10-QPeriod: Q2 FY2011

BROWN & BROWN, INC. Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 9, 2011For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported its second quarter and first six months results for the period ending June 30, 2011. The company demonstrated resilience in a challenging economic environment, with total revenues seeing a slight increase of 1.3% to $246.8 million for the quarter and 2.6% to $509.0 million for the six-month period, largely driven by acquisitions. Despite this top-line growth, net income declined by 10.1% to $37.0 million for the quarter and 2.3% to $83.3 million for the six months, reflecting increased operating expenses, particularly from recent acquisitions and higher non-cash stock-based compensation. The company continued its strategic acquisition approach, completing 22 acquisitions in the first half of 2011 for an aggregate purchase price of $114.1 million, indicating a focus on expanding its core businesses. However, the internal growth rate for core commissions and fees remained negative, at (4.8)% for the quarter and (3.6)% for the six months, highlighting ongoing challenges from a soft insurance market and economic weakness. Management remains confident in the company's liquidity and ability to meet its obligations.

Financial Highlights

46 data points
Beta

Revenue

$243.66M

Net Income

$41.19M

16.9% Net Margin

EPS (Diluted)

$0.14

Total Assets

$2.34B

Cash & Equivalents

$293.01M

Free Cash Flow

$90.03M

Financial Statements
Beta
Revenue$243.66M
Operating Expenses$175.65M
Interest Expense$3.63M
Net Income$41.19M
EPS (Basic)$0.14
EPS (Diluted)$0.14
Shares Outstanding (Basic)275.37M
Shares Outstanding (Diluted)278.21M

Key Highlights

  • 1Total revenues increased slightly to $246.8 million for Q2 2011 and $509.0 million for the first six months of 2011, primarily due to contributions from 22 acquisitions.
  • 2Net income decreased to $37.0 million for Q2 2011 and $83.3 million for the first six months of 2011, impacted by increased operating expenses and non-cash stock-based compensation.
  • 3Acquisitions remain a key growth strategy, with 22 intermediaries and books of business acquired in the first half of 2011 for $114.1 million.
  • 4Core commissions and fees revenue experienced a negative internal growth rate of (4.8)% for the quarter and (3.6)% for the six months, indicating challenges in organic growth.
  • 5Employee compensation and benefits as a percentage of total revenue increased slightly, reflecting integration costs and new grants of stock-based compensation.
  • 6The company maintained a strong liquidity position, with $278.9 million in cash and cash equivalents as of June 30, 2011.
  • 7Long-term debt remained stable at $250.1 million, with the company noting its intent to refinance upcoming debt maturities.

Frequently Asked Questions

Revenue growth in the first half of 2011 was primarily driven by the company's ongoing acquisition strategy. Brown & Brown completed 22 acquisitions of insurance intermediaries and books of business during this period, contributing to the overall increase in total revenues.

Net income declined due to several factors. Operating expenses increased, notably employee compensation and benefits, which included costs associated with integrating new acquisitions and higher non-cash stock-based compensation expenses. Additionally, the decrease in profit-sharing contingent commissions and a negative internal growth rate in core commissions and fees also impacted profitability.

The company reported a negative internal growth rate for core commissions and fees, at (4.8)% for the second quarter and (3.6)% for the first six months of 2011. This reflects ongoing challenges from a soft insurance market, economic weakness impacting insurable exposure units, and lost business in certain segments. Management expects gradual improvement in the rate of decline of exposure units in the second half of 2011.

Brown & Brown maintained a stable long-term debt position. The company had $278.9 million in cash and cash equivalents at the end of the second quarter, indicating a strong liquidity position. Management expressed confidence in their ability to meet upcoming liquidity needs and indicated that additional capital could be raised if acquisition opportunities arise, citing a relatively low debt-to-total-capitalization ratio.