The following dialogue and evaluation of our monetary situation and outcomes of operations needs to be learn along with our consolidated monetary statements and the associated notes and different monetary info included elsewhere on this Annual Report on Form 10-Ok. In addition to historic consolidated monetary info, the next dialogue accommodates forward-looking statements that mirror our plans, estimates, and beliefs. Our precise outcomes might differ materially from these mentioned within the forward-looking statements on account of varied elements, together with these set forth in Item 1A. Risk Factors and included elsewhere on this Annual Report on Form 10-Ok.
EXECUTIVE SUMMARY OF 2021 FINANCIAL RESULTS
We are a quickly rising unbiased insurance coverage distribution agency delivering
options that give our Clients the peace of thoughts to pursue their goal,
ardour and desires.
The following is a abstract of our 2021 monetary outcomes:
Revenues for the yr endedDecember 31, 2021 had been$567.3 million , a rise of$326.4 million , or 135%, as in comparison with the identical interval of 2020. This enhance was associated to quantities attributable to Partners acquired throughout 2020 and 2021 previous to their having reached the twelve-month owned mark (such quantities, the "Partnership Contribution") and natural progress. The Partnership Contribution accounted for$272.3 million of the rise to revenues and natural progress accounted for$54.0 million . Operating bills for the yr endedDecember 31, 2021 had been$598.9 million , an enhance of$336.1 million , or 128%, as in comparison with the identical interval of 2020. The enhance in working bills was primarily attributable to the Partnership Contribution, which comprised$219.1 million of working bills excluding truthful worth changes, a rise within the truthful worth of contingent consideration of$24.7 million , elevated compensation for gross sales and help, together with investments in new product growth, and continued investments in Growth Services to help our progress. Interest expense, internet for the yr endedDecember 31, 2021 was$26.9 million , an enhance of$19.0 million , or 242%, as in comparison with the identical interval of 2020. Interest expense, internet elevated on account of larger common borrowings beneath the JPM Credit Agreement. Net loss for the yr endedDecember 31, 2021 was$58.1 million , a rise of$28.2 million as in comparison with internet lack of$29.9 million in the identical interval of 2020.
Adjusted EBITDA for the yr ended
enhance of
EBITDA Margin was 20% for 2021 and 18% for 2020.
Organic Revenue for the yr endedDecember 31, 2021 was$295.0 million as in comparison with$159.7 million for a similar interval of 2020. Organic Revenue Growth was$54.0 million , or 22%, for 2021 and$21.8 million , or 16%, for 2020. Refer to the Non-GAAP Financial Measures part beneath for reconciliations of Adjusted EBITDA, Adjusted EBITDA Margin, Organic Revenue and Organic Revenue Growth to essentially the most immediately comparable GAAP monetary measures.
PARTNERSHIPS
During 2021, we accomplished 16 Partnerships for an mixture buy worth of$1.1 billion . We additionally accomplished a follow-on public providing for mixture internet proceeds of roughly$269.4 million and borrowed an extra$450.0 million beneath the New Term Loans (as outlined elsewhere) on help with funding such acquisitions. Partnerships accomplished throughout 2021 added$121.4 million of premiums, commissions and costs receivable,$439.4 million of intangible property and$579.4 million of goodwill to the consolidated stability sheet. During 2020, we accomplished 16 Partnerships for an mixture buy worth of$1.0 billion . We borrowed$400.0 million beneath the New Term Loan B and accomplished two follow-on public choices for mixture main internet proceeds of$449.7 million to help with funding acquisitions throughout 2020. Refer to Note 4 to BRP's consolidated monetary statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-Ok for added info on the Partnerships that now we have accomplished throughout 2021.
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NOVEL CORONAVIRUS (COVID-19)
The impression of the COVID-19 pandemic, together with modifications in shopper conduct, pandemic fears, and market downturns, in addition to restrictions on enterprise and particular person actions, has created important volatility within the world financial system and led to extreme restrictions on the extent of financial exercise across the world. Although COVID-19 vaccines are actually broadly distributed and administered, there stays important uncertainty regarding the magnitude of the impression and the length of the COVID-19 pandemic. As new strains of COVID-19 develop, we might proceed to expertise disruptions to our enterprise, together with as a consequence of a discount in our Clients` insurable publicity models and a delay in money funds to us from our Clients orInsurance Company Partners . Further, the impacts of inflation on our and our Clients` companies and the broader financial system, which can be exacerbated by the financial restoration from the COVID-19 pandemic, may impression our monetary situation and outcomes of operations. In addition, the uncertainties related to the protecting and preventive measures being put in place or beneficial by each governmental entities and different companies, amongst different uncertainties, might end in delays or modifications to our plans and initiatives. Our Clients and Colleagues are our first precedence and now we have taken steps to guarantee their security by implementing different working association, with a important a part of our Colleagues working in distant or hybrid environments. As we started a phased reopening of ourU.S. places of work in 2021, we supplied tips on return to the workplace relying on the extent of virus containment and native well being and security rules in every geography. This has created and should proceed to create extra dangers and operational challenges and should require us to make extra investments of time and sources throughout our enterprise, together with to design, implement and implement new office well being and security protocols, in addition to investments in our IT techniques to help a working atmosphere that encompasses a mixture of distant and in-person preparations.
During the pandemic, now we have additionally funded the
help with aid for COVID-19 and different qualifying disasters for our
Colleagues experiencing extraordinary hardship and are at present matching
Colleague donations dollar-for greenback.
We intend to proceed to execute on our strategic plans and operational initiatives in the course of the pandemic. However, given the uncertainty concerning the unfold and severity of COVID-19, the length and scope of presidency measures, the character of societal responses and the antagonistic results on the nationwide and world financial system, the associated monetary impression on our enterprise can't be precisely predicted presently. See Item 1A. "Risk Factors-The continued antagonistic results of the COVID-19 pandemic and an indeterminate restoration interval might end in declines in enterprise and will increase in claims that might adversely have an effect on our enterprise, monetary situation and outcomes of operations" in this Annual Report on Form 10-Ok.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
For a dialogue of our 2019 monetary outcomes and a comparability of monetary outcomes for the years endedDecember 31, 2020 and 2019, discuss with Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-Ok filed with theSEC onMarch 11, 2021 . The following dialogue and evaluation of our monetary situation and outcomes of operations needs to be learn along with our monetary statements for the years endedDecember 31, 2021 and 2020 and the associated notes and different monetary info included elsewhere on this Annual Report on Form 10-Ok. In addition to historic monetary info, the next dialogue and evaluation accommodates forward-looking statements that contain dangers, uncertainties and assumptions. Our precise outcomes and timing of chosen occasions might differ materially from these anticipated in these forward-looking statements as a results of many elements, together with these mentioned beneath Item 1A. Risk Factors.
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The following is a dialogue of our consolidated outcomes of operations for every
of the years ended
For the
Years
Ended December 31, Variance (in hundreds, besides percentages) 2021 2020 Amount % Revenues: Commissions and costs$ 567,290 $ 240,919 $ 326,371 135 % Operating bills: Commissions, worker compensation and advantages 400,050 174,114 225,936 130 % Other working bills 102,162 48,060 54,102 113 % Amortization expense 48,720 19,038 29,682 156 % Change in truthful worth of contingent consideration 45,196 20,516 24,680 120 % Depreciation expense 2,788 1,129 1,659 147 % Total working bills 598,916 262,857 336,059 Operating loss (31,626) (21,938) (9,688) 44 % Other revenue (expense): Interest expense, internet (26,899) (7,857) (19,042) 242 % Other revenue (expense), internet 424 (95) 519 n/m Total different expense (26,475) (7,952) (18,523) Loss earlier than revenue taxes (58,101) (29,890) (28,211) 94 % Income tax expense (profit) 19 (5) 24 n/m Net loss (58,120) (29,885) (28,235) Less: internet loss attributable to noncontrolling pursuits (27,474) (14,189) (13,285) 94 % Net loss attributable to BRP Group, Inc.$ (30,646) $
(15,696)
__________ n/m not significant Seasonality The insurance coverage brokerage market is seasonal and our outcomes of operations are considerably affected by seasonal developments. Our Adjusted EBITDA and Adjusted EBITDA Margins are sometimes highest within the first quarter and lowest within the fourth quarter. This variation is primarily as a consequence of fluctuations in our revenues, whereas overhead stays constant all year long. Our revenues are typically highest within the first quarter because of the impression of contingent funds acquired within the first quarter fromInsurance Company Partners that we can not readily estimate earlier than receipt with out the chance of great reversal and the next diploma of first quarter coverage commencements and renewals in Medicare and sure Middle Market traces of enterprise resembling worker advantages and business. In addition, the next proportion of our first quarter income is derived from our highest margin companies. As mentioned additional above, the ongoing COVID-19 pandemic might proceed to skew these basic developments as a consequence of lowered quantities of latest enterprise and reductions in enterprise from current Clients associated to the pandemic. Partnerships can considerably impression Adjusted EBITDA and Adjusted EBITDA Margins in a given yr and should enhance the quantity of seasonality throughout the enterprise, particularly outcomes attributable to Partnerships that haven't been absolutely built-in into our enterprise or owned by us for a full yr.
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Commissions and Fees
We earn commissions and costs by facilitating the association betweenInsurance Company Partners and people or companies for the service to supply insurance coverage to the insured social gathering. Our commissions and costs are often a share of the premium paid by the insured and usually relies on the sort of insurance coverage, the actual Insurance Company Partner and the character of the providers supplied. Under sure preparations with Clients, we earn pre-negotiated service charges in lieu of commissions. Additionally, we may obtain fromInsurance Company Partners a profit-sharing fee, or straight override, which signify types of variable consideration related to the placement of protection and are based mostly totally on underwriting outcomes, however might additionally comprise issues for quantity, progress or retention.
Our future commissions and costs will be affected by modifications in premium fee
ranges, fluctuations in Client threat retention and will increase or decreases within the
worth of dangers which were insured, as properly by developments within the insurance coverage
business towards different insurance coverage markets.
Commissions and costs elevated by$326.4 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020. This enhance was associated to the Partnership Contribution and natural progress. The Partnership Contribution accounted for$272.3 million of the rise to revenues and natural progress accounted for$54.0 million .
Major Sources of Commissions and Fees
The following desk units forth our commissions and costs by main supply by
quantity for the years ended
For the Years Ended December 31, Variance (in hundreds, besides percentages) 2021 2020 Amount % Direct invoice income 269,603$ 104,875 $ 164,728 157 % Agency invoice income 202,892 91,662 111,230 121 % Profit-sharing income 37,392 16,397 20,995 128 % Consulting and repair price income 29,047 3,509 25,538 n/m Policy price and installment price income 19,858 15,236 4,622 30 % Other revenue 8,498 9,240 (742) (8) % Total commissions and costs$ 567,290 $ 240,919 $ 326,371 __________ n/m not significant Direct invoice income represents fee income earned by offering insurance coverage placement providers to Clients, primarily for personal threat administration, business threat administration, worker advantages and Medicare insurance coverage sorts. Direct invoice income elevated by$164.7 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 on account of the Partnership Contribution of$148.0 million and natural progress of$16.7 million . Agency invoice income primarily represents fee income earned by offering insurance coverage placement providers to Clients whereby we act as an agent on behalf of the Client. Agency invoice income elevated by$111.2 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 on account of the Partnership Contribution of$82.5 million and natural progress of$28.7 million . Profit-sharing income represents bonus-type income that's earned by us as a gross sales incentive supplied by sureInsurance Company Partners . Profit-sharing income elevated by$21.0 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 on account of Partnership Contribution of$20.0 million and natural progress of$1.0 million . Profit-sharing income was affected by larger loss ratios in our Middle Market and MainStreet Operating Groups, which is especially acute within theFlorida owners market. Consulting and repair price income represents charges acquired in lieu of a fee and specialty insurance coverage consulting income. Consulting and repair price income elevated$25.5 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 on account of the Partnership Contribution of$24.3 million and natural progress of$1.2 million . Policy price and installment price income represents income earned for performing in the capability of an MGA and offering fee processing and providers and different administrative features on behalf ofInsurance Company Partners . Policy price and installment price income elevated$4.6 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 as a consequence of natural progress. These charges are generated by ourSpecialty Operating Group .
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Other revenue consists of Medicare advertising and marketing revenue that's based mostly on agreed-upon value reimbursement for fulfilling particular focused advertising and marketing campaigns in addition to different price revenue and premium financing revenue generated throughout all Operating Groups. Other revenue decreased$0.7 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020. Organic progress contributed$1.6 million to different revenue.
Commissions, Employee Compensation and Benefits
Commissions, worker compensation and advantages is our largest expense. It consists of (a) base compensation comprising wage, bonuses and advantages paid and payable to Colleagues, commissions paid to Colleagues and outdoors commissions paid to others; and (b) equity-based compensation related to the grants of restricted curiosity awards to senior administration,Risk Advisors and executives. We anticipate to proceed to expertise a basic rise in commissions, worker compensation and advantages expense commensurate with anticipated progress in our gross sales and headcount and on account of rising worker compensation associated to ongoing public firm prices. We function in aggressive markets for human capital and wish to take care of aggressive compensation ranges as we broaden geographically and create new services. Our compensation preparations with our workers comprise important bonus or fee parts pushed by the outcomes of our operations. Therefore, as we develop commissions and costs, we anticipate compensation prices to rise. Commissions, worker compensation and advantages bills elevated by$225.9 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020. The Partnership Contribution accounted for$159.7 million of the rise to commissions, worker compensation and advantages. Share-based compensation expense elevated$11.4 million on account of fairness grants awarded to all newly employed Colleagues, together with those that joined us by way of Partnerships, and grants to reward Colleagues, together with members of senior administration. The remaining enhance in commissions, worker compensation and advantages expense will be attributed to larger commissions expense regarding our natural progress and better compensation and advantages regarding hiring to help our progress.
Other Operating Expenses
Other working bills embody journey, accounting, authorized and different skilled charges, placement charges, hire, workplace bills and different prices related to our operations. Our different working bills have elevated in absolute phrases on account of ongoing public firm prices, together with these related to compliance with the Sarbanes-Oxley Act and different rules governing public corporations, elevated prices of administrators' and officers' legal responsibility insurance coverage, and elevated skilled providers bills, notably related to the adoption of latest accounting requirements and integration of acquired companies. Our occupancy-related prices {and professional} providers bills, specifically, typically enhance or lower in relative proportion to the variety of our workers and the general measurement and scale of our enterprise operations. In addition, now we have invested within the enlargement of ourTampa places of work to accommodate our progress plans, which has resulted in a rise to hire expense starting inApril 2020 . Certain company bills are allotted to the Operating Groups. Other working bills elevated by$54.1 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020, which was primarily attributable to will increase in hire expense of$10.4 million associated to enlargement of our places of work by way of Partnerships, dues and subscriptions of$6.3 million associated to investing in expertise to help our progress, journey and leisure of$5.3 million , skilled charges of$4.7 million associated to Partnership transactions and public firm prices, software program and web bills of$4.4 million , consulting of$3.7 million , Colleague schooling and welfare of$2.8 million , and promoting and advertising and marketing of$2.1 million .
Amortization Expense
Amortization expense elevated by$29.7 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020. This enhance was pushed by the capitalization of intangible property associated to Partners acquired throughout 2020 and 2021.
Change in Fair Value of Contingent Consideration
Change in truthful worth of contingent consideration was$45.2 million for the yr endedDecember 31, 2021 as in comparison with$20.5 million for a similar interval of 2020. The change in truthful worth of contingent consideration outcomes from fluctuations within the worth of the related measurement foundation, usually income or EBITDA, of our Partners. Interest Expense, Net
Interest expense, internet elevated by
2021
borrowings beneath the JPM Credit Agreement throughout 2021 in comparison with 2020.
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FINANCIAL CONDITION – COMPARISON OF CONSOLIDATED FINANCIAL CONDITION AT
31, 2021
Our complete property and complete liabilities elevated$1.3 billion and$0.9 billion , respectively, atDecember 31, 2021 as in comparison withDecember 31, 2020 . The most important modifications in property and liabilities are described beneath.
Cash and money equivalents and restricted money elevated
results of working, investing and financing actions illustrated within the
condensed consolidated assertion of money flows and mentioned additional beneath the
Sources and Uses of Cash part beneath.
Restricted money elevated
associated to our 2021 Partnerships.
Premiums, commissions and costs receivable, internet elevated$185.3 million as a results of income progress and the modifications in income seasonality of our enterprise given the underlying income streams of Partnerships.
We adopted Topic 842 throughout 2021, which resulted in right-of-use property
million
Intangible property, internet elevated$390.1 million primarily on account of our 2021 Partnerships, which contributed$439.4 million to gross intangible property throughout 2021, offset partially by$48.7 million of amortization in the course of the yr.Goodwill elevated$577.2 million on account of our 2021 Partnerships, offset partially by measurement interval changes for sure Partnerships fashioned within the fourth quarter 2020.
Premiums payable to insurance coverage corporations elevated
our 2021 Partnerships and natural income progress.
Accrued bills and different present liabilities elevated$40.7 million as a results of larger accrued compensation and advantages from new Partner prices and 2021 bonus accruals regarding a rise within the variety of Colleagues; present portion of working lease liabilities regarding the adoption of Topic 842 throughout 2021; and better contract liabilities regarding our income progress and new Partners. Related social gathering notes payable of$61.5 million atDecember 31, 2021 pertains to our having accelerated recognition of MSI's most contingent earnout and getting into into notes payable agreements with every of MSI's shareholders within the third quarter of 2021.
Revolving line of credit score elevated
Revolving Facility (as outlined in “-Liquidity and Capital Resources”) for
funding Partnerships and basic working capital functions in 2021.
Long-term debt elevated
mortgage to
Contingent earnout liabilities elevated$93.8 million ensuing from issuances of$127.3 million in truthful worth associated to our 2021 Partnerships and a$45.2 million enhance from truthful worth changes. These will increase had been offset in half by$74.0 million of settlements, of which$61.5 million was a noncash trade for associated social gathering notes payable.
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 monetary efficiency beneath GAAP and shouldn't be thought of substitutes for GAAP measures, together with commissions and costs (for Organic Revenue and Organic Revenue Growth), internet revenue (loss) (for Adjusted EBITDA and Adjusted EBITDA Margin) internet revenue (loss) attributable toBRP Group, Inc. (for Adjusted Net Income) or diluted earnings (loss) per share ("EPS") (for Adjusted Diluted EPS), which we contemplate to be essentially the most immediately comparable GAAP measures. These non-GAAP monetary measures have limitations as analytical instruments, and when assessing our working efficiency, you shouldn't contemplate these non-GAAP monetary measures in isolation or as substitutes for commissions and costs, internet revenue (loss), internet revenue (loss) attributable toBRP Group, Inc. or different consolidated revenue assertion knowledge ready in accordance with GAAP. Other corporations in our business might outline or calculate these non-GAAP monetary measures in a different way than we do, and accordingly these measures is probably not corresponding to equally titled measures utilized by different corporations.
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Adjusted EBITDA eliminates the consequences of financing, depreciation, amortization, truthful worth changes, and different noncash gadgets and non-recurring prices. We outline Adjusted EBITDA as internet revenue (loss) earlier than curiosity, taxes, depreciation, amortization, change in truthful worth of contingent consideration and sure gadgets of revenue and expense, together with share-based compensation expense, transaction-related bills associated to Partnerships together with severance, and sure non-recurring prices, together with these associated to elevating capital. We imagine that Adjusted EBITDA is an applicable measure of working efficiency as a result of it eliminates the impression of bills that don't relate to enterprise efficiency, and that the presentation of this measure enhances an investor's understanding of our monetary efficiency. Adjusted EBITDA Margin is Adjusted EBITDA divided by commissions and costs. Adjusted EBITDA Margin is a key metric utilized by administration and our board of administrators to evaluate our monetary efficiency. We imagine that Adjusted EBITDA Margin is an applicable measure of working efficiency as a result of it eliminates the impression of bills that don't relate to enterprise efficiency, and that the presentation of this measure enhances an investor's understanding of our monetary efficiency. We imagine that Adjusted EBITDA Margin is useful in measuring profitability of operations on a consolidated degree.
Adjusted EBITDA and Adjusted EBITDA Margin have essential limitations as
analytical instruments. For instance, Adjusted EBITDA and Adjusted EBITDA Margin:
•don’t mirror any money capital expenditure necessities for the property being
depreciated and amortized which will have to get replaced sooner or later;
•don’t mirror modifications in, or money necessities for, our working capital wants;
•don’t mirror the impression of sure money prices ensuing from issues we
contemplate to not be indicative of our ongoing operations;
•don’t mirror the curiosity expense or the money necessities essential to
service curiosity or principal funds on our debt;
•don’t mirror share-based compensation expense and different non-cash prices; and
•exclude sure tax funds which will signify a discount in money out there
to us.
We calculate Organic Revenue Growth based mostly on commissions and costs for the related interval by excluding the primary twelve months of commissions and costs generated from new Partners. Organic Revenue Growth is the change in Organic Revenue period-to-period, with prior interval outcomes adjusted for Organic Revenues that had been excluded within the prior interval as a result of the related Partners had not but reached the twelve-month owned mark, however which have reached the twelve-month owned mark within the present interval. For instance, revenues from a Partner acquired onJune 1, 2020 are excluded from Organic Revenue for 2020. However, afterJune 1, 2021 , outcomes fromJune 1, 2020 toDecember 31, 2020 for such Partners are in comparison with outcomes fromJune 1, 2021 toDecember 31, 2021 for functions of calculating Organic Revenue Growth in 2021. Organic Revenue Growth is a key metric utilized by administration and our board of administrators to evaluate our monetary efficiency. We imagine that Organic Revenue and Organic Revenue Growth are applicable measures of working efficiency as they permit buyers to measure, analyze and examine progress in a significant and constant method. Adjusted Net Income is offered for the aim of calculating Adjusted Diluted EPS. We outline Adjusted Net Income as internet revenue (loss) attributable toBRP Group, Inc. adjusted for depreciation, amortization, change in truthful worth of contingent consideration and sure gadgets of revenue and expense, together with share-based compensation expense, transaction-related bills associated to Partnerships together with severance, and sure non-recurring prices that, within the opinion of administration, considerably have an effect on the period-over-period evaluation of working outcomes, and the associated tax impact of these changes. Adjusted Diluted EPS measures our per share earnings excluding sure bills as mentioned above and assuming all shares of Class B frequent inventory had been exchanged for Class A typical inventory. Adjusted Diluted EPS is calculated as Adjusted Net Income divided by adjusted dilutive weighted-average shares excellent. We imagine Adjusted Diluted EPS is helpful to buyers as a result of it allows them to higher consider per share working efficiency throughout reporting intervals.
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Adjusted EBITDA and Adjusted EBITDA Margin
The following desk reconciles Adjusted EBITDA and Adjusted EBITDA Margin to internet
loss, which we contemplate to be essentially the most immediately comparable GAAP monetary
measure to Adjusted EBITDA and Adjusted EBITDA Margin:
For the
Years
Ended
(in hundreds, besides percentages) 2021
2020 Commissions and costs$ 567,290 $ 240,919 Net loss$ (58,120) $ (29,885)
Adjustments to internet loss:
Amortization expense 48,720
19,038
Change in truthful worth of contingent consideration 45,196
20,516
Interest expense, internet 26,899
7,857
Share-based compensation 19,193
7,744
Transaction-related Partnership bills 19,182
13,851
Depreciation expense 2,788
1,129
Severance associated to Partnership exercise 871 89 Change in truthful worth of rate of interest caps 123 - Income tax provision 19 (5) Capital associated bills -
1,087 Other 8,038 2,535 Adjusted EBITDA$ 112,909 $ 43,956 Adjusted EBITDA Margin 20 % 18 %
Organic Revenue and Organic Revenue Growth
The following desk reconciles Organic Revenue to commissions and costs, which we contemplate to be essentially the most immediately comparable GAAP monetary measure to Organic Revenue: For the Years Ended December 31, (in hundreds, besides percentages) 2021 2020 Commissions and costs$ 567,290 $
240,919
Partnership commissions and costs (1) (272,272)
(81,250)
Organic Revenue (2)$ 295,018 $
159,669
Organic Revenue Growth (2)$ 54,004 $
21,780
Organic Revenue Growth % (2) 22 %
16 %
__________
(1) Includes the primary twelve months of such commissions and costs generated from newly acquired Partners. (2) Organic Revenue for the yr endedDecember 31, 2020 used to calculate Organic Revenue Growth for the yr endedDecember 31, 2021 was$241.0 million , which is adjusted to mirror revenues from Partnerships that reached the twelve-month owned mark in the course of the yr endedDecember 31, 2021 .
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Adjusted Net Income and Adjusted Diluted EPS
The following desk reconciles Adjusted Net Income to internet loss attributable to
share attributable to
For the Years
Ended December 31, (in hundreds, besides percentages, share and per share knowledge) 2021 2020 Net loss attributable to BRP Group, Inc.$ (30,646) $ (15,696) Net loss attributable to noncontrolling pursuits (27,474) (14,189) Amortization expense 48,720 19,038 Change in truthful worth of contingent consideration 45,196 20,516 Share-based compensation 19,193 7,744 Transaction-related Partnership bills 19,182 13,851 Amortization of deferred financing prices 3,506 1,002 Depreciation (1) 2,788 1,129 Severance associated to Partnership exercise 871 89 Change in truthful worth of rate of interest caps 123 - Capital associated bills - 1,087 Other 8,038 2,535 Adjusted pre-tax revenue 89,497 37,106 Adjusted revenue taxes (2) 8,860 3,673 Adjusted Net Income$ 80,637 $ 33,433
Weighted-average shares of Class A typical inventory excellent –
diluted
47,588 27,176
Dilutive impact of unvested restricted shares of Class A typical
inventory
1,982 571 Exchange of Class B shares (3) 51,811 45,147 Adjusted dilutive weighted-average shares excellent 101,381 72,894 Adjusted Diluted EPS $
0.80
Diluted internet loss per share $
(0.64)
Effect of trade of Class B shares and internet loss attributable to
noncontrolling pursuits per share
0.07 0.17 Other changes to internet loss per share 1.46 0.92 Adjusted revenue taxes per share (0.09) (0.05) Adjusted Diluted EPS$ 0.80 $ 0.46 ___________ (1) Calculation was adjusted within the fourth quarter of 2021 to incorporate depreciation. Prior yr quantities have been conformed to present yr presentation. (2) Represents company revenue taxes at assumed efficient tax fee of 9.9% utilized to adjusted pre-tax revenue. (3) Assumes the total trade of Class B shares for Class A typical inventory pursuant to the Amended LLC Agreement.
OPERATING GROUP RESULTS
Commissions and Fees
In the Middle Market, MainStreet and Specialty Operating Groups, the Company generates commissions and costs from insurance coverage placement beneath each company invoice and direct invoice preparations. In addition, BRP generates revenue sharing revenue in every of these segments based mostly on both the underlying e-book of enterprise or efficiency, resembling loss ratios. In theMiddle Market Operating Group solely, the Company generates charges from service price and consulting preparations. Service price preparations are in place with sure clients in lieu of fee preparations.
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In theMedicare Operating Group , BRP generates commissions and costs within the type of direct invoice insurance coverage placement and advertising and marketing revenue. Marketing revenue is earned by way of co-branded advertising and marketing campaigns with the Company'sInsurance Company Partners .
The following desk units forth our commissions and costs by
quantity and as a share of our commissions and costs:
Commissions and Fees by Operating
Group (in hundreds, besides percentages)
For the Years Ended December 31, 2021 2020 Percent of Percent of Variance Operating Group Amount Business Amount Business Amount % Middle Market$ 363,822 64 %$ 103,393 43 %$ 260,429 252 % Specialty 144,455 25 % 88,876 37 % 55,579 63 % MainStreet 34,344 6 % 30,361 13 % 3,983 13 % Medicare 27,392 5 % 19,320 8 % 8,072 42 % Corporate and Other (2,723) - % (1,031) - % (1,692) 164 %$ 567,290 $ 240,919 $ 326,371 Commissions and costs for ourMiddle Market Operating Group elevated$260.4 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 on account of the Partnership Contribution of$243.5 million and natural progress of$16.9 million . Middle Market skilled natural progress in base commissions and costs of$15.4 million and contingents of$0.6 million in the course of the interval. Commissions and costs for ourSpecialty Operating Group elevated$55.6 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 as a results of natural progress of$32.3 million which is attributable to progress in our renter's insurance coverage product andConnected Risk Solutions , along with the Partnership Contribution of$23.3 million .
Policies in drive for the
Commissions and costs for ourMainStreet Operating Group elevated$4.0 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020.The MainStreet Operating Group had natural progress in base commissions and costs of$4.9 million , which was offset partially by a lower in natural contingent income of$1.0 million ensuing from larger loss ratios as a consequence of challenges in theFlorida insurance coverage market. Commissions and costs for ourMedicare Operating Group elevated$8.1 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 as a results of the Partnership Contribution of$6.4 million and natural progress of$1.6 million . Continued COVID-19 protocols, together with social distancing, lowered our Medicare brokers' skill to satisfy person-to-person in our regular venues, which impacted our skill to promote new enterprise in the course of the 2021 Annual Enrollment Period. Revenue reported for Corporate and Other pertains to the elimination of intercompany income. During the yr endedDecember 31, 2021 , theMiddle Market Operating Group recorded intercompany commissions and costs income from exercise with theSpecialty Operating Group of$1.5 million ; theSpecialty Operating Group recorded intercompany commissions and costs income from exercise with itself of$0.2 million ; theMainStreet Operating Group recorded intercompany commissions and costs income from exercise with the Middle Market and Specialty Operating Groups of$0.5 million ; and theMedicare Operating Group recorded intercompany commissions and costs income from exercise with itself of$0.6 million . These quantities had been eradicated by way of Corporate and Other.
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Commissions, Employee Compensation and Benefits
The following desk units forth our commissions, worker compensation and
advantages by
worker compensation and advantages:
Commissions, Employee Compensation and Benefits by
Operating Group (in hundreds, besides percentages)
For the Years Ended December 31, 2021 2020 Percent of Percent of Variance Operating Group Amount Business Amount Business Amount % Middle Market$ 234,652 59 %$ 66,303 38 %$ 168,349 254 % Specialty 102,824 26 % 67,189 39 % 35,635 53 % MainStreet 22,884 6 % 17,852 10 % 5,032 28 % Medicare 16,309 4 % 10,889 6 % 5,420 50 % Corporate and Other 23,381 6 % 11,881 7 % 11,500 97 %$ 400,050 $ 174,114 $ 225,936 Commissions, worker compensation and advantages bills elevated throughout all Operating Groups for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020. The Partnership Contribution accounted for$147.5 million ,$8.8 million , and$3.4 million of the rise to commissions, worker compensation and advantages bills within the Middle Market, Specialty and Medicare Operating Groups, respectively. Commissions, worker compensation and advantages bills additionally elevated throughout all Operating Groups on account of continued investments in Growth Services to help our progress, which prices are primarily allotted among the many Operating Groups, and continued funding in gross sales and repair expertise.
Commissions, worker compensation and advantages bills for Corporate and Other
elevated on account of elevated headcount to help our progress and
extra share-based compensation expense.
Other Operating Expenses
The following desk units forth our different working bills by
by quantity and as a share of our working bills:
Other Operating Expenses byOperating Group
(in hundreds, besides percentages)
For the Years Ended December 31, 2021 2020 Percent of Percent of Variance Operating Group Amount Business Amount Business Amount % Middle Market$ 50,037 49 %$ 16,319 34 %$ 33,718 207 % Specialty 13,716 13 % 5,746 12 % 7,970 139 % MainStreet 4,970 5 % 4,440 9 % 530 12 % Medicare 5,289 5 % 3,504 7 % 1,785 51 % Corporate and Other 28,150 28 % 18,051 38 % 10,099 56 %$ 102,162 $ 48,060 $ 54,102 Other working bills for ourMiddle Market Operating Group elevated$33.7 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 pushed by larger prices for hire expense of$8.5 million , journey and leisure of$3.9 million , software program and web of$3.6 million , dues and subscriptions of$3.0 million , skilled charges of$2.4 million and consulting of$1.8 million and colleague schooling and welfare of$1.7 million . Other working bills for ourSpecialty Operating Group elevated$8.0 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 pushed by larger prices for skilled charges of$2.3 million , dues and subscriptions of$1.2 million , consulting charges of$0.8 million , hire expense of$0.6 million , financial institution prices of$0.5 million and promoting and advertising and marketing of$0.4 million . Other working bills for ourMedicare Operating Group elevated$1.8 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 pushed by larger prices for promoting and advertising and marketing of$0.6 million , hire expense of$0.4 million and dues and subscriptions of$0.1 million . The will increase in our working prices are associated to our progress, each organically and by way of Partnerships, throughout 2021.
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Other working bills in Corporate and Other elevated$10.1 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 as a consequence of larger prices for dues and subscriptions of$2.1 million , consulting charges of$1.1 million , hire expense of$1.0 million , journey and leisure of$0.9 million and licenses and taxes of$0.9 million .
Amortization Expense
The following desk units forth our amortization by
as a share of our amortization:
Amortization Expense byOperating Group
(in hundreds, besides percentages)
For the Years Ended December 31, 2021 2020 Percent of Percent of Variance Operating Group Amount Business Amount Business Amount % Middle Market$ 34,056 70 %$ 7,037 37 %$ 27,019 384 % Specialty 11,326 23 % 9,131 48 % 2,195 24 % MainStreet 1,617 3 % 1,730 9 % (113) (7) % Medicare 1,716 4 % 1,132 6 % 584 52 % Corporate and Other 5 - % 8 - % (3) (38) %$ 48,720 $ 19,038 $ 29,682 Amortization expense elevated throughout our Middle Market, Specialty and Medicare Operating Groups for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 pushed by amortization associated to Partners acquired over the previous twelve months. Amortization for theMainStreet Operating Group was comparatively flat.
Change in Fair Value of Contingent Consideration
The following desk units forth our change in truthful worth of contingent
consideration by
truthful worth of contingent consideration:
Change in Fair Value of Contingent Consideration by
Operating Group (in hundreds, besides percentages)
For the Years Ended December 31, 2021 2020 Percent of Percent of Variance Operating Group Amount Business Amount Business Amount % Middle Market$ 32,735 72 %$ 143 1 %$ 32,592 n/m Specialty 11,881 26 % 16,707 81 % (4,826) (29) % MainStreet 926 2 % 3,187 16 % (2,261) (71) % Medicare (346) (1) % 479 2 % (825) (172) %$ 45,196 $ 20,516 $ 24,680 __________ n/m not significant The change in truthful worth of contingent consideration outcomes from fluctuations within the worth of the related measurement foundation, usually income or EBITDA of our Partners.
LIQUIDITY AND CAPITAL RESOURCES
Our main liquidity wants for the foreseeable future will embody money to (i) present capital to facilitate the natural progress of our enterprise and to fund future Partnerships, (ii) pay working bills, together with money compensation to our workers and bills associated to being a public firm, (iii) make funds beneath the Tax Receivable Agreement, (iv) pay curiosity and principal due on borrowings beneath the JPM Credit Agreement, (v) pay contingent earnout liabilities and associated short-term notes payable dueApril 2022 , and (vi) pay revenue taxes. We have traditionally financed our operations and funded our debt service by way of the sale of our insurance coverage services. In addition, we financed important money must fund progress by way of the acquisition of Partners by way of debt and fairness financing.
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As ofDecember 31, 2021 , our money and money equivalents had been$138.3 million . We imagine that our money and money equivalents, money move from operations and out there borrowings beneath the JPM Credit Agreement will likely be adequate to fund our working capital and meet our commitments for the foreseeable future. However, we anticipate that we are going to require extra funding to proceed to execute on our Partnership technique. Such funding might embody the incurrence of extra debt and the issuance of fairness. Additional funds is probably not out there on a well timed foundation, on favorable phrases, or in any respect, and such funds, if raised, is probably not adequate to allow us to proceed to implement our long-term Partnership technique. If we're not in a position to elevate funds when wanted, on favorable phrases or in adequate quantity, we could possibly be compelled to delay or cut back the variety of Partnerships that we full. See Item 1A. "Risk Factors - Risks Relating to our Business - We is probably not in a position to efficiently determine and purchase Partners or combine Partners into our firm, and we might grow to be topic to sure liabilities assumed or incurred in reference to our Partnerships that might hurt our enterprise, outcomes of operations and monetary situation."
Public Equity Offering
OnSeptember 17, 2021 , we accomplished a public providing of 9,200,000 shares of our Class A typical inventory, together with 1,200,000 shares bought pursuant to the underwriters' over-allotment choice. The shares had been bought at an providing worth of$30.50 per share for internet proceeds of roughly$269.4 million after deducting underwriting reductions and commissions of$11.2 million . We used such proceeds to buy 9,200,000 LLC Units. We additionally paid providing bills of$1.1 million . JPM Credit Agreement OnOctober 14, 2020 , we entered into the JPM Credit Agreement withJPMorgan Chase Bank, N.A ., to supply senior secured credit score amenities in an mixture principal quantity of$800.0 million . The quantity consists of (i) a time period mortgage facility within the principal quantity of$400.0 million maturing in 2027 (the "Existing Term Loan B") and (ii) a revolving credit score facility with commitments in an mixture principal quantity of$400.0 million maturing in 2025 (the "Revolving Facility"). OnJune 2, 2021 , we entered into Amendment No. 2 to the JPM Credit Agreement to present for a brand new senior secured first lien time period mortgage facility in an mixture principal quantity of$500.0 million maturing in 2027 (the "New Term Loan B"), a portion of the proceeds from which had been used to repay in full the obligations beneath the Existing Term Loan B. OnAugust 6, 2021 , we entered into Amendment No. 3 to the JPM Credit Agreement offering for a rise within the mixture principal quantity of the Revolving Facility from$400.0 million to$475.0 million . OnDecember 16, 2021 , we entered into Amendment No. 4 to the JPM Credit Agreement to supply for a brand new senior secured first lien incremental time period mortgage facility in an mixture principal quantity of$350.0 million (the "New Term Loans"), which represents a rise within the mixture principal quantity of its current New Term Loan B from$500.0 million to$850.0 million . A portion of the proceeds of the New Term Loans had been used to repay excellent quantities beneath the Revolving Facility as of the time limit. The New Term Loans bear curiosity at LIBOR plus 350 bps with a LIBOR ground of fifty bps. The relevant rate of interest on the New Term Loans atDecember 31, 2021 was 4.00%. Borrowings beneath the Revolving Facility accrue curiosity at LIBOR plus 200 bps to LIBOR plus 300 bps based mostly on complete internet leverage ratio. BRP pays a letter of credit score price equal to the margin then in impact with respect to LIBOR loans beneath the Revolving Facility multiplied by the every day quantity out there to be drawn beneath any letter of credit score, a fronting price and any customary documentary and processing prices for any letter of credit score issued beneath the JPM Credit Agreement. The excellent borrowings on the Revolving Facility had an relevant rate of interest of two.10% atDecember 31, 2021 . The excellent principal stability of the New Term Loans was$846.6 million atDecember 31, 2021 and is required to be repaid in equal quarterly installments equal to roughly 0.2506% of the unique principal quantity of the New Term Loans starting with the fiscal quarter endingDecember 31, 2021 , the stability of which is due at maturity. Outstanding borrowings beneath the Revolving Facility of$35.0 million atDecember 31, 2021 aren't topic to amortization. The Revolving Facility and the New Term Loans are collateralized by a primary precedence lien on considerably all of the property of BRP, together with a pledge of all fairness securities of sure of its subsidiaries. The JPM Credit Agreement accommodates covenants that, amongst different issues, prohibit our skill to make sure restricted funds, incur extra debt, interact in sure asset gross sales, mergers, acquisitions or related transactions, create liens on property, interact in sure transactions with associates, change our enterprise, make sure investments or prohibit BRP's skill to make dividends or different distributions toBRP Group . In addition, the JPM Credit Agreement accommodates monetary covenants requiring us to take care of our Total First Lien Net Leverage Ratio (as outlined within the JPM Credit Agreement) at or beneath 6.00 to 1.00.
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Source and Uses of Cash
The following desk summarizes our money flows from working, investing and
financing actions for the intervals indicated:
For the Years Ended December 31, (in hundreds) 2021 2020 Variance Net money supplied by working actions$ 40,129 $ 36,817 $ 3,312 Net money utilized in investing actions (678,473) (677,809) (664) Net money supplied by financing actions 724,059 711,943 12,116 Net enhance in money and money equivalents and restricted money 85,715 70,951 14,764 Cash and money equivalents and restricted money at starting of yr 142,022 71,071 70,951 Cash and money equivalents and restricted money at finish of yr$ 227,737 $ 142,022 $ 85,715 Operating Activities The main sources and makes use of of money for working actions are internet revenue adjusted for non-cash gadgets and modifications in property and liabilities, or working working capital. Net money supplied by working actions elevated$3.3 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 pushed by a rise in internet revenue adjusted for noncash gadgets and an enhance in accounts payable, accrued bills and different present liabilities. This enhance in money was partially offset by a lower in money regarding a larger stability in premiums, commissions and costs receivable pushed by income progress and the modifications in income seasonality of our enterprise given the underlying income streams of Partnerships.
Investing Activities
The main sources and makes use of of money for investing actions relate to money consideration paid for enterprise mixtures and asset acquisitions, in addition to capital expenditures. Net money utilized in investing actions elevated$0.7 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 pushed by a rise in money consideration paid to fund investments in joint ventures of$0.7 million .
Financing Activities
The main sources and makes use of of money for financing actions relate to the issuance of our Class A typical inventory, borrowings from and compensation to our credit score agreements, fee of debt issuance prices, fee of contingent earnout consideration, and different fairness transactions. Net money supplied by financing actions elevated$12.1 million for the yr endedDecember 31, 2021 as in comparison with the identical interval of 2020 primarily on account of an fairness elevate that we accomplished throughout 2021, which generated$268.3 million in internet proceeds, a rise in internet borrowings on our credit score amenities of$128.2 million , and a lower in redemptions of LLC Units and Class B frequent inventory leading to$78.3 million much less financing money outflows, offset partially by fairness raises accomplished throughout 2020, which generated$449.7 million in internet proceeds.
Contractual Obligations
The following desk represents our contractual obligations, aggregated by kind, atDecember 31, 2021 : Payments Due by Period Less than More than (in hundreds) Total 1 yr 1-3 years 3-5 years 5 years Operating leases (1)$ 95,519 $ 15,285
Debt obligations payable (2)
1,075,153 42,951 84,879 117,964 829,359 Maximum future acquisition contingency funds (3) 996,205 77,677 908,528 10,000 - Total$ 2,166,877 $ 135,913 $ 1,021,403 $ 151,537 $ 858,024 __________ (1) The Company leases amenities and workplace gear beneath non-cancelable working leases. Operating lease expense was$13.1 million and$7.6 million for the years endedDecember 31, 2021 and 2020, respectively. (2) Represents scheduled debt obligation and curiosity funds. (3) Includes$258.6 million of present and non-current estimated contingent earnout liabilities atDecember 31, 2021 .
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Effects of Inflation
Certain of our lease agreements characteristic annual hire escalations both fastened or based mostly on a shopper worth index or different index, which, traditionally, haven't had a fabric impression on our outcomes of operations, together with our outcomes of operations for the years endedDecember 31, 2021 , 2020 and 2019. Given the latest rise in inflation, we anticipate the inflation fee enhance for the upcoming yr to be larger than these of previous years. Despite this anticipated enhance, we don't anticipate the inflation fee enhance for 2022 to have a materials impression on our outcomes of operations. We have monitored and can proceed to observe the parts of value of income and working bills for the potential impression of inflation.
Off-Balance Sheet Arrangements
We don't put money into any off-balance sheet autos that present liquidity, capital sources, market or credit score threat help, or interact in any actions that expose us to any legal responsibility that's not mirrored in our consolidated monetary statements aside from these described beneath this Liquidity and Capital Resources part. Dividend Policy Assuming BRP makes distributions to its members in any given yr, the willpower to pay dividends, if any, to our Class A typical stockholders out of the portion, if any, of such distributions remaining after our fee of taxes, Tax Receivable Agreement funds and bills (any such portion, an "excess distribution") will likely be made on the sole discretion of our board of administrators. Our board of administrators might change our dividend coverage at any time. See Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities - Dividend Policy."
Tax Receivable Agreement
OnOctober 28, 2019 ,BRP Group entered into the Tax Receivable Agreement with BRP's LLC Members that gives for the fee byBRP Group toBRP's LLC Members of 85% of the amount of money financial savings, if any, inU.S. federal, state and native revenue tax or franchise tax thatBRP Group truly realizes consequently of (i) any enhance in tax foundation in BRP property ensuing from (a) earlier acquisitions byBRP Group of BRP's LLC Units from BRP's LLC Members, (b) the acquisition of LLC Units from BRP's LLC Members utilizing the online proceeds from any future providing, (c) redemptions or exchanges by BRP's LLC Members of LLC Units and the corresponding variety of shares of Class B frequent inventory for shares of Class A typical inventory or money or (d) funds beneath the Tax Receivable Agreement, and (ii) tax advantages associated to imputed curiosity ensuing from funds made beneath the Tax Receivable Agreement. Holders of BRP's LLC Units (apart fromBRP Group ) might, topic to sure circumstances and switch restrictions described above, redeem or trade their LLC Units for shares of Class A typical inventory ofBRP Group on a one-for-one foundation. BRP intends to make an election beneath Section 754 of the Internal Revenue Code of 1986, as amended, and the rules thereunder (the "Code") efficient for every taxable yr wherein a redemption or trade of LLC Units for shares of Class A typical inventory happens, which is predicted to end in will increase to the tax foundation of the property of BRP on the time of a redemption or trade of LLC Units. The redemptions or exchanges are anticipated to end in will increase within the tax foundation of the tangible and intangible property of BRP. These will increase in tax foundation might cut back the quantity of tax thatBRP Group would in any other case be required to pay sooner or later. We have entered right into a Tax Receivable Agreement with the BRP's LLC Members that gives for the fee by us to the BRP's LLC Members of 85% of the amount of money financial savings, if any, inU.S. federal, state and native revenue tax or franchise tax that we truly notice on account of (i) any enhance in tax foundation inBRP Group's property ensuing from (a) the acquisition of LLC Units from any of the BRP's LLC Members utilizing the online proceeds from any future providing, (b) redemptions or exchanges by the BRP's LLC Members of LLC Units for shares of our Class A typical inventory or (c) funds beneath the Tax Receivable Agreement and (ii) tax advantages associated to imputed curiosity deemed arising on account of funds made beneath the Tax Receivable Agreement. This fee obligation is an obligation ofBRP Group and never of BRP. For functions of the Tax Receivable Agreement, the money tax financial savings in revenue tax will likely be computed by evaluating the precise revenue tax legal responsibility ofBRP Group (calculated with sure assumptions) to the quantity of such taxes thatBRP Group would have been required to pay had there been no enhance to the tax foundation of the property of BRP on account of the redemptions or exchanges and hadBRP Group not entered into the Tax Receivable Agreement. Estimating the quantity of funds which may be made beneath the Tax Receivable Agreement is by its nature imprecise, insofar as the calculation of quantities payable relies on quite a lot of elements. While the precise enhance in tax foundation, in addition to the quantity and timing of any funds beneath the Tax Receivable Agreement, will range relying upon a variety of elements, together with the timing of redemptions or exchanges, the worth of shares of our Class A typical inventory on the time of the redemption or trade, the extent to which such redemptions or exchanges are taxable, the quantity and timing of our revenue, the tax charges then relevant and the portion of our funds beneath the Tax Receivable Agreement constituting imputed curiosity. We anticipate that we are going to account for the consequences of those will increase in tax foundation and related funds beneath the Tax Receivable Agreement arising from future redemptions or exchanges as follows:
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•we'll file a rise in deferred tax property for the estimated revenue tax results of the will increase in tax foundation based mostly on enacted federal and state tax charges on the date of the redemption or trade; •to the extent we estimate that we are going to not notice the total profit represented by the deferred tax asset, based mostly on an evaluation that can contemplate, amongst different issues, our expectation of future earnings, we'll cut back the deferred tax asset with a valuation allowance; and
•we’ll file 85% of the estimated realizable tax profit (which is the
recorded deferred tax asset much less any recorded valuation allowance) as an
enhance to the legal responsibility due beneath the Tax Receivable Agreement and the
remaining 15% of the estimated realizable tax profit as a rise to
extra paid-in capital.
All of the consequences of modifications in any of our estimates after the date of the
redemption or trade will likely be included in internet revenue. Similarly, the impact of
subsequent modifications within the enacted tax charges will likely be included in internet revenue.
Deferred Tax Assets
To decide the realizability of the Company's deferred tax property, the Company analyzed if it was in a cumulative pre-tax revenue or loss place over a 3 yr interval (2019, 2020 and 2021). Based on the evaluation, the Company is in a pre-tax e-book loss place, and due to this fact has decided that its deferred tax property aren't extra doubtless than to not be realized. As the Company emerges from its cumulative loss place, it can reassess the realizability of its deferred tax property.
RECENT ACCOUNTING PRONOUNCEMENTS
Please discuss with Note 1 to our consolidated monetary statements included in Item 8. Financial Statements of this Annual Report on Form 10-Ok for a dialogue of latest accounting pronouncements which will impression us.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated monetary statements are ready in accordance with GAAP, which requires administration to make estimates, judgments and assumptions that have an effect on the reported quantities of property and liabilities and disclosures of contingent property and liabilities on the date of the monetary statements and the reported quantities of commissions and costs and bills in the course of the reporting interval. Our estimates, judgments and assumptions are frequently evaluated based mostly on historic expertise and elements we imagine to be cheap beneath the circumstances. The outcomes contain judgments concerning the carrying worth of property and liabilities not readily obvious from different sources and precise outcomes might differ from these estimates. The areas that we imagine are vital accounting estimates, as mentioned beneath, have an effect on the extra important estimates, judgments and assumptions used to organize our consolidated monetary statements. Different assumptions within the utility of those insurance policies might end in materials modifications in our consolidated monetary place or consolidated outcomes of operations.
Commissions and Fees Recognition
We earn fee income by performing as an agent or dealer on behalf of ourClients and Insurance Company Partners to supply insurance coverage placement providers to Clients. Commission income is often a share of the premium paid by Clients and usually rely upon the kind of insurance coverage, the actual insurance coverage firm and the character of the providers supplied. Commission income is earned at a time limit upon the efficient date of sure insurance coverage protection, as no efficiency obligation exists after protection is sure. The Company makes its finest estimate of direct invoice commissions on the coverage efficient date, notably in worker advantages throughout theMiddle Market Operating Group , which is topic to alter based mostly on enrollment and different elements over the coverage interval. Commissions income is recorded internet of an allowance for estimated coverage cancellations, which is decided based mostly on an analysis of historic and present cancellation knowledge. Given a hypothetical 1% enhance in our coverage cancellation fee, our annual allowance for estimated coverage cancellations would have elevated by$3.7 million for the yr endedDecember 31, 2021 . We earn consulting and repair price revenues by negotiating charges in lieu of a fee by offering specialty insurance coverage consulting. Consulting and repair price income from sure agreements are acknowledged over time relying on when the providers throughout the contract are glad and when the Company has transferred management of the associated providers to the shopper. We earn coverage price income for performing within the capability of a managing basic agent on behalf of the Insurance Company Partner and fulfilling sure providers and administrative features in the course of the time period of the insurance coverage coverage. Policy price income is deferred and acknowledged over the lifetime of the coverage. We earn installment price income associated to coverage premiums paid on an installment foundation for fee processing providers carried out on behalf of theInsurance Company Partner. The Company acknowledges installment price income within the interval the providers are carried out.
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Profit-sharing commissions signify a type of variable consideration, which contains extra commissions over base commissions acquired fromInsurance Company Partners . Profit-sharing commissions related to comparatively predictable measures are estimated with a constraint utilized and acknowledged at a time limit. The profit-sharing commissions are recorded because the underlying insurance policies that contribute to the achievement of the metric are positioned with any changes acknowledged when funds are acquired or as extra info that impacts the estimate turns into out there. A constraint of variable consideration is important when commissions and costs are topic to important reversal. Profit-sharing commissions related to loss efficiency are unsure, and due to this fact, are topic to important reversal by way of catastrophic loss season and as loss knowledge stays topic to materials change. The constraint is relieved when administration estimates commissions and costs that aren't topic to important reversal, which regularly coincides with the sooner of written notification from the Insurance Company Partner that the goal has been achieved or money assortment. Year-end quantities incorporate estimates based mostly on affirmation fromInsurance Company Partners after calculation of potential loss ratios which might be impacted by catastrophic losses. The consolidated monetary statements embody estimates that aren't topic to important reversal and incorporates info acquired fromInsurance Company Partners , and the place nonetheless topic to important modifications in estimates as a consequence of loss ratios and exterior elements which might be outdoors of the Company's management, a full constraint is utilized. We are entitled to commissions every year for multi-year Medicare contracts. We have utilized a constraint to renewal fee that limits commissions and costs acknowledged on new insurance policies to the coverage yr in impact, and income acknowledged on renewal insurance policies to the receipt of periodic money, when a threat of great reversal exists based mostly on (1) inadequate historical past; and (2) the affect of exterior elements outdoors of our management together with policyholder discretion over plans and Insurance Company Partner relationships, political affect, and a contractual provision, which limits our proper to obtain renewal commissions to ongoing compliance and regulatory approval of the relatedInsurance Company Partner. Costs to acquire contracts contains compensation within the type of producer commissions paid on new enterprise. These incremental prices are capitalized as deferred fee expense and amortized over 5 years, which represents administration's estimate of the typical interval over which a Client maintains its preliminary protection relationship with the unique Insurance Company Partner. Given a hypothetical one-year enhance within the amortization interval for deferred fee expense, our annual expense associated to deferred commissions would have decreased by$0.4 million for the yr endedDecember 31, 2021 .
Business Combination, Purchase Price Allocation and Valuation of Intangible
Assets and Contingent Consideration
We proceed to accumulate important intangible property by way of a number of enterprise mixtures. The willpower of estimated helpful lives of intangible property, the allocation of buy worth to intangible property and the willpower of the truthful worth of contingent earnout liabilities require important judgment and impacts the quantity of future amortization, potential impairment prices and internet truthful worth acquire or loss. Business mixture buy costs are sometimes based mostly upon a a number of of common adjusted EBITDA or fee and costs earned over a one to three-year interval inside a minimal and most worth vary. We carry out a purchase order worth allocation in reference to our enterprise mixtures, in reference to which we file the truthful worth of the identifiable tangible and intangible property acquired and liabilities assumed, together with contingent consideration regarding potential earnout provisions. The extra of the acquisition worth of the enterprise mixture over the truthful worth of the online property acquired is recorded as goodwill. Intangible property typically include bought buyer accounts, distributor relationships, service relationships, software program and commerce names. Purchased buyer accounts embody the information and information obtained from acquired companies that comprise details about insurance coverage insurance policies and the associated insured events which might be important to coverage renewals. Distributor relationships include relationships with distributors that weren't beforehand established. Carrier relationships include relationships withInsurance Company Partners that weren't beforehand established. Trade names include acquired enterprise names with potential buyer base recognition. The Company assesses the truthful worth of bought buyer accounts, distributor relationships, service relationships and commerce names by comparability of an inexpensive a number of utilized to both the corresponding commissions and costs or EBITDA along with contemplating the estimated future money flows anticipated to be acquired over the estimated future renewal intervals of the insurance coverage insurance policies comprising the intangible property by way of the usage of acknowledged revenue strategy valuation strategies. The valuation of those intangible property entails important assumptions regarding issues resembling income and expense progress charges, buyer attrition charges and low cost charges. Any modifications in these assumptions might have an effect on the carrying worth of the intangible property. Purchased buyer accounts, distributor relationships, service relationships and commerce names are amortized on a foundation per the underlying money flows over the associated estimated lives of between one and twenty years. Software is recorded based mostly on the estimated truthful worth of the acquired expertise and is amortized on the straight-line foundation over an estimated helpful lifetime of two to 5 years.
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The truthful worth of contingent earnout liabilities and contingently returnable consideration is predicated upon estimated funds anticipated to be or paid to, or clawed again from, the sellers of the acquired companies as measured by anticipated future money move projections beneath varied situations. We use a chance weighted worth evaluation as a valuation method to transform future estimated money flows beneath varied situations to a single current worth quantity. The important unobservable inputs used within the truthful worth measurements are gross sales projections over the earnout interval, and the chance final result percentages assigned to every state of affairs. Significant will increase or decreases to both of those inputs would end in a considerably larger or decrease asset or legal responsibility with a larger asset capped by the contractual most of the contingently returnable consideration and the next legal responsibility capped by the contractual most of the contingent earnout consideration. We assess the truthful worth of those liabilities and property at every stability sheet date based mostly on the anticipated efficiency of the related enterprise and any modifications in truthful worth are recorded by way of change in truthful worth of contingent consideration within the consolidated statements of complete loss. The truthful worth of contingent earnout liabilities is predicated on the current worth of the anticipated future funds to be made to Partners in accordance with the provisions outlined within the respective buy agreements. In figuring out truthful worth, we estimate the Partner's future efficiency utilizing monetary projections developed by administration for the Partner and market participant assumptions that had been derived for income progress, profitability based mostly on earnings earlier than revenue taxes, depreciation and amortization ("EBITDA") or the variety of rental models tracked. Revenue and EBITDA progress charges typically ranged from 5% to 22% atDecember 31, 2021 . We estimate future funds utilizing the earnout components and efficiency targets laid out in every buy settlement and these monetary projections. These funds are discounted to current worth utilizing a risk-adjusted fee that takes into consideration market-based charges of return that mirror the power of the Partner to attain the targets. These low cost charges typically ranged from 5.00% to fifteen.50% atDecember 31, 2021 . Changes in monetary projections, market participant assumptions for income progress and profitability, or the risk-adjusted low cost fee, would end in a change in the truthful worth of contingent consideration.
Impairment of Long-lived Assets Including Goodwill
In making use of the acquisition methodology of accounting for enterprise mixtures, the extra of the acquisition worth of an acquisition over the truthful worth of the identifiable tangible and intangible property and liabilities acquired is assigned to goodwill. Intangible property are initially valued at truthful worth utilizing typically accepted valuation strategies applicable for the kind of intangible asset. Definite-lived intangible property are amortized over their estimated helpful lives and evaluated for impairment at any time when an occasion happens that signifies the asset could also be impaired.Goodwill shouldn't be amortized however somewhat is evaluated for impairment at the very least yearly or extra continuously if indicators of impairment are current. Indicators of impairment embody a discount of anticipated future money flows of our reporting models, a major destructive development within the financial system or insurance coverage business, and a sustained important lower in our market capitalization. We check for goodwill impairment on the reporting unit degree, which is anOperating Group or one degree beneath anOperating Group . We have 4 reporting models, that are additionally our Operating Groups. We have the choice of performing a qualitative evaluation to find out whether or not a quantitative impairment check is mandatory. If, after assessing qualitative elements, we decide it's extra doubtless than not that the truthful worth of a reporting unit is lower than the carrying quantity, then we proceed to the quantitative evaluation. The quantitative goodwill impairment check requires the truthful worth of every reporting unit to be in comparison with its e-book or carrying worth. If the carrying worth of a reporting unit is decided to be lower than the truthful worth of the reporting unit, goodwill is deemed to not be impaired. If the carrying worth of a reporting unit is larger than the truthful worth, an impairment cost is recorded for the quantity that the carrying quantity of the reporting unit, together with goodwill, exceeds its truthful worth, restricted to quantity of goodwill of the reporting unit. During 2021, we carried out an impairment analysis for every of our reporting models starting with a qualitative evaluation. The qualitative elements we thought of included basic financial circumstances, limitations on accessing capital, business and market issues, value elements resembling commissions expense that might have a destructive impact on future money flows, total monetary efficiency together with declining money flows and a decline in precise or anticipated commissions and costs, earnings or key statistics, and different entity-specific occasions resembling modifications in administration and lack of key personnel or clients. We decided that based mostly on the general outcomes and outlook of our reporting models, firm and business, together with consideration of the impact of our new Partnerships, there was no indication of goodwill impairment atDecember 31, 2021 . As such, no additional testing was required. We evaluation our definite-lived intangible property and different long-lived property for impairment at any time when an occasion happens that signifies the carrying quantity of an asset is probably not recoverable. There had been no indications that the carrying values of our definite-lived intangible property or different long-lived property had been impaired atDecember 31, 2021 . Any impairment prices that we might file sooner or later might materially impression our outcomes of operations.
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Tax Receivable Agreement Liability
OnOctober 28, 2019 ,BRP Group entered into the Tax Receivable Agreement with BRP's LLC Members that gives for the fee byBRP Group toBRP's LLC Members of 85% of the amount of money financial savings, if any, inU.S. federal, state and native revenue tax or franchise tax thatBRP Group truly realizes consequently of (i) any enhance in tax foundation in BRP property ensuing from (a) earlier acquisitions byBRP Group of BRP's LLC Units from BRP's LLC Members, (b) the acquisition of LLC Units from BRP's LLC Members utilizing the online proceeds from any future providing, (c) redemptions or exchanges by BRP's LLC Members of LLC Units and the corresponding variety of shares of Class B frequent inventory for shares of Class A typical inventory or money or (d) funds beneath the Tax Receivable Agreement, and (ii) tax advantages associated to imputed curiosity ensuing from funds made beneath the Tax Receivable Agreement. The precise enhance in tax foundation, in addition to the quantity and timing of any funds beneath the Tax Receivable Agreement, will range relying on a variety of elements, together with, however not restricted to, the timing of any future redemptions, exchanges or purchases of the LLC Units held by BRP's LLC Members, the worth of our Class A typical inventory on the time of the acquisition, redemption or trade, the extent to which redemptions or exchanges are taxable, the quantity and timing of the taxable revenue that we generate sooner or later, the tax charges then relevant and the portion of our funds beneath the Tax Receivable Agreement constituting imputed curiosity.
Share-Based Compensation
Share-based compensation contains expense acknowledged for administration incentive models, advisor incentives, restricted inventory awards to Colleagues, Class A typical inventory awards to our board of administrators and performance-based restricted inventory models awards to executives. We measure share-based compensation expense on the grant date based mostly on the truthful worth of the award and acknowledge compensation expense over the requisite service interval, which is usually the vesting interval. We use the ratable methodology to acknowledge compensation expense for fairness awards with service circumstances and efficiency circumstances. The grant-date truthful worth of unrestricted and restricted inventory awards is equal to the market worth of our Class A typical inventory on the date of grant. The truthful worth of the PSUs was estimated on the grant date utilizing aMonte Carlo evaluation to mannequin the worth of the PSUs utilizing the next assumptions. Expected volatility between 18% and 172% is predicated on the 1-year historic volatility of a peer group and different corporations which might be publicly traded throughout the Russell 3000 Index. The risk-free rate of interest of 0.27% is predicated on theU.S. Treasury fee in impact on the time of the grant. Expected time period of two.7 years is predicated on the precise time period of the awards.
Income Taxes
We file a tax provision for the anticipated tax penalties of the reported outcomes of operations. We compute the supply for revenue taxes utilizing the asset and legal responsibility methodology, beneath which deferred tax property and liabilities are acknowledged for the anticipated future tax penalties of short-term variations between the monetary reporting and tax bases of property and liabilities, and for working losses and tax credit score carryforwards. We measure deferred tax property and liabilities utilizing the at present enacted tax charges in every jurisdiction that applies to taxable revenue in impact for the years wherein these tax property are anticipated to be realized or settled. We are required to ascertain a valuation allowance for deferred tax property and file a cost to revenue whether it is decided, based mostly on out there proof at the time the willpower is made, that it's extra doubtless than not that some portion or all the deferred tax property won't be realized. Deferred taxes in 2021 have been lowered by a full valuation allowance as a consequence of a willpower that it's extra doubtless than not that all the deferred tax property won't be realized based mostly on the burden of all out there proof. Our analysis of the realizability of the deferred tax property focuses on figuring out important, goal proof that we are going to extra doubtless than not be in a position to notice our deferred tax property sooner or later. We contemplate each constructive and destructive proof when evaluating the necessity for a valuation allowance, which is very judgmental and requires subjective weighting of such proof.
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