Why is GAAP EPS so much higher than adjusted EPS in Q4 2023?

The difference is primarily a one-time gain of $134.4 million (about $0.35 per diluted share) from the sale of certain third-party administrator businesses in Q4 2023. Adjusted EPS removes this gain, along with changes in acquisition earn-out estimates, acquisition and integration costs, and currency translation effects, to show operating performance on a comparable basis. Q4 GAAP EPS was $0.94 versus adjusted EPS of $0.58.

What is Organic Revenue and how did it perform?

Organic Revenue is a non-GAAP measure of core commissions and fees (excluding profit-sharing contingent commissions) that removes revenue from newly acquired operations in their first 12 months, divested business, and foreign currency translation. It grew 7.7% in Q4 2023 to $922.9 million and 10.2% for the full year to $3,784.5 million, showing growth from the existing book of business. Full-year reported growth of 19.1% was boosted by acquisitions, which contributed $285.0 million of core commissions and fees.

Will the segment change affect how results are reported?

Yes. Beginning in 2024, Brown & Brown will report three segments (Retail, Programs and Wholesale Brokerage) instead of four, reflecting the alignment of businesses after the Q4 2023 divestitures in the Services segment. Investors should expect restated segment figures for comparability, and the company's segment-level growth and margin trends will be easier to track under the new structure.

Are these results final, and what risks should investors note?

No. The results are unaudited, and the press release explicitly notes that the company's final determination of fourth-quarter and full-year 2023 results could differ from the preliminary figures presented. The filing also lists risks such as acquisition integration, insurer capacity and relationships, cybersecurity, regulatory changes affecting compensation arrangements, interest rate exposure, and reliance on acquisitions for growth. Investors should review the audited annual report and the related earnings call before drawing firm conclusions.

BRO 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed January 23, 2024. Cited figures are marked; the original filing is the authoritative source.

Brown & Brown (BRO) reported unaudited fourth-quarter and full-year 2023 results that were strong on the top line but heavily inflated on a GAAP basis by one-time gains.

Total GAAP revenue for Q4 rose 13.8% to $1,026.2 million^a, and full-year revenue rose 19.1% to $4,257.1 million, crossing the company's $4 billion intermediate goal. Organic Revenue, the best gauge of underlying growth, rose 7.7% in Q4 and 10.2% for the year, with the full-year figure reflecting strong organic momentum in the core brokerage business. Profitability is harder to read than the headline numbers suggest.

Q4 GAAP diluted EPS of $0.94^b and net income of $268.6 million include a $134.4 million gain on disposal tied to the sale of certain third-party administrator businesses. Excluding this and other adjustments, Q4 Diluted EPS - Adjusted was $0.58, up 16.0%, and full-year adjusted EPS was $2.81, up 23.2%. Adjusted EBITDAC margin for Q4 was 31.0%, slightly down from 31.4% a year earlier, while the full-year adjusted margin improved to 33.9% from 32.7%.

Investors should focus on adjusted and organic metrics, as the GAAP margin expansion is largely driven by the divestiture gain. The company also announced a reorganization of its reporting structure, moving from four segments to three beginning in 2024: Retail, Programs and Wholesale Brokerage. This follows the Q4 divestitures within the Services segment.

Management set a new goal of reaching $8 billion^c in revenue. The release includes a caveat that final audited results could differ from these preliminary numbers, so the filing should be read alongside the forthcoming annual report.

02—Key points

Key Highlights

Full-year 2023 GAAP total revenues of $4,257.1 million, up 19.1% year over year, surpassing the company's $4 billion intermediate goal.
Organic Revenue grew 10.2% for full-year 2023 (7.7% in Q4), indicating solid underlying growth excluding acquisitions, divestitures and currency effects.
Q4 GAAP diluted EPS of $0.94 is inflated by a $134.4 million gain on disposal from the sale of certain third-party administrator businesses; Diluted EPS - Adjusted was $0.58, up 16.0%.
Full-year Diluted EPS - Adjusted of $2.81, up 23.2%, versus GAAP diluted EPS of $3.05, up 28.7%.
Full-year adjusted EBITDAC margin improved to 33.9% from 32.7%, while Q4 adjusted EBITDAC margin slipped to 31.0% from 31.4%.
Reporting segments will shift from four to three in 2024 (Retail, Programs and Wholesale Brokerage), following Q4 divestitures in the Services segment.
Management set a new revenue goal of $8 billion; the company also declared a quarterly dividend of $0.130 per share in Q4, up from $0.115 a year earlier.

03—Questions

Frequently Asked Questions

Why is GAAP EPS so much higher than adjusted EPS in Q4 2023?
The difference is primarily a one-time gain of $134.4 million (about $0.35 per diluted share) from the sale of certain third-party administrator businesses in Q4 2023. Adjusted EPS removes this gain, along with changes in acquisition earn-out estimates, acquisition and integration costs, and currency translation effects, to show operating performance on a comparable basis. Q4 GAAP EPS was $0.94 versus adjusted EPS of $0.58.
What is Organic Revenue and how did it perform?
Organic Revenue is a non-GAAP measure of core commissions and fees (excluding profit-sharing contingent commissions) that removes revenue from newly acquired operations in their first 12 months, divested business, and foreign currency translation. It grew 7.7% in Q4 2023 to $922.9 million and 10.2% for the full year to $3,784.5 million, showing growth from the existing book of business. Full-year reported growth of 19.1% was boosted by acquisitions, which contributed $285.0 million of core commissions and fees.
Will the segment change affect how results are reported?
Yes. Beginning in 2024, Brown & Brown will report three segments (Retail, Programs and Wholesale Brokerage) instead of four, reflecting the alignment of businesses after the Q4 2023 divestitures in the Services segment. Investors should expect restated segment figures for comparability, and the company's segment-level growth and margin trends will be easier to track under the new structure.
Are these results final, and what risks should investors note?
No. The results are unaudited, and the press release explicitly notes that the company's final determination of fourth-quarter and full-year 2023 results could differ from the preliminary figures presented. The filing also lists risks such as acquisition integration, insurer capacity and relationships, cybersecurity, regulatory changes affecting compensation arrangements, interest rate exposure, and reliance on acquisitions for growth. Investors should review the audited annual report and the related earnings call before drawing firm conclusions.

04—Continue

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