10-QPeriod: Q1 FY2018

BROWN & BROWN, INC. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 10, 2018For Securities:BRO

Summary

Brown & Brown, Inc. reported a strong first quarter for 2018, with total revenues increasing by 7.8% to $501.5 million compared to the same period in 2017. This growth was primarily driven by a significant increase in commissions and fees, which rose by 12.5%, partly due to the adoption of new revenue recognition standards (ASC 606) that accelerated the timing of certain revenue recognition. Net income saw a substantial jump of 29.6% to $90.8 million, with diluted earnings per share increasing to $0.32 from $0.25 in the prior year. The company also experienced growth across most of its operating segments, with the Retail and National Programs segments showing particularly robust performance. Acquisitions continue to be a key part of Brown & Brown's growth strategy, with $33.6 million invested in two new intermediaries during the quarter. Despite increased employee compensation and benefits, the company managed its expenses effectively, leading to improved profitability and a healthy increase in cash flow from operations.

Financial Highlights

48 data points
Beta

Revenue

$465.08M

Net Income

$70.11M

15.1% Net Margin

EPS (Diluted)

$0.00

Total Assets

$5.20B

Cash & Equivalents

$546.72M

Free Cash Flow

$86.99M

Financial Statements
Beta
Revenue$465.08M
Operating Expenses$354.11M
Interest Expense$9.68M
Net Income$70.11M
EPS (Basic)$0.00
EPS (Diluted)$0.00
Shares Outstanding (Basic)273.49M
Shares Outstanding (Diluted)278.05M

Key Highlights

  • 1Total revenues increased by 7.8% to $501.5 million in Q1 2018 compared to Q1 2017.
  • 2Net income grew significantly by 29.6% to $90.8 million, with diluted EPS rising to $0.32.
  • 3Commissions and fees revenue saw a strong 12.5% increase, partly driven by the adoption of new revenue recognition standards (ASC 606).
  • 4The company completed two acquisitions totaling $33.6 million in the first quarter, continuing its acquisition-driven growth strategy.
  • 5Cash flow from operating activities was $79.5 million, demonstrating strong operational performance.
  • 6Employee compensation and benefits as a percentage of total revenues increased slightly but was managed effectively in relation to revenue growth.
  • 7The company maintains a solid liquidity position with total cash and cash equivalents, including restricted cash, of $826.4 million as of March 31, 2018.

Frequently Asked Questions

The adoption of ASC 606, effective January 1, 2018, impacted revenue recognition timing. For the first quarter of 2018, it increased commissions and fees revenue by $46.0 million and base commissions by $46.0 million, while reducing profit-sharing contingent commissions by $18.2 million. This shift generally accelerated revenue recognition, contributing to higher reported revenues and net income for the period.

Brown & Brown's growth strategy is driven by a combination of organic growth and strategic acquisitions. The company focuses on attracting high-quality insurance intermediaries to join its operations. In the first quarter of 2018, they acquired two insurance intermediaries for $33.6 million, continuing their long-standing practice of acquiring businesses to expand their market reach and service offerings.

While employee compensation and benefits expense increased by 10.2% to $25.0 million in Q1 2018, it was managed in relation to revenue growth. As a percentage of total revenues, it rose slightly to 54.0% from 52.9% in the prior year. This increase was attributed to factors like salary inflation, higher transaction volumes, increased producer commissions due to higher revenue, and a $10.1 million impact from the adoption of the New Revenue Standard.

Brown & Brown maintains a strong liquidity position. As of March 31, 2018, cash and cash equivalents, including restricted cash, totaled $826.4 million. The company relies on cash generated from operations for its capital needs and has access to an $800.0 million revolving credit facility. They believe their current cash, investments, operational cash flow, and credit facility are sufficient to meet their liquidity needs for at least the next twelve months.