Brown & Brown, Inc. (NYSE:BRO) (the "Company") today announced
its unaudited financial results for the third quarter of 2023.
Revenues for the third quarter of 2023 under
U.S. generally accepted accounting principles ("GAAP") were
$1,067.7 million, increasing $140.1 million, or 15.1%, compared to
the third quarter of the prior year, with commissions and fees
increasing by 13.4% and Organic Revenue increasing by 9.6%. Income
before income taxes was $242.3 million, increasing 11.1% from the
third quarter of the prior year with Income Before Income Taxes
Margin decreasing to 22.7% from 23.5%. EBITDAC - Adjusted was
$370.3 million, increasing 27.0% from the third quarter of the
prior year with EBITDAC Margin - Adjusted increasing to 34.7% from
31.2%. Net income was $175.9 million, increasing $14.8 million, or
9.2%, and diluted net income per share increased to $0.62, or 8.8%,
with Diluted Net Income Per Share - Adjusted increasing to $0.71,
or 42.0%, each as compared to the third quarter of the prior
year.
Revenues for the nine months ended
September 30, 2023 under GAAP were $3,230.9 million,
increasing $558.9 million, or 20.9%, as compared to the same period
in 2022, with commissions and fees increasing by 19.7%, and Organic
Revenue increasing by 11.1%. Income before income taxes was $791.0
million, increasing 16.0% with Income Before Income Taxes Margin
decreasing to 24.5% from 25.5% as compared to the same period in
2022. EBITDAC - Adjusted was $1,127.0 million, which was an
increase of 26.7% and EBITDAC Margin - Adjusted increased to 34.9%
from 33.2% as compared to the same period in 2022. Net income was
$601.8 million, increasing $75.2 million, or 14.3%, with diluted
net income per share increasing to $2.11, or 14.1%, and Diluted Net
Income Per Share - Adjusted increasing to $2.23, or 25.3%, each as
compared to the same period in 2022.
J. Powell Brown, president and chief executive
officer of the Company, noted, “We had another outstanding quarter
and are winning a substantial amount of net new business that drove
Organic Revenue growth of 9.6% for the quarter and over 11% year to
date.”
Reconciliation of Commissions and
Feesto Organic Revenue(in
millions, unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Commissions and
fees |
|
$ |
1,049.3 |
|
|
$ |
925.2 |
|
|
$ |
3,193.2 |
|
|
$ |
2,668.2 |
|
Profit-sharing contingent commissions |
|
|
(27.3 |
) |
|
|
(7.8 |
) |
|
|
(87.7 |
) |
|
|
(58.5 |
) |
Core commissions and
fees |
|
$ |
1,022.0 |
|
|
$ |
917.4 |
|
|
$ |
3,105.5 |
|
|
$ |
2,609.7 |
|
Acquisitions |
|
|
(22.0 |
) |
|
|
— |
|
|
|
(243.9 |
) |
|
|
— |
|
Dispositions |
|
|
— |
|
|
|
(10.6 |
) |
|
|
— |
|
|
|
(38.2 |
) |
Foreign Currency Translation |
|
|
|
|
|
5.9 |
|
|
|
|
|
|
4.8 |
|
Organic
Revenue |
|
$ |
1,000.0 |
|
|
$ |
912.7 |
|
|
$ |
2,861.6 |
|
|
$ |
2,576.3 |
|
Organic Revenue
growth |
|
$ |
87.3 |
|
|
|
|
|
$ |
285.3 |
|
|
|
|
Organic Revenue growth
% |
|
|
9.6 |
% |
|
|
|
|
|
11.1 |
% |
|
|
|
See information regarding non-GAAP measures
presented later in this press release.
Reconciliation of Diluted Net Income Per
Share toDiluted Net Income Per Share -
Adjusted(unaudited)
|
|
Three Months Ended September 30, |
|
|
Change |
|
|
Nine Months Ended September 30, |
|
|
Change |
|
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
Diluted net income per
share |
|
$ |
0.62 |
|
|
$ |
0.57 |
|
|
$ |
0.05 |
|
|
|
8.8 |
% |
|
$ |
2.11 |
|
|
$ |
1.85 |
|
|
$ |
0.26 |
|
|
|
14.1 |
% |
Change in estimated acquisition earn-out payables |
|
|
0.09 |
|
|
|
(0.07 |
) |
|
|
0.16 |
|
|
|
|
|
|
0.09 |
|
|
|
(0.08 |
) |
|
|
0.17 |
|
|
|
|
(Gain)/loss on disposal |
|
|
(0.01 |
) |
|
|
— |
|
|
|
(0.01 |
) |
|
|
|
|
|
(0.02 |
) |
|
|
— |
|
|
|
(0.02 |
) |
|
|
|
Acquisition/Integration Costs |
|
|
0.01 |
|
|
|
— |
|
|
|
0.01 |
|
|
|
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
— |
|
|
|
|
1Q23 Nonrecurring Cost |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
0.03 |
|
|
|
|
|
|
0.03 |
|
|
|
|
Foreign Currency Translation |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
|
Diluted Net Income Per
Share - Adjusted |
|
$ |
0.71 |
|
|
$ |
0.50 |
|
|
$ |
0.21 |
|
|
|
42.0 |
% |
|
$ |
2.23 |
|
|
$ |
1.78 |
|
|
$ |
0.45 |
|
|
|
25.3 |
% |
See information regarding non-GAAP measures
presented later in this press release.
Reconciliation of Total Revenues to Total
Revenues - Adjusted, Income Before Income Taxes to
EBITDAC and EBITDAC - Adjusted and Income Before Income
Taxes Margin to EBITDAC Margin and EBITDAC Margin
- Adjusted(in millions, unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Total
revenues |
|
$ |
1,067.7 |
|
|
$ |
927.6 |
|
|
$ |
3,230.9 |
|
|
$ |
2,672.0 |
|
Foreign Currency Translation |
|
|
|
|
|
7.0 |
|
|
|
|
|
|
6.4 |
|
Total Revenues -
Adjusted |
|
$ |
1,067.7 |
|
|
$ |
934.6 |
|
|
$ |
3,230.9 |
|
|
$ |
2,678.4 |
|
Income before income
taxes |
|
$ |
242.3 |
|
|
$ |
218.0 |
|
|
$ |
791.0 |
|
|
$ |
681.8 |
|
Income Before Income
Taxes Margin |
|
|
22.7 |
% |
|
|
23.5 |
% |
|
|
24.5 |
% |
|
|
25.5 |
% |
Amortization |
|
|
41.1 |
|
|
|
43.5 |
|
|
|
123.7 |
|
|
|
108.2 |
|
Depreciation |
|
|
10.4 |
|
|
|
11.3 |
|
|
|
30.5 |
|
|
|
28.3 |
|
Interest |
|
|
47.5 |
|
|
|
41.5 |
|
|
|
142.1 |
|
|
|
95.8 |
|
Change in estimated acquisition earn-out payables |
|
|
29.9 |
|
|
|
(26.6 |
) |
|
|
29.4 |
|
|
|
(33.1 |
) |
EBITDAC |
|
$ |
371.2 |
|
|
$ |
287.7 |
|
|
$ |
1,116.7 |
|
|
$ |
881.0 |
|
EBITDAC
Margin |
|
|
34.8 |
% |
|
|
31.0 |
% |
|
|
34.6 |
% |
|
|
33.0 |
% |
(Gain)/loss on disposal |
|
|
(2.8 |
) |
|
|
— |
|
|
|
(8.9 |
) |
|
|
(0.9 |
) |
Acquisition/Integration Costs |
|
|
1.9 |
|
|
|
2.1 |
|
|
|
8.2 |
|
|
|
7.6 |
|
1Q23 Nonrecurring Cost |
|
|
— |
|
|
|
|
|
|
11.0 |
|
|
|
|
Foreign Currency Translation |
|
|
|
|
|
1.7 |
|
|
|
|
|
|
1.5 |
|
EBITDAC -
Adjusted |
|
$ |
370.3 |
|
|
$ |
291.5 |
|
|
$ |
1,127.0 |
|
|
$ |
889.2 |
|
EBITDAC Margin -
Adjusted |
|
|
34.7 |
% |
|
|
31.2 |
% |
|
|
34.9 |
% |
|
|
33.2 |
% |
See information regarding non-GAAP measures
presented later in this press release.
Brown & Brown,
Inc.Consolidated Statements of Income(in
millions, except per share data; unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
Commissions and fees |
|
$ |
1,049.3 |
|
|
$ |
925.2 |
|
|
$ |
3,193.2 |
|
|
$ |
2,668.2 |
|
Investment income |
|
|
16.6 |
|
|
|
1.2 |
|
|
|
33.8 |
|
|
|
1.8 |
|
Other |
|
|
1.8 |
|
|
|
1.2 |
|
|
|
3.9 |
|
|
|
2.0 |
|
Total revenues |
|
|
1,067.7 |
|
|
|
927.6 |
|
|
|
3,230.9 |
|
|
|
2,672.0 |
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and
benefits |
|
|
531.6 |
|
|
|
470.3 |
|
|
|
1,632.9 |
|
|
|
1,341.3 |
|
Other operating expenses |
|
|
167.7 |
|
|
|
169.6 |
|
|
|
490.2 |
|
|
|
450.6 |
|
(Gain)/loss on disposal |
|
|
(2.8 |
) |
|
|
— |
|
|
|
(8.9 |
) |
|
|
(0.9 |
) |
Amortization |
|
|
41.1 |
|
|
|
43.5 |
|
|
|
123.7 |
|
|
|
108.2 |
|
Depreciation |
|
|
10.4 |
|
|
|
11.3 |
|
|
|
30.5 |
|
|
|
28.3 |
|
Interest |
|
|
47.5 |
|
|
|
41.5 |
|
|
|
142.1 |
|
|
|
95.8 |
|
Change in estimated acquisition
earn-out payables |
|
|
29.9 |
|
|
|
(26.6 |
) |
|
|
29.4 |
|
|
|
(33.1 |
) |
Total expenses |
|
|
825.4 |
|
|
|
709.6 |
|
|
|
2,439.9 |
|
|
|
1,990.2 |
|
Income before income taxes |
|
|
242.3 |
|
|
|
218.0 |
|
|
|
791.0 |
|
|
|
681.8 |
|
Income taxes |
|
|
66.4 |
|
|
|
56.9 |
|
|
|
189.2 |
|
|
|
155.2 |
|
Net income |
|
$ |
175.9 |
|
|
$ |
161.1 |
|
|
$ |
601.8 |
|
|
$ |
526.6 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.62 |
|
|
$ |
0.57 |
|
|
$ |
2.12 |
|
|
$ |
1.86 |
|
Diluted |
|
$ |
0.62 |
|
|
$ |
0.57 |
|
|
$ |
2.11 |
|
|
$ |
1.85 |
|
Weighted average number of shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
279.9 |
|
|
|
277.8 |
|
|
|
279.3 |
|
|
|
277.3 |
|
Diluted |
|
|
281.4 |
|
|
|
278.7 |
|
|
|
280.4 |
|
|
|
278.5 |
|
Dividends declared per share |
|
$ |
0.115 |
|
|
$ |
0.103 |
|
|
$ |
0.345 |
|
|
$ |
0.309 |
|
Brown & Brown,
Inc.Consolidated Balance Sheets(in
millions, except per share data, unaudited)
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
755.7 |
|
|
$ |
650.0 |
|
Fiduciary cash |
|
|
1,515.2 |
|
|
|
1,383.2 |
|
Short-term investments |
|
|
13.2 |
|
|
|
12.0 |
|
Commission, fees, and other receivable |
|
|
732.6 |
|
|
|
642.9 |
|
Fiduciary receivables |
|
|
862.5 |
|
|
|
881.4 |
|
Reinsurance recoverable |
|
|
220.1 |
|
|
|
831.0 |
|
Prepaid reinsurance premiums |
|
|
502.7 |
|
|
|
393.2 |
|
Other current assets |
|
|
243.2 |
|
|
|
202.3 |
|
Total current assets |
|
|
4,845.2 |
|
|
|
4,996.0 |
|
Fixed assets, net |
|
|
250.2 |
|
|
|
239.9 |
|
Operating lease assets |
|
|
198.0 |
|
|
|
214.9 |
|
Goodwill |
|
|
6,845.6 |
|
|
|
6,674.2 |
|
Amortizable intangible assets,
net |
|
|
1,531.7 |
|
|
|
1,595.2 |
|
Investments |
|
|
24.3 |
|
|
|
22.4 |
|
Other assets |
|
|
288.0 |
|
|
|
230.9 |
|
Total assets |
|
$ |
13,983.0 |
|
|
$ |
13,973.5 |
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Fiduciary liabilities |
|
$ |
2,377.7 |
|
|
$ |
2,264.6 |
|
Losses and loss adjustment reserve |
|
|
231.7 |
|
|
|
841.1 |
|
Unearned premiums |
|
|
530.9 |
|
|
|
412.3 |
|
Accounts payable |
|
|
380.2 |
|
|
|
286.5 |
|
Accrued expenses and other liabilities |
|
|
507.5 |
|
|
|
541.5 |
|
Current portion of long-term debt |
|
|
562.5 |
|
|
|
250.6 |
|
Total current liabilities |
|
|
4,590.5 |
|
|
|
4,596.6 |
|
Long-term debt |
|
|
3,144.6 |
|
|
|
3,691.5 |
|
Operating lease liabilities |
|
|
178.9 |
|
|
|
195.9 |
|
Deferred income taxes, net |
|
|
568.4 |
|
|
|
584.0 |
|
Other liabilities |
|
|
301.9 |
|
|
|
298.9 |
|
Shareholders’ equity: |
|
|
|
|
|
|
Common stock, par value $0.10 per share; authorized 560.0 shares;
issued 304.0 shares and outstanding 284.3 shares at 2023, issued
302.9 shares and outstanding 283.2 shares at 2022,
respectively |
|
|
30.4 |
|
|
|
30.3 |
|
Additional paid-in capital |
|
|
987.1 |
|
|
|
919.7 |
|
Treasury stock, at cost 19.7 shares at 2023, 19.7 shares at 2022,
respectively. |
|
|
(748.1 |
) |
|
|
(748.0 |
) |
Accumulated other comprehensive loss |
|
|
(127.6 |
) |
|
|
(148.4 |
) |
Retained earnings |
|
|
5,056.9 |
|
|
|
4,553.0 |
|
Total shareholders’ equity |
|
|
5,198.7 |
|
|
|
4,606.6 |
|
Total liabilities and shareholders’ equity |
|
$ |
13,983.0 |
|
|
$ |
13,973.5 |
|
Brown & Brown,
Inc.Consolidated Statements of Cash
Flows(in millions, unaudited)
|
|
Nine Months Ended September 30, |
|
|
|
2023 |
|
|
2022 |
|
Cash flows from operating
activities: |
|
|
|
|
|
|
Net income |
|
$ |
601.8 |
|
|
$ |
526.6 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
|
|
|
Amortization |
|
|
123.7 |
|
|
|
108.2 |
|
Depreciation |
|
|
30.5 |
|
|
|
28.3 |
|
Non-cash stock-based compensation |
|
|
67.0 |
|
|
|
50.3 |
|
Change in estimated acquisition earn-out payables |
|
|
29.4 |
|
|
|
(33.1 |
) |
Deferred income taxes |
|
|
(1.4 |
) |
|
|
40.2 |
|
Amortization of debt discount and disposal of deferred financing
costs |
|
|
3.1 |
|
|
|
2.8 |
|
Amortization of discounts and premiums, investment |
|
|
0.1 |
|
|
|
0.2 |
|
Net (gain)/loss on sales/disposals of investments, fixed assets and
customer accounts |
|
|
(11.2 |
) |
|
|
— |
|
Payments on acquisition earn-outs in excess of original estimated
payables |
|
|
(17.7 |
) |
|
|
(24.3 |
) |
Effect of changes in foreign exchange rate |
|
|
0.1 |
|
|
|
(0.4 |
) |
Changes in operating assets and
liabilities, net of effect from acquisitions and divestitures: |
|
|
|
|
|
|
Commissions and fees receivable (increase)/decrease |
|
|
(82.8 |
) |
|
|
(47.4 |
) |
Reinsurance recoverables (increase)/decrease |
|
|
610.9 |
|
|
|
(958.5 |
) |
Prepaid reinsurance premiums (increase)/decrease |
|
|
(109.5 |
) |
|
|
(17.7 |
) |
Other assets (increase)/decrease |
|
|
(87.1 |
) |
|
|
(15.1 |
) |
Losses and loss adjustment reserve increase/(decrease) |
|
|
(609.4 |
) |
|
|
970.4 |
|
Unearned premiums increase/(decrease) |
|
|
118.5 |
|
|
|
38.5 |
|
Accounts payable increase/(decrease) |
|
|
163.0 |
|
|
|
80.3 |
|
Accrued expenses and other liabilities increase/(decrease) |
|
|
(40.6 |
) |
|
|
(63.4 |
) |
Other liabilities increase/(decrease) |
|
|
(84.3 |
) |
|
|
(86.1 |
) |
Net cash provided by operating activities |
|
|
704.1 |
|
|
|
599.8 |
|
Cash flows from investing
activities: |
|
|
|
|
|
|
Additions to fixed assets |
|
|
(38.4 |
) |
|
|
(32.4 |
) |
Payments for businesses acquired, net of cash acquired |
|
|
(163.3 |
) |
|
|
(1,889.7 |
) |
Proceeds from sales of fixed assets and customer accounts |
|
|
8.6 |
|
|
|
2.2 |
|
Purchases of investments |
|
|
(6.2 |
) |
|
|
— |
|
Proceeds from sales of investments |
|
|
6.0 |
|
|
|
7.3 |
|
Net cash used in investing activities |
|
|
(193.3 |
) |
|
|
(1,912.6 |
) |
Cash flows from financing
activities: |
|
|
|
|
|
|
Fiduciary receivables and liabilities, net |
|
|
117.0 |
|
|
|
24.4 |
|
Deferred acquisition purchase payment |
|
|
— |
|
|
|
(5.1 |
) |
Payments on acquisition earn-outs |
|
|
(56.8 |
) |
|
|
(52.8 |
) |
Proceeds from long-term debt |
|
|
— |
|
|
|
2,000.0 |
|
Payments on long-term debt |
|
|
(238.1 |
) |
|
|
(44.4 |
) |
Deferred debt issuance costs |
|
|
— |
|
|
|
(23.3 |
) |
Borrowings on revolving credit facilities |
|
|
170.0 |
|
|
|
350.0 |
|
Payments on revolving credit facilities |
|
|
(170.0 |
) |
|
|
(200.0 |
) |
Issuances of common stock for employee stock benefit plans |
|
|
40.6 |
|
|
|
37.4 |
|
Repurchase shares to fund tax withholdings for non-cash stock-based
compensation |
|
|
(39.8 |
) |
|
|
(48.7 |
) |
Purchase of treasury stock |
|
|
(0.1 |
) |
|
|
(74.1 |
) |
Cash dividends paid |
|
|
(97.9 |
) |
|
|
(86.9 |
) |
Net cash (used in)/provided by financing
activities |
|
|
(275.1 |
) |
|
|
1,876.5 |
|
Effect of foreign exchange rate
changes in cash and cash equivalents inclusive of fiduciary
cash |
|
|
2.0 |
|
|
|
(183.1 |
) |
Net increase in cash and cash equivalents inclusive of
fiduciary cash |
|
|
237.7 |
|
|
|
380.6 |
|
Cash and cash equivalents
inclusive of fiduciary cash at beginning of period |
|
|
2,033.2 |
|
|
|
1,470.2 |
|
Cash and cash equivalents inclusive of fiduciary cash at
end of period |
|
$ |
2,270.9 |
|
|
$ |
1,850.8 |
|
Conference call, webcast and slide
presentation
A conference call to discuss the results of the
third quarter of 2023 will be held on Tuesday, October 24, 2023, at
8:00 AM (EDT). The Company may refer to a slide presentation during
its conference call. You can access the webcast and the slides from
the "Investor Relations" section of the Company’s website at
bbinsurance.com.
About Brown & Brown
Brown & Brown, Inc. (NYSE: BRO) is a leading
insurance brokerage firm, delivering risk management solutions to
individuals and businesses since 1939. With 16,000+ teammates in
approximately 500 locations worldwide, we are committed to
providing innovative strategies to help protect what our customers
value most. For more information or to find an office near you,
please visit bbinsurance.com.
Forward-looking statementsThis
press release may contain certain statements relating to future
results which are “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered
by the safe harbors created by those laws. You can identify these
statements by forward-looking words such as “may,” “will,”
“should,” “expect,” “anticipate,” “believe,” “intend,” “estimate,”
“plan” and “continue” or similar words. We have based these
statements on our current expectations about potential future
events. Although we believe the expectations expressed in the
forward-looking statements included in this press release are based
upon reasonable assumptions within the bounds of our knowledge of
our business, a number of factors could cause actual results to
differ materially from those expressed in any forward-looking
statements, whether oral or written, made by us or on our behalf.
Many of these factors have previously been identified in filings or
statements made by us or on our behalf. Important factors which
could cause our actual results to differ, possibly materially from
the forward-looking statements in this press release include, but
are not limited to, the following items: the Company's
determination as it finalizes its financial results for the third
quarter of 2023 that its financial results differ from the current
preliminary unaudited numbers set forth herein; the inability to
retain or hire qualified employees, as well as the loss of any of
our executive officers or other key employees; acquisition-related
risks that could negatively affect the success of our growth
strategy, including the possibility that we may not be able to
successfully identify suitable acquisition candidates, complete
acquisitions, successfully integrate acquired businesses into our
operations and expand into new markets; a cybersecurity attack or
any other interruption in information technology and/or data
security that may impact our operations or the operations of third
parties that support us; risks related to our international
operations, which may result in additional risks or require more
management time and expense than our domestic operations to achieve
or maintain profitability; the effects of inflation; the
requirement for additional resources and time to adequately respond
to dynamics resulting from rapid technological change; the loss of
or significant change to any of our insurance company
relationships, which could result in loss of capacity to write
business, additional expense, loss of market share or material
decrease in our commissions; the effect of natural disasters on our
profit-sharing contingent commissions, insurer capacity and claims
expenses from our capitalized captive insurance facilities; adverse
economic conditions, political conditions, outbreaks of war,
natural disasters, or regulatory changes in states or countries
where we have a concentration of our business; the inability to
maintain our culture or a significant change in management,
management philosophy or our business strategy; claims expense
resulting from the limited underwriting risk associated with our
participation in capitalized captive insurance facilities; risks
associated with our automobile and recreational vehicle dealer
services (“F&I”) businesses; risks facing us in our Services
segment, including our third-party claims administration
operations, that are distinct from those we face in our insurance
intermediary operations; the limitations of our system of
disclosure and internal controls and procedures in preventing
errors or fraud, or in informing management of all material
information in a timely manner; the significant control certain
shareholders have over the Company; changes in data privacy and
protection laws and regulations or any failure to comply with such
laws and regulations; improper disclosure of confidential
information; our ability to comply with non-U.S. laws, regulations
and policies; the potential adverse effect of certain actual or
potential claims, regulatory actions or proceedings on our
businesses, results of operations, financial condition or
liquidity; uncertainty in our business practices and compensation
arrangements with insurance carriers due to potential changes in
regulations; regulatory changes that could reduce our profitability
or growth by increasing compliance costs, technology compliance,
restricting the products or services we may sell, the markets we
may enter, the methods by which we may sell our products and
services, or the prices we may charge for our services and the form
of compensation we may accept from our customers, carriers and
third parties; increasing scrutiny and changing expectations from
investors and customers with respect to our environmental, social
and governance practices; a decrease in demand for liability
insurance as a result of tort reform legislation; our failure to
comply with any covenants contained in our debt agreements; the
possibility that covenants in our debt agreements could prevent us
from engaging in certain potentially beneficial activities; changes
in the U.S.-based credit markets that might adversely affect our
business, results of operations and financial condition; risks
associated with the current interest rate environment, and to the
extent we use debt to finance our investments, changes in interest
rates will affect our cost of capital and net investment income;
changes in current U.S. or global economic conditions, including an
extended slowdown in the markets in which we operate;
disintermediation within the insurance industry, including
increased competition from insurance companies, technology
companies and the financial services industry, as well as the shift
away from traditional insurance markets; conditions that result in
reduced insurer capacity; quarterly and annual variations in our
commissions that result from the timing of policy renewals and the
net effect of new and lost business production; intangible asset
risk, including the possibility that our goodwill may become
impaired in the future; future pandemics, epidemics or outbreaks of
infectious diseases, and the resulting governmental and societal
responses; other risks and uncertainties as may be detailed from
time to time in our public announcements and Securities and
Exchange Commission (“SEC”) filings; and other factors that the
Company may not have currently identified or quantified.
Forward-looking statements that we make or that are made by others
on our behalf are based upon a knowledge of our business and the
environment in which we operate, but because of the factors listed
above, among others, actual results may differ from those in the
forward-looking statements. Consequently, these cautionary
statements qualify all of the forward-looking statements we make
herein. We cannot assure you that the results or developments
anticipated by us will be realized, or even if substantially
realized, that those results or developments will result in the
expected consequences for us or affect us, our business or our
operations in the way we expect. We caution readers not to place
undue reliance on these forward-looking statements. All
forward-looking statements made herein are made only as of the date
of this release, and the Company does not undertake any obligation
to publicly update or correct any forward-looking statements to
reflect events or circumstances that subsequently occur or of which
the Company hereafter becomes aware.
Non-GAAP supplemental financial
informationThis press release contains references to
"non-GAAP financial measures" as defined in SEC Regulation G,
consisting of Total Revenues - Adjusted, Organic
Revenue, EBITDAC, EBITDAC Margin, EBITDAC - Adjusted, EBITDAC
Margin - Adjusted and Diluted Net Income Per Share - Adjusted. We
present these measures because we believe such information is of
interest to the investment community and because we believe it
provides additional meaningful methods to evaluate the Company’s
operating performance from period to period on a basis that may not
be otherwise apparent on a GAAP basis due to the impact of certain
items that have a high degree of variability, that we believe are
not indicative of ongoing performance and that are not easily
comparable from period to period. This non-GAAP financial
information should be considered in addition to, not in lieu of,
the Company’s consolidated income statements and balance sheets as
of the relevant date. Consistent with Regulation G, a description
of such information is provided below and a reconciliation of such
items to GAAP information can be found within this press release as
well as in our periodic filings with the SEC.
We view Organic Revenue and Organic Revenue
growth as important indicators when assessing and evaluating our
performance on a consolidated basis and for each of our four
segments, because it allows us to determine a comparable, but
non-GAAP, measurement of revenue growth that is associated with the
revenue sources that were a part of our business in both the
current and prior year and that are expected to continue in the
future. In addition, we believe Diluted Net Income Per Share -
Adjusted provides a meaningful representation of our operating
performance and improves the comparability of our results between
periods by excluding the impact of the change in estimated
acquisition earn-out payables, the impact of foreign currency
translation and certain other non-recurring or infrequently
occurring items. We also view Total Revenues - Adjusted, EBITDAC,
EBITDAC - Adjusted, EBITDAC Margin and EBITDAC Margin - Adjusted as
important indicators when assessing and evaluating our performance,
as they present more comparable measurements of our operating
margins in a meaningful and consistent manner. As disclosed in our
most recent proxy statement, we use Organic Revenue growth, Diluted
Net Income Per Share - Adjusted and EBITDAC Margin - Adjusted as
key performance metrics for our short-term and long-term incentive
compensation plans for executive officers and other key
employees.
Non-GAAP Revenue Measures
- Total Revenues - Adjusted is our total
revenues, excluding Foreign Currency Translation.
- Organic Revenue is our core commissions and
fees less: (i) the core commissions and fees earned for the first
12 months by newly acquired operations; (ii) divested business
(core commissions and fees generated from offices, books of
business or niches sold or terminated during the comparable
period); and (iii) Foreign Currency Translation. The term “core
commissions and fees” excludes profit-sharing contingent
commissions and therefore represents the revenues earned directly
from specific insurance policies sold and specific fee-based
services rendered. Organic Revenue can be expressed as a dollar
amount or a percentage rate when describing Organic Revenue
growth.
Non-GAAP Earnings Measures
- EBITDAC is defined as income before interest,
income taxes, depreciation, amortization and the change in
estimated acquisition earn-out payables.
- EBITDAC Margin is defined as EBITDAC divided
by total revenues.
- EBITDAC - Adjusted is defined as EBITDAC,
excluding (i) (gain)/loss on disposal, (ii) Acquisition/Integration
Costs (as defined below), (iii) for 2023, the 1Q23 Nonrecurring
Cost (as defined below) and (iv) Foreign Currency Translation (as
defined below).
- EBITDAC Margin - Adjusted is defined as
EBITDAC - Adjusted divided by Total Revenues - Adjusted.
- Diluted Net Income Per Share - Adjusted is
defined as diluted net income per share, excluding the after-tax
impact of (i) the change in estimated acquisition earn-out
payables, (ii) (gain)/loss on disposal, (iii)
Acquisition/Integration Costs (as defined below), (iv) for 2023,
the 1Q23 Nonrecurring Cost (as defined below) and (v) Foreign
Currency Translation (as defined below).
Definitions Related to Certain
Components of Non-GAAP Measures
- “Acquisition/Integration Costs” means the
acquisition and integration costs (e.g., costs associated with
regulatory filings, legal/accounting services, due diligence and
the costs of integrating our information technology systems)
arising out of our acquisitions of GRP (Jersey) Holdco Limited and
its business, Orchid Underwriters Agency and CrossCover Insurance
Services, and BdB Limited companies, which are not considered to be
normal, recurring or part of the ongoing operations.
- “Foreign Currency Translation” means the
period-over period impact of foreign currency translation, which is
calculated by applying current-year foreign exchange rates to the
various functional currencies in our business to our reporting
currency of US dollars for the same period in the prior year.
- “1Q23 Nonrecurring Cost” means approximately
$11.0 million expensed and substantially paid in the first quarter
of 2023 to resolve a business matter, which is not considered to be
normal, recurring or part of the ongoing operations.
Our industry peers may provide similar
supplemental non-GAAP information with respect to one or
more of these measures, although they may not use the same or
comparable terminology and may not make identical adjustments and,
therefore comparability may be limited. This supplemental
non-GAAP financial information should be considered in addition to,
and not in lieu of, the Company's condensed consolidated financial
statements.
For more information:
R. Andrew WattsChief Financial Officer(386) 239-5770
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