10-QPeriod: Q1 FY2015

Arthur J. Gallagher & Co. Quarterly Report for Q1 Ended Mar 31, 2015

Filed April 28, 2015For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported its first-quarter 2015 financial results, showing a significant increase in revenue and profitability compared to the prior year. Total revenues for the quarter reached $1.23 billion, up from $915 million in Q1 2014, driven by strong performance across both its brokerage and risk management segments. The company successfully integrated several acquisitions, contributing to robust organic growth. Net earnings attributable to controlling interests saw a decline to $21.9 million ($0.13 per diluted share) from $49.3 million ($0.36 per diluted share) in the prior year. This decrease was largely due to significant one-time charges and the impact of foreign currency translation, particularly impacting the 'Corporate' segment which houses clean energy investments and debt. The company highlighted its strong acquisition pipeline and integration capabilities, as well as positive organic revenue growth in both its core segments.

Financial Highlights

46 data points
Beta

Revenue

$1.23B

74.9% Gross Margin

Net Income

$21.90M

1.8% Net Margin

EPS (Diluted)

$0.13

Total Assets

$9.73B

Cash & Equivalents

$276.80M

Free Cash Flow

$95.50M

Financial Statements
Beta
Revenue$1.23B
Cost of Revenue$309.30M
Gross Profit$922.00M
Operating Expenses$1.20B
Interest Expense$25.60M
Net Income$21.90M
EPS (Basic)$0.13
EPS (Diluted)$0.13
Shares Outstanding (Basic)165.60M

Key Highlights

  • 1Total revenues increased by 33% to $1.23 billion in Q1 2015 compared to $915 million in Q1 2014.
  • 2Brokerage segment revenues grew 33% year-over-year, with 4.5% organic growth in base commissions and fees.
  • 3Risk Management segment revenues increased 8% year-over-year, with 10.9% organic growth in fees.
  • 4Net earnings attributable to controlling interests decreased to $21.9 million in Q1 2015 from $49.3 million in Q1 2014, impacted by corporate segment expenses and foreign currency translation.
  • 5The company completed eleven acquisitions in the brokerage segment during the quarter, adding $33.6 million in annualized revenues.
  • 6EBITDAC (Earnings Before Interest, Taxes, Depreciation, Amortization, and Change in Estimated Acquisition Earnout Payables) for the combined Brokerage and Risk Management segments increased by 46% to $196.7 million.
  • 7The company reported $2.125 billion in Note Purchase Agreements and $115 million in borrowings under its Credit Agreement as of March 31, 2015.

Frequently Asked Questions

The primary driver of revenue growth was a combination of strong organic growth in both the brokerage and risk management segments, coupled with the successful integration of multiple acquisitions completed in late 2014 and early 2015. These acquisitions contributed significantly to the increased commission and fee revenues.

The decrease in net earnings was mainly due to significant expenses within the 'Corporate' segment, including costs related to clean energy investments and debt servicing. Additionally, adverse foreign currency translation impacts, particularly from international operations, negatively affected overall net earnings, overshadowing the positive contributions from the core brokerage and risk management businesses.

Arthur J. Gallagher & Co. maintains a diversified debt structure, including Note Purchase Agreements totaling $2.125 billion and a $600 million Credit Agreement, of which $115 million was drawn at the end of Q1 2015. The company stated it has sufficient capital and access to credit facilities to meet its liquidity needs and fund its ongoing operations and acquisition strategy. They also manage cash flows from operations and debt financing for strategic initiatives.

The company expressed confidence in its acquisition strategy and integration capabilities, having completed eleven acquisitions in the brokerage segment during the quarter. They anticipate continued growth through both organic expansion of existing operations and further strategic acquisitions, using a mix of cash, debt, and equity to fund these activities.