Reliance Global Group (ticker: RELI) has announced during their First Quarter Business Update Conference Call a significant acquisition of Spetner Associates, a move expected to more than double the company's revenue and substantially increase EBITDA.
Despite reporting a net loss of $5.3 million for the first quarter of 2024, due largely to a non-cash impairment charge, the company is optimistic about the positive impact of the Spetner deal on its financial performance. The acquisition, which is set to close in the third quarter, is anticipated to contribute over $14 million in revenue and boost EBITDA by $4 million.
Key Takeaways
- Reliance Global Group has agreed to acquire Spetner Associates, a benefits enrollment firm.
- The acquisition is expected to more than double Reliance's annual revenue to over $14 million and significantly increase EBITDA by $4 million.
- For Q1 2024, Reliance reported a net loss of $5.3 million and a nominal negative adjusted EBITDA of $74,000.
- The company's expenses increased to $1.4 million, mainly due to acquisition costs and regulatory compliance.
- The Spetner deal is valued at $13.7 million, with payment in both cash and a promissory note.
- Reliance is progressing with its "one firm" vision, streamlining operations, and focusing on cross-selling opportunities.
Company Outlook
- The Spetner acquisition is expected to close in Q3, contributing to the fiscal year's second half.
- Reliance anticipates improvement in adjusted EBITDA as the fiscal year progresses, post-acquisition.
- The company is working on consolidating carrier contracts and unifying agency management systems.
- Focus is being placed on enhancing corporate culture and exploring new revenue-generating opportunities.
Bearish Highlights
- Reliance experienced a net loss of $5.3 million in the first quarter, largely due to a non-cash impairment charge.
- The company also faced an increase in expenses, which rose to $1.4 million from the previous year's $838,000.
Bullish Highlights
- The Spetner acquisition is projected to substantially increase revenue and EBITDA for Reliance.
- Management is excited about the prospects of the company after the acquisition.
- The company is actively working on cost reduction and efficiency improvements through its "one firm" vision.
Misses
- The Q1 net loss and negative adjusted EBITDA indicate financial challenges despite the optimistic outlook provided by the Spetner deal.
Q&A Highlights
- Post-acquisition, Reliance expects an increase in assets, including cash and intangibles, without significant liabilities, barring the promissory note.
- The company is focused on streamlining operations and enhancing reporting capabilities through various strategic initiatives.
Reliance Global Group's strategic acquisition of Spetner Associates is a key step in their growth strategy, aiming to significantly enhance their financial performance in the coming years.
While current financial results show a net loss, the company is focused on long-term prospects and operational efficiencies to improve its market position and financial health.
InvestingPro Insights
As Reliance Global Group (RELI) navigates through its acquisition of Spetner Associates with the aim of doubling its revenue, the company's financial metrics and market performance provide a mixed picture. Here are some insights based on real-time data from InvestingPro:
- Reliance Global Group's market capitalization stands at a modest $2.47 million USD, reflecting the small size of the company within its sector.
- The Price / Book ratio, as of the last twelve months ending Q4 2023, is 0.35, suggesting that the stock might be trading at a low valuation relative to the company's book value.
- Despite a hopeful outlook on the Spetner acquisition, RELI's stock has experienced significant volatility, with a notable 21.82% return over the last week, yet a -91.85% return over the last year, indicating a highly turbulent period for investors.
InvestingPro Tips highlight several areas of concern and opportunity for investors considering RELI:
- The company has been quickly burning through cash, which is a critical issue for investors to monitor, especially in light of the recent acquisition.
- With the stock generally trading with high price volatility, investors should be prepared for potential short-term price swings.
For readers seeking a more comprehensive analysis, InvestingPro offers additional insights and tips. There are 14 more InvestingPro Tips available for Reliance Global Group, which can be accessed by visiting https://www.investing.com/pro/RELI. To enrich your investment strategy with these insights, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Reliance Global Group's strategy, including the recent acquisition, is a pivotal moment for the company. The InvestingPro data and tips provided can help investors better understand the potential risks and opportunities as the company strives to reshape its financial landscape and market position.
Full transcript - Reliance Global (RELI) Q1 2024:
Operator: Greetings. Welcome to the Reliance Global Group First Quarter Business Update Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Ted Ayvas, Investor Relations. You may begin.
Ted Ayvas: Thanks, John. Good afternoon and thank you for joining Reliance Global Group's 2024 first quarter financial results and business update conference call. On the call with us today are Ezra Beyman, Chairman and Chief Executive Officer of Reliance Global Group and Joel Markovits, Chief Financial Officer at Reliance. Earlier today, the company announced its operating results for the quarter ended March 31, 2024. The press release is posted on the company's website, www.relianceglobalgroup.com. In addition, the company has filed its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission today, which can also be accessed on the company's website as well as the SEC's website at www.sec.gov. If you have any questions after the call, but would like any additional information about the company, please contact Crescendo communications at 212-671-1020. Before Mr. Beyman reviews the company's operating results for the quarter ended March 31, 2024, we would like to remind everyone that the conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations are forward-looking statements. The words anticipate, estimate, expect, project, plan, seek, intend, believe, may, might, will, should, could, likely, continue, design, in the negative of such terms, and other words, in terms of similar expressions or intended to identify forward-looking statements. These forward-looking Statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to several risks, uncertainties, and assumptions, as described in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission on April 4, 2024. Because of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this conference call may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update any of these forward-looking statements. All forward-looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements, as well as others made in this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. Having said that, I'd now like to turn the call over to Ezra Beyman, Chairman and Chief Executive Officer of Reliance Global Group. Ezra?
Ezra Beyman: Thanks, Ted. Good afternoon, and thank you to everyone for joining us today. This is an exciting time for us to share the significant press we have made at the Reliance Global Group. In early April, we shared insights into our operations and I'm pleased to report that in the first quarter of 2024, we continue this trend of solid performance marked by steady organic growth. This quarter, our emphasis was on implementing our new one firm approach, which integrates our nine owned and operated agencies across the United States into a single unified entity. As these efforts continue to gain traction, we believe that we will experience significant improvement in both our revenue and profitability. As you may know, we recently announced that we have entered into a definitive agreement to acquire Spetner Associates, a well-established benefits enrollment company. Spetner, through BenManage Benefit Enrollment Company, is a leading provider of voluntary benefits to over 75,000 employees throughout the United States. We are confident that this acquisition of Spetner will prove to be the most significant acquisition and a pivotal turning point in the company's history. The strategic move is expected to dramatically enhance our capabilities and position us strongly in the market setting a new benchmark for our future endeavors. I would like to take this time to delve deeper into the reasons behind this acquisition and what it means for the company's future. The integration of Spetner’s expertise and extensive client base into our operations is expected to significantly enhance our market position, expand our service offering, and accelerate our growth trajectory. By aligning Spetner’s innovative benefits solutions with our strategic goals, we aim to create more value for our stakeholders and strengthen our competitive edge in the industry. This acquisition is not just about growth, it's about setting a new standard in our industry and bringing enhanced services to a broader audience. Spetner’s BenManage Benefits Enrollment Company enhances HR operations by integrating benefits enrollment and administration with applicant tracking, onboarding, and payroll systems. This consolidated approach minimizes paperwork and streamlines various HR tasks. Featuring a user-friendly digital interface along with live call center support, BenManage offers a smooth and efficient process for enrolling and managing employee benefits. The platform also improves recruitment efficiency with its one-touch applicant tracking and onboarding system, seamlessly integrating new employees into a company's payroll system. Additionally, BenManage automatically evaluates job applicants for work opportunity tax credits, facilitating these credits processing without the need for manual input. Spetner stands out in its sector by deploying advanced technologies that position it ahead of its competitors. This acquisition represents a pivotal moment for Reliance, not merely in terms of size, but as a crucial component of our wider strategic vision. The impact of this acquisition is substantial. It is anticipated to more than double our revenue. Specifically, Spetner is expected to bring in over $14 million in revenue for the fiscal year 2024, which would increase Reliance's total revenue to approximately $28 million. Moreover, Spetner is anticipated to significantly boost Reliance's EBITDA, with projections indicating an additional $4 million in EBITDA for 2024 on a standalone basis, thanks to its high EBITDA to revenue ratio. Spetner comprehensive range of uniquely voluntary benefits programs, combined with its extensive reach, present substantial opportunities for synergy, particularly in enhancing our offering through cross-selling personal lines of insurance through the Reliance Reli exchange platform. While Spetner BenManage was already highly profitable on its own, its integration into our existing infrastructure is poised to substantially boost our capabilities. In fact, the strategic union is anticipated to create a company where the collective value exceeds that of its individual components, establishing a new benchmark in the industry and driving unprecedented growth for Reliance. This acquisition also underscores our dedication to not only enriching our portfolio, but also to fundamentally transforming the insurance industry. By integrating Spetner, Reliance Global is poised to broaden our array of innovating solutions, further solidifying our reputation as a leader in leveraging technology to achieve substantial growth and profitability. Our commitment to operational efficiency, technological innovation and strategic acquisition goes way beyond standard strategy. It embodies our mission to redefine what's possible in the industry. Overall, our objective is to evolve Reliance Global Group into a profitable, multi-billion dollar enterprise that delivers substantial returns to our shareholders. We believe this acquisition will unlock significant opportunities that align perfectly with our one firm go-to-market strategy. The strategic integration aims not just to expand our presence within the $436 billion highly fragmented global insurance agency brokerage market, but also to position Reliance as a formidable cutting-edge enterprise that leverages technology to drive sustainable profitability and enhance shareholder value. With our solid foundation and forward-thinking strategies, we are confident that we are well on our way to achieving these ambitious goals. As I reflect on our path forward, I am reminded of the reasons why I embarked on this journey with RELI’s, driven by a firm belief in our vision and what we are building together. My previous experience in creating the third largest mortgage broker in the country, residential, and amassing a multi-billion dollar portfolio of multi-family properties, underscores my commitment to not just achieving growth, but sustainable growth. This history is a testament to our dedication to not only expand, but to all do it in a manner that ensures long-term stability and success. As I have stated many times before, I'm a true believer in the company with over $5 million of my own personal capital invested in Reliance. My commitment to building a tech-forward, market-leading organization has never been stronger. Our emphasis on operational efficiency, technological innovation, and strategic acquisition extends beyond mere strategy. It's our mission to redefine what's possible in the industry. This dedication is not just about leading, it's about transforming the landscape of our industry, ensuring that Reliance stays at the forefront of innovation and market dynamics. Thank you for continued support and belief in our vision. The future is bright and exciting, and together we're going to make this vision a reality. I would now like to turn the call over to Joel Markovits, Chief Financial Officer of Reliance Global, who will review the financial results for the quarter ended March 31, 2024. Joe?
Joel Markovits: Thank you very much, Ezra. Good afternoon, everyone. Great to be here with you all today. I'll be happy to share our financial results for the quarter ended March 31, 2024. All figures presented are approximate. Our revenues, commission income increased by $143,000 or 4% to $4.1 million in Q1 of 2024, compared to $3.9 million in Q1 of 2023. Revenue increase is driven by sustained organic growth. Commission expense increased by $193,000 or 18% to $1.3 million in Q1 2024, compared to $1.1 million in Q1 2023. Changes driven primarily by the growth in commission income revenues, which have a higher ratio of commission expense in Q1 versus other quarters. Salaries and wages increased slightly by $76,000 or 4% in this quarter versus last. Increases [Indiscernible] to typical annual inflation adjusted pay. General and administrative expenses increased by $537,000 to $1.4 million in the first quarter of 2024, compared to $838,000 in 2023. And the increase is driven by acquisition costs, as well as higher regulatory compliance-related costs. Net loss was $5.3 million in Q1 2024, compared to a net loss of $1.8 million in Q1 2023. Increase of $3.5 million is primarily linked to a Q1 2024 intangible asset non-cash impairment charge of $3.9 million. Additionally, EBITDA -- our adjusted EBITDA metric, came in at a nominal negative $74,000 for the quarter, and we do expect EBITDA to further improve as we continue throughout the fiscal year and especially post our anticipated closing on the Spetner M&A transaction as mentioned by Ezra. With this, we conclude our prepared remarks. We'll be happy to answer any questions or comments participants may have. Operator, kindly open the line.
Operator: Absolutely. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from ]Jesse Sobeltsin] (ph) with EF Hutton. Please proceed.
Unidentified Analyst: Hi, everyone. Congrats on signing this definitive agreement to acquire Spetner. I wanted to focus on my questions here. Firstly, just on timing, you did sign a definitive agreement. When do you expect this deal to close? And given the guidance of the asset generating $14 million in revenue or so, maybe $4 million in EBITDA on a go-forward basis, how much of that's expected to be contributed to this fiscal year given the timing on closing?
Ezra Beyman: So the first part of the question, we're looking forward to third quarter to close. And as far as the -- about, I guess about, depending when it is, but about half of that. It's already in the run. In other words, we've been watching the deal and seeing as we speak in lifetime where the numbers are and it's right on target. It's the acquisition that we haven't bought it yet, but we've been watching it's running the way we expect it.
Unidentified Analyst: Great. So there's not a seasonality that's being…
Ezra Beyman: I guess about, yes.
Unidentified Analyst: Sorry to cut you off. Please go ahead.
Ezra Beyman: So in other words, as far as since we hope to close in third quarter, depending on what time of the year, but it should be about half the year. It should give us, if you're ready, it's up and running. It hits the ground running, so to speak.
Unidentified Analyst: Right. Yes, on that point, you know, with the guided financials, is this just for the business as a standalone entity or in order to realize the numbers that you're guiding to, would there need to be any efforts to, you know, realize synergies either on the cost front or the sales front?
Ezra Beyman: No, this is on the -- as is, but that's before we do any of the synergies. As is, day one it should be on track for that. That's already in place, what's there. We look forward to lots of gravy with the synergies and the cross-selling, but right now it's just as turnkey.
Unidentified Analyst: Okay, great. And then just to make sure I understand the numbers, I just want to make sure I'm right. I think the acquisition was about $13.7 million in consideration, $8 million in cash, and then the remainder in a promissory note. And that translates to, I'd say roughly one-time as forward sales and about 4 times forward EBITDA, is that correct?
Ezra Beyman: That's correct, which if you know the industry, those are pretty good numbers.
Unidentified Analyst: Pretty good, yes. And then the last thing that I just wanted to ask is on the balance sheet going forward. Can you share? What it's going to look like net debt shares outstanding, cash position and then that would be it for me?
Ezra Beyman: Yes, it’s a Joel question.
Joel Markovits: Yes, I think time will tell in terms of post-Spetner deal. Obviously there's going to be significant receivables that we'll pick up just based on the amount of revenue they have. So we'll definitely see an uptick in our assets. Fixed assets will increase as well based on intangibles we're going to acquire and goodwill. So we'll definitely see all that improve. Cash will be increased substantially, because this is a very high cash business. It's shown through millions of dollars in commission revenues of cash each year. So we definitely expect things to go normally in terms of the asset side. Liability is nothing too significant. There's going to be a promissory note that was discussed. And yes, but we don't really expect anything except for typical comps payable, to come and go with any vendor views that there might be existent in respect in the Spetner books.
Unidentified Analyst: Great. Thank you very much.
Ezra Beyman: That's not expected to be significant.
Unidentified Analyst: I got it. Wonderful. Thank you for the detail.
Ezra Beyman: Thank you very much.
Operator: [Operator Instructions] The next question comes from Ellen [Indiscernible] with Forest Capital, please proceed.
Unidentified Analyst: Thank you for taking my question. You mentioned on the call that your one firm vision is materializing. Can you provide any additional context on the progress you are making with your one firm vision?
Ezra Beyman: Of course. Great question. I'll be happy to expand on that. So we're currently knee deep in the exercise of consolidating our carrier contract. And I've made tremendous headway with property and casualty. I've begun making strides with health group, and life as well. We're also unifying our agency management systems where we'll have just two, one for P&C and one for health and group benefits, which is expected to streamline our administrative processes and enhance our reporting capabilities. On the expense side, we continue to shave off on our costs by pooling together what used to be individual vendor contracts into group contracts, which often provide for volume discounts. One firm has also enabled us to roll out certain best-in-class systems across all of our office locations. We're also redesigning our teams and human capital to be more aligned with our revenue streams irrespective of geographical location. This is encouraging robust cross-collaboration between our offices. It's enhancing our corporate culture, corporate environment, and employee satisfaction. I will also likely continue to star on additional cross-selling revenue generating opportunities. Thanks again for the question. Hopefully this provides a good summary of where we're at today.
Unidentified Analyst: Yes, that's very helpful. Thank you so much.
Operator: Okay. We have no further questions in queue. I would like to turn the call back to management for closing remarks.
Ezra Beyman: Sure, On behalf of Ezra and the entire Reliance team, thank you for participation in this Business Update Call. We couldn't be more excited about the prospects of the company as we continue our journey forward. Looking forward to next time, and until then, all the very best.
Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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