Reliance Global Group, Inc.

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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Ted Avis, Investor Relations. You may begin.

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 Bayman, 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 10Q 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. Baiman 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, and the negative of such terms In other words, in terms of similar expressions, they're 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 achievement. 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 Baiman, Chairman and Chief Executive Officer of Reliance Global Group. Ezra?

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 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 continued 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 Spettner Associates, a well-established benefits enrollment company. Spettner, through Manage Benefits 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 Spettner 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 Spentner'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 Spretner'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. Spretner's Ben Manage 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, Ben Manager 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, BandManage automatically evaluates job applicants for work opportunity tax credits, facilitating these credits processing without the need for manual input. Spentner 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, Spettner 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, Spettner 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. Spentner's comprehensive range of uniquely voluntary benefits programs, combined with its extensive reach, presents substantial opportunities for synergy, particularly in enhancing our offerings through cross-selling personal lines of insurance through the Reli exchange platform. While Spentner Band Manager is 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 Spentner, 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 enhanced 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 Reliance, 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, a residential, and amassing a multi-billion-dollar portfolio of multifamily properties Undisclosed 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 Reliant 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 Joe Markovits, Chief Financial Officer of Reliance Global, who will review the financial results for the quarter ended March 31st, 2024. Joe?

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 31st, 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. Change is 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 paid 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 it continues throughout the fiscal year, and especially post our anticipated closing on the SPETNA 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.

Absolutely. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Our first question comes from Jesse Sobolson with EF Hutton.

Please proceed.

Hi, everyone. Congrats on signing this definitive agreement to acquire Sputner. 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?

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 live time where the numbers are, and it's right on target. It's the acquisition. We haven't bought it yet, but we've been watching it, and it's running the way we expect it. Great. Sorry to cut you off.

Please go ahead.

In other words, as far as since we hope to close in third quarter, depending on what time of year, but it should be about half the year. It's up and running. It hits the ground running, so to speak.

On that point, 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 realize synergies either on the cost front or the sales front?

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. It'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.

Okay, great. And then just to make sure I understand the numbers, I just want to make sure I have them 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 times forward sales and about 4x forward EBITDA. Is that correct?

That's correct. Which if you know the industry, those are pretty good numbers.

Pretty good. Yeah. 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.

That's a Joe question.

Yeah, I think time will tell in terms of post-Espetna deal. Obviously, there's going to be significant receivables that will 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 the 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. We're going to churn through you know, millions, you know, of dollars in commission revenues of cash each year. So we definitely expect, you know, things to go northerly in terms of the asset side. Liability is nothing too significant. There's going to be a promissory note that was discussed. And, yeah, but we don't really expect anything except for typical accounts payable, you know, to come with any vendor dues that might be existing in the Sputnik books.

That's not expected to be significant. Wonderful. Thank you for the detail. Thank you very much.

Once again, if you have a question or a comment, please indicate so by pressing star 1 on your touchtone phone. The next question comes from Ellen Litvak with Forest Capital. Please proceed.

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're making with your one firm vision?

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 contracts, and I made tremendous headway with property and casualty. I've begun making strides with the 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. OneFirm 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, and will also likely continue to spur on additional cross-selling revenue-generating opportunities. Thanks again for the question. Hopefully this provides a good summary of where we're at today.

Yes, that's very helpful. Thank you so much.

Okay. We have no further questions in queue. I would like to turn the call back to management for closing remarks.

Sure. On behalf of Ezra and the entire Alliance 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.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.