New Term Loan B bears interest at LIBOR plus 350 bps, subject to a LIBOR floor of 50 bps. The applicable interest rate on the Term Loan B at June 30, 2021 was 4.00%. The Company used a portion of the proceeds from the New Term Loan B to repay in full the Company’s obligations under the Existing Term Loan B. The remaining terms of the New Term Loan B and the terms of the Revolving Facility remained relatively unchanged.
The 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 June 30, 2021.
Interest Rate Caps
The Company entered into interest rate caps to mitigate its exposure to interest rate risk by limiting the impact of interest rate changes on cash flows. In March 2021, the Company executed three interest rate cap agreements, each with a notional amount of $300.0 million (the “Interest Rate Cap Agreements”), which collectively limit the exposure of the variable component of interest rates under its Term Loan B to a maximum of 4.75%. The Interest Rate Cap Agreements were entered into with financial institutions at positions with participating interest rate caps of 0.75%, 1.50%, and 2.50%, expiring on March 10, 2022, March 10, 2024 and March 8, 2026, respectively. The interest rate caps are recorded at an aggregate fair value of $2.6 million at June 30, 2021 and included as a component of other assets on the condensed consolidated balance sheets. The Company recorded a fair value loss of $825,000 related to the interest rate caps for the three and six months ended June 30, 2021, which is included as a component of other expense, net in the condensed consolidated statements of comprehensive income (loss).
10. Related Party Transactions
Commission Revenue
The Company serves as a broker for Holding Company of the Villages, Inc. (“The Villages”) and certain affiliated entities. Commission revenue recorded as a result of transactions with The Villages was $667,000 and $452,000 for the three months ended June 30, 2021 and 2020, respectively, and $1.3 million and $721,000 for the six months ended June 30, 2021 and 2020, respectively.
Rent Expense
The Company has various agreements to lease office space from wholly-owned subsidiaries of The Villages. Total rent expense incurred with respect to The Villages and its wholly-owned subsidiaries was $130,000 and $151,000 for the three months ended June 30, 2021 and 2020, respectively, and $261,000 and $284,000 for the six months ended June 30, 2021 and 2020, respectively.
The Company has various agreements to lease office space from other related party entities. Total rent expense incurred with respect to related parties other than The Villages was $524,000 and $516,000 for the three months ended June 30, 2021 and 2020, respectively, and $1.0 million and $764,000 for the six months ended June 30, 2021 and 2020, respectively.
11. Share-Based Compensation
Omnibus Incentive Plan and Partnership Inducement Award Plan
The Company has an Omnibus Incentive Plan (the “Omnibus Plan”) and a Partnership Inducement Award Plan (the “Inducement Plan” and collectively, the “Plans”) to motivate and reward Colleagues and other individuals, including those who join the Company through Partnerships, 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 and the Inducement Plan provide for the Company to make awards of 3,844,044 and 1,500,000 shares of Class A common stock, respectively, at June 30, 2021.
During the six months ended June 30, 2021, the Company made awards of restricted stock, unrestricted stock and performance-based restricted stock units under the Plans to its non-employee directors and Colleagues. Performance-based restricted stock unit awards were issued under the Omnibus Plan in connection with the Long-Term Incentive Plan, which is discussed in further detail below. Shares of unrestricted stock issued to directors during the six months ended June 30, 2021 were vested upon issuance while restricted stock issued to Colleagues, Risk Advisors and executive officers generally either cliff vest after 4 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 Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Grant-Date Fair Value Per Share
|
Outstanding at December 31, 2020
|
|
826,027
|
|
|
$
|
15.92
|
|
Granted
|
|
1,331,672
|
|
|
28.92
|
|
Vested and settled
|
|
(161,335)
|
|
|
24.19
|
|
Forfeited
|
|
(26,611)
|
|
|
19.78
|
|
Outstanding at June 30, 2021
|
|
1,969,753
|
|
|
23.98
|
|
The total fair value of shares that vested and settled under the Plans during the six months ended June 30, 2021 was $3.9 million.
Share-based compensation includes expense recognized for management incentive units and advisor incentives, in addition to issuances under the Plans. The Company recognizes share-based compensation expense for the Plans net of actual forfeitures. The Company recorded total share-based compensation expense of $4.5 million and $2.0 million for the three months ended June 30, 2021 and 2020, respectively, and $8.1 million and $3.1 million for the six months ended June 30, 2021 and 2020, respectively, which is included in commissions, employee compensation and benefits expense in the condensed consolidated statements of comprehensive income (loss).
Long-Term Incentive Plan
On May 3, 2021, the Company’s Compensation Committee approved a new form of performance-based restricted stock unit award agreement (the “Form PSU Award Agreement”) under the Company’s Omnibus Plan in connection with the granting of performance-based restricted stock unit (“PSU”) awards to its executive officers. The Form PSU Award Agreement provides for the granting of PSUs which generally vest in the quarter following the end of a performance period of three years. The number of PSUs, if any, that will be earned pursuant to a PSU award will depend on the level of performance achieved with respect to applicable performance goals during the performance period.
On May 3, 2021, the Compensation Committee awarded the Company’s executive officers incentive compensation awards of (i) PSUs with an aggregate target grant date value of $3.1 million and (ii) restricted stock with an aggregate grant date value of $1.0 million. The restricted stock will vest in equal annual installments over five years, with the first installment vesting on March 15, 2022. The incentive compensation awards have an aggregate maximum value of $8.8 million.
12. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) 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.
During the periods presented, potentially dilutive securities include restricted stock awards and shares of Class B common stock that are cancellable upon the redemption or exchange, on a one-for-one basis, of LLC Units for shares of our Class A common stock. The 1,864,337 shares of unvested restricted Class A common stock were excluded from the diluted calculation for the three months ended June 30, 2021 and the 398,024 shares of unvested restricted Class A common stock were excluded from the diluted calculation for the three and six months ended June 30, 2020 as their inclusion would have been anti-dilutive because the Company was in a net loss position during these periods. In addition, the 49,575,871 and 45,458,763 outstanding shares of Class B common stock and the corresponding LLC Units have been excluded from the diluted calculation for all periods presented because including them on an “if-converted” basis would have an anti-dilutive effect. 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 following is a calculation of the basic and diluted weighted-average number of shares of Class A common stock outstanding and earnings (loss) per share for the three and six months ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended June 30,
|
|
For the Six Months
Ended June 30,
|
(in thousands, except per share data)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to BRP Group, Inc.
|
|
$
|
(9,756)
|
|
|
$
|
(3,588)
|
|
|
$
|
4,857
|
|
|
$
|
(2,120)
|
|
Shares used for basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Weighted-average shares of Class A common stock outstanding - basic
|
|
44,671
|
|
20,426
|
|
44,464
|
|
19,960
|
Basic earnings (loss) per share
|
|
$
|
(0.22)
|
|
|
$
|
(0.18)
|
|
|
$
|
0.11
|
|
|
$
|
(0.11)
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to BRP Group, Inc.
|
|
$
|
(9,756)
|
|
|
$
|
(3,588)
|
|
|
$
|
4,857
|
|
|
$
|
(2,120)
|
|
Shares used for diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Weighted-average shares of Class A common stock outstanding
|
|
44,671
|
|
|
20,426
|
|
|
44,464
|
|
|
19,960
|
|
Dilutive effect of unvested restricted shares of Class A common stock
|
|
—
|
|
|
—
|
|
|
1,696
|
|
|
—
|
|
Weighted-average shares of Class A common stock outstanding - diluted
|
|
44,671
|
|
|
20,426
|
|
|
46,160
|
|
|
19,960
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.22)
|
|
|
$
|
(0.18)
|
|
|
$
|
0.11
|
|
|
$
|
(0.11)
|
|
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.
The fair value measurement level for assets and liabilities 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
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)
|
|
June 30, 2021
|
|
December 31, 2020
|
Level 2
|
|
|
|
|
Interest rate caps
|
|
$
|
2,636
|
|
|
$
|
—
|
|
Level 2 Assets
|
|
$
|
2,636
|
|
|
$
|
—
|
|
Level 3
|
|
|
|
|
Contingent earnout liabilities
|
|
$
|
178,252
|
|
|
$
|
164,819
|
|
Level 3 Liabilities
|
|
$
|
178,252
|
|
|
$
|
164,819
|
|
Methodologies used for assets and liabilities measured at fair value on a recurring basis within Level 3 of the fair value hierarchy at June 30, 2021 and December 31, 2020 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 fair value of interest rate caps was $2.6 million at June 30, 2021. The fair value of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
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 its contingent earnout liabilities, the Company recorded a net increase in the estimated fair value of such liabilities of $11.8 million for the six months ended June 30, 2021. The Company has assessed the maximum estimated exposure to the contingent earnout liabilities to be $531.0 million at June 30, 2021.
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 contingent earnout consideration recorded in connection with business combinations.
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, profitability based on earnings before income taxes, depreciation and amortization (“EBITDA”), or the number of rental units tracked. Revenue and EBITDA growth rates generally ranged from 10% to 24% at June 30, 2021 and from 7% to 20% at December 31, 2020. 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 5.25% to 18.50% at June 30, 2021 and from 5.00% to 18.00% at December 31, 2020. 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 June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2021 (1)
|
|
2020
|
|
2020
|
|
2021 (1)
|
|
2020
|
|
2020
|
(in thousands)
|
|
Contingent Earnout Liabilities
|
|
Contingently Returnable Consideration
|
|
Contingent Earnout Liabilities
|
|
Contingent Earnout Liabilities
|
|
Contingently Returnable Consideration
|
|
Contingent Earnout Liabilities
|
Balance at beginning of period
|
|
$
|
165,283
|
|
|
$
|
258
|
|
|
$
|
53,855
|
|
|
$
|
164,819
|
|
|
$
|
70
|
|
|
$
|
48,769
|
|
Fair value of contingent consideration issuances (2)
|
|
1,074
|
|
|
—
|
|
|
21,951
|
|
|
3,041
|
|
|
—
|
|
|
25,188
|
|
Change in fair value of contingent consideration
|
|
13,325
|
|
|
129
|
|
|
4,710
|
|
|
11,822
|
|
|
317
|
|
|
6,559
|
|
Payment of contingent consideration
|
|
(1,430)
|
|
|
—
|
|
|
(1,981)
|
|
|
(1,430)
|
|
|
—
|
|
|
(1,981)
|
|
Balance at end of period
|
|
$
|
178,252
|
|
|
$
|
387
|
|
|
$
|
78,535
|
|
|
$
|
178,252
|
|
|
$
|
387
|
|
|
$
|
78,535
|
|
__________
(1) There was no contingently returnable consideration at June 30, 2021 or December 31, 2020.
(2) During the six months ended June 30, 2021, the Company recorded measurement period adjustments relating to businesses acquired in the fourth quarter of 2020. These adjustments decreased contingent earnout liabilities by $4.7 million, which offsets issuances of $7.8 million from business combinations in the current period.
Substantially all of the change in fair value of contingent consideration during the six months ended June 30, 2021 and 2020 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 long-term debt 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 long-term debt was approximately $484.1 million at June 30, 2021 compared to a carrying value of $500.0 million. The fair value of long-term debt was approximately $402.0 million at December 31, 2020 compared to a carrying value of $399.0 million. The carrying value of long-term debt is netted against unamortized debt discount and issuance costs of $17.0 million and $13.6 million at June 30, 2021 and December 31, 2020, respectively, for balance sheet presentation.
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 June 30, 2021
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Commissions and fees (1)
|
$
|
76,109
|
|
|
$
|
30,105
|
|
|
$
|
8,576
|
|
|
$
|
5,152
|
|
|
$
|
(236)
|
|
|
$
|
119,706
|
|
Net income (loss)
|
(5,699)
|
|
|
1,640
|
|
|
978
|
|
|
468
|
|
|
(17,491)
|
|
|
(20,104)
|
|
__________
(1) The Middle Market Operating Group recorded intercompany commissions and fees revenue from activity with the Specialty Operating Group of $109,000 for the three months ended June 30, 2021. The MainStreet Operating Group recorded intercompany commissions and fees revenue from activity with the Middle Market Operating Group of $61,000 for the three months ended June 30, 2021. The Medicare Operating group recorded intercompany commissions and fees revenue from activity with itself of $66,000 for the three months ended June 30, 2021. These intercompany commissions and fees are eliminated through Corporate and Other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2020
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Commissions and fees
|
$
|
20,718
|
|
|
$
|
19,456
|
|
|
$
|
7,704
|
|
|
$
|
3,390
|
|
|
$
|
—
|
|
|
$
|
51,268
|
|
Net income (loss)
|
2,425
|
|
|
(3,223)
|
|
|
956
|
|
|
(167)
|
|
|
(7,850)
|
|
|
(7,859)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2021
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Commissions and fees (1)
|
$
|
186,664
|
|
|
$
|
55,187
|
|
|
$
|
16,798
|
|
|
$
|
14,604
|
|
|
$
|
(719)
|
|
|
$
|
272,534
|
|
Net income (loss)
|
35,755
|
|
|
3,473
|
|
|
2,272
|
|
|
2,750
|
|
|
(33,740)
|
|
|
10,510
|
|
__________
(1) The Middle Market Operating Group recorded intercompany commissions and fees revenue from activity with the Specialty Operating Group of $468,000 for the six months ended June 30, 2021. The MainStreet Operating Group recorded intercompany commissions and fees revenue from activity with the Middle Market Operating Group of $91,000 for the six months ended June 30, 2021. The Medicare Operating group recorded intercompany commissions and fees revenue from activity with itself of $160,000 for the six months ended June 30, 2021. These intercompany commissions and fees are eliminated through Corporate and Other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2020
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Commissions and fees
|
$
|
42,750
|
|
|
$
|
36,872
|
|
|
$
|
16,012
|
|
|
$
|
9,793
|
|
|
$
|
—
|
|
|
$
|
105,427
|
|
Net income (loss)
|
10,614
|
|
|
(4,912)
|
|
|
2,200
|
|
|
2,447
|
|
|
(13,501)
|
|
|
$
|
(3,152)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Middle Market
|
|
Specialty
|
|
MainStreet
|
|
Medicare
|
|
Corporate and Other
|
|
Total
|
Total assets at June 30, 2021
|
$
|
1,266,614
|
|
|
$
|
214,940
|
|
|
$
|
57,730
|
|
|
$
|
54,958
|
|
|
$
|
142,058
|
|
|
$
|
1,736,300
|
|
Total assets at December 31, 2020
|
1,194,185
|
|
|
188,360
|
|
|
58,957
|
|
|
43,675
|
|
|
44,737
|
|
|
1,529,914
|
|
16. Subsequent Events
Business Partnerships
On July 1, 2021, the Company purchased certain assets and intellectual and intangible rights and assumed certain liabilities of RogersGray Inc., Breakwater Brokerage, LLC and Monomoy Insurance Group, LLC (collectively, “RogersGray”) for upfront consideration consisting of $138.1 million of cash (which was reduced by the value of shares of Class A common stock issued to RogersGray colleagues in connection with the Partnership) and 1,950,232 LLC Units (and the corresponding 1,950,232 shares of Class B common stock). RogersGray will also have the opportunity to receive additional contingent consideration payable in cash, shares of Class A common stock, or a combination of both at the Company’s sole option. The Partnership enhances and further expands the Company’s geographic footprint and product offerings in New England and the broader Northeast region. The Company has not yet completed its evaluation and determination of consideration paid, certain assets and liabilities acquired, or treatment of this transaction as either a business combination or asset acquisition in accordance with Topic 805.
On August 2, 2021, the Company purchased certain assets and intellectual and intangible rights and assumed certain liabilities of FounderShield LLC, AlphaRoot LLC, ReShield LLC, and Scale Underwriting Services LLC (collectively, “FounderShield”) for upfront consideration consisting of $26.7 million of cash (which was reduced by the value of shares of Class A common stock issued to FounderShield colleagues in connection with the Partnership), 304,628 shares of Class A common stock and 364,174 LLC Units (and the corresponding 364,174 shares of Class B common stock). FounderShield will also have the opportunity to receive additional contingent consideration payable in cash, shares of Class A common stock, or a combination of both at the Company’s sole option. The Partnership brings to BRP Group unique expertise for rapidly-scaling companies in numerous high-growth industry verticals across the Technology & Fintech, Life Sciences and Emerging Markets sectors. The Company has not yet completed its evaluation and determination of consideration paid, certain assets and liabilities acquired, or treatment of this transaction as either a business combination or asset acquisition in accordance with Topic 805.
On August 2, 2021, the Company purchased certain assets and intellectual and intangible rights and assumed certain liabilities of The Capital Group, LLC, The Capital Group Association Consultants, LLC, US Underwriters, LLC, and TCG Financial Management Company, LLC, including the membership interests of The Capital Group Investment Advisory Services, LLC (collectively, “TCG”) for upfront consideration consisting of $40.4 million of cash (which was reduced by the value of shares of Class A common stock issued to TCG colleagues in connection with the Partnership) and 653,324 LLC Units (and the corresponding 653,324 shares of Class B common stock). TCG will also have the opportunity to receive additional contingent consideration payable in cash, shares of Class A common stock, or a combination of both at the Company’s sole option. The Partnership adds scale and density in the critical D.C. Metro region. The Company has not yet completed its evaluation and determination of consideration paid, certain assets and liabilities acquired, or treatment of this transaction as either a business combination or asset acquisition in accordance with Topic 805.
JPM Credit Agreement
On August 6, 2021, the Company entered into Amendment No. 3 to the JPM Credit Agreement, under which the aggregate principal amount of the Revolving Facility was increased from $400.0 million to $475.0 million. The other terms of the Revolving Facility and the terms of the New Term Loan B remained unchanged.