10-QPeriod: Q2 FY2018

BROWN & BROWN, INC. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 7, 2018For Securities:BRO

Summary

Brown & Brown, Inc. reported solid revenue and net income growth for the second quarter and first half of 2018. Total revenues increased by 1.5% to $473.2 million for the quarter and 4.6% to $974.6 million for the first half, driven by commissions and fees across its segments. Net income saw a significant boost of 11.8% to $73.9 million for the quarter and 21.0% to $164.8 million for the first half, positively impacted by lower income taxes due to the Tax Cuts and Jobs Act of 2017. The company's organic revenue growth remained strong, indicating healthy underlying business expansion, particularly in the National Programs and Services segments. Acquisitions continue to be a key growth driver, with several smaller acquisitions contributing to revenue. Management highlighted the adoption of new revenue recognition standards (ASC Topic 606) which impacted the timing of revenue and expense recognition, leading to some year-over-year comparisons requiring careful consideration. Overall, the financial performance demonstrates resilience and continued strategic execution.

Financial Highlights

49 data points
Beta

Revenue

$466.31M

Net Income

$66.10M

14.2% Net Margin

EPS (Diluted)

$0.00

Total Assets

$5.28B

Cash & Equivalents

$600.30M

Free Cash Flow

$174.24M

Financial Statements
Beta
Revenue$466.31M
Operating Expenses$358.30M
Interest Expense$9.87M
Net Income$66.10M
EPS (Basic)$0.00
EPS (Diluted)$0.00
Shares Outstanding (Basic)273.38M
Shares Outstanding (Diluted)278.20M

Key Highlights

  • 1Total revenues for Q2 2018 increased 1.5% to $473.2 million, and for the first six months of 2018 increased 4.6% to $974.6 million.
  • 2Net income grew significantly by 11.8% to $73.9 million in Q2 2018 and by 21.0% to $164.8 million in the first six months of 2018.
  • 3Organic Revenue growth remained robust, with a 5.2% increase in Q2 and 5.4% in the first six months, demonstrating underlying business expansion.
  • 4Effective tax rate decreased substantially due to the Tax Cuts and Jobs Act of 2017, contributing to the net income growth.
  • 5The company completed eight acquisitions in the first six months of 2018, contributing to revenue growth.
  • 6Adoption of new revenue recognition standards (ASC Topic 606) impacted the timing of revenue and expense recognition, with management noting careful comparison needed.

Frequently Asked Questions

The adoption of ASC Topic 606 impacted the timing of revenue and expense recognition. For the six months ended June 30, 2018, it increased commissions and fees revenue by $14.8 million and decreased profit-sharing contingent commissions revenue by $17.0 million compared to previous policies. It also led to the deferral of certain costs to obtain and fulfill customer contracts. Management noted that while the overall annual impact might not be significant, the timing of recognition will affect quarterly comparisons.

Brown & Brown's growth strategy is driven by both organic growth and acquisitions. The company emphasizes a strong, decentralized sales and service culture to foster consistent, sustained growth. They have a history of acquiring numerous insurance intermediary operations and continue to pursue this strategy.

Organic Revenue is a non-GAAP measure that represents core commissions and fees less revenues from newly acquired operations (first 12 months), divested businesses, and the impact of the new revenue standard. It aims to provide a comparable measure of revenue growth. The company reported strong Organic Revenue growth of 5.2% for Q2 2018 and 5.4% for the first six months of 2018, indicating healthy performance from existing and acquired businesses.

The Tax Cuts and Jobs Act of 2017, which reduced the U.S. federal corporate income tax rate to 21%, significantly lowered Brown & Brown's effective tax rate. For the three months ended June 30, 2018, the effective tax rate was 26.7% compared to 38.8% in the prior year. For the six months, it was 24.9% versus 37.8%. This reduction in income taxes contributed substantially to the reported net income growth.