10-QPeriod: Q2 FY2021

Arthur J. Gallagher & Co. Quarterly Report for Q2 Ended Jun 30, 2021

Filed July 30, 2021For Securities:AJG

Summary

Arthur J. Gallagher & Co. (AJG) reported strong financial results for the three and six-month periods ending June 30, 2021. The company demonstrated significant revenue growth, driven by both organic increases and strategic acquisitions, particularly in its Brokerage segment. Net earnings attributable to controlling interests also saw a substantial increase year-over-year, reflecting improved operational performance and a favorable market environment with hardening insurance rates. The company's financial position remained robust, supported by strong operating cash flows. AJG successfully managed its capital structure, including the issuance of new senior notes and a substantial share repurchase program authorization, indicating confidence in future performance and a commitment to returning value to shareholders. While the company navigated some operational costs and integrations related to acquisitions, the overall financial health and growth trajectory presented a positive outlook.

Financial Highlights

46 data points
Beta

Revenue

$1.93B

86.1% Gross Margin

Net Income

$190.20M

9.8% Net Margin

EPS (Diluted)

$0.92

Total Assets

$27.82B

Cash & Equivalents

$3.20B

Free Cash Flow

$470.20M

Financial Statements
Beta
Revenue$1.93B
Cost of Revenue$268.80M
Gross Profit$1.66B
Operating Expenses$1.71B
Interest Expense$56.20M
Net Income$190.20M
EPS (Basic)$0.94
EPS (Diluted)$0.92
Shares Outstanding (Basic)201.30M

Key Highlights

  • 1Total revenues increased by 16% to $1.93 billion for the three months ended June 30, 2021, and by 14% to $4.10 billion for the six months ended June 30, 2021, compared to the prior year periods.
  • 2Net earnings attributable to controlling interests rose by 20% to $225.0 million for the three months ended June 30, 2021, and by 18% to $587.6 million for the six months ended June 30, 2021.
  • 3Diluted earnings per share (EPS) grew by 12% to $1.09 for the three months ended June 30, 2021, and by 13% to $2.90 for the six months ended June 30, 2021.
  • 4The Brokerage segment showed robust growth, with revenues up 16% and 14% for the three and six-month periods, respectively, and organic growth in commissions and fees of 6.9% and 5.8%.
  • 5The Risk Management segment also experienced significant growth, with revenues up 28% and 16% for the three and six-month periods, respectively, and strong organic growth in fees.
  • 6The company raised $1.44 billion in net proceeds from a follow-on public offering of common stock and issued $1.5 billion in unsecured senior notes to fund its growth strategies and general corporate purposes.
  • 7AJG authorized a new $1.5 billion share repurchase program, signaling a commitment to returning capital to shareholders.

Frequently Asked Questions

Revenue growth was driven by a combination of factors, including strong organic growth in commissions and fees within the Brokerage segment, increased business activity leading to higher insured exposure units, and continued price firming in the property/casualty market. Acquisitions also contributed significantly to the revenue increase across both the Brokerage and Risk Management segments.

Profitability improved significantly. Net earnings attributable to controlling interests increased by 20% for the quarter and 18% for the six-month period. Diluted earnings per share also saw a healthy increase of 12% for the quarter and 13% for the six-month period, reflecting effective cost management and strong revenue performance.

AJG raised substantial capital by issuing $1.44 billion in net proceeds from a follow-on public offering of common stock and $1.5 billion in unsecured senior notes. Additionally, the company announced a new $1.5 billion share repurchase program, indicating a strategic focus on capital deployment and shareholder returns.

The report mentions ongoing investigations by the IRS and DOJ related to micro-captive advisory services, ongoing litigation incidental to the business, and contingent liabilities related to E&O (Errors & Omissions) claims. While the company is cooperating and defending these matters, potential outcomes are uncertain. The company also has significant goodwill on its balance sheet arising from acquisitions, which is subject to impairment reviews.