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BROWN & BROWN, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion updates the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , and the two discussions should be read together.
GENERAL
Company Overview - First Quarter of 2022
The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, please see "Information Regarding Non-GAAP Financial Measures" below regarding important information on non-GAAP financial measures contained in our discussion and analysis. We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquartered inDaytona Beach, Florida . As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds' underlying "insurable exposure units," which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, sales or payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control. We also operate a capitalized captive insurance facility (the "Captive") for the purpose of having additional capacity to sell property insurance for earthquake and wind exposed properties. The Captive buys reinsurance, limiting, but not eliminating, the Company's exposure to underwriting losses, and revenues are recognized as net retained earned premiums over the associated policy periods. The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, changes in general economic and competitive conditions, a health pandemic, and the occurrence of catastrophic weather events all affect our revenues. For example, higher levels of inflation, which would increase the value of insurable exposure units, or a general decline in economic activity, which could decrease the value of insurable exposure units. Conversely, increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance coverage. Historically, we have grown our revenues as a result of our focus on net new business and acquisitions. We foster a strong, decentralized sales and service culture, which enables responsiveness to changing business conditions and drives accountability for results. The term "core commissions and fees" excludes profit-sharing contingent commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered. The net change in core commissions and fees reflects the aggregate changes attributable to: (i) net new and lost accounts; (ii) net changes in our customers' exposure units; (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners; (iv) the net change in fees paid to us by our customers; and (v) any businesses acquired or disposed of. We also earn "profit-sharing contingent commissions," which are commissions based primarily on underwriting results, but in select situations may reflect additional considerations for volume, growth and/or retention. These commissions, which are included in our commissions and fees in the Condensed Consolidated Statements of Income, are accrued throughout the year based on actual premiums written and are primarily received in the first and second quarters of each subsequent year, based upon the aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 3.0% of commissions and fees revenue. Fee revenues primarily relate to services other than securing coverage for our customers, and to a lesser extent as fees negotiated in lieu of commissions. Fee revenues are generated by: (i) our Services segment, which is primarily a fee-based business that provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers' compensation and all-lines liability arenas, as well as Medicare Set-aside services,Social Security disability and Medicare benefits advocacy services, and claims adjusting services; (ii) our National Programs and Wholesale Brokerage segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and (iii) our Retail segment in our large-account customer base, where we primarily earn fees for securing insurance for our customers, and in our automobile dealer services ("F&I") businesses where we earn fees for assisting our customers with creating and selling warranty and service risk management programs. Fee revenues as a percentage of our total commissions and fees, represented 27.4% in 2021 and 26.1% in 2020.
For the three months ended
rate was 11.1%, and our consolidated Organic Revenue growth rate was 7.8%.
Historically, investment income has consisted primarily of interest earnings on operating cash and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy as it relates to the Company's capital is to invest available funds in high-quality, short-term fixed income investment securities. Investment income also includes gains and losses realized from the sale of investments. Other income primarily reflects legal settlements and other revenues. Income before income taxes for the three months endedMarch 31, 2022 increased from the first quarter of 2021 by$25.8 million , primarily as a result of net new business, acquisitions completed in the past 12 months, and consistent leveraging and management of our expense base. 26 --------------------------------------------------------------------------------
Information Regarding Non-GAAP Measures
In the discussion and analysis of our results of operations, in addition to
reporting financial results in accordance with generally accepted accounting
principles ("GAAP"), we provide references to the following non-GAAP financial
measures as defined in Regulation G of SEC rules: Total Revenues - Adjusted,
Organic Revenue, EBITDAC, EBITDAC Margin, EBITDAC - Adjusted and EBITDAC Margin
- Adjusted. We present these measures because we believe such information is of
interest to the investment community and because we believe it provides
additional meaningful methods to evaluate the Company's operating performance
from period to period on a basis that may not be otherwise apparent on a GAAP
basis due to the impact of certain items that have a high degree of variability
and that we believe are not indicative of ongoing performance. This non-GAAP
financial information should be considered in addition to, not in lieu of, the
Company's consolidated income statements and balance sheets as of the relevant
date. Consistent with Regulation G, a description of such information is
provided below and tabular reconciliations of this supplemental non-GAAP
financial information to our most comparable GAAP information are contained in
this Quarterly Report on Form 10-Q under "Results of Operations - Segment
Information."
We view Organic Revenue and Organic Revenue growth as important indicators when
assessing and evaluating our performance on a consolidated basis and for each of
our four segments, because it allows us to determine a comparable, but non-GAAP,
measurement of revenue growth that is associated with the revenue sources that
were a part of our business in both the current and prior year and that are
expected to continue in the future. We also view EBITDAC and EBITDAC Margin as
important indicators when assessing and evaluating our performance, as they
present more comparable measurements of our operating margins in a meaningful
and consistent manner. As disclosed in our most recent proxy statement, we use
Organic Revenue and EBITDAC Margin as key performance metrics for our short-term
and long-term incentive compensation plans for executive officers and other key
employees.
Beginning January 1, 2022 , we no longer exclude guaranteed supplemental
commissions ("GSCs") from core commissions and fees and, therefore, GSCs are a
component of Organic Revenue. All current and prior periods contained within
this Quarterly Report on Form 10-Q have been adjusted for this treatment. GSCs
are a stable source of revenue that are highly correlated to core commissions,
so isolating them separately provides no meaningful incremental value in
evaluating our revenue.
Beginning January 1, 2022 , the following, in addition to the change in estimated
acquisition earn-out payables, are excluded from certain non-GAAP measures, as
we believe these amounts are not indicative of the ongoing operating performance
of the business and are not easily comparable from period-to-period:
•
"(Gain)/loss on disposal," a caption on our consolidated statements of income which reflects net proceeds received as compared to net book value related to sales of books of business and other divestiture transactions, such as the disposal of a business through sale or closure.
•
"Acquisition/Integration Costs," which represent the acquisition and integration costs (e.g., costs associated with regulatory filings, legal/accounting services, due diligence and the costs of integrating our information technology systems) arising out of our acquisition ofOrchid Underwriters Agency andCrossCover Insurance Services ("Orchid") and pending acquisitions ofGRP (Jersey) Holdco Limited and its business ("GRP") andBdB Limited companies ("BdB"). Such costs are not expected to occur on an ongoing basis in the future.
•
The period-over-period impact of foreign currency translation ("Foreign Currency
Translation"), which is calculated by applying current-year foreign exchange
rates to the various functional currencies in our business to our reporting
currency of US dollars for the same period in the prior year.
We are presenting EBITDAC - Adjusted and EBITDAC Margin - Adjusted for the
current and prior year periods contained within this Quarterly Report on Form
10-Q so these non-GAAP financial measures compare both periods on the same
basis.
Non-GAAP Revenue Measures
•
Total Revenues - Adjusted is our total revenues, excluding the
period-over-period impact of Foreign Currency Translation.
•
Organic Revenue is our core commissions and fees less: (i) the core commissions and fees earned for the first 12 months by newly acquired operations; (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period); and (iii) the period-over-period impact of Foreign Currency Translation. The term "core commissions and fees" excludes profit-sharing contingent commissions and therefore represents the revenues earned directly from specific insurance policies sold and specific fee-based services rendered. Organic Revenue can be expressed as a dollar amount or a percentage rate when describing Organic Revenue growth. Non-GAAP Earnings Measures •
EBITDAC is defined as income before interest, income taxes, depreciation,
amortization and the change in estimated acquisition earn-out payables.
•
EBITDAC Margin is defined as EBITDAC divided by total revenues.
27 --------------------------------------------------------------------------------
•
EBITDAC - Adjusted is defined as EBITDAC, excluding (i) (gain)/loss on disposal, (ii) Acquisition/Integration Costs and (iii) the period-over-period impact of Foreign Currency Translation.
•
EBITDAC Margin - Adjusted is defined as EBITDAC - Adjusted divided by Total
Revenues - Adjusted.
Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments and, therefore, comparability may be limited. This supplemental non-GAAP financial information should be considered in addition to, and not in lieu of, the Company's condensed consolidated financial statements.
Acquisitions
Part of our continuing business strategy is to attract high-quality insurance intermediaries to join our operations. From 1993 through the first quarter of 2022, we acquired 582 insurance intermediary operations.
Critical Accounting Policies
We have had no changes to our Critical Accounting Policies as described in our most recent Form 10-K for the year endedDecember 31, 2021 . We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business combinations and purchase price allocations including potential earn-out obligations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 in the "Notes to Consolidated Financial Statements" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for details regarding our critical and significant accounting policies. While we did not have any changes to our Critical Accounting Policies we have implemented a revised basis of presentation to segregate fiduciary assets and liabilities from the operating assets and liabilities of the Company. The associated fiduciary cash flow is reflected within the financing activity section of the Statement of Cash Flows. All prior periods included in these financial statements have been updated to this basis of presentation. 28 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
The following discussion and analysis regarding results of operations and
liquidity and capital resources should be considered in conjunction with the
accompanying Condensed Consolidated Financial Statements and related Notes.
Financial information relating to our condensed consolidated financial results
for the three months ended
Three months ended March 31,
(in millions, except percentages) 2022 2021 %
Change
REVENUES
Core commissions and fees$ 875.7 $ 788.1 11.1 % Profit-sharing contingent commissions 28.6 25.9 10.4 % Investment income 0.2 0.3 (33.3 )% Other income, net 0.2 1.0 (80.0 )% Total revenues 904.7 815.3 11.0 % EXPENSES Employee compensation and benefits 459.0 429.5 6.9 % Other operating expenses 126.8 94.4 34.3 % (Gain)/loss on disposal (0.2 ) (0.2 ) (- )% Amortization 31.1 29.5 5.4 % Depreciation 8.1 7.5 8.0 % Interest 18.3 16.3 12.3 % Change in estimated acquisition earn-out payables (3.4 ) (0.9 ) NMF Total expenses 639.7 576.1 11.0 % Income before income taxes 265.0 239.2 10.8 % Income taxes 44.7 39.5 13.2 % NET INCOME$ 220.3 $ 199.7 10.3 % Income Before Income Taxes Margin (1) 29.3 % 29.3 % EBITDAC - Adjusted (2)$ 323.3 $ 291.1 11.1 % EBITDAC Margin - Adjusted (2) 35.7 % 35.7 % Organic Revenue growth rate (2) 7.8 % 9.9 %
Employee compensation and benefits
relative to total revenues 50.7 % 52.7 %
Other operating expenses relative
to total revenues 14.0 % 11.6 % Capital expenditures$ 10.0 $ 11.4 (12.3 )% Total assets at March 31,$ 11,272.9 $ 8,910.8 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure
Commissions and Fees
Commissions and fees, including profit-sharing contingent commissions, for the three months endedMarch 31, 2022 increased$90.3 million to$904.3 million , or 11.1%, over the same period in 2021. Core commissions and fees revenue for the first quarter of 2022 increased$87.6 million , composed of (i) approximately$61.4 million of net new and renewal business, which reflects an Organic Revenue growth rate of 7.8%; (ii)$29.3 million from acquisitions that had no comparable revenues in the same period of 2021; (iii) an offsetting decrease from the impact of foreign currency translation of$0.7 million ; and (iv) an offsetting decrease of$2.4 million related to commissions and fees revenue from business divested in the preceding twelve months. Profit-sharing contingent commissions for the first quarter of 2022 increased by$2.7 million , or 10.4%, compared to the same period in 2021. Investment Income
Investment income for the three months ended
million
driven by lower interest rates as compared to the prior year.
29 --------------------------------------------------------------------------------
Other Income
Other income for the three months ended
compared with
primarily of legal settlements and other miscellaneous income.
Employee Compensation and Benefits
Employee compensation and benefits expense as a percentage of total revenues was 50.7% for the three months endedMarch 31, 2022 as compared to 52.7% for the three months endedMarch 31, 2021 , and increased 6.9%, or$29.5 million . This increase included$10.9 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2021. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2022 and 2021 increased by$18.6 million or 4.4%. This underlying employee compensation and benefits expense increase was primarily related to: (i) increased claims associated with our self-insured employee health plan; (ii) an increase in staff salaries attributable to salary inflation; (iii) an increase in accrued performance bonuses; (iv) an increase in producer compensation associated with revenue growth; partially offset by (v) the year-over-year decrease of approximately$10.6 million in the value of deferred compensation liabilities driven by changes in the market prices of our employees' investment elections, which was substantially offset by other operating expenses as we hold assets to fund these liabilities that closely match the investment elections of our employees.
Other Operating Expenses
Other operating expenses represented 14.0% of total revenues for the first quarter of 2022 as compared to 11.6% for the first quarter of 2021. Other operating expenses for the first quarter of 2022 increased$32.4 million , or 34.3%, from the same period of 2021. The net increase included: (i)$4.2 million of other operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2021; (ii) increased variable expenses with higher travel and entertainment being the largest driver; (iii) acquisition and integration costs associated with the purchase of Orchid and our pending acquisitions of GRP and BdB and (iv) the year-over-year increase of approximately$10.6 million in the value of assets held to fund the associated liabilities within our deferred compensation plan, which was substantially offset by increases in the value of those liabilities recognized as expense in employee compensation and benefits.
(Gain)/Loss on Disposal
Gain on disposal for the first quarter of 2022 and the first quarter of 2021 was$0.2 million . The gains on disposal were due to activity associated with book of business sales. Although we do not routinely sell businesses or customer accounts, we periodically sell an office or a book of business (one or more customer accounts) that we believe does not produce reasonable margins or demonstrate a potential for growth, or because doing so is in the Company's best interest. Amortization
Amortization expense for the first quarter of 2022 increased
5.4%, compared to the first quarter of 2021. This increase reflects the
amortization of new intangibles from businesses acquired within the past 12
months, partially offset by certain intangible assets becoming fully amortized.
Depreciation
Depreciation expense for the first quarter of 2022 increased$0.6 million , or 8.0%, compared to the first quarter of 2021. Changes in depreciation expense reflect the addition of fixed assets resulting from business initiatives, and net additions of fixed assets resulting from businesses acquired in the past 12 months, which were partially offset by fixed assets that became fully depreciated.
Interest Expense
Interest expense for the first quarter of 2022 increased$2.0 million , or 12.3%, compared to the first quarter of 2021. The increase was due to higher average debt balances resulting from a recent debt issuance in the first quarter of 2022 in preparation of the funding of theOrchid, GRP and BdB acquisitions, as well as increases in the floating rate benchmark used on our floating rate debt.
Change in Estimated Acquisition Earn-Out Payables
Accounting Standards Codification ("ASC") Topic 805-Business Combinations is the
authoritative guidance requiring an acquirer to recognize 100% of the fair value
of acquired assets, including goodwill and assumed liabilities (with only
limited exceptions) upon initially obtaining control of an acquired entity.
Additionally, the fair value of contingent consideration arrangements (such as
earn-out purchase price arrangements) at the acquisition date must be included
in the purchase price consideration. The recorded purchase price for
acquisitions includes an estimation of the fair value of liabilities associated
with any potential earn-out provisions. Subsequent changes in these earn-out
obligations are required to be recorded in the Condensed Consolidated Statements
of Income when incurred or reasonably estimated. Estimations of potential
earn-out obligations are typically based upon future earnings of the acquired
operations or entities, usually for periods ranging from one to three years.
The net charge or credit to the Condensed Consolidated Statements of Income for
the period is the combination of the net change in the estimated acquisition
earn-out payables balance, and the interest expense imputed on the outstanding
balance of the estimated acquisition earn-out payables.
30
--------------------------------------------------------------------------------
As of March 31, 2022 and 2021, the fair values of the estimated acquisition
earn-out payables were re-evaluated based upon projected operating results and
measured at fair value on a recurring basis using unobservable inputs (Level 3)
as defined in ASC 820-Fair Value Measurement. The resulting net changes, as well
as the interest expense accretion on the estimated acquisition earn-out
payables, for the three months ended March 31, 2022 and 2021 were as follows:
Three months ended March 31,
(in millions) 2022 2021
Change in fair value of estimated acquisition
earn-out payables $ (4.8 ) $ (2.7 )
Interest expense accretion 1.4 1.8
Net change in earnings from estimated acquisition
earn-out payables $ (3.4 )
$ (0.9 )
For the three months endedMarch 31, 2022 and 2021, the fair value of estimated acquisition earn-out payables was re-evaluated and decreased by$4.8 million and$2.7 million , respectively, which resulted in credits to the Condensed Consolidated Statements of Income.
As of
million
million
Income Taxes
The effective tax rate on income from operations for the three months ended
31 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS - SEGMENT INFORMATION
As discussed in Note 12 of this 10-Q on the Condensed Consolidated Financial Statements, we operate four reportable segments: Retail, National Programs, Wholesale Brokerage, and Services. On a segmented basis, changes in amortization, depreciation and interest expenses generally result from activity associated with acquisitions. Likewise, other revenues in each segment reflects net gains primarily from legal settlements and miscellaneous income. As such, in evaluating the operational efficiency of a segment, management focuses on the Organic Revenue growth rate and EBITDAC Margin - Adjusted.
The reconciliation of commissions and fees included in the Condensed
Consolidated Statements of Income to Organic Revenue, a non-GAAP financial
measure, for the three months ended
segment, and the growth rates for Organic Revenue for the three months ended
2022 Retail (1) National Programs Wholesale Brokerage Services Total (in millions, except percentages) 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Commissions and fees$ 595.9 $ 521.7 $ 162.1 $ 154.6 $ 102.7 $ 90.7 $ 43.6 $ 47.0 $ 904.3 $ 814.0 Total change$ 74.2 $ 7.5 $ 12.0 (3.4 )$ 90.3 Total growth % 14.2 % 4.9 % 13.2 % (7.2 )% 11.1 % Profit-sharing contingent commissions (17.9 ) (15.7 ) (8.0 ) (8.3 ) (2.7 ) (1.9 ) - - (28.6 ) (25.9 ) Core commissions and fees$ 578.0 $ 506.0 $ 154.1 $ 146.3 $ 100.0 $ 88.8 $ 43.6 $ 47.0 $ 875.7 $ 788.1 Acquisitions (28.3 ) - (0.1 ) - (0.9 ) - - - (29.3 ) - Dispositions - (0.7 ) - (1.2 ) - - - (0.5 ) - (2.4 ) Foreign currency translation - (0.7 ) - - - - - - - (0.7 ) Organic Revenue (2)$ 549.7 $ 504.6 $ 154.0 $ 145.1 $ 99.1 $ 88.8 $ 43.6 $ 46.5 $ 846.4 $ 785.0 Organic Revenue growth (2)$ 45.1 $ 8.9 $ 10.3 $ (2.9 ) $ 61.4 Organic Revenue growth rate (2) 8.9 % 6.1 % 11.6 % (6.2 )% 7.8 % (1) The Retail Segment includes commissions and fees reported in the "Other" column of the Segment Information in Note 12 of this 10-Q of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items. (2) A non-GAAP financial measure.
The reconciliation of commissions and fees included in the Condensed
Consolidated Statements of Income to Organic Revenue, a non-GAAP financial
measure, for the three months ended
segment, and the growth rates for Organic Revenue for the three months ended
2021 Retail (1) National Programs Wholesale Brokerage Services Total (in millions, except percentages) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Commissions and fees$ 521.7 $ 446.4 $ 154.6 $ 128.1 $ 90.7 $ 77.5 $ 47.0 $ 44.5 $ 814.0 $ 696.5 Total change$ 75.3 $ 26.5 $ 13.2 $ 2.5 $ 117.5 Total growth % 16.9 % 20.7 % 17.0 % 5.6 % 16.9 % Profit-sharing contingent commissions (15.7 ) (16.1 ) (8.3 ) (5.7 ) (1.9 ) (2.1 ) - - (25.9 ) (23.9 ) Core commissions and fees 506.0 430.3 146.3 122.4 88.8 75.4 47.0 44.5 788.1 672.6 Acquisition revenues$ (34.1 ) $ -$ (6.2 ) $ - $
(8.5 ) $ - $ - $ -$ (48.8 ) $ - Divested business - (0.2 ) - - - - - - - (0.2 ) Foreign currency translation - - - 0.2 - - - - - 0.2 Organic Revenue (2)$ 471.9 $ 430.1 $ 140.1 $ 122.6 $ 80.3 $ 75.4 $ 47.0 $ 44.5 $ 739.3 $ 672.6 Organic Revenue growth (2)$ 41.8 $ 17.5 $ 4.9 $ 2.5 $ 66.7 Organic Revenue growth rate (2) 9.7 % 14.3 % 6.5 % 5.6 % 9.9 % (1) The Retail Segment includes commissions and fees reported in the "Other" column of the Segment Information in Note 12 of this 10-Q of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items. (2) A non-GAAP financial measure. 32 -------------------------------------------------------------------------------- The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months endedMarch 31, 2022 , is as follows: National Wholesale (in millions) Retail Programs Brokerage Services Other Total Total Revenues$ 596.4 $ 162.2 $ 102.9 $ 43.6 $ (0.4 ) $ 904.7 Foreign Currency Translation - - - - - - Total Revenues - Adjusted(2) 596.4 162.2 102.9 43.6 (0.4 ) 904.7 Income before income taxes 184.1 41.7 25.6 6.6 7.0 265.0 Income Before Income Taxes Margin(1) 30.9 % 25.7 % 24.9 % 15.1 % NMF 29.3 % Amortization 21.1 6.7 2.0 1.3 - 31.1 Depreciation 2.5 2.8 0.7 0.4 1.7 8.1 Interest 23.6 2.2 3.5 0.6 (11.6 ) 18.3 Change in estimated acquisition earn-out payables (3.7 ) 0.1 0.2 - - (3.4 ) EBITDAC(2) 227.6 53.5 32.0 8.9 (2.9 ) 319.1 EBITDAC Margin(2) 38.2 % 33.0 % 31.1 % 20.4 % NMF 35.3 % (Gain)/loss on disposal (0.2 ) - - - - (0.2 )
Acquisition/Integration
Costs 2.3 0.3 0.4 - 1.4 4.4 Foreign Currency Translation - - - - - - EBITDAC - Adjusted(2)$ 229.7 $ 53.8 $ 32.4 $ 8.9 $ (1.5 ) $ 323.3 EBITDAC Margin - Adjusted(2) 38.5 % 33.2 % 31.5 % 20.4 % NMF 35.7 % (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes included in the Condensed Consolidated Statement of Income to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months endedMarch 31, 2021 , is as follows: National Wholesale (in millions) Retail Programs Brokerage Services Other Total Total Revenues$ 522.9 $ 154.9 $ 90.9 $ 47.0 $ (0.4 ) $ 815.3 Foreign Currency Translation (0.7 ) - - - - (0.7 ) Total Revenues - Adjusted(2) 522.2 154.9 90.9 47.0 (0.4 ) 814.6 Income before income taxes 151.2 41.1 18.8 9.3 18.8 239.2 Income Before Income Taxes Margin(1) 28.9 % 26.5 % 20.7 % 19.8 % NMF 29.3 % Amortization 18.8 6.9 2.4 1.4 - 29.5 Depreciation 2.8 2.1 0.6 0.4 1.6 7.5 Interest 22.6 4.1 4.3 0.8 (15.5 ) 16.3 Change in estimated acquisition earn-out payables (0.9 ) (0.2 ) 0.2 - - (0.9 ) EBITDAC(2) 194.5 54.0 26.3 11.9 4.9 291.6 EBITDAC Margin(2) 37.2 % 34.9 % 28.9 % 25.3 % NMF 35.8 % (Gain)/loss on disposal (0.2 ) - - - - (0.2 ) Acquisition/Integration Costs - - - - - - Foreign Currency Translation (0.3 ) - - - - (0.3 ) EBITDAC - Adjusted(2)$ 194.0 $ 54.0 $ 26.3 $ 11.9 $ 4.9 $ 291.1 EBITDAC Margin - Adjusted(2) 37.2 % 34.9 % 28.9 % 25.3 % NMF 35.7 % (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure 33 --------------------------------------------------------------------------------
Retail Segment The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers, and non-insurance risk-mitigating products through our F&I businesses. Approximately 81.3% of the Retail segment's commissions and fees revenue is commission based.
Financial information relating to our Retail Segment for the three months ended
Three months ended March 31,
(in millions, except percentages) 2022 2021 %
Change
REVENUES
Core commissions and fees$ 578.4 $ 506.5 14.2 % Profit-sharing contingent commissions 17.9 15.7 14.0 % Investment income - - - % Other income, net 0.1 0.7 (85.7 )% Total revenues 596.4 522.9 14.1 % EXPENSES Employee compensation and benefits 288.1 262.9 9.6 % Other operating expenses 80.9 65.7 23.1 % (Gain)/loss on disposal (0.2 ) (0.2 ) - % Amortization 21.1 18.8 12.2 % Depreciation 2.5 2.8 (10.7 %) Interest 23.6 22.6 4.4 % Change in estimated acquisition earn-out payables (3.7 ) (0.9 ) NMF Total expenses 412.3 371.7 10.9 % Income before income taxes$ 184.1 $ 151.2 21.8 % Income Before Income Taxes Margin (1) 30.9 % 28.9 % EBITDAC - Adjusted (2)$ 229.7 $ 194.0 18.4 % EBITDAC Margin - Adjusted (2) 38.5 % 37.2 % Organic Revenue growth rate (2) 8.9 % 9.7 %
Employee compensation and benefits
relative to total revenues 48.3 % 50.3 %
Other operating expenses relative
to total revenues 13.6 % 12.6 % Capital expenditures$ 1.6 $ 2.3 (30.4 )% Total assets at March 31,$ 4,903.9 $ 7,210.5 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure The Retail Segment's total revenues for the three months endedMarch 31, 2022 increased 14.1%, or$73.5 million , as compared to the same period in 2021, to$596.4 million . The$71.9 million increase in core commissions and fees revenue was driven by: (i) approximately$28.3 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2021; (ii) an increase of$45.0 million related to net new and renewal business; offset by (iii) a decrease of$0.7 million related to commissions and fees recorded in 2021 from businesses since divested and a negative impact from foreign currency translation of$0.7 million . Profit-sharing contingent commissions for the first quarter of 2022 increased 14.0%, or$2.2 million , as compared to the same period in 2021, to$17.9 million . This increase was primarily the result of recent acquisitions and qualifying for incremental profit-sharing contingent commissions in 2022 beyond what was qualified for in the prior year. The Retail Segment's total commissions and fees increased by 14.2%, and the Organic Revenue growth rate was 8.9% for the first quarter of 2022. The Organic Revenue growth rate was driven by net new business, which was impacted by modest exposure unit improvement and rate increases in most lines of business with the most pronounced being the continued increases in commercial and condo property, and professional liability, partially offset by continued premium rate reductions in workers' compensation. Organic Revenue growth was realized across all lines of business. 34 -------------------------------------------------------------------------------- Income before income taxes for the three months endedMarch 31, 2022 increased 21.8%, or$32.9 million , as compared to the same period in 2021, to$184.1 million . The primary factors affecting this increase were (i) the drivers of EBITDAC - Adjusted described below; and (ii) the decrease in estimated acquisition earn-out payables; partially offset by (iii) acquisition/integration costs. EBITDAC - Adjusted for the three months endedMarch 31, 2022 increased 18.4%, or$35.7 million , as compared to the same period in 2021, to$229.7 million . EBITDAC Margin - Adjusted for the three months endedMarch 31, 2022 increased to 38.5% from 37.2% in the same period in 2021. The increase in EBITDAC Margin - Adjusted was driven by: (i) the total revenue growth; and (ii) leveraging our expense base; partially offset by (iii) higher variable operating expenses that include travel and meeting related costs. 35 --------------------------------------------------------------------------------
National Programs Segment
The National Programs Segment manages over 40 programs supported by approximately 100 well-capitalized carrier partners. In most cases, the insurance carriers that support these programs have delegated underwriting and, in many instances, claims-handling authority to our programs operations. These programs are generally distributed through a nationwide network of independent agents and Brown & Brown retail agents, and offer targeted products and services designed for specific industries, trade groups, professions, public entities and market niches. The National Programs Segment operations can be grouped into five broad categories: Professional Programs, Personal Lines Programs, Commercial Programs, Public Entity-Related Programs and Specialty Programs. Approximately 75.2% of the National Programs Segment's commissions and fees revenue is commission based.
Financial information relating to our National Programs Segment for the three
months ended
Three months ended March 31,
(in millions, except percentages) 2022 2021 % Change
REVENUES
Core commissions and fees $ 154.1 $ 146.3 5.3 %
Profit-sharing contingent commissions 8.0 8.3 (3.6 )%
Investment income 0.1 0.2 (50.0 )%
Other income, net - 0.1 (100.0 )%
Total revenues 162.2 154.9 4.7 %
EXPENSES
Employee compensation and benefits 73.4 71.1 3.2 %
Other operating expenses 35.3 29.8 18.5 %
(Gain)/loss on disposal - - - %
Amortization 6.7 6.9 (2.9 )%
Depreciation 2.8 2.1 33.3 %
Interest 2.2 4.1 (46.3 )%
Change in estimated acquisition
earn-out payables 0.1 (0.2 ) NMF
Total expenses 120.5 113.8 5.9 %
Income before income taxes $ 41.7 $ 41.1 1.5 %
Income Before Income Taxes
Margin (1) 25.7 % 26.5 %
EBITDAC - Adjusted (2) $ 53.8 $ 54.0 (0.4 )%
EBITDAC Margin - Adjusted (2) 33.2 % 34.9 %
Organic Revenue growth rate (2) 6.1 % 14.3 %
Employee compensation and benefits
relative to total revenues 45.3 % 45.9 %
Other operating expenses relative
to total revenues 21.8 % 19.2 % Capital expenditures$ 5.6 $ 3.0 86.7 % Total assets at March 31,$ 3,338.8 $ 3,398.7 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure The National Programs Segment's total revenue for the three months endedMarch 31, 2022 increased 4.7%, or$7.3 million , as compared to the same period in 2021, to$162.2 million . The$7.8 million increase in core commissions and fees revenue was driven by: (i) an increase of$8.9 million related to net new and renewal business; (ii) approximately$0.1 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2021; offset by (iii) a decrease of$1.2 million related to commissions and fees recorded in 2021 from businesses since divested. The National Programs Segment's total commissions and fees increased by 4.9%, and the Organic Revenue growth rate was 6.1% for the three months endedMarch 31, 2022 . The Organic Revenue growth was driven primarily by good new business, exposure unit expansion and rate increases. Income before income taxes for the three months endedMarch 31, 2022 increased 1.5%, or$.6 million , as compared to the same period in 2021, to$41.7 million . Income before income taxes increased due to: (i) the drivers of EBITDAC - Adjusted described below; and (ii) lower intercompany interest expense. 36 -------------------------------------------------------------------------------- EBITDAC - Adjusted for the three months endedMarch 31, 2022 decreased 0.4%, or$0.2 million , from the same period in 2021, to$53.8 million . EBITDAC Margin - Adjusted for the three months endedMarch 31, 2022 decreased to 33.2% from 34.9% in the same period in 2021. The EBITDAC - Adjusted was substantially flat year-over-year due to increased variable costs, increased non-cash stock-based compensation and incremental costs associated with onboarding new customers.
Wholesale Brokerage Segment
The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, including Brown & Brown retail agents. Approximately 83.3% of the Wholesale Brokerage Segment's commissions and fees revenue is commission based.
Financial information relating to our Wholesale Brokerage Segment for the three
months ended
Three months ended March 31,
(in millions, except percentages) 2022 2021 %
Change
REVENUES
Core commissions and fees$ 100.0 $ 88.8 12.6 % Profit-sharing contingent commissions 2.7 1.9 42.1 % Investment income 0.1 0.1 - % Other income, net 0.1 0.1 - % Total revenues 102.9 90.9 13.2 % EXPENSES Employee compensation and benefits 55.1 50.5 9.1 % Other operating expenses 15.8 14.1 12.1 % (Gain)/loss on disposal - - - % Amortization 2.0 2.4 (16.7 %) Depreciation 0.7 0.6 16.7 % Interest 3.5 4.3 (18.6 %) Change in estimated acquisition earn-out payables 0.2 0.2 - % Total expenses 77.3 72.1 7.2 % Income before income taxes$ 25.6 $ 18.8 36.2 % Income Before Income Taxes Margin (1) 24.9 % 20.7 % EBITDAC - Adjusted (2)$ 32.4 $ 26.3 23.2 % EBITDAC Margin - Adjusted (2) 31.5 % 28.9 % Organic Revenue growth rate (2) 11.6 % 6.5 %
Employee compensation and benefits
relative to total revenues 53.5 % 55.6 %
Other operating expenses relative to
total revenues 15.4 % 15.5 % Capital expenditures$ 0.4 $ 0.5 (20.0 )% Total assets at March 31,$ 1,124.8 $ 1,787.0 (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure The Wholesale Brokerage Segment's total revenues for the three months endedMarch 31, 2022 increased 13.2%, or$12.0 million , as compared to the same period in 2021, to$102.9 million . The$11.2 million net increase in core commissions and fees revenue was driven primarily by: (i)$10.3 million related to net new and renewal business; and (ii)$0.9 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2021. Profit-sharing contingent commissions for the first quarter of 2022 increased$0.8 million compared to the first quarter of 2021. The Wholesale Brokerage Segment's growth rate for total commissions and fees was 13.2%, and the Organic Revenue growth rate was 11.6% for the first quarter of 2022. The Organic Revenue growth rate was driven by new business, good retention as well as rate increases for most lines of coverage. Income before income taxes for the three months endedMarch 31, 2022 increased 36.2%, or$6.8 million , as compared to the same period in 2021, to$25.6 million . The increase was due to: (i) the drivers of EBITDAC - Adjusted described below; and (ii) lower intercompany interest and amortization expenses; partially offset by (iii) acquisition/integration costs. 37 -------------------------------------------------------------------------------- EBITDAC - Adjusted for the three months endedMarch 31, 2022 increased 23.2%, or$6.1 million , as compared to the same period in 2021, to$32.4 million . EBITDAC Margin - Adjusted for the three months endedMarch 31, 2022 increased to 31.5% from 28.9%, as compared to the same period in 2021. EBITDAC Margin - Adjusted increased due to: (i) total revenue growth; (ii) leveraging our expense base; and (iii) higher profit-sharing contingent commissions; partially offset by (iv) higher variable operating expenses, which are primarily travel and meeting related.
Services Segment
The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers' compensation and all-lines liability arenas. The Services Segment also provides Medicare Set-aside account services,Social Security disability and Medicare benefits advocacy services, and claims adjusting services.
Unlike the other segments, nearly all of the Services Segment's revenue is
generated from fees, which are not significantly affected by fluctuations in
general insurance premiums.
Financial information relating to our Services Segment for the three months
ended
Three months ended March 31,
(in millions, except percentages) 2022 2021 % Change
REVENUES
Core commissions and fees $ 43.6 $ 47.0 (7.2 %)
Profit-sharing contingent commissions - - - %
Investment income - - - %
Other income, net - - - %
Total revenues 43.6 47.0 (7.2 %)
EXPENSES
Employee compensation and benefits 22.6 22.6 - %
Other operating expenses 12.1 12.5 (3.2 )%
(Gain)/loss on disposal - - - %
Amortization 1.3 1.4 (7.1 )%
Depreciation 0.4 0.4 - %
Interest 0.6 0.8 (25.0 )%
Change in estimated acquisition earn-out
payables - - - %
Total expenses 37.0 37.7 (1.9 )%
Income before income taxes $ 6.6 $ 9.3 (29.0 %)
Income Before Income Taxes Margin (1) 15.1 % 19.8 %
EBITDAC - Adjusted (2) $ 8.9 $ 11.9 (25.2 %)
EBITDAC Margin - Adjusted (2) 20.4 % 25.3 %
Organic Revenue growth rate (2) (6.2 %) 5.6 %
Employee compensation and benefits relative
to total
revenues 51.8 % 48.1 %
Other operating expenses relative to total
revenues 27.8 % 26.6 %
Capital expenditures $ 0.2 $ 0.1 100.0 %
Total assets at March 31, $ 290.5 $ 483.9
(1) "Income Before Income Taxes Margin" is defined as income before income taxes
divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
The Services Segment's total revenues for the three months ended March 31, 2022
decreased 7.2%, or $3.4 million , as compared to the same period in 2021, to
$43.6 million . The Services Segment's total commissions and fees and Organic
Revenue declined 6.2% for the first quarter of 2022 driven by: (i) lack of
catastrophic weather driven claim activity; (ii) COVID-19 travel restricted
claim activity; and (iii) to a lesser extent continued external delays in
processing claims in our advocacy business.
Income before income taxes for the three months ended March 31, 2022 decreased
29.0%, or $2.7 million , as compared to the same period in 2021, to $6.6 million
due to the drivers of EBITDAC - Adjusted described below, with a partial offset
of lower intercompany interest and amortization.
EBITDAC - Adjusted for the three months ended March 31, 2022 decreased 25.2%, or
$3.0 million , from the same period in 2021, to $8.9 million . EBITDAC Margin -
Adjusted for the three months ended March 31, 2022 decreased to 20.4% from 25.3%
in the same period in 2021. The decrease in EBITDAC - Adjusted was driven
primarily by lower catastrophic weather claims activity.
38
--------------------------------------------------------------------------------
Other As discussed in Note 12 of the Notes to Condensed Consolidated Financial Statements, the "Other" column in the Segment Information table includes any revenue and expenses not allocated to reportable segments, and corporate-related items, including the intercompany interest expense charges to reporting segments.
LIQUIDITY AND CAPITAL RESOURCES
The Company seeks to maintain a conservative balance sheet and strong liquidity profile. Our capital requirements to operate as an insurance intermediary are low and we have been able to grow and invest in our business principally through cash that has been generated from operations. We have the ability to utilize our Revolving Credit Facility, which as ofMarch 31, 2022 provided up to$450.0 million in available cash. We believe that we have access to additional funds, if needed, through the capital markets or private placements to obtain further debt financing under the current market conditions. The Company believes that its existing cash, cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available under the Revolving Credit Facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next 12 months. The Revolving Credit Facility contains an expansion option for up to an additional$500.0 million of borrowing capacity, subject to the approval of participating lenders. In addition, under the Term Loan Credit Agreement, the unsecured term loan in the initial amount of$300.0 million may be increased by up to$150.0 million , subject to the approval of participating lenders. OnMarch 31, 2022 , the Company entered into a Loan Agreement (the "Loan Agreement") which provided term loan capacity of$800.0 million which was not drawn on at the time of closing. Additionally, the Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment under the existing Loan Agreement or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to$400.0 million . Including the expansion options under all existing credit agreements, the Company has access to up to$2.3 billion of incremental borrowing capacity as ofMarch 31, 2022 .
Subsequent to
under the Loan Agreement of
Contractual Cash Obligations
As of
Payments Due by Period
(in millions) Less than 1-3 4-5 After
Total 1 year years years 5 years
Long-term debt $ 3,576.3 $ 42.5 $ 746.3 $ 537.5 $ 2,250.0
Other liabilities (1) 175.9 28.2 20.4 12.0 115.3
Operating leases (2) 266.7 50.7 90.2 59.9 65.9
Interest obligations 1,474.6 115.9 215.6 180.2 962.9
Unrecognized tax benefits 1.6 - 1.6 - -
Maximum future acquisition
contingency payments (3) 452.3 80.0 372.3 - -
Total contractual cash obligations
(4) $ 5,947.4 $ 317.3 $ 1,446.4 $ 789.6 $ 3,394.1
(1)
Includes the current portion of other long-term liabilities, and approximately
CARES Act which is expected to be paid in
(2)
Includes
2022.
(3)
Includes
earn-out payables. Earn-out payables for acquisitions not denominated in
dollars are measured at the current foreign exchange rate.
(4)
Does not include approximately
of
39 --------------------------------------------------------------------------------
Debt
Total debt atMarch 31, 2022 was$3,539.6 million net of unamortized discount and debt issuance costs, which was an increase of$1,516.6 million compared toDecember 31, 2021 . The increase includes: (i) the issuance of$1,200.0 million in aggregate principal amount of Senior Notes onMarch 17, 2022 , exclusive of debt issuance costs and discounts applied to the principal; (ii) the drawdown of$350.0 million of the revolving credit facility in conjunction with the acquisition payment for Orchid onMarch 31, 2022 ; and (iii) net of the amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of$0.7 million ; offset by decreases due to: (i) the scheduled principal amortization balances related to our various existing floating rate debt term notes in total of$10.7 million ; and (ii) added discounted debt balances related to the issuance of$600.0 million in aggregate principal amount of the Company's 4.200% Senior Notes due 2032 (the "2032 Notes") and$600.0 million in aggregate principal amount of the Company's 4.950% Senior Notes due 2052 (the "2052 Notes," and together with the 2032 Notes, the "Notes") of$10.4 million ; and (iii) debt issuance costs related to the Notes and the Loan Agreement of$13.0 million . During the three months endedMarch 31, 2022 , the Company repaid$3.1 million of principal related to the Second Amended and Restated Credit Agreement term loan through the quarterly scheduled amortized principal payments. The Second Amended and Restated Credit Agreement term loan had an outstanding balance of$243.8 million as ofMarch 31, 2022 . The Company's next scheduled amortized principal payment is dueJune 30, 2022 and is equal to$3.1 million . During the three months endedMarch 31, 2022 , the Company repaid$7.5 million of principal related to the Term Loan Credit Agreement through quarterly scheduled amortized principal payments. The Term Loan Credit Agreement had an outstanding balance of$232.5 million as ofMarch 31, 2022 . The Company's next scheduled amortized principal payment is dueJune 30, 2022 and is equal to$7.5 million . OnMarch 17, 2022 , the Company completed the issuance of$600.0 million aggregate principal amount of the Company's 4.200% Senior Notes due 2032 and$600.0 million aggregate principal amount of the Company's 4.950% Senior Notes due 2052 (and together with the 2032 Notes, the "Notes"). The net proceeds to the Company from the issuance of the Notes, after deducting underwriting discounts and estimated offering expenses, were approximately$1,178.2 million . The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 stable outlook. The 2032 Notes bear interest at the rate of 4.200% per year and will mature onMarch 17, 2032 . The 2052 Notes bear interest at the rate of 4.950% per year and will mature onMarch 17, 2052 . Interest on the Notes will be payable semi-annually in arrears. The Notes are senior unsecured obligations of the Company and will rank equal in right of payment to all of the Company's existing and future senior unsecured indebtedness. The Company may redeem the Notes in whole or in part at any time and from time to time, at the "make whole" redemption prices specified in the Prospectus Supplement for the Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the redemption date. If we do not consummate the acquisition of GRP (the "GRP Acquisition") on or prior toDecember 31, 2022 or, if prior to such date, we notify the trustee in writing that the majority share purchase agreement relating to the GRP Acquisition ("GRP Acquisition Agreement") is terminated, then, in either case, we must redeem all of the 2032 Notes at a redemption price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the special mandatory redemption date. The 2052 Notes are not subject to the special mandatory redemption provision and will remain outstanding even if the GRP Acquisition is not consummated on or prior toDecember 31, 2022 . The Company intends to use the net proceeds from the offering of the Notes, together with borrowings under its revolving credit facility, cash on hand and other borrowings, to fund the cash consideration and other amounts payable under the GRP Acquisition Agreement and to pay fees and expenses associated with the foregoing. If the GRP Acquisition is not consummated on or prior toDecember 31, 2022 , the Company expects to use the net proceeds from the sale of the 2052 Notes for general corporate purposes. As ofMarch 31, 2022 , there was a total outstanding debt balance of$1,200.0 million exclusive of the associated discount balance on both Notes. OnMarch 31, 2022 , the Company entered into the Loan Agreement with the lenders named therein,BMO Harris Bank N.A ., as administrative agent,Fifth Third Bank , National Association,PNC Bank, National Association ,U.S. Bank National Association andWells Fargo Bank, National Association , as co-syndication agents andBMO Capital Markets Corp. ,BofA Securities, Inc. ,JPMorgan Chase Bank, N.A . andTruist Securities, Inc. , as joint bookrunners and joint lead arrangers. The Loan Agreement evidences commitments for (i) unsecured delayed draw term loans in an aggregate amount of up to$300.0 million (the "Term A-1 Loan Commitment") and (ii) unsecured delayed draw term loans in an amount of up to$500.0 million (the "Term A-2 Commitment" and, together with the Term A-1 Loan Commitments, the "Term Loan Commitments"). The Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to$400.0 million . The Company may borrow term loans (the "Term Loans") under either of the Term Loan Commitments during the period from the Effective Date (the "Effective Date") until the date which is the first anniversary thereof. Once borrowed, Term Loans issued under the Term A-1 Loan Commitment ("Term A-1 Loans") are due and payable on the date that is the third anniversary of the Effective Date unless such maturity date is extended as provided under the Loan Agreement. Once borrowed, Term Loans issued under the Term A-2 Loan Commitment ("Term A-2 Loans") are repayable in installments until the fifth anniversary the Effective Date with any remaining outstanding amounts due and payable on such fifth anniversary of the Effective Date unless such maturity date is extended as provided under the Loan Agreement. While outstanding, the undrawn Term Loan Commitments accrue a commitment fee of 0.15% beginning on the earlier of the initial funding of Term Loans under the Loan Agreement and the date that is 120 days from the Effective Date. Once drawn, Term A-1 Loans will bear interest at the annual rate of Adjusted Term SOFR plus 1.125% or Base Rate plus 0.125% (subject to a pricing grid for changes in the Company's credit rating and/or leverage) and Term A-2 Loans will bear interest at the annual rate of Adjusted Term SOFR plus 1.25% or Base Rate plus 0.25% (subject to a pricing grid for changes in the Company's credit rating and/or leverage). The 40 -------------------------------------------------------------------------------- Loan Agreement includes various covenants (including financial covenants), limitations and events of default customary for similar facilities for similarly rated borrowers. As ofMarch 31, 2022 , there were no borrowings under the terms of the Loan Agreement. OnMarch 31, 2022 the Company accessed$350.0 million of available proceeds on the revolving credit facility under the Second Amended and Restated Credit Agreement. The proceeds were used in conjunction with the funding of the Orchid acquisition along with funds from cash on hand. As ofApril 28, 2022 , the Company has fully drawn all available funds of$800.0 million under the Loan Agreement in connection with the preparation of closing our pending acquisitions of GRP and BdB. 41
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MBIA INC – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
AMERICAN EQUITY INVESTMENT LIFE HOLDING CO – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
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