Greetings, and welcome to the BRP Group, Inc. Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Austin Rock, Director of Strategy & Partnerships. 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 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 In addition, this call is being webcast and an archived version will be available after the call on the Investor Relations portion of our website. With that, I will now hand the call to Trevor Baldwin, Chief Executive Officer of BRP Group.

Thanks, Austin, and good afternoon, everyone. Welcome to our second quarter 2020 earnings call. We appreciate you are taking the time to join us and your interest in BRP Group. During today's call, I will provide some brief highlights on our accomplishments during the quarter. Brad Hale, our Chief Accounting Officer, will then provide a more detailed review of our Q2 results and Kris Wiebeck, our Chief Financial Officer, will wrap up with a few quick comments on our balance sheet and recent expectations regarding our outlook for the future. We will then open up the line for questions. To start off and said simply, Q2 was the best quarter we have had as a public company and potentially ever when you consider the broader economic landscape. For the quarter, we recorded year-over-year organic revenue growth of 19% and total revenue growth of 55%, marking another quarter of industry-leading growth, highlighting our differentiated go-to-market strategies across our business, and our ability to nimbly adapt to a rapidly evolving and challenging operating environment. Notably, we continue to see accelerating momentum in our MGA of the Future business, which grew revenue 39% in the quarter and for the first time is now included in our organic growth figure. We could not have accomplished these results without the incredible commitment and engagement of our colleagues of whom I could not be more proud and their unwavering support of our value clients during this challenging time. On the partnership front, we continued to execute on our strategy, successfully adding five new partners that generated annualized revenue of over $47 million, including significant additions in our Middle Market Group that we covered previously on our announcement call in early June. Including two new partnerships announced in July, our year-to-date total stands at 11 completed partnerships…

Thanks, Trevor and good afternoon to everyone on the call. For the second quarter, we generated revenue growth of 55% to $51.3 million. The revenue growth was driven once again by our hybrid growth model, namely organic growth, combined with contributions from new partnerships. Our organic revenue growth for the quarter of 19% includes for the first time our MGA of the Future platform, which we onboarded on April 1 of last year. Given that partnerships are an important portion of our ongoing growth strategy, in our regulatory filings we also provide revenue metrics on an unaudited per forma basis. This provides investors with a more apples-to-apples comparison as if our 2020 partnerships had been acquired on January 1, 2020. For second quarter 2020 unaudited pro forma revenue was $55.8 million, up 60% from the prior year. Unaudited pro forma information should not be relied upon as being indicative of the historical results that would have been obtained if the partnerships have occurred on that date nor the results that may be obtained in the future. GAAP net loss for the second quarter of 2020 was $7.9 million or $0.18 per fully diluted share. Adjusted net income for the second quarter of 2020, which excludes share-based compensation, amortization, and other one-time expenses, was $6.5 million or $0.10 per fully diluted share. A table reconciling GAAP net income to adjusted net income can be found in our earnings release and our 10-Q filed with the SEC. Adjusted EBITDA for the second quarter of 2020 rose 84% over the prior year period to $8.4 million. Adjusted EBITDA margin was 16% for the second quarter 2020 compared to 14% in the second quarter of 2019. Recall, we had noted on our prior call that we had expected adjusted EBITDA margin for the second…

Thanks, Brad and good afternoon to everyone on the call. A few closing remarks before we hit Q&A. During the quarter, we took multiple steps to bolster our balance sheet, which positioned us -- positions us to continue investing in the growth of our business, our people and new partners. In June, we upsized our revolving credit facility by 100 million to a total size of 400 million, importantly with no adverse changes to terms or duration, expanding our bank group and maintaining our low cost of capital. We also brought $135 million of new equity capital onto the balance sheet via follow-on offering, which leaves our leverage today slightly over one X, which we believe positions us to capitalize on the new -- on the partnership pipeline that Trevor mentioned at the outset, and that is as good as it's ever been. As we've said in the past, we continue to believe that three and a half to four X is a prudent run rate for our business. And we'd be comfortable taking leverage opportunistically up to around 4.5 if the situation warranted. As we move ahead, we expect the broader economy will continue to be impacted by COVID-19 for the balance of this year and into 2021. However, the resiliency of our business model and growth strategy continues to be evident in our performance. Thanks to our commitment, to investing in our technology, our tools, and our people. As such, going forward, we still feel confident in our ability to generate low double-digit organic growth in this environment. In closing, we will, obviously, continue to closely monitor the macro environment, but as we stand here today, we are very happy with our second quarter results. We're as confident as ever in the quality, durability and growth of the business. And we have never been more bullish in our partnership pipeline. With that, I thank you for your time, and we'll now open up the call for Q&A. Operator?

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

Good afternoon, BRP Group. I guess, I'd like to go back to a bunch of the commentary Brad provided around the renters product. And maybe just start from a perspective of talk to us about the persistency of your customers in all four of your segments. And I know, in particular it's been an issue of concern with other companies in Medicare and in the apartment business. So, maybe you can give us some perspective how your persistency is holding up.

Yeah. Hey, Greg. This is Trevor. Hope you're doing well this afternoon. So, as we think about, and look at persistency in our business, in our Middle Market segment, we believe that in the low-90s. And we have not seen any material change to that over the past few months and into the COVID period. When we look at our Medicare business, we believe our approach of going to market where we're engaging through communities to bring solutions to our clients, where they feel most comfortable, that enables us to build a very strong relationship with our client. And so, as plans change or their providers decide, that they may change their network of plans that they accept, that relationship in turn enables us to be their trusted advisor, ultimately, the one that they come back and reach out to provide advice on what other plan options may be available. So, ultimately, we believe that our go-to-market approach enables us to deliver more -- a more favorable retention rate than many of our peers, that are focused on maybe more internet or call center driven sales styles. And MGA of the Future business, and in particular, the renters product, persistency on a policy holder basis is certainly not what you would see in a traditional homeowners or middle market client segment. But what we get more focused on is the kind of persistency of the unit in the building, because that's what we're really tied to is distributing through the property management and software providers, that are overseeing those buildings. And so, while one renter may end up moving out and not necessarily retaining our product, what we're focused on is, are we obtaining the next renter that's coming into that unit? And we haven't disclosed specifics around that retention rate. But we believe that our overall retention relative to peer renter solutions is above average.

And the Mainstreet business.

Yeah. The Mainstreet business, we see high 80s to low 90s overall retention.

And Greg, I would add on the renters what Brad commented on as probably how we look at persistency where -- if you look at the kind of buildings we were active in, in our penetration that increased year-over-year, June 30 to June 30. And so, that's exciting to see from the business. And that's kind of more how we think about it.

I guess, just sticking with the renters for a second. If maybe you can comment on how your acquisitions costs match up with the revenue you're generating? Because in some of these other models, it's become painfully clear that they're in reality cash flow negative for a couple of years and really need the persistency to be high in order for them to actually get to the promised land of cash flow positive. So, perhaps you can just comment on your business model and just relates to cash flow and acquisition costs.

That's a great question, Greg. So, the day we bind a renter's policy, it's cash flow positive for us. Our acquisition costs on that business is built in a manner that as soon as that policy is bound, we have made a profit. And as such, that's why the MGA of the Future business has been profitable now for over three years and has a growing healthy stream of cash flow.

Then just sticking on the renters. The -- how's the integration going? I know when you talked about the Rosenthal acquisition, you talked about revenue synergies in part through the MGA of the Future. How's -- how are you doing with progress in that front?

Yeah. So, we've held a couple of strategy calls between the MGA of the Future team and the Rosenthal team. The first really kind of 90 days and a new partnership is focused on really successfully onboarding and welcoming our new colleagues in a manner that is consistent with who we are and our culture. And then we really get focused on deploying our go-to-market capabilities and tools to really help enable -- accelerated growth. So, I'd say we're in the beginning stages of rolling out those kind of cross sell revenue opportunities between them and the MGA of the Future. And that's probably a process that's going to take a few quarters before we really begin to see some real traction.

Got it. Thanks for those answers. One last numbers question. I noticed that you had a -- an increase payables in the cash flow statement. Can you talk about what was going on there?

Yeah. Greg, thanks. This is Brad. It's -- it's just a function of a building of advanced premium payments for -- a lot of July effective, which was just a timing thing for the quarter.

Got it. Thanks for your answers.

Yeah. Thanks, Greg.

Thank you. Our next question is come from the line of Elyse Greenspan with Wells Fargo. Please proceed with your questions.

Hi. Thanks. Good evening. My first question was hopefully to get more color on the deal pipeline. So, I guess a couple of questions related to that. I think you had made some comments about deals closing in the fourth quarter. I just wanted to understand whether they are more tilted towards the Q4? And then tying into that, you guys had $226 million of debt at the end of the quarter, right? And then you paydown $125 million in July. So, was the paydown just due to the fact that you have -- still what have happened up cash on hand for the deals that might see immediately? And then we would see the leverage tick off as deals materialized, just trying to tie those questions together related to deal activity.

Hey, Elyse. It's Kris. I'll probably take them backwards. Absolutely. To the second, seeing kind of where the pipeline is hitting. As we said, it's the best pipeline we've ever had. And so, knowing that it's probably going to close in Q4, we basically paid down the line. It's a revolving line, gives this 300 million more of buying power to execute on stuff in Q4. And so, it was purely kind of treasury management in terms of why we paid down. We had done something similar last December, if you remember, just say that, tens to hundreds of thousands of dollars incrementally. Again, the pipelines the strongest, as Brad said in the comments, as we look to when closings may happen, we feel like we closed a couple of small things in Q3, but the majority would be in Q4. And again, those things are always a little subject to change, but it's the best pipeline we've ever had. There's a lot of reasons why some folks -- depending on what happens with the election will want to get stuffed down in Q4. And that's where we're trying to provide some guidance. As people try to plan when may acquired revenue hit. On that point, I'd also point out in the investor supplement. We did try to take what we'd closed year-to-date. And as Brad said, lay that out from a phasing standpoint, so that you all can more easily see how things may have happened historically with the revenue that we closed on year-to-date.

Okay. That's helpful. And then in terms of the pipeline, continuing there on, can you give us a sense of size of deals. Maybe you don't want to be too specific, but just like the smaller deals, larger deals that you see in the pipeline and like just to give us a sense, right, of what size for the number of deals and just revenue? How would you think about what could potentially close in the fourth quarter?

Yeah. Hey, Elyse. This is Trevor. What we can say is, the pipeline of partnership opportunities and the firms were -- and meaningful dialogue with today represent the largest overall pipeline -- a collection of the largest firms we've been in dialogue with in the history of our organization and frankly among the highest quality organizations, that remain independent across the U.S. We are exceptionally excited about the organization that we're in dialogue with.

Okay. That's helpful. And then in terms of margins, you guys in the opening remarks did point out, right, there's seasonality there. And that typically your margins are weak on back in half a year, obviously with some level of investment in the Q2. So, how should we think about investment combined with, right, some deals that you brought on, it will be helpful to your Q3 and Q4 margin? So, how should we think about the Q3 and Q4 margins, either compared to last year or compared to Q2?

Yeah. Elyse, I will take that one. A couple of things, we laid out the 606 phasing and kind of pro forma margins. And what you'll see is a decent amount of revenue. You did end up kind of hitting in Q1. And I think we took pro forma revenue in Q1 all the way up to $78 million. And so, that's important when looking at the rest of the year in terms of where margin is going to be. From a statement, we definitely are seeing a big opportunity to keep investing in this market. Right? I think we made the right call in Q2 to be kind of front footed and lean into investment opportunities. We've seen a few of those already pay off here, and we think they're going to pay off going forward. And so, we continue to make investments into Q3. So, I would say just from a modeling standpoint, probably we don't want to take margin back from Q2, but if we want something for Q3, probably hold the Q2 on a pro farmer margin is a good place to be. A little bit of it is just how many investments we'll make, but we probably won't take it back. So, I would say, hold it steady for now.

Okay. And then last one from me. You guys reported about 11% organic in the quarter. If I back out the MGA, which is still -- just to back it out, right, because that's pretty good growth within your other businesses. It sounds like from your commentary that there was nothing really one-time. It's just -- if we were -- you've provided some good growth figures on the policies with the Mainstreet business. But within everything else, does that 11% also feel like a good run rate for rest of the year, even given some of the COVID related headwinds?

Yeah. I mean, I think -- look, 19% organic overall with the MGA and obviously, when the country is down 32% on GDP and we're plus 19%, that's 50 point points better. We don't want people to reset say, they're going to grow at 19% all the time. Right? We've said rethink this business 10% to 15% in the long run. For Q3 itself, I think you've heard from other brokers, it's probably going to be the low quarter for the industry in terms of -- the COVID impact, especially depending on what happens with stimulus. So, I would say on the lower side of that 10% to 15% if you're looking for kind of in the interim where we think we're going to be. Obviously, we -- it's a fluid situation. But we still feel really good as you pointed out, Q2 was exceptionally strong. We feel good about that kind of double-digit going forward, but we would tell folks to think on the lower side for now, just given the uncertainty.

Okay. Thank you. I appreciate all the color.

Thanks, Elyse.

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

Thanks. I want to follow-up, I guess, on the same question. I know last quarter we talked about how a lot of the regions you're operating in, were doing relatively well with pandemic, and I know I'm thinking Florida. Specifically there were increases in section hopefully they are slowing down now. But I was wondering if you could talk a little bit about sort of the month to month economic progress in your geographic footprint.

Yeah. Hey, Meyer. This is Trevor. So, a few things. As we look at the impact -- the combined impact of rate and exposure on our book through July in the Middle Market business, it sits at roughly 3%. And in the commercial line side of our business, it's sits at roughly 1%. And so, as you think about kind of the relative impact of rate and then client exposure, we're seeing pretty healthy rates similar to our peers. So, call it high single digits. And so think about the offset to that as shrinkage and the exposure units of our client base, revenues, payrolls, headcount. But importantly, what I would say is that despite the fact that kind the relative tailwind impact of combined rate and exposure was call it plus three for us. We meaningfully outgrew that, and that's a function of our ability to continue to win and onboard new clients at a rate that meaningfully exceeds our industry peers. Some more specifics on kind of how that's trending is, we've really seen it kind of hold steady in that plus three, plus two for the past few months, so, it's not materially moving up or down. And I think -- as we're thinking about what the future looks like, there is a sense that Q3 and potentially Q4 could end up being tougher as a lot of businesses burn through the stimulus dollars that came out in March and April and have to make some tough decisions about resizing their businesses to the amount of economic activity that's occurring. As we look at our existing client base and what the impact have been year-to-date, I think about as an example, restaurant, hospitality and lodging clients who on -- through July, that revenue that's been renewed is down about 24%. And so that includes exposure unit shrinkage, but then offset by the positive rate we're seeing. So, pretty material impact. And I think we're -- this -- our performance, despite these headwinds really comes back to the investments we've been making in our platform, the ability we had to quickly pivot and equip our risk advisors with the tools needed to really be successful in this virtual environment. And as we look at the MGA of the Future as it just another kind of data point, and we think about some of the geographies that were more meaningfully impacted over the kind of middle of the back half of Q2, new policies issued in the state of Florida. We're up 45%. New policies issued in the state of California. We're up 45% year-over-year. So, I think really, again, highlighting the resiliency and durability of that tech enabled distribution model that we've built out there.

Okay. No. That's really how I think. Quick question, I guess I'd have branded for Kris. Looking at the slide with the pro forma revenues of this year's partners has said it's tremendously helpful. Is there anything unusual in the seasonality of expenses for those companies?

Not per se. Only in that -- obviously our commission expenses mirror our commission revenue. So, when commission revenue is higher, we'd be accruing the associated commission expenses. But nothing to call out specifically on the expense side

Meyer, this Trevor. I would add. When you look at our business, when you've got seasonally high revenues, margin tends to be meaningfully higher, because we do have certain costs that are more fixed such as, our operating expenses, client service and admin payroll, that doesn't kind of fluctuate with the revenue base. So, in those periods they're seasonally high, you would expect to see materially better margin. And in those periods, they're seasonally low, you would expect to see lower margin.

Okay. That's helpful. And then just final question. You touched on this a little bit, but I'm just trying to get a sense as to how sellers are thinking about the prospects of a political change or higher capital gains taxes coming into effect next year. And how material that seems to be?

Over the past probably 30 days, Meyer, it's been something that's become that started coming up. I wouldn't say it is a deciding factor for why people are making a decision to potentially partner, but it's a contributing factor particularly as we get closer to the election. And so, on the margin, I'd say, it's probably helpful as we look at the kind of pipeline and amount of deal flow we have in the back half of the year. But it's really only for people that are saying, okay, if I'm going to do -- potentially do something in the next three to five years, there's probably a reason to accelerate that into 2020 rather than wait.

Perfect. Okay. Great. Thanks so much.

Yeah.

Thank you. Our next question is come from the line of Pablo Singzon of JPMorgan. Please proceed with your question.

Hi. Good afternoon. I wanted to dig a bit more on the segment organic growth numbers. So, if I'm doing my math correctly, seems like Middle Market has a pretty good quarter, about 15% organic. But Mainstreet and Medicare a bit soft. I just wonder if we talk that -- talk about that a bit. Was it the same factors driving the softness there as the first quarter?

So, Pablo, as we've said with Mainstreet, there was some contingent income headwind that we're going to serve -- that we're going to prove to be headwinds through the second quarter. And then in our Medicare business where we do serve our clients in the communities and places where they feel most comfortable, the COVID environment certainly impacts our ability to get in front of people in the same way. So, as we think about what that means for the Medicare business, we've been making some pretty meaningful investments to position ourselves for success in the back half of the year and we launched our digital marketplace under the guided Medicare Solutions brand about a month and a half ago, and we've already sold our first -- or enrolled our first members on Medicare advantage plans through that platform, which is really enabling our agents to be able to have a completely digital enrollment experience with their clients and plan members. So, we're excited about that. And as we think about the Medicare -- or the Mainstreet businesses, as we discussed, the contingent income headwinds will likely begin turning into real tailwinds in Q4 and through 2021 as the rate action began swung through the book-of-business that we're saying.

Got it. And then, second question is about MSI. My question is, how do you sort of square the strong performance of MSI against rental market that's needs to be seeing some of those stress whether in terms of renewals or new leases. I guess, the question is, are you seeing some of those stresses in your portfolio? And how comfortable are you growing around them? Like, what are you doing that's helping you grow around those potential headwinds?

Yeah. So, Pablo, I think what it highlights is that our ability to grow the renter's book-of-business is not necessarily tied to people signing the leases. And because of our tech enabled distribution model of integrating through the software providers who at times are managing rent payments, or other kind of interfaces with the tenants, it really provides a venue for us to be providing a renter's insurance solution to them kind of on an ongoing basis. And so, we continue to improve our ability in partnership with our distribution partners to market that solution and to get in front of them as highlighted by the increasing penetration and kind of turned on units in our distribution partners portfolios.

Got it. And just to follow-up on that. Trevor, would it be fair to say that as long as occupancy rates stay stable and they have been stable, I guess in -- that section of the portfolio that you're covering renter's now, we should sort of expect continued growth. Is that a fair sort of way to think about the renter's market from a macro level that's relates MSI?

Yeah. I think that's a fair way to think about it, Pablo.

Okay. Thank you.

[Operator Instructions] There are no further questions at this time. I will now turn the call back over to Trevor Baldwin for any closing remarks.

Thank you everyone for joining us. We are super pleased with the performance of our business and the strength of our colleagues to help us, really deliver for our clients during what was a really challenging environment. And we look forward to speaking with everyone in a few months to talk about Q3. Thank you.

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.