10-QPeriod: Q1 FY2020

BROWN & BROWN, INC. Quarterly Report for Q1 Ended Mar 31, 2020

Filed April 29, 2020For Securities:BRO

Summary

Brown & Brown, Inc. (BRO) reported solid financial results for the first quarter ended March 31, 2020, demonstrating resilience despite the emerging economic uncertainties from the COVID-19 pandemic. Total revenues grew by 12.8% to $698.5 million, driven by a robust 12.8% increase in commissions and fees. The company achieved a 5.6% Organic Revenue growth rate, indicating strong underlying business performance from net new business and acquisitions, although this was partially offset by a $10.5 million adjustment related to COVID-19's anticipated impact on future revenues. Net income saw a significant increase of 33.8% to $152.4 million, with diluted earnings per share rising to $0.54 from $0.40 in the prior year period. The company actively managed its expenses, with employee compensation and benefits increasing by 5.0% and other operating expenses rising by 20.7%. Notably, the change in estimated acquisition earn-out payables resulted in a credit of $11.0 million, positively impacting net income. The balance sheet remains strong, with total assets of $7.6 billion. The company also continued its strategic acquisition strategy, completing five acquisitions during the quarter, investing $153.3 million in cash for these transactions. Brown & Brown highlighted its strong liquidity position, with significant borrowing capacity available, and stated its belief that existing resources are sufficient to meet its liquidity needs for at least the next 12 months.

Financial Highlights

49 data points
Beta

Revenue

$619.28M

Net Income

$113.90M

18.4% Net Margin

EPS (Diluted)

$0.40

Total Assets

$6.81B

Cash & Equivalents

$624.89M

Free Cash Flow

-$17.83M

Financial Statements
Beta
Revenue$619.28M
Operating Expenses$470.76M
Interest Expense$15.20M
Net Income$113.90M
EPS (Basic)$0.41
EPS (Diluted)$0.40
Shares Outstanding (Basic)272.68M
Shares Outstanding (Diluted)275.01M

Key Highlights

  • 1Total revenues increased by 12.8% year-over-year to $698.5 million, primarily driven by commissions and fees, up 12.8%.
  • 2Net income grew significantly by 33.8% to $152.4 million, and diluted earnings per share increased to $0.54 from $0.40.
  • 3Organic Revenue growth was 5.6%, demonstrating underlying business strength, though partially impacted by an estimated $10.5 million COVID-19 related revenue adjustment.
  • 4The company completed five acquisitions during the quarter, investing $153.3 million in cash, continuing its active M&A strategy.
  • 5Employee compensation and benefits as a percentage of total revenues decreased to 50.1% from 53.7% in the prior year, indicating improved operational leverage.
  • 6A favorable $11.0 million adjustment related to the change in estimated acquisition earn-out payables boosted net income.
  • 7The company maintained a strong liquidity position, with substantial borrowing capacity available, and expressed confidence in meeting its short-term financial obligations.

Frequently Asked Questions

Brown & Brown stated that the impact of COVID-19 on its results of operations was a net immaterial impact in the first quarter. However, the company made a $10.5 million downward adjustment to projected remaining policy year revenues due to anticipated impacts on employment levels. Management expects the pandemic and resulting recession to reduce future business volumes and insurable exposure units, potentially affecting growth for the remainder of 2020.

Brown & Brown's growth strategy is driven by a combination of net new business generation and strategic acquisitions. The company completed five acquisitions in the first quarter of 2020, investing $153.3 million in cash, and has historically pursued a robust M&A strategy. They also focus on organic revenue growth through new and renewal business, driven by rate increases and client retention.

Profitability saw a significant improvement. Net income increased by 33.8% to $152.4 million, and diluted earnings per share rose to $0.54. This improvement was supported by strong revenue growth, effective expense management (as seen in the decrease of compensation costs as a percentage of revenue), and a favorable $11.0 million adjustment from changes in acquisition earn-out payables.

Brown & Brown maintains a strong liquidity profile. As of March 31, 2020, the company had substantial cash and cash equivalents, along with significant borrowing capacity under its revolving credit facility and term loan agreements, totaling up to $1.1 billion in incremental borrowing capacity including expansion options. Management believes these resources, combined with cash flow from operations, are sufficient to meet liquidity needs for at least the next 12 months.