10-QPeriod: Q2 FY2007

BROWN & BROWN, INC. Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 9, 2007For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported strong financial performance for the quarter and six months ended June 30, 2007. Total revenues increased by 11.7% and 11.9% respectively, driven by growth in commissions and fees, alongside a significant surge in investment income due to the sale of its Rock-Tenn Company investment. Net income also saw substantial growth, rising 17.1% for the quarter and 18.3% for the six-month period. This growth was supported by effective management of expenses, with employee compensation and benefits, and other operating expenses, largely kept in check relative to revenue increases. The company continues its active acquisition strategy, with several acquisitions contributing to revenue growth, though this also led to an increase in amortization and depreciation expenses. Management expressed confidence in the company's liquidity and ability to meet its obligations. Key financial highlights include robust net income growth and strong top-line revenue increases. The company's acquisition strategy remains a significant driver of expansion, contributing substantially to revenue gains across its divisions. Investors should note the impact of the Rock-Tenn divestiture on investment income and the ongoing focus on managing core commission and fee growth, which showed a slight decline in some areas due to net lost business, partially offset by acquisitions.

Key Highlights

  • 1Total revenues increased by 11.7% for the quarter to $246.6 million and 11.9% for the six months to $505.2 million.
  • 2Net income grew by 17.1% for the quarter to $52.0 million and 18.3% for the six months to $111.7 million.
  • 3Significant increase in investment income driven by the sale of the company's investment in Rock-Tenn Company, contributing to substantial gains.
  • 4Continued active acquisition strategy with multiple acquisitions contributing to revenue growth in all segments.
  • 5Core commissions and fees showed mixed internal growth rates; a slight decline of (1.0%) for the quarter and (1.4%) for the six months, impacted by net lost business but offset by acquisitions.
  • 6Employee compensation and benefits, and other operating expenses, as a percentage of revenue, generally improved or remained stable, indicating effective cost management.
  • 7The company maintained compliance with all debt covenants and expressed confidence in its liquidity position to meet ongoing operational and acquisition needs.

Frequently Asked Questions

The substantial increase in investment income was primarily due to the sale of the company's long-held investment in Rock-Tenn Company. Brown & Brown realized gains of approximately $8.8 million in the first quarter and $9.8 million in the second quarter of 2007 from these sales.

The company's aggressive acquisition strategy continued to be a key growth driver. Acquisitions completed since the third quarter of 2006 contributed significantly to revenue increases across various segments. However, these acquisitions also led to increased amortization and depreciation expenses.

Core commissions and fees, which exclude profit-sharing contingent commissions and divested business, saw a slight decline in internal growth. For the quarter, it was (1.0%) and for the six months it was (1.4%). This was primarily due to 'net lost business' in some segments, although this was partially offset by contributions from newly acquired agencies.

Management is confident in the company's liquidity. They believe that existing cash, cash equivalents, investment portfolio, and cash generated from operations, along with their credit facilities, will be sufficient to meet liquidity needs for at least the next 12 months. They also noted the capacity to raise additional capital through debt or equity markets if needed for future acquisitions.