As of the date of this Annual Report on Form 10-K, we have completed four Partnerships during 2020 for consideration consisting of $44.3 million of cash, 487,534 shares of Class A common stock, 286,624 units of membership interests of BRP (and a corresponding number of shares of Class B common stock issued pursuant to the terms of the Amended LLC Agreement) and a maximum potential contingent earnout consideration of $16.8 million.
We earn commissions and fees by facilitating the arrangement between Insurance Company Partners and individuals or businesses for the carrier to provide insurance to the insured party. Our commissions and fees are usually a percentage of the premium paid by the insured and generally depends on the type of insurance, the particular Insurance Company Partner and the nature of the services provided. Under certain arrangements with clients, we earn pre-negotiated service fees in lieu of commissions. Additionally, we may also receive from Insurance Company Partners a profit-sharing commission, or straight override, which represent forms of variable consideration associated with the placement of coverage and are based primarily on underwriting results, but may also contain considerations for volume, growth or retention.
Profit-sharing revenue represents bonus-type revenue that is earned by us as a sales incentive provided by certain Insurance Company Partners. Profit-sharing revenue increased by $3.6 million for the year ended December 31, 2019 as compared to the same period of 2018. This increase was partially attributable to $2.2 million related to our MSI Partner.
Premiums, commissions and fees receivable, net increased $29.4 million as a result of our revenue growth.
On October 28, 2019, BRP Group sold an aggregate of 18,859,300 shares of Class A common stock including 2,459,300 shares pursuant to the underwriters’ over-allotment option, which subsequently settled on November 26, 2019. The shares were sold at an initial offering price of $14.00 per share for net proceeds of $241.4 million after deducting underwriting discounts and commissions of $17.8 million and net offering expenses of $4.8 million payable by BRP.
Assuming Baldwin Risk Partners, LLC makes distributions to its members in any given year, the determination to pay dividends, if any, to our Class A common stockholders out of the portion, if any, of such distributions remaining after our payment of taxes, Tax Receivable Agreement payments and expenses (any such portion, an “excess distribution”) will be made at the sole discretion of our board of directors. Our board of directors may change our dividend policy at any time. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Dividend Policy.”
to the extent we estimate that we will not realize the full benefit represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future earnings, we will reduce the deferred tax asset with a valuation allowance; and
We test for goodwill impairment at the reporting unit level, which is an Operating Group or one level below an Operating Group. We have four reporting units, which are also our Operating Groups. We have the option of performing a qualitative assessment to determine whether a quantitative impairment test is necessary. If, after assessing qualitative factors, we determine it is more likely than not that the fair value of a reporting unit is less than the carrying amount, then we proceed to the quantitative assessment.
BRP Group, Inc. (“BRP Group” or the “Company”) was incorporated in the state of Delaware on July 1, 2019. BRP Group was formed for the purpose of completing an initial public offering of its common stock and related transactions in order to carry on the business of Baldwin Risk Partners, LLC (“BRP”) as a publicly-traded entity. On October 28, 2019, BRP Group completed an initial public offering of its Class A common stock and became the sole managing member of BRP. The financial statements of BRP Group have been presented as a combination of the financial results of BRP Group and BRP as of the earliest period presented as discussed further under Principles of Consolidation section below.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates underlying the accompanying consolidated financial statements include the application of guidance for revenue recognition, including determination of allowances for estimated policy cancellations, business combinations and purchase price allocation, impairment of long-lived assets including goodwill, and valuation of the Tax Receivable Agreement liability, advisor incentive liabilities and share-based compensation.
Goodwill is subject to an impairment assessment on an annual basis or whenever indicators of impairment are present. The Company performs a qualitative assessment to determine whether a quantitative impairment test is necessary. In a quantitative assessment, the Company compares the fair value of each reporting unit with its carrying amount to determine if there is potential impairment of goodwill. If the carrying value of a reporting unit is greater than the fair value, an impairment charge is recorded for the amount that the carrying amount of the reporting unit, including goodwill, exceeds its fair value, limited to the amount of goodwill of the reporting unit.
During the last several years, the Company entered into advisor incentive agreements with several of its producers (“Risk Advisors”) to incentivize them to stay with the Company, grow their book of business, and earn the role of partner as a member of the Company. The incentive rights had a deposit buy-in requirement payable in the form of payroll withholding or other cash payments for which the Company recorded an advisor incentive liability. The incentive rights could be converted to LLC Units after the achievement of certain milestones, subject to approval at the discretion of management.
as sole managing member of BRP, BRP Group consolidates the financial results of BRP and a portion of the net income is allocated to the noncontrolling interest to reflect the entitlement of the owners of BRP’s outstanding equity interests (“BRP’s LLC Members”) to a portion of BRP’s net income;
Prior to the Reorganization Transactions, the Company entered into advisor incentive agreements with several of its high-performing Risk Advisors to incentivize them to grow their book of business by issuing advisor incentive rights. The incentive rights could be converted to LLC Units after the achievement of certain milestones, subject to approval at the discretion of management.
At December 31, 2019, the variable rate in effect for the JPMorgan Credit Agreement was LIBOR due to a repricing option and the applicable interest rate on the Revolving Credit Commitment was 3.81%.
The JPMorgan Credit Agreement requires the Company to meet certain financial covenants and comply with customary affirmative and negative covenants as listed in the underlying agreement. The Company was in compliance with these covenants at December 31, 2019.
Redeemable members’ capital and redeemable noncontrolling interest are classified in mezzanine equity on the Company’s consolidated balance sheets. Redeemable members’ capital is comprised of the voting common units of BRP’s two minority holders and Holding Company of the Villages, Inc. (“Villages”) as discussed below.
Villages had the right to require the Company to redeem all, but not less than all, of the Villages’ Units and its Permitted Transferees, as defined by the agreement, by sending a written notice of exercise of such option to the Company. Villages’ put right can be redeemed at any time after the later of the maturity date of the Related Party Debt (April 2024) or sixty-six months after the date of the agreement (October 2021). In the event that the Related Party Debt is prepaid in full prior to the scheduled maturity date, the date of such prepayment shall be deemed to be the maturity date.
The Company recorded interest expense related to quarterly interest payments to Villages of $4.9 million and $1.8 million for the years ended December 31, 2019 and 2018, respectively.
The Company recognizes share-based compensation expense for the Omnibus Plan net of actual forfeitures. The Company recorded share-based compensation expense of $204,000 in connection with the Omnibus Plan for the year ended December 31, 2019, which is included in commissions, employee compensation and benefits expense on the consolidated statements of comprehensive income (loss). The Company had $4.0 million of total unrecognized compensation cost related to unvested shares of restricted stock at December 31, 2019, which is expected to be recognized over a weighted-average period of 3.8 years.
As of December 31, 2019 and 2018, the Company has not recognized any uncertain tax positions, penalties, or interest as management has concluded that no such positions exist. The Company is subject to examination for tax years beginning with the year ended December 31, 2019. The Company is not currently subject to income tax audits in any U.S. or state jurisdictions for any tax year.
Middle Market provides expertly-designed private risk management, commercial risk management and employee benefits solutions for mid-to-large size businesses and high net worth individuals and families.
Effective February 1, 2020, the Company entered into an asset purchase agreement to purchase certain assets and intellectual and intangible rights and assume certain liabilities of VibrantUSA Inc. for consideration consisting of $6.2 million of cash and a maximum potential contingent earnout consideration of $379,000. The Partnership was made to expand our Medicare business presence in Washington. The Company has not yet completed its evaluation and determination of consideration paid, certain assets and liabilities acquired, or treatment of this transaction as either a business combination or asset acquisition in accordance with Topic 805.