SEC Filing | Baldwin Risk Partners

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brp-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________

(Mark One)


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

For the quarterly period ended September 30, 2023


o			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 November 1, 2023, there were 64,318,059 shares of Class A common stock outstanding and 52,430,994 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 September 30, 2023 and December 31, 2022

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the Three and Nine Months Ended September 30, 2023 and 2022

Condensed Consolidated Statements of Cash Flows for the N ine Months Ended September 30, 2023 and 2022

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 , Use of Proceed s, and Issuer Purchases of Equity Securitie s

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. You should specifically consider the numerous risks outlined under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 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
API						Application programming interface
book of business						Insurance policies bound by us on behalf of our Clients
bps						Basis points
BRP						Baldwin Risk Partners, LLC, a wholly-owned subsidiary of BRP Group
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, Amendment No. 5 to Credit Agreement dated as of March 28, 2022, Amendment No. 6 to Credit Agreement dated as of June 27, 2023 and Amendment No. 7 to Credit Agreement dated as of September 15, 2023
LIBOR						London Interbank Offered Rate
LLC Units						Membership interests of BRP
MGA						Managing General Agent
MIU conversion LLC Units						Non-voting units issued to certain senior management prior to October 2019, which were converted to restricted LLC Units (and corresponding shares of Class B common stock) with identical vesting conditions as the original issuances in connection with our initial public offering
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
QBE						QBE Holdings, Inc., the prior owner of Westwood
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 $1.02 billion, 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)	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	78,965	$	118,090
Restricted cash	115,429		112,381
Premiums, commissions and fees receivable, net	595,359		531,992
Prepaid expenses and other current assets	12,370		9,936
Total current assets	802,123		772,399
Property and equipment, net	24,378		25,405
Right-of-use assets	88,586		96,465
Other assets	41,738		45,935
Intangible assets, net	1,044,824		1,099,918
Goodwill	1,421,849		1,422,060
Total assets	$	3,423,498	$	3,462,182
Liabilities, Mezzanine Equity and Stockholders’ Equity
Current liabilities:
Premiums payable to insurance companies	$	502,081	$	471,294
Producer commissions payable	65,855		53,927
Accrued expenses and other current liabilities	131,418		125,743
Related party notes payable	1,525		1,525
Current portion of contingent earnout liabilities	97,620		46,717
Total current liabilities	798,499		699,206
Revolving line of credit	324,000		505,000
Long-term debt, less current portion	969,711		809,862
Contingent earnout liabilities, less current portion	175,657		220,219
Operating lease liabilities, less current portion	81,510		87,692
Other liabilities	241		164
Total liabilities	2,349,618		2,322,143
Commitments and contingencies (Note 12)
Mezzanine equity:
Redeemable noncontrolling interest	333		487
Stockholders’ equity:
Class A common stock, par value $0.01 per share, 300,000,000 shares authorized; 64,229,313 and 61,447,368 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	642		614
Class B common stock, par value $0.0001 per share, 100,000,000 shares authorized; 52,486,094 and 54,504,918 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	5		5
Additional paid-in capital	742,553		704,291
Accumulated deficit	(152,422)		(96,764)
Stockholder notes receivable	—		(42)
Total stockholders’ equity attributable to BRP Group	590,778		608,104
Noncontrolling interest	482,769		531,448
Total stockholders’ equity	1,073,547		1,139,552
Total liabilities, mezzanine equity and stockholders’ equity	$	3,423,498	$	3,462,182

See accompanying Notes to Condensed Consolidated Financial Statements.

BRP GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except share and per share data)	2023		2022		2023		2022
Revenues:
Commissions and fees	$	306,270	$	259,368	$	933,907	$	734,676

Operating expenses:
Commissions, employee compensation and benefits	220,469		195,920		676,659		522,518
Other operating expenses	47,165		47,212		141,254		124,424
Amortization expense	23,183		23,180		69,505		59,912
Change in fair value of contingent consideration	13,914		21,695		55,065		(10,809)
Depreciation expense	1,453		1,216		4,250		3,309
Total operating expenses	306,184		289,223		946,733		699,354

Operating income (loss)	86		(29,855)		(12,826)		35,322

Other income (expense):
Interest expense, net	(30,580)		(20,766)		(87,600)		(45,748)
Other income (expense), net	(1,351)		3,914		(193)		25,151
Total other expense	(31,931)		(16,852)		(87,793)		(20,597)

Income (loss) before income taxes	(31,845)		(46,707)		(100,619)		14,725
Income tax expense	161		—		904		—
Net income (loss)	(32,006)		(46,707)		(101,523)		14,725
Less: net income (loss) attributable to noncontrolling interests	(14,377)		(21,914)		(45,865)		8,007
Net income (loss) attributable to BRP Group	$	(17,629)	$	(24,793)	$	(55,658)	$	6,718

Comprehensive income (loss)	$	(32,006)	$	(46,707)	$	(101,523)	$	14,725
Comprehensive income (loss) attributable to noncontrolling interests	(14,377)		(21,914)		(45,865)		8,007
Comprehensive income (loss) attributable to BRP Group	(17,629)		(24,793)		(55,658)		6,718

Basic earnings (loss) per share	$	(0.29)	$	(0.43)	$	(0.93)	$	0.12
Diluted earnings (loss) per share	$	(0.29)	$	(0.43)	$	(0.93)	$	0.11
Weighted-average shares of Class A common stock outstanding - basic	60,549,080		57,282,132		59,791,435		56,430,095
Weighted-average shares of Class A common stock outstanding - diluted	60,549,080		57,282,132		59,791,435		59,895,371

See accompanying Notes to Condensed Consolidated Financial Statements.

BRP GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

(Unaudited)


For the Three Months Ended September 30, 2023
	Stockholders’ Equity														Mezzanine Equity
	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Non-controlling Interest		Total		Redeemable Non-controlling Interest
(in thousands, except share data)	Shares	Amount		Shares	Amount
Balance at June 30, 2023	63,696,680	$	637	53,024,504	$	5	$	732,673	$	(134,793)	$	498,245	$	1,096,767	$	495
Net income (loss)	—	—		—	—		—		(17,629)		(14,459)		(32,088)		82
Share-based compensation, net of forfeitures	(5,777)	—		—	—		4,898		—		4,017		8,915		—
Redemption of Class B common stock	538,410	5		(538,410)	—		4,982		—		(4,987)		—		—
Tax distributions to BRP LLC members	—	—		—	—		—		—		(47)		(47)		—
Distributions to VIEs	—	—		—	—		—		—		—		—		(244)
Balance at September 30, 2023	64,229,313	$	642	52,486,094	$	5	$	742,553	$	(152,422)	$	482,769	$	1,073,547	$	333


For the Nine Months Ended September 30, 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)	—	—		—	—		—		(55,658)		—		(46,096)		(101,754)		231
Share-based compensation, net of forfeitures	763,121	8		—	—		19,517		—		—		16,590		36,115		—
Redemption of Class B common stock	2,018,824	20		(2,018,824)	—		18,745		—		—		(18,765)		—		—
Tax distributions to BRP LLC members	—	—		—	—		—		—		—		(408)		(408)		—
Repayment of stockholder notes receivable	—	—		—	—		—		—		42		—		42		—
Distributions to VIEs	—	—		—	—		—		—		—		—		—		(385)
Balance at September 30, 2023	64,229,313	$	642	52,486,094	$	5	$	742,553	$	(152,422)	$	—	$	482,769	$	1,073,547	$	333

See accompanying Notes to Condensed Consolidated Financial Statements.

BRP GROUP, INC.

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity (Continued)

(Unaudited)


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


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

See accompanying Notes to Condensed Consolidated Financial Statements.

BRP GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended September 30,
(in thousands)	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(101,523)	$	14,725
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	73,755		63,221
Change in fair value of contingent consideration	55,065		(10,809)
Share-based compensation expense	46,637		26,065
(Gain) loss on interest rate caps	489		(25,420)
Payment of contingent earnout consideration in excess of purchase price accrual	(22,639)		(48,943)
Amortization of deferred financing costs	3,577		3,894
Other loss	797		369
Changes in operating assets and liabilities:
Premiums, commissions and fees receivable, net	(63,367)		(97,126)
Prepaid expenses and other current assets	(6,294)		(11,087)
Right-of-use assets	7,671		(15,076)
Accounts payable, accrued expenses and other current liabilities	32,793		70,282
Operating lease liabilities	(4,162)		16,992
Other liabilities	—		(3,740)
Net cash provided by (used in) operating activities	22,799		(16,653)
Cash flows from investing activities:
Capital expenditures	(14,157)		(15,400)
Cash consideration paid for asset acquisitions	(2,118)		(3,356)
Investment in business ventures	(673)		(791)
Cash consideration paid for business combinations, net of cash received	—		(387,919)
Net cash used in investing activities	(16,948)		(407,466)
Cash flows from financing activities:
Payment of contingent earnout consideration up to amount of purchase price accrual	(26,808)		(47,218)
Proceeds from revolving line of credit	88,000		512,000
Payments on revolving line of credit	(269,000)		(20,000)
Proceeds from issuance of long-term debt	170,000		—
Payments on long-term debt	(6,815)		(6,382)
Payments of debt issuance costs	(4,447)		(1,751)
Proceeds from the sale and settlement of interest rate caps	7,893		19,587
Tax distributions to BRP LLC members	(408)		(9,393)
Proceeds from repayment of stockholder notes receivable	42		156
Distributions to VIEs	(385)		—
Net cash provided by (used in) financing activities	(41,928)		446,999
Net increase (decrease) in cash and cash equivalents and restricted cash	(36,077)		22,880
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	$	194,394	$	250,617

See accompanying Notes to Condensed Consolidated Financial Statements.

BRP GROUP, INC.

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)


	For the Nine Months Ended September 30,
(in thousands)	2023		2022
Supplemental schedule of cash flow information:
Cash paid during the period for interest	$	77,455	$	41,225
Cash paid during the period for income taxes	1,208		1,056
Disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	4,391	$	23,444
Contingent earnout liabilities recognized in business combinations and asset acquisitions	723		16,495
Capital expenditures incurred but not yet paid	699		1,198
Right-of-use assets increased through lease modifications and reassessments	697		4,732
Noncash debt issuance costs incurred	245		—
Increase (decrease) in goodwill resulting from measurement period adjustments for prior year business combinations	(211)		3,455
Equity issued in business combinations	—		4,819
Equity issued in satisfaction of a liability	—		711

See accompanying Notes to Condensed Consolidated Financial Statements.

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 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 and the Company’s Current Report on Form 8-K (relating to the Company’s reclassification of historical segment information) filed with the SEC on May 9, 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 accounting policies and estimates underlying the accompanying condensed 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.

Certain prior period amounts have been reclassified to conform to current period presentation. The Company made 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 between profit-sharing revenue, consulting and service fee revenue, policy fee and installment fee revenue, and other income. Prior period amounts in the disaggregated revenue table in Note 3 have been reclassified to conform to current period presentation. In addition, amounts due from related parties and the change therein has been combined with prepaid expenses and other current assets within the condensed consolidated balance sheets and the condensed consolidated statements of cash flows.

Recently Adopted Accounting Standards

In October 2021, the Financial Accounting Standards Board (“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.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (“Topic 848”)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which established optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform to provide temporary relief during the transition period of Topic 848 and ease the potential burden of accounting for, or recognizing the effects of, reference rate reform on financial reporting. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 to defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024 as a result of the extension of the intended cessation of USD LIBOR to June 30, 2023. The Company has adopted the optional expedient within ASU 2020-04 to account for modifications of contracts within the scope of ASC Topic 470, Debt, including Amendment No. 6 to the JPM Credit Agreement dated June 27, 2023 discussed in Note 7. 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 accompanying 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 September 30, 2023 and $0.5 million and $0.2 million, respectively, for the three months ended September 30, 2022. Total revenues and expenses of the Company’s consolidated VIEs included in the condensed consolidated statements of comprehensive income (loss) were $1.4 million and $0.8 million, respectively, for the nine months ended September 30, 2023 and $1.3 million and $0.8 million, respectively, for the nine months ended September 30, 2022.

Total assets and liabilities of the Company's consolidated VIEs included on the condensed consolidated balance sheets were $0.8 million and $0.2 million, respectively, at September 30, 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 September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Commission revenue(1)	$	237,103	$	204,264	$	737,815	$	591,650
Profit-sharing revenue(2)	25,959		15,044		75,877		49,422
Consulting and service fee revenue(3)	21,735		19,084		57,947		47,417
Policy fee and installment fee revenue(4)	17,071		18,367		49,907		37,834
Other income(5)	4,402		2,609		12,361		8,353
Total commissions and fees	$	306,270	$	259,368	$	933,907	$	734,676

__________

(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 for providing insurance placement services to Clients for a negotiated fee 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)	September 30, 2023		December 31, 2022
Contract assets	$	327,999	$	278,023
Contract liabilities	27,094		30,981

During the nine months ended September 30, 2023, the Company recognized revenue of $30.6 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 September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Balance at beginning of period	$	24,840	$	16,198	$	21,669	$	11,336
Costs capitalized	2,666		3,641		9,170		10,509
Amortization	(1,847)		(1,206)		(5,180)		(3,212)
Balance at end of period	$	25,659	$	18,633	$	25,659	$	18,633

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


(in thousands)	September 30, 2023		December 31, 2022
Accrued compensation and benefits	$	48,782	$	44,903
Contract liabilities	27,094		30,981
Current portion of operating lease liabilities	16,064		14,043
Accrued expenses	13,070		13,101
Current portion of long-term debt	10,243		8,509
Deferred consideration payments	3,471		6,840
Other	12,694		7,366
Accrued expenses and other current liabilities	$	131,418	$	125,743

7. Long-Term Debt

As of December 31, 2022, the JPM Credit Agreement, as amended, provided for senior secured credit facilities in an aggregate principal amount of $1.45 billion, which consisted 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 bore interest at LIBOR plus 350 bps, subject to a LIBOR floor of 50 bps. At December 31, 2022, the outstanding borrowings on the Term Loan B of $838.1 million, which are presented net of unamortized debt issuance costs of $19.7 million on the condensed consolidated balance sheet, had an applicable interest rate of 7.79%.

On June 27, 2023, the Company entered into Amendment No. 6 to the JPM Credit Agreement, under which, effective July 1, 2023, the interest rate on the Term Loan B changed to term SOFR plus a credit spread adjustment between 11 bps and 43 bps based on the term SOFR rate plus an applicable margin of 350 bps, subject to a term SOFR floor of 50 bps.

On September 15, 2023, the Company entered into Amendment No. 7 to the JPM Credit Agreement to provide for a new senior secured first lien incremental term loan facility in an aggregate principal amount of $170.0 million (the “Incremental Term Loan B”), which represents an increase in the aggregate principal amount of the Term Loan B from $850.0 million to $1.02 billion. The Company used a portion of the proceeds from the Incremental Term Loan B to partially repay outstanding amounts under the Revolving Facility. The Company incurred $4.7 million in debt issuance costs in connection with this amendment.

At September 30, 2023, the outstanding borrowings on the Term Loan B of $1.0 billion had an applicable interest rate of 8.94%. The outstanding borrowings on the Term Loan B are presented net of unamortized debt issuance costs of $21.3 million on the condensed consolidated balance sheet at September 30, 2023.

Future annual maturities of the Term Loan B are as follows as of September 30, 2023:


(in thousands)	Amount
Payments for the years ending December 31,
2023	$	2,561
2024	10,243
2025	10,243
2026	10,243
2027	968,008
Total long-term debt	1,001,298
Less: unamortized debt issuance costs	(21,344)
Net long-term debt	$	979,954

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 $324.0 million at September 30, 2023 had an applicable interest rate of 8.42%. Comparatively, the outstanding borrowings on the Revolving Facility of $505.0 million at December 31, 2022 had an applicable interest rate of 7.41%. The Revolving Facility is also subject to a commitment fee of 0.40% on the unused capacity at September 30, 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 September 30, 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 applicable base rate to the amount of the cap. The interest rate caps, which are included as a component of other assets on the condensed consolidated balance sheets, are recorded at an aggregate fair value of $6.8 million and $15.2 million at September 30, 2023 and December 31, 2022, respectively. The Company recognized a loss on interest rate caps of $0.8 million and $0.5 million for the three and nine months ended September 30, 2023, respectively, and a gain of $4.2 million and $25.4 million for the three and nine months ended September 30, 2022, respectively. The gain or loss on interest rate caps is included as a component of other income, net in the condensed consolidated statements of comprehensive income (loss).

8. Related Party Transactions

Due to/from Related Parties

Related party notes payable of $1.5 million at September 30, 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 from transactions with The Villages and affiliated entities was $0.4 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $2.0 million for each of the nine months ended September 30, 2023 and 2022.

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 from transactions with these entities was less than $0.1 million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively, and $0.2 million and $0.3 million for the nine months ended September 30, 2023 and 2022, respectively.

Commissions and Consulting Expense

Two brothers of Lowry Baldwin, our Board Chair, received Risk Advisor commissions from the Company comprising approximately $0.2 million during each of the three months ended September 30, 2023 and 2022 and $0.5 million during each of the nine months ended September 30, 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 nine months ended September 30, 2023 and $0.7 million for each of the three and nine months ended September 30, 2022.

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 September 30, 2023 and 2022, and $0.3 million for each of the nine months ended September 30, 2023 and 2022. Total right-of-use assets and operating lease liabilities included on the Company's condensed consolidated balance sheets relating to these lease agreements were $1.4 million and $1.5 million, respectively, at September 30, 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 September 30, 2023 and 2022, respectively, and $2.9 million and $2.8 million for the nine months ended September 30, 2023 and 2022, respectively. Total right-of-use assets and operating lease liabilities included on the Company’s condensed consolidated balance sheets relating to these lease agreements were $13.8 million and $14.3 million, respectively, at September 30, 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 September 30, 2023.

During the nine months ended September 30, 2023, the Company made awards of restricted stock awards (“RSAs”), performance-based restricted stock unit awards (“PSUs”), and fully vested shares under the Plans to its non-employee directors, officers, Colleagues and consultants. Fully-vested shares issued to directors, officers and Colleagues during the nine months ended September 30, 2023 were vested upon issuance and PSUs issued to officers vest in the quarter following the end of a performance period of 3 years, while RSAs issued to Colleagues, consultants and officers 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	1,585,820	29.95
Vested and settled	(1,145,017)	25.82
Forfeited	(156,054)	25.34
Outstanding at September 30, 2023	3,880,052	29.79

The total fair value of shares that vested and settled under the Plans was $29.6 million and $13.9 million for the nine months ended September 30, 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 $14.6 million and $8.4 million for the three months ended September 30, 2023 and 2022, respectively, and $46.6 million and $26.1 million for the nine months ended September 30, 2023 and 2022, respectively. Share-based compensation expense 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.

The following table sets forth the computation of basic and diluted earnings (loss) per share:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	2023		2022		2023		2022
Basic earnings (loss) per share:
Net income (loss) attributable to BRP Group	$	(17,629)	$	(24,793)	$	(55,658)	$	6,718
Shares used for basic earnings (loss) per share:
Weighted-average shares of Class A common stock outstanding - basic	60,549		57,282		59,791		56,430
Basic earnings (loss) per share	$	(0.29)	$	(0.43)	$	(0.93)	$	0.12

Diluted earnings (loss) per share:
Net income (loss) attributable to BRP Group	$	(17,629)	$	(24,793)	$	(55,658)	$	6,718
Shares used for diluted earnings (loss) per share:
Weighted-average shares of Class A common stock outstanding - basic	60,549		57,282		59,791		56,430
Dilutive effect of unvested stock awards	—		—		—		3,465
Weighted-average shares of Class A common stock outstanding - diluted	60,549		57,282		59,791		59,895
Diluted earnings (loss) per share	$	(0.29)	$	(0.43)	$	(0.93)	$	0.11

Potentially dilutive securities consist of unvested stock awards, including RSAs and PSUs, in addition to 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 September 30,		For the Nine Months Ended September 30,
	2023	2022	2023	2022
Unvested RSAs and PSUs	3,880,052	3,626,931	3,880,052	—
Shares of Class B common stock	52,486,094	54,611,484	52,486,094	54,611,484

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 (loss) per share of Class B common stock under the two-class method has not been included.

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)	September 30, 2023		December 31, 2022
Level 2
Interest rate caps	$	6,768	$	15,150
Level 2 Assets	$	6,768	$	15,150
Level 3
Contingent earnout liabilities	$	273,277	$	266,936
Level 3 Liabilities	$	273,277	$	266,936

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 caps 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 September 30, 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 $13.9 million and $55.1 million for the three and nine months ended September 30, 2023, respectively. The Company has assessed the maximum estimated exposure to the contingent earnout liabilities to be $847.1 million at September 30, 2023.

The Company measures contingent earnout liabilities at fair value 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 change in 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 9% to 35% at September 30, 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 8.25% to 14.50% at September 30, 2023 and from 6.50% to 18.00% at December 31, 2022. Changes in financial projections, market participant assumptions for revenue growth, 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 September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Balance at beginning of period	$	294,312	$	209,996	$	266,936	$	258,589
Change in fair value of contingent consideration	13,914		21,695		55,065		(10,809)
Fair value of contingent consideration issuances	723		3,097		723		16,495
Settlement of contingent consideration(1)	(35,672)		(5,174)		(49,447)		(34,661)
Balance at end of period	$	273,277	$	229,614	$	273,277	$	229,614

__________

(1) During 2021, the Company settled $61.5 million of its contingent earnout liabilities through the issuance of related party notes payable, which was subsequently paid in April 2022 and included as payments of contingent earnout consideration in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022. This amount has been excluded from the settlement of contingent consideration in the table above for the nine months ended September 30, 2022.

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	September 30, 2023				December 31, 2022
(in thousands)		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Long-term debt(1)	Level 2	$	1,001,298	$	991,286	$	838,114	$	816,155
Revolving line of credit	Level 2	324,000		314,966		505,000		476,304

__________

(1) The carrying amount of long-term debt reflects outstanding borrowings on the Term Loan B, which are presented net of unamortized debt issuance costs of $21.3 million and $19.7 million at September 30, 2023 and December 31, 2022, respectively, on the condensed consolidated balance sheets.

12. Commitments and Contingencies

As of September 30, 2023, BRP has a remaining commitment to the University of South Florida (“USF”) to donate $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 business delivers 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 its Operating Groups, the Company generates commissions 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 Clients for providing insurance placement services.

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

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 regarding 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 interest expense. Intersegment revenue and expenses are eliminated through the Corporate and Other column. Service center expenses and other overhead are allocated to the Company’s Operating Groups based on either revenue or headcount as applicable to each expense.


	For the Three Months Ended September 30, 2023
(in thousands)	Insurance Advisory Solutions		Underwriting, Capacity & Technology Solutions		Mainstreet Insurance Solutions		Corporate and Other		Total
Commissions and fees(1)	$	144,409	$	118,413	$	62,297	$	(18,849)	$	306,270
Net income (loss)	3,756		11,205		10,763		(57,730)		(32,006)


	For the Three Months Ended September 30, 2022
(in thousands)	Insurance Advisory Solutions		Underwriting, Capacity & Technology Solutions		Mainstreet Insurance Solutions		Corporate and Other		Total
Commissions and fees(2)	$	130,216	$	97,929	$	47,784	$	(16,561)	$	259,368
Net income (loss)	(25,050)		14,734		6,781		(43,172)		(46,707)


	For the Nine Months Ended September 30, 2023
(in thousands)	Insurance Advisory Solutions		Underwriting, Capacity & Technology Solutions		Mainstreet Insurance Solutions		Corporate and Other		Total
Commissions and fees(1)	$	493,367	$	314,791	$	174,114	$	(48,365)	$	933,907
Net income (loss)	31,807		22,830		22,775		(178,935)		(101,523)


	For the Nine Months Ended September 30, 2022
(in thousands)	Insurance Advisory Solutions		Underwriting, Capacity & Technology Solutions		Mainstreet Insurance Solutions		Corporate and Other		Total
Commissions and fees(2)	$	433,151	$	221,753	$	106,767	$	(26,995)	$	734,676
Net income (loss)	63,296		31,060		14,868		(94,499)		14,725

__________

(1) During the three and nine months ended September 30, 2023, the UCTS Operating Group recorded intercompany commissions and fees from activity with the Mainstreet Insurance Solutions Operating Group and itself of $18.6 million and $47.7 million, respectively, and the Mainstreet Insurance Solutions Operating Group recorded intercompany commissions and fees from activity with all Operating Groups of $0.3 million and $1.4 million, respectively. These intercompany commissions and fees are eliminated through Corporate and Other.

(2) During the three and nine months ended September 30, 2022, the Insurance Advisory Solutions Operating Group recorded intercompany commissions and fees from activity with the UCTS Operating Group of $0.4 million and $1.1 million, respectively; the UCTS Operating Group recorded intercompany commissions and fees from activity with the Mainstreet Insurance Solutions Operating Group and itself of $15.8 million and $24.5 million, respectively; and the Mainstreet Insurance Solutions Operating Group recorded intercompany commissions and fees from activity with all Operating Groups of $0.4 million and $1.4 million, respectively. 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 September 30, 2023	$	2,234,244	$	628,549	$	517,088	$	43,617	$	3,423,498
Total assets at December 31, 2022	2,240,483		616,117		530,504		75,078		3,462,182

14. Subsequent Events

On November 7, 2023, the Company announced its mutual agreement with Kris Wiebeck and John Valentine for each to retire from their respective positions as Chief Strategy Officer and Chief Partnership Officer effective at the end of the Company’s 2023 fiscal year. The Company expects to incur one-time costs of approximately $8.0 million during the fourth quarter of 2023, $5.1 million of which represents severance compensation and $2.9 million of which represents early payment of the 2023 bonus otherwise payable to the retiring executives under the Company’s 2023 annual incentive plan in respect of 2023 performance.

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, in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 28, 2023 and in our Current Report on Form 8-K (relating to the Company’s reclassification of historical segment information) filed with the SEC on May 9, 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 I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

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 two million Clients across the United States and internationally. Our more than 3,900 Colleagues include approximately 700 Risk Advisors, who are fiercely independent, relentlessly competitive and “insurance geeks.” We have approximately 125 offices in 25 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 business and our MGA of the Future platform. Our specialty wholesale broker business delivers 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 nine months of 2023), 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.

•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 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 completed three Partnerships for an aggregate purchase price of $415.4 million during the nine months ended September 30, 2022. We did not complete any Partnerships during the nine months ended September 30, 2023.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 and nine months ended September 30, 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 for the year ended December 31, 2022.

The following is a discussion of our consolidated results of operations for the three and nine months ended September 30, 2023 and 2022.


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands)	2023		2022		Variance		2023		2022		Variance
Revenues:
Commissions and fees	$	306,270	$	259,368	$	46,902	$	933,907	$	734,676	$	199,231

Operating expenses:
Commissions, employee compensation and benefits	220,469		195,920		24,549		676,659		522,518		154,141
Other operating expenses	47,165		47,212		(47)		141,254		124,424		16,830
Amortization expense	23,183		23,180		3		69,505		59,912		9,593
Change in fair value of contingent consideration	13,914		21,695		(7,781)		55,065		(10,809)		65,874
Depreciation expense	1,453		1,216		237		4,250		3,309		941
Total operating expenses	306,184		289,223		16,961		946,733		699,354		247,379

Operating income (loss)	86		(29,855)		29,941		(12,826)		35,322		(48,148)

Other income (expense):
Interest expense, net	(30,580)		(20,766)		(9,814)		(87,600)		(45,748)		(41,852)
Other income (expense), net	(1,351)		3,914		(5,265)		(193)		25,151		(25,344)
Total other expense	(31,931)		(16,852)		(15,079)		(87,793)		(20,597)		(67,196)

Income (loss) before income taxes	(31,845)		(46,707)		14,862		(100,619)		14,725		(115,344)
Income tax expense	161		—		161		904		—		904
Net income (loss)	(32,006)		(46,707)		14,701		(101,523)		14,725 <