Greetings and welcome to the BRP Group Inc. First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Brad Hale, Chief Accounting Officer. Thank you. You may begin.

Thank you, operator, and good afternoon. By now, everyone should have access to our earnings announcement and slide presentation, which was released prior to this call and which may also be found on the Investor Relations portion of our website at baldwinriskpartners.com. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates and projections of management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC, including our Form 10-Q filed today for a more detailed discussion of the assumptions, risks, uncertainties and other factors that could impact the future operating results and financial condition of BRP Group, including those related to the potential effects of the COVID-19 pandemic on our business, financial condition and results of operations. On this call, we refer to the effects of COVID-19 and related government shutdowns, stay-at-home orders, business closures, travel restrictions, social distancing and other preventative measures, business disruptions, economic contraction and COVID-19-related developments by generally referencing COVID-19 or the pandemic. We disclaim any intentions or obligations to update or revise any forward-looking statements, except to the extent required by applicable law. Also our discussion today will include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement and earnings supplement slide presentation, both posted on our website at ir.baldwinriskpartners.com or in our SEC filings. In addition, this call is being webcast and an archived version will be available after the call on the Investor Relations portion of our website. I would now like to introduce Trevor Baldwin, Chief Executive Officer of BRP Group.

Thank you, Brad, and good afternoon, everyone. Welcome to our first quarter 2020 earnings call. We appreciate your taking the time to join us and your interest in BRP Group. During today's call, I will provide some brief highlights on our first quarter performance, as well as provide an update on the current macro environment and our recent investments and growth strategy. Our Chief Financial Officer, Kris Wiebeck; and Chief Accounting Officer, Brad Hale will then present our first quarter financial results. And finally, we'll open the line for questions. Before we go further, our thoughts and good wishes continue to be with you, our colleagues, our clients, our partners, our investors and all of your families during these unprecedented times. And thank you to these stakeholders and our analysts, who are, once again, taking the time to join us this afternoon. It is very much appreciated. The first quarter was quite strong for our business, particularly with respect to revenue and adjusted earnings, as the impact of the COVID-19 pandemic only began to manifest in March. We continued our strong progress in executing on our pipeline of high-quality partnership opportunities, BRP's nomenclature for strategic acquisitions, successfully acquiring four new partners in the quarter and reported industry-leading growth. As we move ahead, while we expect to see additional impact from COVID-19 to the third quarter and possibly longer, thus far the resiliency of our business model and growth strategy has shown through in our results. The continued success of our growth strategy has been propelled by the technology infrastructure we have invested in building, as well as our unique go-to-market approach and breadth of sales enablement tools allowing for our continued execution of client stewardship commitments and ongoing new business generation, which has the added benefit of highlighting for potential…

Thanks, Trevor, and good afternoon to everyone on the call. For the first quarter of 2020, we grew revenue, which is comprised of total commissions and fees by 82% to $54.2 million, compared to $29.8 million in the prior year period. This increase was driven by new partnerships and organic growth. Our organic growth for the quarter of 5%, 12% with the MGA was inclusive of a negative 500 basis point impact from a decrease in contingent payments in Mainstreet, as we noted would occur on our prior call and other income in Medicare. Core organic revenue growth, when adjusted for these items was 10%, 17% with the MGA. Organic revenue growth is also inclusive of a negative 100 basis point COVID-19 reserve. As we previously noted, we believe this decrease in contingent payments is due to higher loss ratios and our personal insurance book, largely related to hurricane loss creep in 2019 that will be behind us after the second quarter of this year. We expect this reduction in profit sharing income to be partially offset starting in Q4 2020 and across all quarters in 2021 as insurance companies take rate across their Florida Homeowners book, which should increase our core commissions. Essentially, while this was a headwind to contingent income today, it should become a strong tailwind to client commission and fee revenue in the future. While we don't plan to provide this type of breakout of contingent income going forward, in light of COVID-19, we thought the incremental layer of detail will be particularly helpful in portraying the underlying health and momentum of our core business during the first quarter. As evidenced by our growth in underlying client commissions and fee revenue. Also as a reminder, we acquired MGA of the Future on April 1, 2019, and…

Thanks Kris, and good afternoon to everyone on the call. For the first quarter, our middle market segment reported revenue of $22 million, an increase of $5.5 million or 33% compared to the first quarter of 2019. Our Specialty group generated revenue for the first quarter of 2020 of $17.4 million more than quintupling its revenue compared to the first quarter of 2019. Specialty’s revenue growth was driven by our 2019 MSI partnership completed in April 2019, which accounted for $11 million in revenue and our Highland Risk solutions partnership completed in January 2020, which accounted for $2.9 million in revenue. Policies in force on the MGA of the Future platform as of March 31, 2020 were approximately 401,500, an increase of nearly 27,000 from the prior quarter end and up over 107,000 policies from March 31, 2019. Last year, MSI saw an approximate 19,000 sequential increase in policies in force in the same quarter. So this quarter once again represented meaningful acceleration in growth. Moving to our Mainstreet group, first quarter 2020 revenue was $8.3 million, an increase of $1.8 million or 27% compared to the first quarter of 2019. Finally, our Medicare segment generated first quarter 2020 revenue of $6.4 million, up $2.5 million from the first quarter of 2019. I will now turn the call back over to Kris.

Thanks Brad. As we've noted previously, we manage our business based on our long-term growth objectives and focus on full year performance rather than quarter-to-quarter, particularly given the timing of completed partnerships can shift. As such we believe our full year and pro forma results are better barometer to how we are executing. Thus far in the second quarter of 2020, we closed three partnerships for total cash consideration of $36 million. These partnerships generated total annualized revenue of over $11 million, bringing the amount of annualized revenue acquired thus far in 2020 to over $42 million. In the current environment, we have continued to generate interest from and maintain a healthy pipeline for potential partners. Turning to our balance sheet. As of March 31st, we had cash and cash equivalents of $52.1 million and long-term debt of $60.4 million. As a reminder in March being prudent with regard to the current environment and our LOI pipeline, we converted the accordion feature of the facility into a full commitment and now have a committed line of $300 million that has no debt maturing until September of 2024. As of May 12th, cash and cash equivalents stood at $54 million and we had long-term debt of $84.9 million. As a result of our more positive outlook for operating capital, we converted $10 million of cash we had drawn in March to fund partnership that closed on May 1st. Thus, we have over $255 million of available unrestricted cash and revolver capacity to execute on our plans. We believe our balance sheet cash, low net leverage and access to liquidity continues to stand out in the current environment. We've always thought to manage the business for the long-term and to look forward and plan ahead, allowing us to be where the world…

Thank you. We will now begin our question-and-answer session. [Operator Instructions] Our first question comes from the line of Greg Peters with Raymond James. Please proceed with your question.

Good afternoon. Three quick questions for you. Clearly you're being very successful with the growth of the MSI business. Can you talk about where that growth is coming from? Is it done on a geography basis? With new customers? Can you just give us some color and flavor of why it's growing so rapidly?

Yes. Hi, Greg, this is Trevor. And I hope you're staying safe and healthy and appreciate you joining us this evening. Specific to the MGA of the Future, we're continuing to see that growth across our national footprint. As you may know we're licensed in doing business in all 50 states. And I think this – the results we're seeing there really highlight the resiliency and power of the technology we have there enabling us to be a true 24/7 business and insurance solution. To give you some kind of anecdotal evidence, while I mentioned in my earlier prepared remarks that we saw the lowest new business results across our business in late March and the first week of April, we saw new business for the MGA platform increase in April as compared to March with new policies issued growing 37% on a year-over-year basis. And then as we sit here in May, new policies issued have accelerated even further from there. In addition to that, as we look at how our new business is occurring across our geographic footprint, I can highlight that new business or new policies issued between April 1 and May 11 in some of the harder hit states of New York, New Jersey, in Illinois and Massachusetts were up 39% on a year-over-year basis. And specifically to the four counties that make up New York City, our new policies issued during that same time period were up roughly 44%.

Okay. Thanks for the color. The second question is just on the deals in the pipeline. We've heard from others that there's been a pause in the marketplace. But – and there also is the very real prospect that the deal multiples have come down. Can you talk about what – how – the multiples that you paid for the deals year-to-date? And is there an expectation going forward because of this economic crisis that you might be able to get these high-quality properties at a lower price?

So what we're seeing Greg is that our pipeline continues to be really strong both in partnership opportunities that we've been cultivating for quite some time, as well as new opportunities that we continue to see and that come in even as recently as this week. So from an activity standpoint, while we may not be seeing as many represented deals as we did pre-COVID, the overall deal flow we're seeing is still at a really healthy level. As respect to pricing, it's really deal-specific. So if you have a potential opportunity that may be more acutely exposed to industry sectors or geographies that are being heavily impacted by the current crisis then there's certainly going to be some meaningful structural and pricing changes to how those deals are done. So far the partnerships we've closed have been businesses that we believe are incredibly resilient and defensively positioned to the current environment. And while the overall valuations are shifting somewhat, it's still on an incredibly fluid environment. And so we continue to evaluate that in real time.

Okay. The final question is around the free cash flow. For the first quarter it looked like it was about flat compared with last year. And I'm just curious what the drivers of that. And embedded in the balance sheet, I noticed there was a big jump in premiums receivable. Maybe you could also comment on what's going on there?

Yes. Brad do you want to provide some color there?

Yes. I would say, we noted Greg that profit sharing was substantially down from the prior year in our personal lines businesses. So that certainly hurt free cash flow in Q1 on a comparative basis. And if you look to the rise in premiums receivable, that's not flagging an issue on uncollectibles, that's more timing of a significant portion of for instance our employee benefits, business in the middle market is those effective in the first quarter which brings the seasonality we've referenced before. So you do get a rise in premiums receivable as a result of that as well, given that a lot of those policies have monthly payment terms.

Got it. Thanks for the answers.

Thanks, Greg.

Our next question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi. Thanks. Good evening. My first question, I guess, goes to organic growth and the kind of the outlook, I guess, more for the Q2, but then also for the other quarters of this year. You guys seem to be more optimistic than you sounded at the end of March obviously pointing to what seems like some better new business levels subsequent to that in April and into May. So as we think about like all your businesses combined so does it feel like -- how does the Q2 feel from an organic perspective? And then even as we think about some business is recorded there's some of the last -- back quarters of the year. Just at the COVID and the economy how do you see organic for the balance of 2020?

Yes. So Elyse, as we kind of break down the organic growth algorithm in our business the drivers of that are no different than our peers. So you've got new business client retention and then the impact of exposure units and radar or insurance pricing. And as I highlighted earlier on the call from a new business standpoint what we're seeing today is our overall new business results continuing to grow and improve over what we saw as a trough in late March and in early April. I can give you some anecdotal examples of that. In our Middle Market business in the month of April, our risk adviser head count was up 52% year-over-year. And our total new business revenue generated was up 62% approximately year-over-year. So roughly a 7% increase in productivity per risk adviser on a year-over-year basis. Similarly in Mainstreet total new business in the month of April was up roughly 38% driving roughly a 5% increase in productivity of our sales advisers on a year-over-year basis. So I think -- and this really highlights the durability of our client engagement model as well as the effectiveness of our technology and tools to enable our risk advisers to be successful in the current virtual environment. When we look at client retention since the outbreak of COVID, we're seeing improving trends there on a year-over-year basis. And really from a rate standpoint similar to what you're probably hearing from our peers that continues to be a positive tailwind. The really kind of unknown factor is the impact on exposure units, which really most meaningfully impacts our Middle Market business. And we feel like we have really good real-time visibility and what we're seeing there in our business. So I can kind of share with you as an example, the combined impact of rate and exposure in our Middle Market business was roughly negative 1% in the month of April, but we've seen some improvement in that with last week seeing a roughly net impact of rate and exposure on our renewal book of 5.4%. But I just want to point out that remains really fluid. As businesses begin to go back to work, as the economy reopens, it's still fluid what impact, those businesses are going to have what the new normal looks like and what further action they may or may not have to take around head count and overall revenues and other exposure units. So that really becomes the biggest unknown that we continue to spend a lot of time focused on looking at our business in real time.

That's helpful. I guess, when we put that all together I mean you seem pretty positive on the components of organic. So I guess if you were to sum it up, it sounds like we might see a little bit of a slowdown in the Q2, but it seems like we would still be within positive territory.

Yes. I think that's safe to say Elyse, but I just want to highlight it's a really fluid environment in light of the current pandemic. And so we're hesitant to get too prescriptive with that.

Okay. That's helpful. And then in terms of the margin commentary, I felt like last quarter you guys kind of insinuated right if there had been a severe pullback that maybe some investments might be put on hold a little bit. So can you just comment on what you saw and why you guys kind of are deciding to ramp up some investments right now? Is it just maybe some of your businesses are like MSI are growing stronger than expected? Just walk us through the thought process on the investments and kind of the drag that that's going to have on your margin?

Yes. Kris, you want to share some of our thoughts around that?

Sure. So as you alluded to there was a lot more unknowns when we last talked in late March. And for our business, for our footprint heavily in the Southeast, it's been better than our worst-case scenarios thus far, right? Trevor said, it's still fluid, but we are more optimistic. We also just find ourselves in a good capital position, a good leverage position and really an ability to make investments at a time when others are pulling back, which should allow us to grab more talent to ultimately serve our clients and build a long-term durable business. So, some of the margin is certainly our plans to be opportunistic in Q2 when others aren't. But it's fluid. We're monitoring it. We don't want to get too far out ahead of ourselves, but we do think there's a unique opportunity here to make good investments that will pay off in the long run.

Yeah. I would just highlight there Elyse, it's not necessarily the same investments we would have been planning on pre-COVID. These are very informed investment decisions to really bolster our efforts, where we're seeing outsized success in the current environment. So, as we shared with the results we're seeing in the MGA of the Future platform and how that's really highlighted the resiliency of that business model and their tech-enabled go-to-market strategy, which is informing further investments there or in other parts of our business, where we've highlighted continued improvement in our overall sales productivity we're continuing to make investments there as we're seeing those pay off.

Okay. Thank you. Thank you for the color.

Thanks, Elyse.

Our next question comes from the line of Meyer Shields with KBW. Please proceed with your question.

Great. Thanks, and good evening, or good afternoon. Kris, I think you mentioned there was 100 basis point headwind to organic growth in the quarter. And I was hoping you could clarify. Is that a bad debt provision? Is that auditor return premiums?

I'll let Brad answer or follow on. But effectively, what we did is we looked at the revenue that we had booked and we generally have kind of a bad debt uncollectible revenue for an annual basis. And what we did at the end of Q1 is we actually doubled our annual reserve in the quarter for COVID right, just trying to look at what's going on with some of our clients and estimate kind of what a COVID exposure would be. We'll obviously keep looking at that. But that's what generated the 100 basis point hit there.

Yeah. I would say, it's sort of incremental cancellation reserve from our historical practices given the current environment and evaluation of our client base, with respect to recognized revenue that could be subject to cancellation in the future. Obviously, highly subjective, and we'll continue to monitor that in accordance with the accounting standards, but that's what that number represents.

Okay. No, that's very helpful. I think this is a question for Trevor. You mentioned potential recruitment, and obviously, there's a lot of activity going on among some of the larger brokers. I was hoping you could flesh that out a little more?

Yeah. Meyer, so what I would share is I think our response and how we've been really focused on remaining colleague and client centric amidst the current challenging operating environment has really continued to build on and bolster the trust, we have with our colleagues and highlighted our status as a true destination employer for the industry's top talent. So as you see some of our peers taking more broad-brush action that maybe needed or warranted in their businesses, we think that's going to create opportunities for high performers that may have gotten swept up in cost-saving actions that aren't necessarily as surgical as they could have been.

Okay. That's very helpful. Thank you so much.

Thanks, Meyer.

[Operator Instructions] Our next question comes from the line of Pablo Singzon with JPMorgan. Please proceed with your question.

Hi, guys. So I just wanted to follow-up on MSI, which held up much better than I expected. I think if – look at industry data it shows that new leases actually had a meaningful decline in April, which makes your results I guess even more surprising. So I just want to dig deeper into the story. Is it really more about increased penetration or maybe over a presence in certain market segments, where new leases didn't decline as much? And I was pretty surprised by your commentary in New York just given how things have frozen up here, but any additional color would be helpful.

Yeah. Great question, Pablo. So it's a number of things. It's one, we continue to get better at and more effective at how we're driving policy uptake in the communities that were embedded. Two, we continue to turn on more and more communities through our channel partners, making our tech-enabled solution available that really becomes that solution of convenience at point of lease. And three, it's continuing to bring on new channel partners. So it's really – it's a combination of expanding the potential doors, we have access to. It's becoming more effective at how we market our solutions to those doors; and three, gaining further wallet share inside our existing channel partners.

Got it. And just a follow-up to that. If we put aside new partnerships, if you could sort of speak to how penetrated you are in your current relationships, right? Because you raised a point that maybe you're not turned on in all buildings or communities, but I guess some sense of how much more runway there is to go there.

Yes. I mean with our existing channel partners, there's over 15 million units. As we shared on the call, we're roughly 420,000 policies in force today. So, there's pretty massive runway ahead of us.

Got it. And then, next question I had was on your -- the acquisitions that you had disclosed for the second quarter. I noted that there was a nice pickup there. And I guess the acquired EBITDA margin from 17% in the first quarter went up to 35. And I think, it was two Middle Market deals and one Connected Risk deal. If you could just sort of provide some color and I know each deal could be different. But was that driven more by the Connected Risk deal? Or did you see that -- where you're seeing those kinds of margins even in the Middle Market deals?

Yes. I'd say that was really more driven on the Middle Market side, Pablo. As we've shared before at the onset of the year, I think we talked about kind of an average expected EBITDA margin per aggregate partnership revenue of around 29%. We still feel like that's probably a good number to be using and thinking about for a full year basis. And just any given quarter, any given partnership, it's going to be lower or higher than that it's really very much deal-dependent.

Yes. And just on deals, Trevor and this will be my last question. So, I guess if you think about revenues in sort of a year you get to -- assuming no material change in the business right you get to the acquired revenue that you had modeled, when you did the deal. But for acquired EBITDA, what kind of lag should we be thinking about when we try to incorporate that into our models right? Is it -- I presume it's more than one year when revenue runs through, but if you could speak to how to think of EBITDA flowing through the model?

Yes. So, what I'd share Pablo is, it's definitely -- it's not going to all fully show up in say the first 12 months, following the partnership because you've got some incremental integration expense associated with bringing those partner firms on board. So, I'd say really probably the way to think about that is on an LTM basis, month 18 post partnership is when that could be really fully realized on an actual basis.

All right. Thank you for the answers.

Thanks Pablo.

There are no further questions. I'd like to hand the call back to Trevor for closing comments.

Thank you. We sincerely appreciate all of the interest in everyone who joined us this evening for our first quarter 2020 conference call. We hope all of you continue to remain safe, healthy and relatively sane during these unprecedented times and look forward to being with you hopefully soon. Take care.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.