10-QPeriod: Q2 FY2012

BROWN & BROWN, INC. Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 6, 2012For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported solid financial results for the quarter and six months ended June 30, 2012, demonstrating resilience and growth in a dynamic market. Total revenues saw a significant increase of 17.9% for the quarter and 16.6% for the six months, largely driven by substantial growth in commissions and fees. This growth was fueled by both strategic acquisitions, notably the significant Arrowhead acquisition, and positive internal growth in core organic commissions and fees, which returned to positive territory after a challenging period. Despite increased expenses related to acquisitions and employee compensation, the company managed to improve its net income by 14.7% for the quarter and 10.3% for the six months compared to the prior year. The company's strategic focus on expanding its core businesses through acquisitions, combined with stabilizing economic conditions and a modest increase in insurance premium rates, positions it favorably for continued performance. The diversification across its four reportable segments—Retail, National Programs, Wholesale Brokerage, and Services—also contributes to its stability and growth prospects.

Financial Highlights

47 data points
Beta

Revenue

$246.82M

Net Income

$37.03M

15.0% Net Margin

EPS (Diluted)

$0.13

Total Assets

$2.52B

Cash & Equivalents

$278.87M

Free Cash Flow

$68.40M

Financial Statements
Beta
Revenue$246.82M
Operating Expenses$185.35M
Interest Expense$3.61M
Net Income$37.03M
EPS (Basic)$0.13
EPS (Diluted)$0.13
Shares Outstanding (Basic)276.76M
Shares Outstanding (Diluted)279.88M

Key Highlights

  • 1Total revenues increased by 17.9% to $290.9 million for the three months ended June 30, 2012, and by 16.6% to $593.4 million for the six months ended June 30, 2012.
  • 2Net income rose by 14.7% to $42.5 million for the three months ended June 30, 2012, and by 10.3% to $91.9 million for the six months ended June 30, 2012.
  • 3The company experienced positive core organic commission and fee growth of 3.2% for the quarter and 2.1% for the six months, indicating a rebound after prior periods of negative growth.
  • 4Significant acquisitions, including the large Arrowhead General Insurance Agency Superholding Corporation acquisition, contributed substantially to revenue growth.
  • 5Employee compensation and benefits expenses increased due to acquisitions and a special one-time production bonus, but the company is working to manage this ratio.
  • 6Long-term debt increased due to financing for acquisitions, but the company remains compliant with its debt covenants.
  • 7The company's strong focus on its diversified business segments (Retail, National Programs, Wholesale Brokerage, and Services) supports its overall financial performance.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in commissions and fees, which benefited from both strategic acquisitions, such as the Arrowhead acquisition, and positive core organic commission and fee growth. Stabilizing exposure units in the middle-market economy and slight increases in insurance premium rates also contributed to this growth.

Acquisitions played a significant role in the company's financial performance, contributing substantially to revenue growth. The report details the acquisition of Arrowhead General Insurance Agency Superholding Corporation for $599.1 million and other smaller acquisitions. These acquisitions also led to increased expenses, particularly in employee compensation and benefits, and amortization of intangible assets.

Management expressed optimism about future performance, noting the return to positive core organic commission and fee growth. They believe that with a stabilizing middle-market economy and continued upward pressure on general insurance premiums, the company could see continued positive growth for the remainder of 2012.

Employee compensation and benefits expenses increased due to acquisitions and a special one-time production bonus. The company is monitoring these costs, noting that while they increased as a percentage of revenue, they are also managing for efficiency in existing operations, with some decreases noted in other operating expenses due to rent reductions.