Q4 2022 BRP Group Inc Earnings Call
Speaker 1: Greetings and welcome to the BRP group in fourth quarter 2022 earnings call. At this time, all participants are in a recent only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press.
Speaker 2: call. Today's call is being recorded. Fourth quarter and full year financial results, supplemental information and Form 10-K were issued earlier this afternoon and are available on the company's website at ir.baldwinriskpartners.com. Please note that remarks made today may include forward looking statements.
Speaker 2: subject to various assumptions, risks, and uncertainties. The company's actual results may differ materially from those contemplated by such statements. For a more detailed discussion, please refer to the note regarding forward-looking statements in the company's earnings release into our 2022 Form 10-K .
Speaker 2: both of which are available on the BRP website. During the call today, the company may also discuss certain non-GAAP financial measures.
Speaker 2: For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures, please refer to the company's earnings release and supplemental information, both of which have been posted on the company's website at ir.baldwinriskpartners.com.
Speaker 2: I will now turn the call over to Trevor Baldwin, Chief Executive Officer of BRP Group.
Speaker 3: Thanks Bonnie, and good afternoon everyone, and thank you for joining us on our fourth quarter earnings call. I will start with a few remarks followed by Brad, who will address financial and business highlights from the quarter and for the year. Then Brad, Chris, and I will take questions.
Speaker 3: 2022 was a record year for BRP, a year of transformative growth and broad-based execution across our business.
Speaker 3: We achieved total revenue growth of 73%, industry pacing organic growth of 23%, a new record for BRP since our IPO, and achieved double-digit organic growth across all of our operating groups, showcasing the value our clients place in the advice, solutions, and the value our clients place in the advice solutions.
Speaker 3: and relationships we deliver across our enterprise. Adjusted EBITDA in 2022 grew 74 percent, and 2022 adjusted net income was $1.03 per share, up 29 percent for the year.
Speaker 3: I am particularly pleased with these results as we continue to absorb the meaningful investments made over the past few years at the confluence of talent and technology in our business. As these investments continue to season, I believe they will drive continued outsized organic growth and accelerating efficiency and productivity across our business.
Speaker 3: Given the financial performance we delivered during the fourth quarter and full year, we are encouraged by the positive underlying momentum we're seeing across all of our business segments. In middle market, sales execution and new client wins accelerated through the year as a result of our investments in advisor talent, go to market capabilities.
Speaker 3: and product and industry expertise across our national footprint. Our MGA the Future platform again delivered outsized growth as we continue to take market share and execute on building and launching new products. In Main Street we saw organic growth of 24 percent in the fourth quarter.
Speaker 3: driven by the continued early success of our national expansion strategy. Westwood, our homeowners focused business embedded in the new home builder channel, is not yet included on our organic results, but grew revenue over 32% during the fourth quarter.
Speaker 3: and 25% for the full year, showing exceptional durability amid accelerating challenges in the U.S. housing market during the year. In Medicare, we saw a solid annual enrollment period as a result of growth in agent count and increased productivity.
Speaker 3: though results of the fourth quarter selling season will largely be recognized in the first quarter of 2023 due to the effective data policies.
Speaker 3: In summary, 2022 was an exceptional year for our business, a direct result of the value our colleagues continue to deliver clients and our stakeholders more broadly. We showed up when it mattered for clients, providing advice and solutions that simplify the complex. In the
Speaker 3: help navigate uncertainty, and manage risk amidst volatility, enabling them to continue pursuing their business aspirations and personal dreams.
Speaker 3: In addition to recognizing the close of a record year for BRP, 2022 marks our third full year as a public company since our IPO in October of 2019.
Speaker 3: During that time, we have transformed our business and continue to accelerate towards our goal of building a top 10 global insurance brokerage and advisory organization.
Speaker 3: We transformed the scale of our business from approximately 140 million of revenue in the year of our IPO to over 980 million of revenue today, evolving from a regional business to a national platform. We have grown to nearly 4,000 colleagues from approximately 500.
Speaker 3: at the time of our IPO, all while continuing to cultivate and enhance our distinctive culture, which has attracted leading talent and served as a critical alignment point for partnering with exceptional businesses that share our vision of building the insurance distribution and advisory firm of the future. During this time,
Speaker 3: Since our IPO, a period of intense internal and external investment to support our rapid growth and innovation, we have delivered a compound annual growth rate and adjusted earnings per share of 54%. For all of these reasons,
Speaker 3: I am immensely proud of the team we've assembled, the magnitude of what we've collectively accomplished in a very short amount of time, and the position we've put our business in to thrive for many years to come.
Speaker 3: As I look forward to 2023, while economic uncertainty and stress in large parts of the insurance marketplace remain elevated, I am confident that our business continues to be incredibly well positioned to deliver for our clients, colleagues, and consumers.
Speaker 3: communities, insurance company trading partners, and investors. I want to thank our valued colleagues for their grit, tenacity, and commitment that have enabled the results we delivered to our stakeholders during 2022. You all are the reason that BRP's best years continue to be ahead. With that, I'll turn it over to you, Dr.
Speaker 3: I will hand the call to Brad for a more detailed review of our financial results.
Speaker 4: Thanks, Trevor, and good afternoon everyone. For the fourth quarter, we generated revenue growth of 55% to $246 million. For the full year, we delivered revenue growth of 73% to over $980 million.
Speaker 4: We generated organic revenue growth in the fourth quarter of 26%. For the full year, organic revenue growth was 23%, which, as Trevor mentioned, was the highest full-year organic revenue growth rate achieved since our IPO. This level of organic growth, along with EBITDA growth and free cash flow generation, has been the highest in the world.
Speaker 4: helps us progress along our path of reducing that leverage to the high end of our 3.5 to 4.5 times long term range.
Speaker 4: We recorded a gap net loss for the fourth quarter of $91.5 million or a loss of 84 cents per fully diluted share. Gap net loss for the full year was $76.7 million or 74 cents per fully diluted share.
Speaker 4: Adjusted net income for the fourth quarter of 2022, which excludes share-based compensation, amortization, and other one-time expenses, was $14.4 million, or $0.12 per fully diluted share. For the full year, adjusted net income was $119 million, or $1.03 per fully diluted share. A table reconciling gap net loss to adjusted net income can be found in our earnings release quick wax gaming software available at Welcome SAS.
Speaker 4: over the prior year to 196 million. Adjust even a margin was 20 percent for the full year.
Speaker 4: I'm also pleased to announce that we have completed the full remediation of our three previously identified material weaknesses related to IT, accounting reconciliations, and the overall control environment.
Speaker 4: This is a significant accomplishment in our life as a public company and has been a three-year journey as we've evolved from a largely private company infrastructure at the time of our IPO to a sustainable public company infrastructure today. I'd like to thank our accounting, internal audit, and IT teams for their grit and tireless commitment to reaching this important milestone.
Speaker 4: insurance solutions.
Speaker 4: In addition, we have renamed our middle market operating group, Insurance Advisory Solutions.
Speaker 4: and our specialty operating group, Underwriting, Capacity, and Technology Solutions.
Speaker 4: We will report three operating groups which equate to reportable segments, beginning with our first quarter 2023-10Q, to align with how we are running the business operationally and reviewing internal financial results.
Speaker 4: Corresponding information for prior periods will be recast to reflect this change. Regarding expectations for the year, I'd like to reiterate our communication from the third quarter earnings call. For the full year 2023, we expect organic revenue growth at the high end of our 10-15% range, which is the average year for the year.
Speaker 4: based on the performance we are seeing across our business year-to-date, includes an expectation for mid-teens organic revenue growth in Q1.
Speaker 4: Additionally, we anticipate revenue for the full year of $1.14 billion to $1.17 billion and adjusted EBITDA of $250 to $260 million.
Speaker 4: For the first quarter of 2023, we expect Adjustity Buddha to be between 75 to 80 million and Adjustity PS of 38 cents to 40 cents per share.
Speaker 4: As a reminder, our Adjusteebidomargens have historically been seasonal in nature with the first quarter being the strongest quarter. However, the Westwood partnership, as well as several large PNC, middle market partnerships in the fourth quarter of 2021, have resulted in Adjusteebidomarging being spread more evenly across our quarters.
Speaker 4: The shift in seasonality of expected adjusted even margin in the first quarter of 2023 is expected to be offset by increases in each subsequent quarter for the balance of the year.
Speaker 4: In conclusion, we are very pleased with our fourth quarter and full year 2022 results. Our differentiated operating model and significant recent investments are yielding outsized and profitable growth. I echo Trevor's appreciation for our colleagues who are the firm's driving force.
Speaker 4: and for our clients, trading partners, and shareholders for their confidence in us.
Speaker 1: We will now open up the call for Q&A. Operator? Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press the star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press the star 2 if you would like to remove your question from the queue.
Speaker 1: to pick up your handset before pressing the start key. One moment please while we pull for questions.
Speaker 1: Our first question comes from Weston Bloomer with UBS. Hi, I'm Weston Bloomer with UBS.
Speaker 1: Our first question comes from Weston Bloomer with UBS. Please go ahead.
Speaker 5: Thanks for taking my questions. My first one, I was just hoping you could highlight. I know you gave guidance for four key results and they came in above those expectations. I was hoping you could kind of break out where results kind of came in ahead of your initial expectations and... you also offered me some in-depth remarks from the community about what was your overall life or your relationship? That's a great question.
Speaker 3: how those trends are kind of looking in the first quarter of the year. Yeah, hey Weston, it's Trevor. So the short answer is broad-based strength across our business. We're operating and hitting on all cylinders and we saw performance everywhere from our MGA the Future and specialty business that had
Speaker 3: really exceptional organic growth. Our middle market group where we're seeing the investments we've made and talent and capabilities lead to accelerating client wins as evidenced in the 17% organic growth rate our national expansion strategy and
Speaker 3: And Main Street is showing early signs of success with mid-20s organic in the quarter. And our Medicare business had a really solid annual enrollment period, albeit most of the financial results from that won't show up until the first quarter of 2023 because of the effect of data policies.
Speaker 5: Great, thank you. And given the stronger results in the quarter, is it just too early to adjust 2023 guidance? Just given the stronger base and maybe the momentum in the 1Q, or are there any other offsets that we think into the back half of the year?
Speaker 4: Hey, Weston, it's Brad. Yeah, I think it's just too early to adjust 2023. We are seeing good momentum in the business carry into January , but there's still a lot of uncertainty in the economy, so we're keeping our guidance as delivered in the third quarter.
Speaker 5: Great. Thanks for taking my questions.
Speaker 5: Great, thanks for taking my questions. Thanks, Weston.
Speaker 4: The question comes from Meyer Schutz with KBW. Please go ahead. Great. Thanks. Good afternoon, everyone. Just a quick question to begin with on M&A. I was wondering if you could lay out how you're thinking about it given the...
Speaker 3: strong performance and improving leverage? Yeah. Hey, Mayor. This is Trevor. Good afternoon. So, you know, a few things. One, from a BRP perspective, I think 2023, I would not model any M&A.
Speaker 3: we'll continue to be looking at opportunities, and there may be some small opportunities that arise that are interesting, but we're focused on continuing to de-lever the business. Organically, the business is performing exceptionally well, so we don't have a growth problem. And frankly, the M&A marketplace is...
Speaker 3: to some of the underlying health in that market in transition. The reality is the cost of capital is up meaningfully. We have not yet seen that be fully reflected in valuations. And as a result, a lot of the larger, higher performing businesses are choosing not to come to market and transact in that type of a backdrop.
Speaker 6: Okay, thanks. That's very helpful. Second question, and this is I know very broad, but I was hoping you could update us on how your clients are planning for, I guess everyone's been expecting a recession forever. Are you seeing that in their discussions and their actions?
Speaker 3: Yeah, that's a great question, Mayor. So what I would say is
Speaker 3: Our clients are very pensive. There's a lot of uncertainty in the environment. People are, I'd say, as unsure about what the future holds as we've seen in 15 or 20 years.
Speaker 3: With that being said, we're not seeing tremendous softness in clients' operating results yet. There's obviously puts and takes to that. Certain industries are under real pressure. Others are doing as well as they ever have. But broadly, we're not seeing...
Speaker 3: You know, we're not seeing the impact of kind of recessionary forces in our clients results today There's just there's never been more uncertainty around the environment based on the conversations we're having.
Speaker 6: Okay, perfect, thanks. And this is a very quick one for Brad. It sounds like the only segments that are changing are mean street and Medicare, Is that the right way for us to build our model as ahead of the first quarter of 23?
Speaker 4: Yes, Mayor, that's correct. It's effectively just a combination of those two segments, Main Street Medicare.
Speaker 4: Yes, Mayor, that's correct. It's effectively just a combination of those two segments, Main Street, Medicare. Okay, fantastic. Thanks so much, guys.
Speaker 1: Thanks, Mayor. Our next question comes from Ellie Greenspan with Wells Fargo. Please go ahead.
Speaker 7: Hi, first one is a quick one. Did you guys provide the MGA of the future organic growth for the fourth quarter?
Speaker 3: We did not break it out separately, but it was very strong.
Speaker 7: Okay, and then, so when we think about, you know, the organic growth for the year 23, right, 26 for the fourth quarter, and then your guidance, you know, assumes mid-teens in the first quarter, and I know you guys have historically, right, been, you know, conservative and we've seen quarters come in.
Speaker 7: guidance, but when you set that Q1 guide, are you modeling for any slow down in any of your business or just trying to build in some level of conservatism?
Speaker 3: I think there's a characteristically appropriate level of conservatism in that number at least, but there's just a lot in flux right now. Similar to how I characterize the M&A marketplace as one in transition, I'd say the insurance marketplace is experiencing rapid transition. One of the most Cumberly
Speaker 3: new streams, you know, I don't want to, you know, it's just appropriately conservative. We're continuing to execute. The business is doing exceptionally well, but it does not seem appropriate to guide any higher than mid-teens. MSoco male- capit Marc knocked Rollie at the end.
Speaker 7: Okay, that's helpful. And then you guys pointed right to looking to de-lever and get back to that three and a half to four and a half target. When you think about your financial plan for the year, I think you said you would be there by the end of the year. Is that still expectations? You know, kind of Q4, you know, how you see?
Thanks, ladies.
Our next question comes from Pablo Singzon with J.P. Morgan. Please go ahead. If you have any questions, please go ahead.
Hi, the first one is a quick numbers one. Can you provide detail on the increase in the stock based comp this quarter? It just came in much higher than what I thought and I guess compared to past quarters. What drove that increase? It was smallD and start to break upon the 1% boost and that's very long waiting for themselves.
Yeah, hey, Pablo. It was largely incentive-comp based for key colleagues and we saw it as an opportunity to reward our high-performing colleagues with more VRP stock under their incentive plans for for the year. It's consistent with our practice of having high degree of pay performance.
time to the extent it's vested shares, it's a one-time hit. We offer under multiple plans, Pablo, some are three-year vests, some are four-year vests, and some vest immediately depending on the incentive award. So I wouldn't say all of it carries over. It is a mix.
Got it. And then, a last one for me. If I look at your operating cash flow as a percentage of revenues, that number rose year-over-year on an absolute basis, right? But it actually rose year-over-year on an absolute basis, but the percentage of revenues actually declined. So if I look at your operating cash flow as a percentage of revenues, that number rose year-over-year.
and you sort of contrast that against just the EBITDA, which is roughly flat, the margin. So, if you could talk through what drove the decline and your expectations for operating cash flow in 2013. Thank you. Please note that this episode was masking the issue manifests in the- In this room, you will accept this aspect.
Yes, hey Pablo, we provide the calculation of free cash flow in our supplement and we were able to increase free cash flow 5% year over year even with an increase in cash paid for interest of $42 million or 194% and increased partnership integration costs of $15 million or 80%.
which was driven mainly by the TSA associated with the Westwood transaction, which was a large public company carved out and carried larger integration costs, as well as integration of the large Q421 partnerships. If you normalize for those two increases being the partnership related and integration costs as well as interest,
our year-over-year free cash flow was actually up over 60%. So, you know, interest will continue to be a headwind for us this year, but as we continue to deliver the business and hopefully see interest rates decline, we do expect to meaningfully improve our free cash conversion over time.
All right, thank you, Brad.
If you have a question, please press the star 1 on your telephone keypad. Our next question comes from Greg Peters with Raymond James. Please go ahead. Thank you for your question, please press the star 1 on your telephone keypad.
Well, good afternoon, everyone. I guess just coming back at the revenue outlook for 23, in the context of some comments you made...
Just wondering about the seasonality, how the seasonality has changed now with Westwood and what we should think about that with the new reporting segments. Will it look like it did last year or do you think it's going to change a little bit? Some color there would be helpful. Hey Greg, it's Brad. The seasonality has changed.
Q1. And then in addition, Westwood, which is a large eva-generating business, Q1 is actually their weakest quarter of the year, and they're stronger in Q2s 3 and 4. So we are seeing a shift in seasonality of both revenue.
EBITDA, which we provided in the prepared remarks. So we are expecting a lower margin in Q1 in comparison to prior year, but that is made up over the balance of the year in Q2, 3, and 4.
Okay, that's actually helpful. On the comments around operating cash flow and free cash flow and deleveraging, there's two ways to delever. You just grow your EBITDA and that is just an easy way to delever. But there's also online capital sharing that is able to directly and really refine the financial assets of the COVID-19 pandemic.
debt pay down. I'm just curious, as your cash flow
Conversion improves as you mentioned in the other answer. Do you anticipate actually paying down some debt with that cash flow in 23 and how should we think about interest expense in 23?
Yeah, so we are going to, you know, appropriately manage our working capital and pay down the revolver as aggressively as we can throughout the year as we generate operating cash flow. But I wouldn't model in, you know, some meaningful pay down of debt. Really, the de-levering story is one of organic growth for us and continuing to drive EBITDA growth.
In terms of interest, if you take current rates, so about a four and a half base rate, we model about a little less than 100 million of interest expense for the year.
every 100 basis point move in that base rate will move that interest expense about $900,000 per month, either up or down, depending on where base rates go. So that's how you can think about modeling the interest expense.
Thank you for that color. Just one follow-up on the, you know, I asked about seasonality of revenue. I guess, given Westwood and all the moving parts, what's your view about seasonality of free cash flow for 23? Yes, I think you'll see more free cash flow.
prior year.
Thanks for the answers.
There are no further questions at this time. I would like to turn the floor back over to Trevor Baldwin for closing comments. Please go ahead. excess audiobianshuck
that simplify the complex and help navigate uncertainty.
During 2023, we look forward to being a beacon of opportunity for all of our stakeholders. Thank you all very much. I look forward to speaking with you next quarter.
Thanks for your participation and have a great rest of your day.