10-QPeriod: Q1 FY2007

BROWN & BROWN, INC. Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 10, 2007For Securities:BRO

Summary

Brown & Brown, Inc. reported solid financial results for the first quarter of 2007, demonstrating continued growth and profitability. Total revenues increased by 12.1% to $258.5 million, driven by a significant 424.2% surge in investment income, largely due to the sale of a long-held investment. Commissions and fees also saw a healthy increase of 7.7%, with profit-sharing contingent commissions up 31.6%, indicating favorable prior year performance. Net income grew by 19.4% to $59.7 million, or $0.42 per diluted share, compared to the same period last year. The company continued its aggressive acquisition strategy, completing several acquisitions during the quarter for a total of $53.4 million, which contributed to a 17.1% increase in depreciation and a 5.6% rise in amortization expense due to acquired intangible assets. Despite increased expenses, including a 10.0% rise in employee compensation and benefits, the company managed to improve its expense ratios, demonstrating operational efficiency.

Key Highlights

  • 1Total revenues increased by 12.1% to $258.5 million.
  • 2Net income rose by 19.4% to $59.7 million ($0.42 per diluted share).
  • 3Investment income surged by 424.2% due to a significant gain from the sale of an investment.
  • 4Commissions and fees grew by 7.7%, with profit-sharing contingent commissions up 31.6%.
  • 5The company actively pursued its growth strategy, completing nine acquisitions for a total purchase price of $53.4 million.
  • 6Goodwill increased by $41.4 million due to these acquisitions, reaching $725.9 million.
  • 7The company reported compliance with all debt covenants and maintained sufficient liquidity for the next 12 months.

Frequently Asked Questions

Revenue growth was primarily driven by a substantial increase in investment income, fueled by the sale of a long-held investment in Rock-Tenn Company, which generated an $8.8 million gain. Additionally, commissions and fees increased by 7.7%, supported by a 31.6% rise in profit-sharing contingent commissions and organic growth in core business.

Brown & Brown continued its aggressive acquisition strategy, completing nine acquisitions for $53.4 million in the first quarter. These acquisitions contributed to revenue growth across various segments and increased goodwill by $41.4 million. The acquisitions also led to higher expenses, such as increased depreciation and amortization, and employee compensation and benefits, but the company managed to maintain operational efficiency.

The company is involved in significant legal proceedings, including antitrust actions. While federal law claims in two consolidated antitrust lawsuits were dismissed in April 2007, plaintiffs were granted leave to file an amended complaint. The company is also responding to various state governmental investigations concerning compensation practices. Management believes the ultimate disposition of these matters will not have a material adverse effect, but acknowledges the potential for material impact on future results of operations or cash flows.

The company maintained compliance with all debt covenants as of March 31, 2007. Total debt remained stable, with a slight increase in acquisition notes payable. The company has a $20.0 million revolving credit facility and believes its existing cash, cash equivalents, investment portfolio, and funds generated from operations, along with its credit facilities, are sufficient to meet liquidity needs for at least the next 12 months.