10-QPeriod: Q1 FY2003

BROWN & BROWN, INC. Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 15, 2003For Securities:BRO

Summary

Brown & Brown, Inc. reported a strong first quarter for 2003, demonstrating significant growth in net income and earnings per share compared to the prior year. Total revenues saw a substantial increase, primarily driven by commissions and fees, which benefited from both acquisitions and organic growth, including higher contingent commissions. The company's diversified business segments, particularly Retail and National Programs, showed robust revenue and income growth. While operating expenses, such as employee compensation and amortization, also increased, they were largely attributed to acquisitions and did not outpace revenue growth proportionally, leading to improved profitability metrics. The company's balance sheet reflects substantial growth in goodwill and other intangible assets, indicative of its active acquisition strategy. Cash flow from operations was positive, but the significant use of cash for acquisitions, debt payments, and dividends led to a decrease in cash and cash equivalents. Management expressed confidence in the company's liquidity and ability to meet financial needs through existing resources and credit facilities. However, investors should note the ongoing legal proceedings, particularly the substantial claims related to workers' compensation insurance procurement, although management believes these will not have a material adverse effect on the company's financial position.

Key Highlights

  • 1Net income increased by 41.9% to $30.5 million, with diluted EPS growing to $0.44 from $0.31 in the prior year's first quarter.
  • 2Total revenues surged by 30.2% to $144.7 million, largely driven by a 30.2% increase in commissions and fees.
  • 3Acquisitions contributed significantly to revenue growth, accounting for approximately $19.3 million of the increase in commissions and fees.
  • 4Employee compensation and benefits increased by 23.2% due to new employees from acquisitions and higher commission revenues, but as a percentage of total revenue, it decreased from 49.9% to 47.1%.
  • 5Goodwill increased by $25.8 million through acquisitions, reflecting the company's growth strategy.
  • 6The company actively managed its debt, with interest expense decreasing by 18.5% due to lower outstanding debt balances, and also employed an interest rate swap to hedge against rising rates.
  • 7Despite positive operating cash flow, cash and cash equivalents decreased by $41.4 million due to significant investment in acquisitions ($58.3 million) and other outflows.

Frequently Asked Questions

Revenue growth was primarily driven by a significant increase in commissions and fees, up 30.2% to $144.7 million. This increase was a result of both acquisitions, which contributed approximately $19.3 million, and organic growth, including higher contingent commissions and new business production.

Profitability improved considerably. Net income rose by 41.9% to $30.5 million, and diluted earnings per share increased from $0.31 to $0.44. This improvement was achieved despite increased operating expenses, as revenues grew at a faster pace.

Brown & Brown experienced a decrease in cash and cash equivalents by $41.4 million during the quarter, primarily due to substantial investments in acquisitions. Long-term debt has been managed, with outstanding balances decreasing and interest expense reduced. The company also utilizes an interest rate swap to hedge against fluctuating interest rates on its term loan.

The company is involved in several legal proceedings. Notably, there is a significant lawsuit concerning workers' compensation insurance procurement, with claims against Brown & Brown and its subsidiary reaching potentially high amounts. While management states that these are not expected to have a material adverse effect on the company's financial position, they acknowledge that future results could be affected by unfavorable resolutions.