10-QPeriod: Q1 FY2014

BROWN & BROWN, INC. Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 12, 2014For Securities:BRO

Summary

Brown & Brown, Inc. reported mixed results for the first quarter ended March 31, 2014. Total revenues increased by 8.5% year-over-year to $363.6 million, driven by a 6.8% increase in core commissions and fees and a significant rise in profit-sharing and guaranteed supplemental commissions. However, net income saw a decline of 12.8% to $52.4 million, or $0.36 per diluted share, compared to $60.1 million ($0.41 per diluted share) in the prior year's quarter. This decrease was primarily attributed to higher employee compensation and benefits, increased non-cash stock-based compensation, and a substantial rise in the change of estimated acquisition earn-out payables, alongside the impact of Hurricane Sandy on prior year's results. The company highlighted positive internal revenue growth (excluding the impact of Hurricane Sandy) of 3.9% in its core organic commissions and fees, indicating underlying business strength. Acquisitions continue to be a key growth driver, contributing $27.5 million to core commissions and fees. Looking ahead, Brown & Brown is in the process of acquiring The Wright Insurance Group for $602.5 million, a significant transaction expected to close in the second quarter of 2014, which will be financed through a new $1.35 billion credit facility.

Financial Highlights

45 data points
Beta

Revenue

$335.01M

Net Income

$60.13M

17.9% Net Margin

EPS (Diluted)

$0.20

Total Assets

$3.23B

Cash & Equivalents

$340.21M

Free Cash Flow

$134.07M

Financial Statements
Beta
Revenue$335.01M
Operating Expenses$235.52M
Interest Expense$3.98M
Net Income$60.13M
EPS (Basic)$0.21
EPS (Diluted)$0.20
Shares Outstanding (Basic)281.59M
Shares Outstanding (Diluted)285.89M

Key Highlights

  • 1Total revenues grew 8.5% to $363.6 million, primarily due to increased commissions and fees.
  • 2Net income decreased by 12.8% to $52.4 million, impacting diluted EPS to $0.36 from $0.41 year-over-year.
  • 3Core organic commissions and fees showed positive growth of 3.9% (excluding Hurricane Sandy impact from prior year), demonstrating underlying business health.
  • 4Employee compensation and benefits expenses rose significantly (15.4%), partly due to new acquisitions and executive changes.
  • 5Non-cash stock-based compensation more than doubled, impacting profitability.
  • 6The company is acquiring The Wright Insurance Group for $602.5 million, signaling continued acquisition-led growth strategy.
  • 7A new $1.35 billion credit facility was secured to finance acquisitions and existing debt.

Frequently Asked Questions

The primary drivers for the decrease in net income were significantly higher employee compensation and benefits expenses (+15.4%), a more than doubling of non-cash stock-based compensation, and a substantial increase in the charge related to the change in estimated acquisition earn-out payables (up from $1.5 million to $6.1 million). Additionally, the prior year's first quarter benefited from higher revenues related to Hurricane Sandy, which did not occur in the current year's first quarter.

Brown & Brown is financing the acquisition of The Wright Insurance Group with a combination of cash and proceeds from a new $1.35 billion credit facility entered into on April 17, 2014. This new facility is intended to refinance existing debt and provide capital for future growth.

The 'core organic commissions and fees' growth rate is a key metric that measures the revenue growth from existing operations, excluding the impact of recent acquisitions and divestitures. The reported 3.9% growth (after adjusting for a hurricane-related revenue anomaly in the prior year) indicates that the company's established businesses are performing well and generating increased revenue from net new business, changes in exposure units, and insurance premium rates.

Acquisitions played a significant role. New acquisitions contributed approximately $27.5 million to core commissions and fees and accounted for $18.2 million of the increase in employee compensation and benefits expense and $7.0 million of the increase in other operating expenses. While driving revenue growth, these acquisitions also increased operating costs.