SEC Filing | Baldwin Risk Partners

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brp-20230331

____________________________________________________________________________________________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________

(Mark One)


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

For the quarterly period ended March 31, 2023


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

For the transition period from ________ to _________

Commission File Number: 001-39095

______________________________

BRP GROUP, INC.

(Exact name of registrant as specified in its charter)

______________________________

Delaware

61-1937225

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

4211 W. Boy Scout Blvd., Suite 800, Tampa, Florida 33607

(Address of principal executive offices) (Zip Code)

(866) 279-0698

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.01 per share

BRP

Nasdaq Global Select Market

______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 3, 2023, there were 63,736,990 shares of Class A common stock outstanding and 53,064,504 shares of Class B common stock outstanding.

BRP GROUP, INC.

INDEX

Page

PART I. FINANCIAL INFORMATION

ITEM 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of M arch 3 1 , 202 3 and December 31, 20 2 2

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 3 1 , 202 3 and 202 2

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the Three Months Ended March 3 1 , 202 3 and 20 2 2

Condensed Consolidated Statements of Cash Flows for the Thr ee Months Ended March 3 1 , 202 3 and 202 2

Notes to Condensed Consolidated Financial Statements

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

ITEM 4.

Controls and Procedures

PART II. OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

ITEM 3.

Defaults Upon Senior Securities

ITEM 4.

Mine Safety Disclosures

Note Regarding Forward-Looking Statements

We have made statements in this report, including matters discussed under Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part II, Item 1. Legal Proceedings, Part II, Item 1A. Risk Factors and in other sections of this report, that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under Part II, Item 1A. Risk Factors. You should specifically consider the numerous risks outlined under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this report to conform our prior statements to actual results or revised expectations, except as required by law.

Commonly Used Defined Terms

The following terms have the following meanings throughout this Quarterly Report on Form 10-Q unless the context indicates or requires otherwise:


Amended LLC Agreement						Third Amended and Restated Limited Liability Company Agreement of BRP, as amended
book of business						Insurance policies bound by us on behalf of our Clients
bps						Basis points
BRP						Baldwin Risk Partners, LLC
BRP Group						BRP Group, Inc.
Clients						Our insureds
Colleagues						Our employees
Exchange Act						Securities Exchange Act of 1934, as amended
GAAP						Accounting principles generally accepted in the United States of America
Insurance Company Partners						Insurance companies with which we have a contractual relationship
JPM Credit Agreement						Credit Agreement, dated as of October 14, 2020, between Baldwin Risk Partners, LLC, as borrower, JPMorgan Chase Bank, N.A., as the Administrative Agent, the Guarantors party thereto, the Lenders party thereto and the Issuing Lenders party thereto, as amended by the Amendment No. 1 to Credit Agreement dated as of May 7, 2021, Amendment No. 2 to Credit Agreement dated as of June 2, 2021, Amendment No. 3 to Credit Agreement dated as of August 6, 2021, Amendment No. 4 to Credit Agreement dated as of December 16, 2021 and Amendment No. 5 to Credit Agreement dated as of March 28, 2022
LIBOR						London Interbank Offered Rate
LLC Units						Membership interests of BRP
MGA						Managing General Agent
Operating Groups						Our reportable segments
Partners						Companies that we have acquired, or in the case of asset acquisitions, the producers
Partnerships						Strategic acquisitions made by the Company
Revolving Facility						Our revolving credit facility under the JPM Credit Agreement with commitments in an aggregate principal amount of $600.0 million, maturing April 1, 2027
Risk Advisors						Our producers
SEC						U.S. Securities and Exchange Commission
Securities Act						Securities Act of 1933, as amended
SOFR						Secured Overnight Financing Rate
Tax Receivable Agreement						Tax Receivable Agreement between BRP Group, Inc. and the holders of LLC Units in Baldwin Risk Partners, LLC entered into on October 28, 2019
Term Loan B						Our term loan facility under the JPM Credit Agreement with a principal amount of $850.0 million, maturing October 14, 2027
Westwood						Westwood Insurance Agency, a 2022 Partner

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRP GROUP, INC.

Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except share and per share data)	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	81,299	$	118,090
Restricted cash	105,520		112,381
Premiums, commissions and fees receivable, net	580,343		531,992
Prepaid expenses and other current assets	13,199		9,823
Due from related parties	114		113
Total current assets	780,475		772,399
Property and equipment, net	25,470		25,405
Right-of-use assets	95,316		96,465
Other assets	43,878		45,935
Intangible assets, net	1,081,074		1,099,918
Goodwill	1,422,060		1,422,060
Total assets	$	3,448,273	$	3,462,182
Liabilities, Mezzanine Equity and Stockholders’ Equity
Current liabilities:
Premiums payable to insurance companies	$	481,131	$	471,294
Producer commissions payable	62,954		53,927
Accrued expenses and other current liabilities	108,641		125,743
Related party notes payable	1,525		1,525
Current portion of contingent earnout liabilities	118,569		46,717
Total current liabilities	772,820		699,206
Revolving line of credit	485,000		505,000
Long-term debt, less current portion	808,765		809,862
Contingent earnout liabilities, less current portion	167,588		220,219
Operating lease liabilities, less current portion	86,739		87,692
Other liabilities	250		164
Total liabilities	2,321,162		2,322,143
Commitments and contingencies (Note 12)
Mezzanine equity:
Redeemable noncontrolling interest	538		487
Stockholders’ equity:
Class A common stock, par value $0.01 per share, 300,000,000 shares authorized; 62,558,290 and 61,447,368 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	626		614
Class B common stock, par value $0.0001 per share, 100,000,000 shares authorized; 53,670,277 and 54,504,918 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	5		5
Additional paid-in capital	716,645		704,291
Accumulated deficit	(110,896)		(96,764)
Stockholder notes receivable	(21)		(42)
Total stockholders’ equity attributable to BRP Group	606,359		608,104
Noncontrolling interest	520,214		531,448
Total stockholders’ equity	1,126,573		1,139,552
Total liabilities, mezzanine equity and stockholders’ equity	$	3,448,273	$	3,462,182

See accompanying Notes to Condensed Consolidated Financial Statements. 5

BRP GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)


	For the Three Months Ended March 31,
(in thousands, except share and per share data)		2023		2022
Revenues:
Commissions and fees		$	330,446	$	242,848

Operating expenses:
Commissions, employee compensation and benefits		230,954		153,750
Other operating expenses		46,604		36,442
Amortization expense		23,163		17,562
Change in fair value of contingent consideration		24,758		(5,632)
Depreciation expense		1,348		988
Total operating expenses		326,827		203,110

Operating income		3,619		39,738

Other income (expense):
Interest expense, net		(27,884)		(10,350)
Other income (expense), net		(1,511)		15,451
Total other income (expense)		(29,395)		5,101

Income (loss) before income taxes		(25,776)		44,839
Income tax expense		78		—
Net income (loss)		(25,854)		44,839
Less: net income (loss) attributable to noncontrolling interests		(11,722)		21,970
Net income (loss) attributable to BRP Group		$	(14,132)	$	22,869

Comprehensive income (loss)		$	(25,854)	$	44,839
Comprehensive income (loss) attributable to noncontrolling interests		(11,722)		21,970
Comprehensive income (loss) attributable to BRP Group		(14,132)		22,869

Basic earnings (loss) per share		$	(0.24)	$	0.41
Diluted earnings (loss) per share		$	(0.24)	$	0.39
Weighted-average shares of Class A common stock outstanding - basic		58,711,798		55,719,803
Weighted-average shares of Class A common stock outstanding - diluted		58,711,798		58,715,825

See accompanying Notes to Condensed Consolidated Financial Statements. 6

BRP GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

(Unaudited)


For the Three Months Ended March 31, 2023
	Stockholders’ Equity																Mezzanine Equity
	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholder Notes Receivable		Non-controlling Interest		Total		Redeemable Non-controlling Interest
(in thousands, except share data)	Shares	Amount		Shares	Amount
Balance at December 31, 2022	61,447,368	$	614	54,504,918	$	5	$	704,291	$	(96,764)	$	(42)	$	531,448	$	1,139,552	$	487
Net income (loss)	—	—		—	—		—		(14,132)		—		(11,773)		(25,905)		51
Share-based compensation, net of forfeitures	276,281	3		—	—		6,870		—		—		6,043		12,916		—
Redemption of Class B common stock	834,641	9		(834,641)	—		5,484		—		—		(5,493)		—		—
Tax distributions to BRP LLC members	—	—		—	—		—		—		—		(11)		(11)		—
Repayment of stockholder notes receivable	—	—		—	—		—		—		21		—		21		—
Balance at March 31, 2023	62,558,290	$	626	53,670,277	$	5	$	716,645	$	(110,896)	$	(21)	$	520,214	$	1,126,573	$	538


For the Three Months Ended March 31, 2022
	Stockholders’ Equity																Mezzanine Equity
	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholder Notes Receivable		Non-controlling Interest		Total		Redeemable Non-controlling Interest
(in thousands, except share data)	Shares	Amount		Shares	Amount
Balance at December 31, 2021	58,602,859	$	586	56,338,051	$	6	$	663,002	$	(54,992)	$	(219)	$	578,904	$	1,187,287	$	269
Net income	—	—		—	—		—		22,869		—		21,951		44,820		19
Share-based compensation, net of forfeitures	117,899	1		—	—		7,508		—		—		(913)		6,596		—
Redemption of Class B common stock	70,000	1		(70,000)	—		633		—		—		(634)		—		—
Repayment of stockholder notes receivable	—	—		—	—		—		—		44		—		44		—
Balance at March 31, 2022	58,790,758	$	588	56,268,051	$	6	$	671,143	$	(32,123)	$	(175)	$	599,308	$	1,238,747	$	288

See accompanying Notes to Condensed Consolidated Financial Statements. 7

BRP GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	For the Three Months Ended March 31,
(in thousands)	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(25,854)	$	44,839
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	24,511		18,550
Change in fair value of contingent consideration	24,758		(5,632)
Share-based compensation expense	13,281		7,564
(Gain) loss on interest rate caps	1,407		(15,810)
Payment of contingent earnout consideration in excess of purchase price accrual	(857)		(11,117)
Amortization of deferred financing costs	1,239		1,286
Other loss	100		—
Changes in operating assets and liabilities:
Premiums, commissions and fees receivable, net	(48,351)		(35,359)
Prepaid expenses and other current assets	(4,859)		(8,908)
Due to/from related parties	(1)		(89)
Right-of-use assets	1,149		(1,368)
Accounts payable, accrued expenses and other current liabilities	(163)		627
Operating lease liabilities	(468)		1,984
Other liabilities	77		—
Net cash used in operating activities	(14,031)		(3,433)
Cash flows from investing activities:
Capital expenditures	(3,499)		(1,793)
Cash consideration paid for asset acquisitions	(1,500)		(700)
Investment in business ventures	(100)		(639)
Net cash used in investing activities	(5,099)		(3,132)
Cash flows from financing activities:
Payment of contingent earnout consideration up to amount of purchase price accrual	(4,680)		(13,993)
Proceeds from revolving line of credit	50,000		40,000
Payments on revolving line of credit	(70,000)		—
Payments on long-term debt	(2,127)		(2,127)
Payments of debt issuance costs	—		(1,188)
Proceeds from settlements of interest rate caps	2,275		—
Tax distributions to BRP LLC members	(11)		—
Proceeds from repayment of stockholder notes receivable	21		44
Net cash provided by (used in) financing activities	(24,522)		22,736
Net increase (decrease) in cash and cash equivalents and restricted cash	(43,652)		16,171
Cash and cash equivalents and restricted cash at beginning of period	230,471		227,737
Cash and cash equivalents and restricted cash at end of period	$	186,819	$	243,908

See accompanying Notes to Condensed Consolidated Financial Statements. 8

BRP GROUP, INC.

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)


	For the Three Months Ended March 31,
(in thousands)	2023		2022
Supplemental schedule of cash flow information:
Cash paid during the period for interest	$	24,898	$	9,049
Disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	3,071	$	5,336
Capital expenditures incurred but not yet paid	1,084		—
Right-of-use assets increased through lease modifications and reassessments	61		—
Increase in goodwill resulting from measurement period adjustments for prior year business combinations	—		3,658
Noncash debt issuance costs incurred	—		92

See accompanying Notes to Condensed Consolidated Financial Statements. 9

BRP GROUP, INC.

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 is a diversified insurance agency and services organization that markets and sells insurance products and services to its customers throughout the U.S. A significant portion of the Company’s business is concentrated in the Southeastern U.S., with several other regional concentrations. BRP Group and its subsidiaries operate through three reportable segments (“Operating Groups”), including Insurance Advisory Solutions, Underwriting, Capacity & Technology Solutions and Mainstreet Insurance Solutions, which are discussed in more detail in Note 13.

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 members (“BRP’s LLC Members”) in its consolidated financial statements.

The Company has prepared these condensed 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 2 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 Securities and Exchange Commission (“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, 2022 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, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2023.

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; the valuation of acquired relationships and contingent consideration; impairment of long-lived assets and goodwill; share-based compensation related to performance-based restricted stock unit awards; and the valuation allowance for deferred tax assets.

Changes in Presentation

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, beginning in January 2023, the Company’s MainStreet and Medicare businesses were combined under one Operating Group, Mainstreet Insurance Solutions. In addition, the Middle Market and Specialty Operating Groups were rebranded as Insurance Advisory Solutions and Underwriting, Capacity & Technology Solutions, respectively. Prior year segment reporting information in Note 13 has been recast to conform to the current organizational structure.

The Company made certain changes to the classification of revenue in the disaggregated revenue table, including (i) the combination of direct bill revenue and agency bill revenue lines into one commission revenue line and (ii) the reclassification of certain revenue streams previously classified as other income to consulting and service fee revenue or policy fee and installment fee revenue. Prior year amounts in the disaggregated revenue table in Note 3 have been reclassified to conform to current year presentation.

Recently Adopted Accounting Standards

In October 2021, the FASB issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”) to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (i) the recognition of an acquired contract liability and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 requires that, at the acquisition date, an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”) as if it had originated the contracts, while also taking into account how the acquiree applied Topic 606. The Company adopted ASU 2021-08 effective January 1, 2023. The adoption did not have any impact on our consolidated financial statements.

2. 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 include Laureate Insurance Partners, LLC, BKS Smith, LLC, BKS MS, LLC and BKS Partners Galati Marine Solutions, LLC. The Company has consolidated its VIEs into the condensed consolidated financial statements.

Total revenues and expenses of the Company’s consolidated VIEs included in the condensed consolidated statements of comprehensive income (loss) were $0.4 million and $0.3 million, respectively, for the three months ended March 31, 2023 and $0.3 million and $0.3 million, respectively, for the three months ended March 31, 2022.

Total assets and liabilities of the Company's consolidated VIEs included on the condensed consolidated balance sheets were $1.3 million and $0.7 million, respectively, at March 31, 2023 and $0.4 million and $0.1 million, respectively, at December 31, 2022. 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.

3. Revenue

The following table provides disaggregated commissions and fees revenue by major source:


	For the Three Months Ended March 31,
(in thousands)		2023		2022
Commission revenue(1)		$	270,861	$	204,837
Profit-sharing revenue(2)		23,025		15,012
Consulting and service fee revenue(3)		17,636		15,202
Policy fee and installment fee revenue(4)		15,832		5,850
Other income(5)		3,092		1,947
Total commissions and fees		$	330,446	$	242,848

__________

(1) Commission revenue is earned by providing insurance placement services to Clients under direct bill and agency bill arrangements with Insurance Company Partners for private risk management, commercial risk management, wealth management, employee benefits and Medicare insurance types.

(2) Profit-sharing revenue represents bonus-type revenue that is earned by the Company as a sales incentive provided by certain Insurance Company Partners.

(3) Service fee revenue is earned by receiving negotiated fees in lieu of a commission and consulting revenue is earned by providing specialty insurance consulting.

(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) Other income includes other ancillary income, premium financing income and investment income as well as marketing income that is based on agreed-upon cost reimbursement for fulfilling specific targeted Medicare marketing campaigns.

The application of 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 Medicare contracts in its Mainstreet Insurance Solutions Operating Group, where the Insurance Company Partner is considered its customer.

•Medicare contracts in the Mainstreet Insurance Solutions Operating Group are multi-year arrangements in which the Company is entitled to renewal commissions. However, the Company has applied a constraint to renewal commissions 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 commission revenue at the effective date of insurance placement and considers any ongoing interaction with the customer to be insignificant in the context of the obligations of the contract.

•Variable consideration includes estimates of direct bill commissions, reserves for policy cancellations and accruals for profit-sharing income.

•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.

4. Contract Assets and Liabilities

Contract assets arise when the Company recognizes (i) revenue for amounts which have not yet been billed and (ii) receivables for premiums to be collected on behalf of Insurance Company Partners. 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 were as follows:


(in thousands)	March 31, 2023		December 31, 2022
Contract assets	$	346,824	$	278,023
Contract liabilities	26,033		30,981

During the three months ended March 31, 2023, the Company recognized revenue of $26.2 million related to the contract liabilities balance at December 31, 2022.

5. 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 producer 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 the Three Months Ended March 31,
(in thousands)		2023		2022
Balance at beginning of period		$	21,669	$	11,336
Costs capitalized		3,372		3,630
Amortization		(1,597)		(927)
Balance at end of period		$	23,444	$	14,039

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


(in thousands)	March 31, 2023		December 31, 2022
Accrued compensation and benefits	$	34,437	$	44,903
Contract liabilities	26,033		30,981
Current portion of operating lease liabilities	14,527		14,043
Accrued expenses	11,029		13,101
Current portion of long-term debt	8,509		8,509
Deferred consideration payments	5,412		6,840
Other	8,694		7,366
Accrued expenses and other current liabilities	$	108,641	$	125,743

7. Long-Term Debt

The JPM Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of $1.45 billion, which consists of (i) a term loan facility in the principal amount of $850.0 million maturing in October 2027 (the “Term Loan B”) and (ii) a revolving credit facility with commitments in an aggregate principal amount of $600.0 million maturing in April 2027 (the “Revolving Facility”).

The Term Loan B bears interest at LIBOR plus 350 bps, subject to a LIBOR floor of 50 bps. At March 31, 2023, the outstanding borrowings on the Term Loan B of $836.0 million had an applicable interest rate of 8.21%. The outstanding borrowings on the Term Loan B are offset by unamortized debt discount and issuance costs of $18.7 million on the condensed consolidated balance sheet at March 31, 2023. Borrowings under the Revolving Facility accrue interest at SOFR plus 210 bps to SOFR plus 310 bps based on total net leverage ratio. The outstanding borrowings on the Revolving Facility of $485.0 million had an applicable interest rate of 7.90% at March 31, 2023. The Revolving Facility is also subject to a commitment fee of 0.40% on the unused capacity at March 31, 2023.

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 March 31, 2023.

Interest Rate Caps

The Company uses interest rate caps to mitigate its exposure to interest rate risk on its debt by limiting the impact of interest rate changes on cash flows. The interest rate caps limit the variability of the base rate to the amount of the cap. The interest rate caps are recorded at an aggregate fair value of $11.5 million and $15.2 million at March 31, 2023 and December 31, 2022, respectively. The interest rate caps are included as a component of other assets on the condensed consolidated balance sheets. The Company recognized a loss on interest rate caps of $1.4 million for the three months ended March 31, 2023 and a gain on interest rate caps of $15.8 million for the three months ended March 31, 2022. The gain or loss on interest rate caps is included as a component of other income (expense), net in the condensed consolidated statements of comprehensive income (loss).

8. Related Party Transactions

Due to/from Related Parties

Due from related parties totaling $0.1 million at each March 31, 2023 and December 31, 2022 consists of receivables due from Partners for post-closing cash requirements in accordance with Partnership agreements.

Related party notes payable of $1.5 million at March 31, 2023 and December 31, 2022 relate to the settlement of contingent earnout consideration for certain of the Company’s Partners.

Commission Revenue

The Company serves as a broker for Holding Company of the Villages, Inc. (“The Villages”), a significant shareholder, and certain affiliated entities. Commission revenue recorded as a result of transactions with The Villages was $1.5 million and $1.1 million for the three months ended March 31, 2023 and 2022, 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 $0.1 million for the three months ended March 31, 2023.

Commissions and Consulting Expense

A brother of Lowry Baldwin, our Board Chair, received approximately $0.1 million from the Company in Risk Advisor commissions during each of the three months ended March 31, 2023 and 2022.

The Company has a consulting agreement with Accenture, with which an independent member of our board of directors holds an executive leadership position. Consulting expense recorded as a result of this transaction was $0.4 million for the three months ended March 31, 2023.

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 approximately $0.1 million for each of the three months ended March 31, 2023 and 2022. Total right-of-use assets and operating lease liabilities included on the Company's condensed consolidated balance sheets related to The Villages were $1.6 million each at March 31, 2023 and $1.7 million each at December 31, 2022.

The Company has various agreements to lease office space from other related parties. Total rent expense incurred with respect to other related parties was $1.0 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively. Total right-of-use assets and operating lease liabilities included on the Company’s condensed consolidated balance sheets related to these agreements were $14.3 million and $14.7 million, respectively, at March 31, 2023 and $15.0 million and $15.4 million, respectively, at December 31, 2022.

9. Share-Based Compensation

The Company has an Omnibus Incentive Plan (the “Omnibus Plan”) and a Partnership Inducement Award Plan (the “Inducement Plan” and collectively with the Omnibus Plan, the “Plans”) to motivate and reward Colleagues and certain other individuals to perform at the highest level and contribute significantly to the Company’s success, thereby furthering the best interests of BRP Group’s shareholders. The total number of shares of Class A common stock authorized for issuance under the Omnibus Plan and the Inducement Plan was 8,461,907 and 3,000,000, respectively, at March 31, 2023.

During the three months ended March 31, 2023, the Company made awards of restricted stock awards (“RSAs”) and fully vested shares under the Plans to its non-employee directors, officers, Colleagues and consultants. Fully-vested shares issued to directors and Colleagues during the three months ended March 31, 2023 were vested upon issuance, while RSAs issued to Colleagues and consultants generally either cliff vest after 3 to 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, 2022	3,595,303	$	28.26
Granted	491,466	27.10
Vested and settled	(488,011)	28.12
Forfeited	(44,855)	25.97
Outstanding at March 31, 2023	3,553,903	28.14

The total fair value of shares that vested and settled under the Plans was $13.7 million and $5.6 million for the three months ended March 31, 2023 and 2022, respectively.

Share-based compensation is recognized ratably over the vesting period of the respective awards and includes expense related to issuances under the Plans, MIU conversion LLC units and, prior to 2023, advisor incentive awards. Share-based compensation also includes the portion of annual bonuses that are payable in fully vested shares of Class A common stock. The Company recognizes share-based compensation expense for the Plans net of actual forfeitures. The Company recorded share-based compensation expense of $13.3 million and $7.6 million in connection with the Plans for the three months ended March 31, 2023 and 2022, respectively, which is included in commissions, employee compensation and benefits expense in the condensed consolidated statements of comprehensive income (loss).

10. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to BRP Group 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 common stock.

During the periods presented, potentially dilutive securities include unvested restricted stock awards and shares of Class B common stock, which can be exchanged (together with a corresponding number of LLC Units) for shares of Class A common stock on a one-for-one basis. The following potentially dilutive securities were excluded from the Company's diluted weighted-average number of shares outstanding calculation for the periods presented as their inclusion would have been anti-dilutive.


	For the Three Months Ended March 31,
		2023	2022
Unvested restricted shares of Class A common stock		3,265,880	—
Shares of Class B common stock		53,670,277	56,268,051

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 basic and diluted earnings (loss) per share for the three months ended March 31, 2023 and 2022:


	For the Three Months Ended March 31,
(in thousands, except per share data)		2023		2022
Basic earnings (loss) per share:
Net income (loss) attributable to BRP Group		$	(14,132)	$	22,869
Shares used for basic earnings (loss) per share:
Weighted-average shares of Class A common stock outstanding - basic		58,712		55,720
Basic earnings (loss) per share		$	(0.24)	$	0.41

Diluted earnings (loss) per share:
Net income (loss) attributable to BRP Group		$	(14,132)	$	22,869
Shares used for diluted earnings (loss) per share:
Weighted-average shares of Class A common stock outstanding		58,712		55,720
Dilutive effect of unvested restricted shares of Class A common stock		—		2,996
Weighted-average shares of Class A common stock outstanding - diluted		58,712		58,716
Diluted earnings (loss) per share		$	(0.24)	$	0.39

11. Fair Value Measurements

ASC Topic 820, Fair Value Measurement (“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)	March 31, 2023		December 31, 2022
Level 2
Interest rate caps	$	11,468	$	15,150
Level 2 Assets	$	11,468	$	15,150
Level 3
Contingent earnout liabilities	$	286,157	$	266,936
Level 3 Liabilities	$	286,157	$	266,936

The fair value of interest rate caps was $11.5 million at March 31, 2023. The fair value of interest rate caps is 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.

Methodologies used for liabilities measured at fair value on a recurring basis within Level 3 of the fair value hierarchy at March 31, 2023 and December 31, 2022 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 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 $24.8 million for the three months ended March 31, 2023. The Company has assessed the maximum estimated exposure to the contingent earnout liabilities to be $944.2 million at March 31, 2023.

The Company measures 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 liability with a higher liability capped by the contractual maximum of the contingent earnout liabilities. Ultimately, the 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.

The fair value of the contingent earnout liabilities is based on Monte Carlo simulations that measure 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, the number of rental units tracked or the insured value of sourced homeowners insurance. Revenue growth rates generally ranged from 10% to 35% at March 31, 2023 and from 8% to 35% at December 31, 2022. 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 7.25% to 18.00% at March 31, 2023 and from 6.50% to 18.00% at December 31, 2022. 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 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 March 31,
(in thousands)		2023		2022
Balance at beginning of period		$	266,936	$	258,589
Change in fair value of contingent consideration		24,758		(5,632)
Settlement of contingent consideration		(5,537)		(25,110)
Balance at end of period		$	286,157	$	227,847

Fair Value of Other Financial Instruments

The fair value of long-term debt and the revolving line of credit is based on an estimate using a discounted cash flow analysis and current borrowing rates for similar types of borrowing arrangements. The carrying amount and estimated fair value of long-term debt and the revolving line of credit were as follows:


	Fair Value Hierarchy	March 31, 2023				December 31, 2022
		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Long-term debt(1)	Level 2	$	835,987	$	816,174	$	838,114	$	816,155
Revolving line of credit	Level 2	485,000		462,111		505,000		476,304

__________

(1) The carrying amount of the long-term debt does not reflect unamortized debt discount and issuance costs of $18.7 million and $19.7 million at March 31, 2023 and December 31, 2022, respectively, which are netted against long-term debt on the condensed consolidated balance sheets.

12. Commitments and Contingencies

As of March 31, 2023, BRP has a commitment to the University of South Florida (“USF”) to donate an aggregate $4.7 million through October 2028. The gift will provide support for the School of Risk Management and Insurance in the USF Muma College of Business. It is currently anticipated that Lowry Baldwin, our Board Chair, will fund half of the amounts to be donated by BRP.

The Company is involved in various claims and legal actions arising in the ordinary course of business. A liability is recorded when a loss is considered probable and is reasonably estimable in accordance with GAAP. 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.

13. Segment Information

The Company completed a strategic review of its organizational structure in January 2023 and determined that the chief operating decision maker, the chief executive officer, would change the way he manages and operates the Company’s MainStreet and Medicare businesses. Effective in the first quarter of 2023, the chief executive officer reviews the Medicare and Mainstreet businesses on a combined basis as one operating segment, also determined to be an Operating Group, Mainstreet Insurance Solutions, which is used by the chief executive officer to make decisions about the resources to be allocated to the Operating Group and to assess its performance. In addition, the Middle Market and Specialty Operating Groups were rebranded as Insurance Advisory Solutions and Underwriting, Capacity & Technology Solutions, respectively, effective in the first quarter of 2023.

Effective in the first quarter of 2023, BRP Group’s business is divided into three Operating Groups: Insurance Advisory Solutions, Underwriting, Capacity & Technology Solutions, and Mainstreet Insurance Solutions.

•The Insurance Advisory Solutions Operating Group provides expertly-designed commercial risk management, employee benefits solutions and private risk management for mid-to-large size businesses and high net worth individuals, as well as their families.

•The Underwriting, Capacity & Technology Solutions (“UCTS”) Operating Group consists of two distinct businesses. Our specialty wholesale broker businesses deliver specialty insurers, professionals, individuals and niche industry businesses expanded access to exclusive specialty markets, capabilities and programs requiring complex underwriting and placement. UCTS also houses our MGA of the Future platform, in which we manufacture proprietary, technology-enabled insurance products that are then distributed (in many instances via technology and/or API integrations) internally via our Risk Advisors across our other Operating Groups and externally via select distribution partners, with a focus on sheltered channels where our products deliver speed, ease of use and certainty of execution, an example of which is our national embedded renters insurance product sold at point of lease via integrations with property management software providers.

•The Mainstreet Insurance Solutions Operating Group offers personal insurance, commercial insurance and life and health solutions to individuals and businesses in their communities. The Mainstreet Insurance Solutions Operating Group also offers consultations for government assistance programs and solutions, including traditional Medicare, Medicare Advantage and Affordable Care Act, to seniors and eligible individuals, through a network of primarily independent contractor agents.

In all of our Operating Groups, the Company generates commissions and fees from insurance placement under both agency bill and direct bill arrangements, and profit sharing income based on either the underlying book of business or performance, such as loss ratios. All Operating Groups also generate other ancillary income and premium financing income.

In the Insurance Advisory Solutions and UCTS Operating Groups, 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 UCTS Operating Group, the Company generates fees from policy fee and installment fee arrangements. Policy fee revenue is earned for acting in the capacity of an MGA and providing payment processing and services and other administrative functions on behalf of Insurance Company Partners.

In the Mainstreet Insurance Solutions Operating Group, the Company generates commissions and fees from marketing income, which is earned through co-branded Medicare marketing campaigns with the Company’s Insurance Company Partners.

In the Insurance Advisory Solutions and UCTS Operating Groups and the Corporate and Other non-reportable segment, the Company generates investment income.

The Company’s chief operating decision maker, the chief executive officer, uses net income (loss) and net income (loss) 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 March 31, 2023
(in thousands)	Insurance Advisory Solutions		Underwriting, Capacity & Technology Solutions		Mainstreet Insurance Solutions		Corporate and Other		Total
Commissions and fees(1)	$	195,713	$	90,069	$	58,140	$	(13,476)	$	330,446
Net income (loss)	23,814		2,087		7,834		(59,589)		(25,854)


	For the Three Months Ended March 31, 2022
(in thousands)	Insurance Advisory Solutions		Underwriting, Capacity & Technology Solutions		Mainstreet Insurance Solutions		Corporate and Other		Total
Commissions and fees(2)	$	171,403	$	49,523	$	22,958	$	(1,036)	$	242,848
Net income (loss)	54,887		5,318		2,442		(17,808)		44,839

__________

(1) During the three months ended March 31, 2023, the Insurance Advisory Solutions Operating Group recorded intercompany commissions and fees from activity with the UCTS Operating Group of $0.4 million; the UCTS Operating Group recorded intercompany commissions and fees from activity with the Mainstreet Insurance Solutions Operating Group and itself of $12.6 million; and the Mainstreet Insurance Solutions Operating Group recorded intercompany commissions and fees from activity with all Operating Groups of $0.9 million. These intercompany commissions and fees are eliminated through Corporate and Other.

(2) During the three months ended March 31, 2022, the Insurance Advisory Solutions Operating Group recorded intercompany commissions and fees from activity with the UCTS Operating Group of $0.3 million; the UCTS Operating Group recorded intercompany commissions and fees from activity with itself of $0.1 million; and the Mainstreet Insurance Solutions Operating Group recorded intercompany commissions and fees from activity with all Operating Groups of $0.6 million. These intercompany commissions and fees are eliminated through Corporate and Other.


(in thousands)	Insurance Advisory Solutions		Underwriting, Capacity & Technology Solutions		Mainstreet Insurance Solutions		Corporate and Other		Total
Total assets at March 31, 2023	$	2,237,415	$	615,879	$	519,446	$	75,533	$	3,448,273
Total assets at December 31, 2022	2,240,483		616,117		530,504		75,078		3,462,182

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 28, 2023. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. Risk Factors and Note Regarding Forward-Looking Statements included elsewhere in this Quarterly Report on Form 10-Q and under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.

THE COMPANY

BRP Group, Inc. (“BRP Group,” the “Company,” “we,” “us” or “our”) is an independent insurance distribution firm delivering tailored insurance and risk management insights and solutions that give our Clients the peace of mind to pursue their purpose, passion and dreams. We support our Clients, Colleagues, Insurance Company Partners and communities through the deployment of vanguard resources, technology and capital to drive both organic and inorganic growth. When we consistently execute for these key stakeholders, we believe that the outcome is an increase in value for our fifth stakeholder, our shareholders. We are innovating the industry by taking a holistic and tailored approach to risk management, insurance and employee benefits. Our growth plan includes continuing to recruit, train and develop industry leading talent, continuing to add geographic representation, insurance product expertise and end-client industry expertise via our Partnership strategy, and continuing to build out our MGA of the Future platform, which delivers proprietary, technology-enabled insurance solutions to our internal Risk Advisors as well as to a growing channel of external distribution partners. We are a destination employer supported by an award-winning culture, powered by exceptional people and fueled by industry-leading growth and innovation.

We represent over 1.3 million Clients across the United States and internationally. Our more than 3,800 Colleagues include over 700 Risk Advisors, who are fiercely independent, relentlessly competitive and “insurance geeks.” We have approximately 125 offices in 23 states, all of which are equipped to provide diversified products and services to empower our Clients at every stage through our three Operating Groups.

•Insurance Advisory Solutions provides expertly-designed commercial risk management, employee benefits solutions and private risk management for mid-to-large-size businesses and high net worth individuals, as well as their families.

•Underwriting, Capacity & Technology Solutions (“UCTS”) consists of two distinct businesses—our specialty wholesale broker businesses and our MGA of the Future platform. Our specialty wholesale broker businesses deliver specialty insurers, professionals, individuals and niche industry businesses expanded access to exclusive specialty markets, capabilities and programs requiring complex underwriting and placement. Through our MGA of the Future platform (representing approximately 90% of UCTS' revenue during the first quarter of 2023), we manufacture proprietary, technology-enabled insurance products that are then distributed (in many instances via technology and/or application programming interface (“API”) integrations) internally via our Risk Advisors across our other Operating Groups and externally via select distribution partners, with a focus on sheltered channels where our products deliver speed, ease of use and certainty of execution, an example of which is our national embedded renters insurance product sold at point of lease via integrations with property management software providers.

•Mainstreet Insurance Solutions offers personal insurance, commercial insurance and life and health solutions to individuals and businesses in their communities, with a focus on accessing clients via sheltered distribution channels, which include, but are not limited to, new home builders, realtors, mortgage originators/lenders, master planned communities, and various other community centers of influence. Mainstreet Insurance Solutions also offers consultation for government assistance programs and solutions, including traditional Medicare, Medicare Advantage and Affordable Care Act, to seniors and eligible individuals through a network of primarily independent contractor agents.

In 2011, we adopted the “Azimuth” as our corporate and cultural constitution. Named after a historical navigation tool used to find “true north,” the Azimuth asserts our core values, business basics and stakeholder promises. The ideals encompassed by the Azimuth support our mission to deliver indispensable, tailored insurance and risk management insights and solutions to our Clients. We strive to be regarded as the preeminent insurance advisory firm—fueled by relationships, powered by people and exemplified by client adoption and loyalty. This type of environment is upheld by the distinct vernacular we use to describe our services and culture. We are a Firm, instead of an agency; we have Colleagues, instead of employees; and we have Risk Advisors, instead of producers/agents. We serve Clients instead of customers and we refer to our strategic acquisitions as Partnerships. We refer to insurance brokerages that we have acquired, or in the case of asset acquisitions, the producers, as Partners.

Seasonality

The insurance brokerage market is seasonal and our results of operations are somewhat affected by seasonal trends. Our Adjusted EBITDA and Adjusted EBITDA Margins are typically highest in the first quarter and lowest in the fourth quarter. This variation is primarily due to fluctuations in our revenues, while overhead remains consistent throughout the year. Our revenues are generally highest in the first quarter due to a higher degree of first quarter policy commencements and renewals in certain Insurance Advisory Solutions and Mainstreet Insurance Solutions lines of business such as employee benefits, commercial and Medicare. In addition, a higher proportion of our first quarter revenue is derived from our highest margin businesses.

Partnerships can significantly impact Adjusted EBITDA and Adjusted EBITDA Margins in a given year and may increase the amount of seasonality within the business, especially results attributable to Partnerships that have not been fully integrated into our business or owned by us for a full year.

PARTNERSHIPS

We utilize strategic acquisitions, which we refer to as Partnerships, to complement and expand our business. We source Partnerships through proprietary deal flow, competitive auctions and cultivated industry relationships. We are currently considering Partnership opportunities in all of our Operating Groups, including businesses to complement or expand our MGA of the Future.

The financial impact of Partnerships may affect the comparability of our results from period to period. Our acquisition strategy also entails certain risks, including the risks that we may not be able to successfully source, value, close, integrate and effectively manage businesses that we acquire. To mitigate that risk, we have a professional team focused on finding new Partners and integrating new Partnerships. Executing on Partnership opportunities is a key pillar in our long-term growth strategy.

We did not complete any Partnerships during the three months ended March 31, 2023 or 2022.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements for the three months ended March 31, 2023 and the related notes and other financial information included elsewhere in this report.

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.

The following is a discussion of our consolidated results of operations for the three months ended March 31, 2023 and 2022.


	For the Three Months Ended March 31,
(in thousands)		2023		2022		Variance
Revenues:
Commissions and fees		$	330,446	$	242,848	$	87,598

Operating expenses:
Commissions, employee compensation and benefits		230,954		153,750		77,204
Other operating expenses		46,604		36,442		10,162
Amortization expense		23,163		17,562		5,601
Change in fair value of contingent consideration		24,758		(5,632)		30,390
Depreciation expense		1,348		988		360
Total operating expenses		326,827		203,110		123,717

Operating income		3,619		39,738		(36,119)

Other income (expense):
Interest expense, net		(27,884)		(10,350)		(17,534)
Other income (expense), net		(1,511)		15,451		(16,962)
Total other income (expense)		(29,395)		5,101		(34,496)

Income (loss) before income taxes		(25,776)		44,839		(70,615)
Income tax expense		78		—		78
Net income (loss)		(25,854)		44,839		(70,693)
Less: net income (loss) attributable to noncontrolling interests		(11,722)		21,970		(33,692)
Net income (loss) attributable to BRP Group		$	(14,132)	$	22,869	$	(37,001)

Commissions and Fees

We earn commissions and fees by facilitating the arrangement between Insurance Company Partners and individuals or businesses for the carrier to provide insurance to the insured party. Our commissions and fees are usually a percentage of the premium paid by the insured and generally depends on the type of insurance, the particular Insurance Company Partner and the nature of the services provided. Under certain arrangements with Clients, we earn pre-negotiated service fees in lieu of commissions. Additionally, we earn policy fees for acting in the capacity of an MGA and fulfilling certain administrative functions on behalf of Insurance Company Partners. We may also receive profit-sharing commissions, or straight overrides, which represent forms of variable consideration from Insurance Company Partners associated with the placement of coverage based primarily on underwriting results, but may also contain considerations for volume, growth or retention.

Commissions and fees increased $87.6 million year over year. The increase for the period relates to organic growth and amounts attributable to Partners acquired during 2022 prior to their having reached the twelve-month owned mark (such amounts, the “Partnership Contribution”). Organic growth accounted for $55.8 million of the increase to revenues and the Partnership Contribution accounted for $30.9 million.

Major Sources of Commissions and Fees

The following table sets forth our commissions and fees by major source for the three months ended March 31, 2023 and 2022:


	For the Three Months Ended March 31,
(in thousands)		2023		2022		Variance
Commission revenue		$	270,861	$	204,837	$	66,024
Profit-sharing revenue		23,025		15,012		8,013
Consulting and service fee revenue		17,636		15,202		2,434
Policy fee and installment fee revenue		15,832		5,850		9,982
Other income		3,092		1,947		1,145
Total commissions and fees		$	330,446	$	242,848	$	87,598

Commission revenue represents commission revenue earned by providing insurance placement services to Clients. Commission revenue increased by $66.0 million year over year as a result of organic growth of $36.5 million and the Partnership Contribution of $29.5 million.

Profit-sharing revenue represents bonus-type revenue that is earned by us as a sales incentive provided by certain Insurance Company Partners. Profit-sharing revenue increased by $8.0 million year over year primarily due to organic growth.

Consulting and service fee revenue represents fees received in lieu of a commission and specialty insurance consulting revenue. Consulting and service fee revenue increased $2.4 million year over year as a result of organic growth of $1.9 million and the Partnership Contribution of $0.5 million.

Policy fee and installment fee revenue represents revenue earned by our UCTS Operating Group for acting in the capacity of an MGA and providing payment processing and services and other administrative functions on behalf of Insurance Company Partners. Policy fee and installment fee revenue increased $10.0 million year over year due to organic growth.

Other income consists of other fee income, premium financing income and investment income generated across all Operating Groups as well as marketing income that is based on agreed-upon cost reimbursement for fulfilling specific targeted Medicare marketing campaigns. Other income increased $1.1 million year over year primarily due to investment income, which is excluded from the organic growth calculation.

Commissions, Employee Compensation and Benefits

Commissions, employee compensation and benefits is our largest expense. It consists of (i) base compensation comprising salary, bonuses and benefits paid and payable to Colleagues, commissions paid to Colleagues and outside commissions paid to others; and (ii) equity-based compensation associated with the grants of restricted and unrestricted stock awards to senior management, Colleagues, Risk Advisors and directors. We expect to continue to experience a general rise in commissions, employee compensation and benefits expense commensurate with expected growth in our revenue and headcount. We operate in competitive markets for human capital and need to maintain competitive compensation levels as we expand geographically and create new products and services. Our Colleague-related costs have risen as a result of the increasingly competitive market and the inflationary environment. In addition, our compensation arrangements with our Colleagues contain significant bonus or commission components driven by the results of our operations. Therefore, as we grow commissions and fees, we expect compensation costs to rise.

Commissions, employee compensation and benefits expenses increased $77.2 million year over year. The Partnership Contribution accounted for $17.2 million of the increase to commissions, employee compensation and benefits. Share-based compensation expense increased $5.7 million as a result of equity grants awarded to all newly hired Colleagues and grants to reward Colleagues, including members of senior management. The remaining increase in commissions, employee compensation and benefits expense can be attributed to higher commissions expense relating to our organic growth, higher compensation and benefits related to hiring to support our growth, and the inflationary environment, which has resulted in increases in the cost of human capital.

Other Operating Expenses

Other operating expenses include travel, accounting, legal and other professional fees, placement fees, rent, office expenses and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our Colleagues and the overall size and scale of our business operations.

Other operating expenses increased $10.2 million year over year related to increases in dues and subscriptions of $8.7 million from integration costs and investment in technology to support our growth, travel and entertainment of $3.6 million relating to integration of our Partnerships, advertising and marketing of $2.6 million and rent expense of $0.8 million relating to expansion of our operating locations. These increases were partially offset by lower costs for professional fees of $4.2 million, Colleague education and welfare of $1.0 million and repairs and maintenance of $0.8 million.

Amortization Expense

Amortization expense increased $5.6 million year over year driven by amortization of intangible assets recorded in connection with Partnerships over the past twelve months.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration was a $24.8 million loss for the three months ended March 31, 2023 as compared to a $5.6 million gain for the same period of 2022. The fair value loss related to contingent consideration for 2023 was impacted by changes in growth trends of certain partners and lower discount rates, which resulted in an overall higher contingent earnout liability value.

Interest Expense, Net

Interest expense, net increased $17.5 million year over year resulting primarily from the high interest rate environment and, to a lesser extent, higher average borrowings outstanding under our Revolving Facility. We expect interest expense to continue to increase during 2023 as a result of recent unprecedented interest rate hikes from the Federal Reserve, which directly affect our variable rate debt.

Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk for further discussion of the impact of rising interest rates on our results of operations, financial condition and cash flows.

Other Income (Expense), Net

Other income (expense), net decreased $17.0 million year over year, primarily as a result of a gain on interest rate caps of $15.8 million recognized during the first quarter of 2022 in connection with rising interest rates and market estimates for future rate increases. Comparatively, we had a loss on interest rate caps of $1.4 million during the first quarter of 2023 relating to a decrease in the interest rate curve.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA, Adjusted EBITDA Margin, Organic Revenue, Organic Revenue Growth, Adjusted Net Income and Adjusted Diluted Earnings Per Share (“EPS”), are not measures of financial performance under GAAP and should not be considered substitutes for GAAP measures, including commissions and fees (for Organic Revenue and Organic Revenue Growth), net income (loss) (for Adjusted EBITDA and Adjusted EBITDA Margin), net income (loss) attributable to BRP Group (for Adjusted Net Income) or diluted earnings (loss) per share (for Adjusted Diluted EPS), which we consider to be the most directly comparable GAAP measures. These non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these non-GAAP financial measures in isolation or as substitutes for commissions and fees, net income (loss), net income (loss) attributable to BRP Group, diluted earnings (loss) per share or other consolidated income statement data prepared in accordance with GAAP. Other companies in our industry may define or calculate these non-GAAP financial measures differently than we do, and accordingly, these measures may not be comparable to similarly titled measures used by other companies.

We define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation, amortization, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, transaction-related Partnership and integration expenses, severance, and certain non-recurring items, including those related to raising capital. We believe that Adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of income and expenses that do not relate to business performance, and that the presentation of this measure enhances an investor’s understanding of our financial performance.

Adjusted EBITDA Margin is Adjusted EBITDA divided by commissions and fees. Adjusted EBITDA Margin is a key metric used by management and our board of directors to assess our financial performance. We believe that Adjusted EBITDA Margin is an appropriate measure of operating performance because it eliminates the impact of income and expenses that do not relate to business performance, and that the presentation of this measure enhances an investor’s understanding of our financial performance. We believe that Adjusted EBITDA Margin is helpful in measuring profitability of operations on a consolidated level.

Adjusted EBITDA and Adjusted EBITDA Margin have important limitations as analytical tools. For example, Adjusted EBITDA and Adjusted EBITDA Margin:

•do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

•do not reflect changes in, or cash requirements for, our working capital needs;

•do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations;

•do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

•do not reflect share-based compensation expense and other non-cash charges; and

•exclude certain tax payments that may represent a reduction in cash available to us.

We calculate Organic Revenue based on commissions and fees for the relevant period by excluding investment income and the first twelve months of commissions and fees generated from new Partners. Organic Revenue Growth is the change in Organic Revenue period-to-period, with prior period results adjusted to include commissions and fees that were excluded in the prior period because the relevant Partners had not yet reached the twelve-month owned mark, but which have reached the twelve-month owned mark in the current period. For example, revenues from a Partner acquired on June 1, 2022 are excluded from Organic Revenue for 2022. However, after June 1, 2023, results from June 1, 2022 to December 31, 2022 for such Partners are compared to results from June 1, 2023 to December 31, 2023 for purposes of calculating Organic Revenue Growth in 2023. Organic Revenue Growth is a key metric used by management and our board of directors to assess our financial performance. We believe that Organic Revenue and Organic Revenue Growth are appropriate measures of operating performance as they allow investors to measure, analyze and compare growth in a meaningful and consistent manner.

We define Adjusted Net Income as net income (loss) attributable to BRP Group adjusted for depreciation, amortization, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, transaction-related Partnership and integration expenses, severance, and certain non-recurring costs that, in the opinion of management, significantly affect the period-over-period assessment of operating results, and the related tax effect of those adjustments. We believe that Adjusted Net Income is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate to business performance.

Adjusted Diluted EPS measures our per share earnings excluding certain expenses as discussed above and assuming all shares of Class B common stock were exchanged for Class A common stock. Adjusted Diluted EPS is calculated as Adjusted Net Income divided by adjusted dilutive weighted-average shares outstanding. We believe Adjusted Diluted EPS is useful to investors because it enables them to better evaluate per share operating performance across reporting periods.

Adjusted EBITDA and Adjusted EBITDA Margin

The following table reconciles Adjusted EBITDA and Adjusted EBITDA Margin to net income (loss), which we consider to be the most directly comparable GAAP financial measure:


	For the Three Months Ended March 31,
(in thousands, except percentages)		2023			2022
Commissions and fees		$	330,446		$	242,848

Net income (loss)		$	(25,854)		$	44,839
Adjustments to net income (loss):
Interest expense, net		27,884			10,350
Change in fair value of contingent consideration		24,758			(5,632)
Amortization expense		23,163			17,562
Share-based compensation		13,281			7,564
Transaction-related Partnership and integration expenses		5,432			8,216
(Gain) loss on interest rate caps		1,407			(15,810)
Depreciation expense		1,348			988
Severance		167			222
Income tax provision		78			—
Other(1)		7,342			4,633
Adjusted EBITDA		$	79,006		$	72,932
Adjusted EBITDA Margin		24		%	30		%

__________

(1) Other addbacks to Adjusted EBITDA include certain expenses that are considered to be non-recurring or non-operational, including certain recruiting costs, professional fees, litigation costs and bonuses. In 2022, these addbacks also included certain expenses related to remediation efforts.

Organic Revenue and Organic Revenue Growth

The following table reconciles Organic Revenue and Organic Revenue Growth to commissions and fees, which we consider to be the most directly comparable GAAP financial measure:


	For the Three Months Ended March 31,
(in thousands, except percentages)		2023			2022
Commissions and fees		$	330,446		$	242,848
Partnership commissions and fees(1)		(30,871)			(64,777)
Investment income		(923)			—
Organic Revenue		$	298,652		$	178,071
Organic Revenue Growth(2)		$	55,804		$	25,181
Organic Revenue Growth %(2)		23		%	16		%

__________

(1) Includes the first twelve months of such commissions and fees generated from newly acquired Partners.

(2) Organic Revenue for the three months ended March 31, 2022 used to calculate Organic Revenue Growth for the three months ended March 31, 2023 was $242.8 million, which is adjusted to reflect revenues from Partnerships that reached the twelve-month owned mark during the three months ended March 31, 2023.

Adjusted Net Income and Adjusted Diluted EPS

The following table reconciles Adjusted Net Income to net income (loss) attributable to BRP Group and reconciles Adjusted Diluted EPS to diluted earnings (loss) per share, which we consider to be the most directly comparable GAAP financial measures:


	For the Three Months Ended March 31,
(in thousands, except per share data)		2023		2022
Net income (loss) attributable to BRP Group		$	(14,132)	$	22,869
Net income (loss) attributable to noncontrolling interests		(11,722)		21,970
Change in fair value of contingent consideration		24,758		(5,632)
Amortization expense		23,163		17,562
Share-based compensation		13,281		7,564
Transaction-related Partnership and integration expenses		5,432		8,216
(Gain) loss on interest rate caps, net of cash settlements		3,682		(15,810)
Depreciation		1,348		988
Amortization of deferred financing costs		1,239		1,286
Severance		167		222
Other(1)		7,342