10-QPeriod: Q3 FY2018

BROWN & BROWN, INC. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 5, 2018For Securities:BRO

Summary

Brown & Brown, Inc. reported strong revenue growth of 11.6% for the third quarter of 2018, reaching $530.85 million, and a 7.0% increase year-to-date to $1.51 billion. This growth was primarily driven by acquisitions and the adoption of new revenue recognition standards, which accelerated the timing of certain commission and fee recognitions. Net income for the quarter saw a significant jump of 39.7% to $106.05 million, or $0.38 per diluted share, compared to the prior year period. While the company continues its aggressive acquisition strategy, evidenced by 18 acquisitions completed in the first nine months of 2018, its organic revenue growth remained moderate at 1.4% for the third quarter. The company also announced a significant acquisition of The Hays Group, Inc. for approximately $705 million, expected to close in November 2018, which will be funded through its credit facility. This strategic move is poised to expand its presence in the Midwest. Despite increased employee compensation and other operating expenses, the company demonstrated effective cost management relative to revenue growth, with employee compensation as a percentage of total revenues decreasing in the quarter.

Financial Highlights

49 data points
Beta

Revenue

$475.65M

Net Income

$75.91M

16.0% Net Margin

EPS (Diluted)

$0.00

Total Assets

$7.41B

Cash & Equivalents

$546.52M

Free Cash Flow

$39.44M

Financial Statements
Beta
Revenue$475.65M
Operating Expenses$351.23M
Interest Expense$9.39M
Net Income$75.91M
EPS (Basic)$0.00
EPS (Diluted)$0.00
Shares Outstanding (Basic)272.69M
Shares Outstanding (Diluted)277.79M

Key Highlights

  • 1Total revenues increased by 11.6% to $530.85 million in Q3 2018 and by 7.0% to $1.51 billion for the nine months ended September 30, 2018.
  • 2Net income for the third quarter of 2018 rose by 39.7% to $106.05 million, with diluted EPS at $0.38.
  • 3The company completed 18 acquisitions in the first nine months of 2018, contributing to revenue growth.
  • 4Organic revenue growth was 1.4% for Q3 2018, indicating steady underlying business performance.
  • 5The adoption of new revenue recognition standards (ASC 606) positively impacted revenue timing and increased net income.
  • 6A significant acquisition of The Hays Group for approximately $705 million was announced, expected to close in November 2018.
  • 7Employee compensation and benefits as a percentage of total revenues decreased to 50.5% in Q3 2018 from 51.7% in Q3 2017.

Frequently Asked Questions

The adoption of new revenue recognition standards (ASC 606) primarily impacted the timing of revenue recognition for commissions and fees. For Brown & Brown, this generally resulted in recognizing certain revenues earlier than under previous accounting policies. This shift contributed to reported revenue increases and a positive impact on net income for the period, particularly in Q3 2018 where it was noted as increasing revenue by $24.7 million and net income by $15.8 million for the nine-month period compared to previous policies.

Brown & Brown actively pursues acquisitions as a core growth strategy. In the first nine months of 2018, the company acquired fifteen insurance intermediaries, the stock of three insurance intermediaries, and one book of business. This aggressive acquisition strategy contributed to revenue growth. Additionally, a significant agreement to acquire The Hays Group for approximately $705 million was announced, demonstrating a continued commitment to expansion.

While employee compensation and benefits expense increased in absolute terms due to acquisitions and salary inflation, the company effectively managed it relative to revenue growth. For the third quarter of 2018, employee compensation and benefits as a percentage of total revenues decreased to 50.5% from 51.7% in the prior year's quarter. This indicates improved operational efficiency in managing labor costs against the backdrop of revenue expansion.

Organic revenue growth, which excludes the impact of acquisitions and divestitures, was 1.4% for the third quarter of 2018. While moderate, management expressed optimism, believing that if current trends in insurable exposure units and premium rate changes continue, the company will see positive organic revenue growth for the full year 2018.