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BRP Group Inc (NASDAQ:BRP)
Q4 2019 Earnings Call
Mar 24, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings. Welcome to BRP Group's fourth-quarter 2019 earnings conference call. [Operator instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mr.

Brad Hale, chief accounting officer. Thank you. You may proceed.

Brad Hale -- Chief Accounting Officer

Thank you, operator, and good afternoon. By now, everyone should have access to our earnings announcement and slide presentation, which was released prior to this call and which may also be found on the Investor Relations portion of our website at baldwinriskpartners.com. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates and projections of management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC, including our annual report on Form 10-K filed today, for a more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of BRP Group. We disclaim any intentions or obligations to update or revise any forward-looking statement except to the extent required by applicable law. Also, our discussion today will include references to certain non-GAAP measures.

A reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement and earnings supplement slide presentation, both posted on our website at ir.baldwinriskpartners.com or in our SEC filings. In addition, this call is being webcast, and an archived version will be available after the call on the Investor Relations portion of our website. I would now like to introduce Trevor Baldwin, chief executive officer of BRP Group.

Trevor Baldwin -- Chief Executive Officer

Thank you, Brad, and good afternoon, everyone. Welcome to our fourth-quarter and full-year 2019 earnings call. We appreciate your taking the time to join us and your interest in BRP Group. During today's call, I'll provide some brief highlights on our fourth quarter and 2019 performance, as well as our longer-term growth strategy, pipeline and investments.

Our Chief Financial Officer Kris Wiebeck and Chief Accounting Officer Brad Hale will then present our fourth quarter and 2019 financial results. And finally, we'll open the line for questions. Before we go further, I want to begin by saying that our thoughts and good wishes are with you, our colleagues, our clients, our partners, our investors and all of your families to stay healthy. Thank you to these stakeholders and our analysts who are taking the time to join us this afternoon given the challenging times facing the world today.

It is very much appreciated. 2019 was a very active and productive year for us as we executed on both our near- and long-term growth strategy. We positioned the company to continue making progress throughout 2020 despite the current environment. For the fourth quarter, we generated revenue growth of 75% to $36.6 million and full-year revenue growth of 73% to $137.8 million.

This strong revenue performance was driven by our hybrid growth model, namely double-digit organic revenue growth for the quarter and full year, combined with contributions from new partnerships. Most notably, our MGA of the Future platform continues to outperform. Consider that organic revenue growth for the fourth quarter of 2019 was 12%, but if you included revenue growth from the MGA of the Future platform in that number, it would have been 17%. The MGA of the Future officially becomes part of our organic growth figures beginning April 1.

We expect it will significantly contribute toward our goal of generating sustainable double-digit organic growth well into the future, subject to any near-term challenges and impacts that may occur due to the current pandemic. As a reminder, MGA of the Future's proprietary renter's insurance product has been built in just four short years to a portfolio with nearly 375,000 policies in force at year end. We're eager to apply and leverage the incredibly efficient and highly scalable MGA technology and other capabilities toward developing other products that can be distributed throughout the entire BRP organization. With respect to just how effective the platform has been, I can share that even during the week of March 15, we had numerous days where new policies sold were over 1,000 and policies in-force count as of Sunday, March 22, was over 397,000, meaningfully above where we ended 2019.

In addition to our solid fourth-quarter and full-year performance, we significantly strengthened our balance sheet at the end of 2019, upsizing our senior revolving credit facility to $225 million and lowering our cost of capital by 150 basis points. Just over one month ago, while watching what was happening in Asia, we requested an increase in our facility to $300 million, which we successfully closed two weeks ago. We believe that this leaves us very well-positioned to weather the economic pressures and, as prudent, close on additional partner acquisitions throughout 2020 and beyond. It is our intention to remain thoughtful regarding our balance sheet.

But given our borrowing capacity and low leverage, we believe we are well capitalized to navigate these choppy economic waters and emerge as a stronger company. As of last Friday, March 20, we had approximately $60 million outstanding on that facility with approximately $45 million in unrestricted cash on our balance sheet. We have turned the page on 2019, and we know investors are sharply focused on the ongoing economic situation. We kick-started 2020 by completing two partnerships at the beginning of the year, Lanier Upshaw and Highland Risk, that generated annualized revenue of approximately $20 million.

Lanier has been a perfect complement for our middle-market operating group in Central Florida, while the Highland Risk partnership was a launching point for us to rebrand our specialty wholesale platform to connected risk solutions. We also completed two Medicare segment partnerships, AgencyRM and VibrantUSA, which generated annualized revenue of over $11 million and significantly enhanced this growing segment of our business. As an important note, we acquired these partnerships in February, while the large majority of Medicare revenue for companies is usually recognized in January. Thus, we would not expect to see meaningful revenue contributions from these partnerships in 2020 and do not expect them to significantly add to our actual EBITDA until next January.

But we will begin seeing the full benefits from their inclusion in 2021. Thus, in the first quarter of 2020, we have completed partnerships that generated incremental annualized revenue of over $30 million, ahead of our original anticipated pace. We have also been very pleased with the number of prospects reaching out to us directly or responding to our outreach since the IPO. And as a result, despite the current environment, we have maintained a strong partnership and LOI pipeline, which we will continue to prudently monitor and evaluate in light of the current economic and health environment.

Our strategic focus remains firmly on our growth and long-term success. To that point, we still expect 2020 will be a year of targeted investment across the BRP platform to support our anticipated growth, but we will obviously constantly monitor the ongoing and ever-changing economic situation. With our focus on the future and early success and momentum on the partnership front, we accelerated leasing more space from our original time line of 2021 into 2020 and are expanding by an additional floor for our new Tampa offices that we will occupy starting in Q2, giving us three contiguous floors. And by subleasing, we were able to get this additional floor well below market rent.

We have also further invested in our partnership, recruitment and integration teams. These investments were originally planned for 2021. But based on the significant activity we are generating, we decided to pull forward these investments into both Q4 of 2019 and the first two quarters of 2020. In order to generate sustained double-digit organic growth, beyond investing in new partnerships, we made and will continue to make some incremental investments in talent at our MGA of the Future platform to further augment its capabilities, as well as adding to our sales force across our operating groups.

In particular, in order to take advantage of the dislocation in the Florida home market, we'll be adding colleagues in preparation for the launch of an AM best-rated Florida homeowners solution, which is currently in development. It's also important to note that this will be an MGA solution where we take no balance sheet risk. From a technology perspective, we launched Guided, our new MainStreet tech platform that leverages cloud-based technology to provide MainStreet clients with additional service capabilities, as well as differentiated advice, including personalized content, such as a pre-renewal self-audit. We also remain very much engaged in looking at new partnership opportunities as well as moving forward with investments for the long-term growth of our business.

This crisis will pass in time, and as we return toward a sense of normalcy, we believe we'll be well-positioned to accomplish our goal of becoming a top 10 broker. We remain laser-focused on investing prudently and in executing on our strategic growth objectives for both the near and long term, and we believe our current balance sheet capacity allows us to be flexible when we see opportunities while not sacrificing a large margin of safety for our stakeholders. We are excited for our future and believe we are well-positioned to generate significant long-term value for our shareholders. In the current environment, we acknowledge the fortunate opportunity we have put ourselves in financially to lead.

In the long run, we remain bullish on the resiliency of our colleagues, American entrepreneurs and businesses and our collective ability to persevere through these times, ultimately emerging to lead the recovery on the other side of this current crisis. With that, I'll now turn the call over to Kris and Brad who will walk through some additional fourth-quarter and full-year financial highlights.

Kris Wiebek -- Chief Financial Officer

Good afternoon, everyone. This is Kris Wiebeck. Thank you, Trevor. For the fourth quarter of 2019, we grew revenue, which is comprised of total commissions and fees, by 75% to $36.6 million, compared to $20.9 million in the prior-year period.

This increase was driven by new partnerships and organic revenue growth of 12% from the prior-year period. Given that partnerships are an important portion of our ongoing growth strategy, in our regulatory filings, we also provide revenue metrics on an unaudited pro forma basis. This provides investors with a more apples-to-apples comparison as if our 2019 partnerships, including MSI, have been acquired on January 1, 2018. For 2019, unaudited pro forma revenue was $152.6 million, up 75% 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 had occurred on that date nor of the results that may be obtained in the future. The $152.6 million of 2019 pro forma revenue does not include the four partnerships that we have closed thus far in 2020. It only includes 2019 partnerships. Commissions, colleague compensation and benefits expenses for the fourth quarter of 2019 were $29.9 million, an increase of $16.1 million compared to the fourth quarter of 2018, primarily due to the onboarding of new partners, which accounted for $8.9 million of the increase as well as $1.9 million in additional bonuses.

The remainder of the increase was aligned with our year-over-year organic sales growth and incremental costs of operating a public company. Operating expenses for the fourth quarter were $7.9 million, an increase of $2.8 million from the fourth quarter of 2018, due primarily to expenses associated with both our initial public offering and operating as a public company, as well as rent, professional and operating costs related to the new partnerships in 2019. Amortization expense for the fourth quarter of 2019 was $3.2 million, an increase of $2.4 million from the prior-year period, primarily due to the intangible assets capitalized and purchased customer accounts capitalized in accordance with new partnerships during 2019. We also incurred $14.1 million of onetime expenses in the fourth quarter of 2019 related to a contingent earnout liability at our specialty operating group.

Fourth-quarter 2019 interest expense was $1.8 million, a slight increase compared to the fourth quarter of 2018, as we repaid the full outstanding debt and accrued interest on our subordinated debt with a portion of the proceeds from our initial public offering and concurrently closed the agreement. GAAP net loss for the fourth quarter of 2019 was $26.9 million or $0.48 per share. GAAP net loss included $4.7 million of one-time expenses related to the IPO, a loss on extinguishment of debt and a one-time expense related to the contingent earnout liability. Adjusted net income for the fourth quarter of 2019 was $3.8 million or $0.06 per fully diluted share.

Adjusted EBITDA for the fourth quarter of 2019 rose 128% or $3.3 million to $5.9 million compared to the fourth quarter of 2018. Adjusted EBITDA margin grew to 16% for the fourth quarter 2019 versus 12% in fourth-quarter 2018. Brad will now provide a breakdown of revenue by group.

Brad Hale -- Chief Accounting Officer

Thanks, Kris, and good afternoon to everyone on the call. For the fourth quarter, our middle-market segment reported revenue of $14.9 million, an increase of $4.6 million or 45% compared to the fourth quarter of 2018. For the full year, middle market grew its revenue by 54% from 2018 to $56.4 million. Our specialty group generated revenue for the fourth quarter 2019 of $12.4 million, more than quadrupling its revenue compared to the fourth quarter of 2018.

Specialty's revenue growth was driven by our 2019 MSI partnership completed in April 2019, which accounted for $9.5 million in revenue in Q4 2019. Policies in force on the MGA of the Future platform as of December 31, 2019, were nearly 375,000, an increase of over 18,800 from the prior quarter end during the MGA's seasonally weakest quarter of the year and was up nearly 100,000 policies from the end of 2018. Last year, MSI saw an approximate 12,000 sequential increase in PIF in the same quarter, so this year once again represented meaningful acceleration in growth. For the full year, specialty more than tripled its revenue from 2018 to $44.9 million driven by MSI revenue contribution of $31.2 million since it was acquired on April 1, 2019.

Moving to our MainStreet group. Fourth-quarter 2019 revenue was $6.6 million, an increase of $1.4 million or 26% compared to the fourth quarter of 2018. For the full year, MainStreet grew its revenue by 22% from 2018 to $25.5 million. Finally, our Medicare segment generated fourth-quarter 2019 revenue of $2.6 million, up $0.2 million from the fourth quarter of 2018.

This was entirely due to organic business growth. For the full year, Medicare grew its revenue by 15% from 2018 to $11 million. I'll now turn the call back over to Kris.

Kris Wiebeck -- Chief Financial Officer

Thanks, Brad. As we've noted previously, we manage our business based on our long-term growth objectives and focus on full-year performance rather than quarter to quarter, particularly given the timing of completed partnerships can shift. As such, we believe our full-year and pro forma results are a better barometer as to how we are executing. Subsequent to the IPO in year end, we announced and completed four partnerships for total cash consideration of $42.8 million.

These partnerships generated total annualized revenue of over $30 million. In the current environment, we have continued to generate interest from and maintained a healthy pipeline for potential partners. For the full-year 2019, we grew revenue by 73% from 2018 to $137.8 million, compared to $79.9 million and attributable to our 2019 partnerships organic growth of 10% and a full year of contribution from our 2018 partnerships. If we add MGA of the Future revenue growth to organic revenue growth, the growth rate would have been 17%.

For the full-year 2019, adjusted EBITDA rose 78% or $12.5 million over the prior year to $28.5 million, and adjusted EPS finished the year at $0.27. For the same period, unaudited pro forma revenue, which assumes our 2019 partnerships have been acquired on January 1, 2018, was $152.6 million, and unaudited pro forma adjusted EBITDA was $34 million or 22%. Turning to our balance sheet. As of year-end 2019, we had cash and cash equivalents of $64.9 million and long-term debt of $40.4 million.

During the fourth quarter, we successfully upsized our revolving credit facility to $225 million while improving our cost of capital by 150 basis points. On March 13, being prudent with regard to the current environment and our LOI pipeline, we closed on the accordion feature of this facility and now have a committed line of $300 million. As of today, we have over $280 million of available unrestricted cash and revolver capacity to execute on our long-term strategic plans. We believe our balance sheet cash, low net leverage and access to liquidity stands out in the current environment.

We have always managed the business for the long term and to lead in challenging times. As we think about 2020, a reminder that our business is fairly seasonal in terms of adjusted EBITDA margin. Our first quarter is typically the strongest quarter from a margin perspective, but we expect our margins in Q2 to be impacted due to the pandemic. We believe margins in Q2 will look more like a Q3 to Q4 margin given our expectation that, if the country continues to practice social distancing during the quarter, our segments may have lower new business than they did in prior years.

We anticipate lower contingent payments at our MainStreet segment in early 2020 as we have seen social inflation and hurricane loss creep impacting loss ratios for some of our carrier partners. I do want to note that we expect this to be a short-term headwind as our expectation is for significant rate increases, especially in the Florida homeowners, that we expect will start to show up at the end of 2020 and into 2021. What was a headwind in Q4 2019 and will be a headwind in the first half of 2020 for MainStreet contingents should drive higher MainStreet core commission revenue as a result of higher premiums starting in late 2020. We will prudently continue our plans to invest with an eye toward our long-term growth while monitoring the current macro environment for signs that COVID-19 will be more damaging to the overall economy.

We are fortunate to have a very resilient business with recurring revenue streams, and some of our segments, even in the past week, were able to generate nice new business growth. Our recurring revenue business is coupled with a clean balance sheet and access to capital. Finally, as you know, we primarily compete for acquisitions with private equity-backed aggregators who employ a much more highly levered business model and who have seen the market prices of their debt decrease meaningfully over the past month, suggesting much higher borrowing costs for them if they want to access capital. At this time, given the ever-changing nature of the current environment, we are not providing an acquisition target range for 2020 until there is greater visibility in the timing and outcome of the economic and health environment, while at the same time, we plan to prudently allocate capital and continue to execute on high-quality partnerships.

With that, I thank you for your time, and we'll now open up the call for Q&A. Operator?

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Meyer Shields with KBW. Please go ahead with your question.

Meyer Shields -- KBW -- Analyst

Thanks. I was wondering if you could -- I think it's primarily for Trevor. If you can give us an update about how business is being conducted in general over the past month in anticipation -- well, not in anticipation, in recognition of the slowdown. I'm not looking for numbers.

Just conceptually, how is it playing out?

Trevor Baldwin -- Chief Executive Officer

Yes, Meyer. Thanks for the question and appreciate you taking the time to get on this evening, and hope you and your family are staying safe and healthy. So we have gone to a virtual work environment across the vast majority of our business operations, and I'm pleased to share that that transition has been quite seamless. As we look out across our four reporting segments, I'll give you some insights into what we're seeing operationally.

So as we look at the business, we evaluate both our renewal revenue streams and impact from the current economic events to those, as well as new business revenues coming from the new client relationships that are being generated. And as we look back over the past two weeks, in our MainStreet reporting segment, as an example, at this time, we do not anticipate any meaningful impact to renewal revenue. And as we're looking at new business results, while we've seen a slowdown in activity, our new business is continuing at a rate that's in the 65% to 75% range of what we would have expected in a normalized time over the past seven days. When we look at our specialty segment, which is comprised of our connected risk solutions business, which is a wholesale business primarily oriented toward professional liability for the healthcare sector, we've actually not seen a slowdown at this time as a result of the elevated amounts of activity that are going on in that sector as a result of the virus as well as the overall rate environment.

In addition to that, in our MGA of the Future platform, we've seen new business results over the past seven days that have been roughly up 25% year over year for the same seven-day period in 2019. Now with that being said, for that business, new business results were up roughly 39% for the month of February, so that is a slowdown but still what we believe to be really good results considering the overall economic environment. I would also caution that those new business results tend to lag -- or the revenue results tend to lag the new business results in the MGA of the Future because of revenue recognition. In our Medicare business, the vast majority of the new business that's written occurs during the annual enrollment period from October 15 to December 7.

With that being said, we do do enrollments through the special enrollment periods on an ongoing basis, and we've seen activity there impacted roughly 40% to 50%. But new business activities continued at a relatively acceptable level, all things considered, and we do not expect any impact to our renewal business there. And last is our middle-market business, and this is where we would potentially expect to see the most significant impact. We've spent a lot of time over the past two to three weeks really diving into our book of business and evaluating our exposure to various industry segments.

When we look at some of the most exposed industry segments, including travel, retail, hospitality and lodging, we are exposed in our renewal book to the tune of about $2.5 million, so not an overly significant amount. And while we do expect new business activity to slow down while the nation is practicing social distancing, we are continuing to have new business activity. And I'm pleased to say I've received an email from one of our partners less than an hour ago, talking about a new account that was written by one of our up-and-coming advisors generating over $42,000 of new business. So in summary, what I would tell you is that we do expect to see an impact to new business.

However, with that being said, the business is generating activity at levels that exceeded our initial expectations as this event began to unfold. We are continuing to monitor the situation in a real-time basis because, as you might expect, it's very fluid. And our first priority is on the safety and health of our colleagues, our clients and all of our stakeholders.

Operator

Our next question comes from the line of Greg Peters with Raymond James. Please proceed with your question.

Greg Peters -- Raymond James -- Analyst

A couple of other questions. You mentioned, Trevor, about how you were able to transition to the work from home pretty quickly. And then in your prepared remarks, you and Kris and maybe even Brad talked about making investments. I imagine this transition over the last couple of weeks was, in some regards, an unplanned expense.

So can you talk about what kind of headwinds you might see for the next couple of months in terms of margin pressure that may have not ordinarily already been there?

Trevor Baldwin -- Chief Executive Officer

Yes. Greg, thanks for the question. Absolutely. So first, I'd want to say how fortunate we are to have an incredible technology team, how they've prepared us with the foresight around how they've constructed our technology infrastructure, prepared us to rapidly move into a virtual work environment on less than 24 hours' notice, and that was a very seamless occurrence.

With regards to overall margin and expense associated with this new operating environment, I'll hand it over to Kris to provide some additional commentary.

Kris Wiebeck -- Chief Financial Officer

Thanks, Trevor. Greg, it's a good question. As Trevor said, fortunately, being headquartered in Florida, we had done a lot of cat planning for our hurricane shutting us down, so I think we were ahead of potentially others in cloud-based technology, whether it be phones and emails and where our data is held. So certainly, we have some incremental.

I think the biggest difference on the margin is it's going to be a little harder to generate new outbound effort on the partnership side in terms of flying places to meet people. And so the same really goes on the middle-market side in terms of new business, right? We're fortunate a lot of our segments are able to execute well on new business, but some of them, you certainly historically have met in person with someone and that executive team. And so what we're thinking really is it's probably margin that's generated from a little bit of a slowdown. So we have some investments that we've made anticipating 2020 to be kind of another really nice year of overall economic growth in the environment.

And with the rest of the country kind of retrenching a little bit, we probably have investments we're making that we're not going to get quite as much leverage out of as we would have otherwise expected. And that's why I mentioned kind of a more Q3 or Q4 margin versus what we might have otherwise expected. It's still early for us to tell, right? A lot of this depends on how long we're shut down, the extent of that shutdown and what -- how folks are handling it. But we did think it was worth calling out that we do think it would be different from our original expectations.

Greg Peters -- Raymond James -- Analyst

Right. I appreciate that color and that response. I'll just ask one other question, and that is around the targets around partnerships. And it feels like there might be a pause button being hit by a lot of financial buyers and maybe even some of the strategics as everyone sort of resets and tries to figure out what kind of outlook that they should incorporate in these potential deals.

And I just thought I'd get your impression, as you're -- obviously, you mentioned you can't travel to see these people, but obviously, there's videoconferencing. What's your view about closing deals right now? It seems like you might also be on the more cautious side hitting the pause button, but maybe I'm missing something.

Trevor Baldwin -- Chief Executive Officer

This is Trevor. Great question. And the way we're approaching our partnership pipeline, which, by the way, is the largest in the history of our organization, is we are continuing to be -- to prudently push forward, and we are making sure that we are appropriately diligencing the durability of the revenue streams and the client base of the potential businesses that we're looking to partner with. And so we are continuing to move forward but being prudent and cautious around how we evaluate the risks to those potential partners in light of the current economic environment and focusing our efforts in particular on businesses that have defensible niches with industry segments or product lines that are going to be more resistant to the current economic pressures.

Kris, anything you would add to that?

Kris Wiebeck -- Chief Financial Officer

Yes. I think, Greg, certainly, I mentioned on the call, you look at what's going on, we compete against a lot of other buyers, and especially the private equity have kind of set the market. A little bit of it's wait and see, right, just to see what the reaction is, how that impacts the broader market. Again, we feel like we just are really fortunate, the timing of our IPO, what we've done with our credit facility.

We effectively, I mentioned on the call, have less than one times net leverage on the balance sheet in terms of debt, so we're in a really good capital standpoint. To the extent there's opportunity over the next few months, we expect to take care of -- take advantage of that opportunity. We're just being prudent right now and making sure we -- as Trevor said, we really diligence everything and we do things that the shareholders would want us to do given the fortunate position we find ourselves in. But we're optimistic and certainly are thankful for the position we find ourselves in financially.

Trevor Baldwin -- Chief Executive Officer

Yes. So Greg, I guess the kind of final thought I'd give you on that is, for the most part, if we thought a business was a really good business 60 days ago, so long as there's nothing about the current economic climate that changes that viewpoint for us, then we're focused on building a really first-class brokerage platform. And we want to take advantage of the opportunity to partner with really best-in-class firms and best-in-class individuals to build our organization. We just are going to be particularly prudent and thoughtful in the construct of how those partnerships get done and making sure that we're being diligent around assessing the potential downside exposures that exist inside the client base.

Operator

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

Elyse Greenspan -- Wells Fargo Securities -- Analyst

My first question probably goes back to some of the topics discussed on the prior questions. As we think about a potential economic slowdown, right now, it seems like things are, at least to a certain degree, on hold for a couple of months based on kind of what we hear out there. But I guess as we think about a couple of months' slowdown, like can you just dig in a little bit further -- and you talked about new business slowing. But as you put it together, assuming it's a couple of months' slowdown, how do you see that playing out? It seems like organic growth could be tempered in the second quarter and then improve to a good amount on the flip side in the back half.

Just how should we think about the playbook if this slowdown lasts a couple of months, just -- which seems like at least what people are calling for, for the time being?

Trevor Baldwin -- Chief Executive Officer

Yes. This is Trevor, and appreciate you dialing in, and I hope you're staying safe and healthy. So as we look at the impact to our business of a slowdown of a few couple of months during the second quarter, we believe the primary impact is going to be on our ability to generate new business at the rate we otherwise would have expected to. We believe, and the past seven days would evidence, that we will continue to be able to generate new business.

The question that remains open is at what rate. And so as we look at, as an example, our MainStreet business, we don't anticipate that renewals should be meaningfully impacted by the current environment. If anything, retention rates could increase as a result of the focus in other areas that people have. And so in light of that, we feel really fortunate to have made the investments in our sales leadership, sales enablement and marketing and branding teams who have been doing a really tremendous job of helping to reorient our sales playbooks and develop and generate content and information and insights that our risk advisors can deliver to our clients and prospective clients in real time to ensure that we're having meaningful dialogue and conversations with them during these trying times.

And as a result of that, we believe we'll be able to maintain a modicum of new business that, while certainly will not be to the degree and level we would have otherwise expected during normalized times, should be able to continue to allow us to focus on growing our business for the long term. I think it's reasonable to expect that we would take a hit to organic growth in Q2 as a result of the current environment, and we believe that we'll likely see the most significant impact in our middle-market segment as a result of that being the most challenging segment to continue developing new business activity. In particular, our proprietary prospective client engagement model is fairly involved. And business leaders, business owners today are very much focused on the immediate challenges of solvency, liquidity and managing the health and welfare of their colleagues and stakeholders.

So changing an insurance broker is not necessarily top of mind. Although as I pointed out earlier, we have been successful in having some of those conversations. But overall, we believe that if there's a fast recovery in Q3, we'll be in a really good position to take advantage of that. But the situation is fluid, and we're continuing to reevaluate where we sit and what our strategies are in real time to ensure we're positioning our business to lead the recovery on the other side of this.

Kris, anything you would add?

Kris Wiebeck -- Chief Financial Officer

No.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Thanks. And then in terms of your margin, right, so the pro forma 2019 margin was around 22%. Assuming there is, right, you pointed that the second-quarter margin could be weaker given the slowdown, but it sounds like the Q1 and potentially the back half would show improvement over the comparable period. So you put that all together, even with the slowdown that you see, does 2020 feel like a year when, given the investments and the slowdown, that we could see some level of margin improvement on that pro forma number?

Kris Wiebeck -- Chief Financial Officer

What I'd say right now, Elyse, is certainly we think Q2 margin is going to be down a little bit just because of the shutdown. Whether we see improvement in the back half of the year, whether it ends up being a flat year, I think we probably should reassess after Q1 when we do the Q1 call. We'll be in -- that's probably six weeks from now. We'll have more information about exactly what happened and probably a little bit more visibility.

So I would probably just want to hold on that. I don't want to make too big of an assumption. It's certainly going to be very fluid in the next few weeks, and we'll have some better data.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

OK. And then my last, just a quick numbers question. It seems like the tax rate was pretty low in the quarter on the, like, adjusted and reported numbers. Was there anything one-off in the tax rate? And how should we think about modeling that going forward?

Brad Hale -- Chief Accounting Officer

This is Brad. So we believe that for an extended period of time, we would be paying something well less than a statutory tax rate, which is why we're using the effective rate of around 10%. In terms of actual tax rate, we noted a full valuation allowance, so it's effectively zero. But in terms of an effective rate or cash rate, there's a couple of components to that, which make us believe that we're going to be in that 10% range for a long time.

One is because of the Up-C structure, you're allocating a significant portion of earnings to the partnership. So the C-corp's retainage of those earnings is pretty minimal or in that 30% range. And two, the historical acquisitions on which we've acted and our go-forward strategy of continuing to acquire new partners would lead us to a pretty significant taxable amortization position. So yes, that -- as you think about it going forward, we believe that rate is going to be pretty consistent for an extended period of time as we look at ourselves on an adjusted basis.

Operator

Our next question comes from the line of Pablo Singzon with JP Morgan.

Pablo Singzon -- J.P. Morgan -- Analyst

Hi, Trevor and Kris. So appreciate your comments on the M&A pipeline. I guess first question was, just given your strategy of paying partners with equity, I was wondering how BRP's current stock price influences your willingness to do deals and perhaps how you end up structuring the financing for the transactions.

Kris Wiebeck -- Chief Financial Officer

Sure. So I really put that into two buckets, Pablo. For things that are under LOI, I think when we put things under LOI, 60 days ago, the world was a little different. And so I don't think prospective partners of ours would view that their own business has shrunk as significantly as the market.

And so you can introduce things like collars or it was necessarily maybe a stated share count versus share price. And I think people are going to be relatively reasonable in realizing, if you want to close on terms like that, then we all have been impacted and there seems to be a good path forward. I think as you think about going forward, we view equity as important. It provides alignment for a long-term incentive.

We don't view that today's share price is reflective of the intrinsic value of the business we're building. And so we would definitely have to make up for that in other places, whether if it's a lower upfront multiple or just having them transferring at a share price that's higher than today. But we're not excited about issuing shares at the current price.

Pablo Singzon -- J.P. Morgan -- Analyst

Got it. And then I guess another M&A-related question. Can you help us think about the EBITDA contributions of the deals you closed so far this year, so just focusing on Highland and Lanier since you filed the financials for those? If I'm getting the --

Kris Wiebeck -- Chief Financial Officer

Yes.

Pablo Singzon -- J.P. Morgan -- Analyst

Yes. So I'm getting about --

Kris Wiebeck -- Chief Financial Officer

I think the --

Pablo Singzon -- J.P. Morgan -- Analyst

Go ahead.

Kris Wiebeck -- Chief Financial Officer

Go ahead.

Pablo Singzon -- J.P. Morgan -- Analyst

Yes, yes. So you can correct me if I'm wrong, but I'm getting about $1 million of EBITDA and $20 million of revenue, which implies a pretty high multiple. And maybe you can speak to, I guess, maybe the revenue growth or EBITDA accretion you're factoring in when you did those deals that obviously they can keep on the outside.

Kris Wiebeck -- Chief Financial Officer

Yes. So again, I'd encourage all of you to go look at the earnings supplement that we post to the website. We've done a couple of things. Some of the investors we had and some of the analysts have asked us to provide some more disclosure, saying, "Hey, show us disclosures that we own the business." And so on an annual basis, we have broken out organic growth by segment, and that's in that earnings supplement.

And that's in response to some feedback we got after the last call from some of the larger investors. And so you'll find that there. One of the other things you'll find there, to your question, is on the last page, we have a breakdown of deals we closed year to date in terms of what the annualized acquired revenue is and what our annualized estimated acquired adjusted EBITDA is. And you'll see that we've closed on partners a little over $30 million of revenue and a little over $5 million of EBITDA.

Generally, that's based on quality of earnings work. Again, that's historical information. It's not guaranteed that it would have operated that way under us, but that's good visibility of kind of how we're thinking about those deals. Trevor did note that the Medicare deal is a little different in the sense that most of our EBITDA will be recognized in January for that deal based on rev rec, and so we wouldn't expect that adding meaningfully into the rest of 2020, but you'll see that show up in January of 2021 or Q1 of 2021.

But I think that table there will probably provide some better guidance. One of the things when you think about these businesses is when you look at their historical actual financials, a lot of times, the owners paid themselves a salary. When you audit that, it looks like they don't make much money. You pull that salary out, that really might have been profit distributions.

And you tend to see that they're running at higher EBITDA margins when they're part of a public company than when they're independently owned and the owner was paying himself a bonus equal to profits at the end of the year.

Pablo Singzon -- J.P. Morgan -- Analyst

Got it. That makes sense. And then just a last question for me. So a fair amount of small businesses are under stress right now from the economic disruption.

And Trevor, it seems like from your comments, you see your middle-market renewal revenue staying mostly intact. Is it fair to assume then that, size-wise, it seems like your clients are large enough to withstand at least a short-term impact from the slowdown?

Trevor Baldwin -- Chief Executive Officer

Yes, Pablo. That's exactly right. It's not to say that we're without clients that are experiencing hard times and financial duress right now. We certainly have clients in the restaurant, hospitality and lodging industries that are, and we're working really hard with them to come up with creative ideas and solutions to mitigate insurance costs so that they can survive to continue operations on the other side of this.

But when we look across our client segments in middle market, we feel really fortunate about the makeup of overall industry that the clients come from. We feel good about the relative size and financial strength. And we've developed some actual real-time reporting that we're getting on a weekly basis to give us intelligence as to what's happening inside our client base so that we can really stay on top of how that's going to impact our overall business. But in summary, Pablo, while we do believe there will be an impact, we feel that we're in a relatively fortunate position based on our mix of clients, the industries they operate in and how we'll be able to weather these tough economic times.

Pablo Singzon -- J.P. Morgan -- Analyst

OK. And then just final question for me. It's good to hear that you're still seeing good growth in the renter's insurance business. Would you have any insight on where those policies are coming from just geographically?

Trevor Baldwin -- Chief Executive Officer

They're really coming from all across the country, Pablo. We do business in all 50 states. As you think about the population mix of the United States, that's a good way to think about the relative policy mix across states. Where you see concentrations of urban population, areas like Florida, Texas, California, they're going to be places where we have significant amounts of business.

Operator

[Operator instructions] Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your questions.

Dan Fannon -- Jefferies -- Analyst

Just to follow up on some of the previous topics. Most of the talk of slowdown or potential slowdown in the second quarter and third quarter has all been on the revenue side. So curious as you think internally, what expenses or costs you could look to offset some or potential slowdown in revenue. I think in -- Trevor, in your prepared remarks, you talked about pulling forward some costs in the fourth quarter and some elevated spending.

But is there -- if revenues are depressed for some extended period of time beyond a couple of months, would you -- at what point would you look to kind of curtail some of that spend?

Kris Wiebeck -- Chief Financial Officer

Dan, this is Kris. I'll take that. A couple of things. Some of those expenditures we had, we made in Q4 and already in Q1 before this showed up in a large way to affect the economy.

So I think leasing more space is something that we decided to do in Q4. We did get a good deal on it to sublease, but into that type of pull forward for the partnership integration team-type stuff. As far as our expense structure, we're fortunate in that a lot of our expense is commission expense that we pay to advisors, and that's variable expense that relates to revenue. And so we kind of have a natural tick-down in terms of if revenue were to not show up immediately, we're not taking $1 of that loss.

That's being shared with our sales team and our advisor team to start with. So that's fortunate. It gives us a variable cost component in our P&L that allows us to maintain some margin. If you looked at a slowdown that was very long, shelter-in-place orders for three months or six months, certainly, we would start to look at cost cutting.

If I look at the balance sheet today, we upsized the commitment. We transitioned from that accordion to a full commitment, and we drew down an extra $20 million. We're operating today with $45 million of cash, unrestricted cash approximately. That will let us operate for a while.

It's more cash than we would normally operate with on a given nature. We felt like it's prudent at times as a business if you tend to operate with more cash. If it slowed down longer, we'd probably pull down a little bit more. But we feel like we're in really good financial shape to kind of not have to immediately make tough decisions given the recurring revenue nature, given our kind of variable expense exposure.

Three months from now, yes, we would have to look at things again. We have done that analysis. We have a list of $5 million to $10 million of costs we could cut out of the business pretty effectively that we don't think would impact the business terribly in the long term. But it's things that we wouldn't want to do right away because those costs are going to help us provide future growth assuming that we're going to have a recovery and we'll be in a position to lead, so we're doing the work to be prudent.

But right now, we feel like we're in a really good financial place. I think we're the lowest net leverage in the industry compared to all of our peers, public and private equity-backed. The timing of the IPO really helped with that, and so we probably have a little bit more time to see how things play out than some others.

Dan Fannon -- Jefferies -- Analyst

Understood, and thank you for that. And just a quick follow-up. The acquired EBITDA margin based on the disclosure in the supplemental is obviously below yours. It's close to 17%.

You highlighted that those are generally understated. Can you give us a sense of what that typical markup would be as they get into a public realm or how these businesses that you've acquired compare to your core business in terms of the margin profile as you integrate them?

Kris Wiebeck -- Chief Financial Officer

Yes. No, I think again, it's a small sample size, right? So we've seen us bring on businesses that might operate at a 15% margin and some that might operate well north of 30%, and I think a lot of the analysts have used 29%. If you look historically, that's pretty accurate. One of these businesses is fairly nice in revenue.

It's in the wholesale space, which our wholesale business generally does have a little bit of a lower margin, and they've been growing exceptionally quickly over the past few years. And so we're going to kind of reward some of the faster-growing businesses we have and say, "Hey, if you can keep growing at nice double-digit, high-teen organic growth rates, we're going to live with lower margin.", and you keep investing in that business, and that will pay for the shareholders in the long run." So there probably is a little bit more margin that we could get in the existing businesses. I just think it's probably a small sample size. And if you look back three quarters from now and you look at the year, we'll probably be in a situation where you found that the incremental deals were also margin accretive than this sample set.

But we're excited about these deals, and we think they're going to add a lot of long-term shareholder value.

Operator

Our next question comes from the line of Pablo Singzon with J.P. Morgan. Please go ahead with your question.

Pablo Singzon -- J.P. Morgan -- Analyst

So Trevor and Kris, I just want to confirm, your comments on this call, they're sort of based on, I guess, this current state of play as far as local government response to the COVID is concerned, right? Because I think responses have been a bit of -- a bit mixed. In New York, it's a full shutdown. I think in Florida, it's sort of a mixed shutdown. I think in Texas, it might be somewhere in the middle.

I just wanted to sort of understand, like is sort of the current outlook you provided based on where things are today? And obviously, things are very fluid and could change, but if you can just confirm that.

Trevor Baldwin -- Chief Executive Officer

Yes. That is confirmed, Pablo. The current feedback we're giving you and insights we're giving you are based on kind of the real-time realities we're seeing in our business as a result of the current state of shutdown and shelter-in-place orders that are out there.

Kris Wiebeck -- Chief Financial Officer

And I would add, Pablo, if you look at most of the state regulations, even New York, financial services, insurance brokerage is an essential service. We're -- throughout helping key businesses respond to this, right, whether it be in the healthcare, whether it be clients of ours who have folks under employee benefit plans, you need to know that they have healthcare in order to see a provider. And so we're very thankful that our colleagues can work from home and be effective for our clients. Insurance is one of those kind of key pillars of the economy in terms of risk transfer and allowing people to go out and get business done.

So even in some jurisdictions that are more shut down than others, we tend to find, from a legal standpoint, that we are allowed to have some operations.

Operator

Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the floor back over to Mr. Trevor Baldwin for any closing remarks.

Trevor Baldwin -- Chief Executive Officer

Thank you, operator. I want to just take this time to thank all of our shareholders, all of our colleagues and all of our stakeholders who took the time this evening to join us for this call, and I thank you for your interest in BRP Group. I also want to give our well wishes to all of you and your families and that you stay safe and stay healthy during these difficult times. And we look forward to talking with you for our first quarter report and hopefully being in a much more positive place for the country and all of our citizens.

Thank you, and good evening.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Brad Hale -- Chief Accounting Officer

Trevor Baldwin -- Chief Executive Officer

Kris Wiebek -- Chief Financial Officer

Kris Wiebeck -- Chief Financial Officer

Meyer Shields -- KBW -- Analyst

Greg Peters -- Raymond James -- Analyst

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Pablo Singzon -- J.P. Morgan -- Analyst

Dan Fannon -- Jefferies -- Analyst

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