Brown & Brown, Inc. (NYSE:BRO) (the "Company") today announced
its unaudited financial results for the third quarter of
2017.
Revenues for the third quarter of 2017 under
U.S. generally accepted accounting principles (“GAAP”) were $475.6
million, increasing $13.3 million, or 2.9%, compared to the third
quarter of the prior year, with Commissions and fees increasing by
2.8% and Organic Revenue (as defined below) increasing by 3.4%. Net
income was $75.9 million, increasing $4.5 million, or 6.3%, and
diluted earnings per share were $0.53, increasing by 6.0%, compared
to the third quarter of the prior year.
Revenues for the nine months ended September 30,
2017 under GAAP were $1,407.0 million, increasing $74.0 million, or
5.6%, compared to the same period of 2016, with Commissions and
fees increasing by 4.1% and Organic Revenue (as defined below)
increasing by 2.8%. Net income was $212.1 million, increasing
by 6.2%, and diluted earnings per share for the nine months ended
September 30, 2017 were $1.49, an increase of $0.08, or 5.7%,
compared to the first nine months of 2016. For the first nine
months of 2017, our Total revenues - adjusted (as defined below)
increased by $54.0 million, or 4.1%, and our Diluted earnings per
share - adjusted (as defined below) were $1.44, decreasing by 0.7%,
compared to the first nine months of 2016.
J. Powell Brown, President and Chief Executive
Officer of the Company noted, "We are pleased with the results for
the quarter as each of our divisions delivered good organic revenue
growth, and we provided nice growth in our earnings per
share. As announced on October 12, 2017, our Board of
Directors approved an 11.1% increase to our dividend, and I am
pleased to note that this is our 24th consecutive year of dividend
increases."
Brown & Brown, Inc. |
RECONCILIATION OF TOTAL REVENUES
TO |
TOTAL REVENUES - ADJUSTED(1) |
Nine Months Ended September 30, 2017 and
2016 |
(in millions, unaudited) |
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
|
9/30/2017 |
|
9/30/2016 |
|
$ |
|
% |
|
9/30/2017 |
|
9/30/2016 |
|
$ |
|
% |
Total revenues |
$ |
475.6 |
|
|
$ |
462.3 |
|
|
$ |
13.3 |
|
|
2.9 |
% |
|
$ |
1,407.0 |
|
|
$ |
1,333.0 |
|
|
$ |
74.0 |
|
|
5.6 |
% |
Legal
Settlement |
— |
|
|
— |
|
|
— |
|
|
|
|
(20.0 |
) |
|
— |
|
|
(20.0 |
) |
|
|
Total revenues - adjusted |
$ |
475.6 |
|
|
$ |
462.3 |
|
|
$ |
13.3 |
|
|
2.9 |
% |
|
$ |
1,387.0 |
|
|
$ |
1,333.0 |
|
|
$ |
54.0 |
|
|
4.1 |
% |
|
(1) “Total revenues - adjusted,” a non-GAAP measure, is
defined as Total revenues, excluding the beneficial impact of the
$20.0 million legal settlement with AssuredPartners, Inc., which
occurred in the first quarter of 2017 (the "Legal
Settlement"). |
Brown & Brown, Inc. |
RECONCILIATION OF COMMISSIONS AND
FEES |
TO ORGANIC REVENUE(2) |
Three and Nine Months Ended September 30,
2017 and 2016 |
(in millions, unaudited) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
9/30/2017 |
|
9/30/2016 |
|
9/30/2017 |
|
9/30/2016 |
|
|
|
|
|
|
|
|
Commissions and
fees |
$ |
474.6 |
|
|
$ |
461.8 |
|
|
$ |
1,383.9 |
|
|
$ |
1,329.7 |
|
Less
profit-sharing contingent commissions |
3.5 |
|
|
8.2 |
|
|
45.4 |
|
|
46.6 |
|
Less
guaranteed supplemental commissions |
2.5 |
|
|
3.1 |
|
|
8.2 |
|
|
8.9 |
|
Core
commissions and fees |
468.6 |
|
|
450.5 |
|
|
1,330.3 |
|
|
1,274.2 |
|
Less
acquisition revenues |
4.3 |
|
|
— |
|
|
22.9 |
|
|
— |
|
Less
divested businesses |
— |
|
|
1.4 |
|
|
— |
|
|
2.3 |
|
Organic
revenue |
$ |
464.3 |
|
|
$ |
449.1 |
|
|
$ |
1,307.4 |
|
|
$ |
1,271.9 |
|
Organic revenue
growth |
$ |
15.2 |
|
|
|
|
$ |
35.5 |
|
|
|
Organic revenue
growth % |
3.4 |
% |
|
|
|
2.8 |
% |
|
|
|
(2) "Organic Revenue," a non-GAAP measure, is defined as
Commissions and fees less (i) the first twelve months of commission
and fee revenues generated from acquisitions, less (ii)
profit-sharing contingent commissions (revenues from insurance
companies based upon the volume and the growth and/or profitability
of the business placed with such companies during the prior year -
“Contingents”), less (iii) guaranteed supplemental commissions
(commissions from insurance companies based solely upon the volume
of the business placed with such companies during the current year
- “GSCs”), and less (iv) divested business (net commissions and
fees generated from offices, and books of business sold by the
Company) with the associated revenue removed from the corresponding
period of the prior year. We view Organic Revenue as an important
indicator when assessing and evaluating our performance on a
consolidated basis and for each of our 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. |
Diluted earnings per share for the three months
ended September 30, 2017 were $0.53, increasing by 6.0%, compared
to the third quarter of the prior year. Diluted earnings per share
for the nine months ended September 30, 2017 were $1.49, an
increase of $0.08, or 5.7%, compared to the first nine months of
2016. In order to arrive at results that are more comparable to the
prior periods, we calculate Diluted earnings per share - adjusted
(as defined below), which were $0.53 for the three months ended
September 30, 2017, an increase of 1.9% over the third quarter of
the prior year. For the nine months ended September 30, 2017,
Diluted earnings per share - adjusted (as defined below) were
$1.44, a decrease of $0.01, or 0.7%, compared to the first nine
months of 2016. We believe that Diluted earnings per share -
adjusted (as defined below) provides a meaningful representation of
our operating performance and improves the comparability of our
results between periods by eliminating the impact of Change in
estimated acquisition earn-out payables and certain other
non-recurring or infrequently occurring items that have a high
degree of variability from period-to-period and that we believe are
not indicative of the Company’s ongoing performance.
Brown & Brown, Inc. |
RECONCILIATION OF GAAP DILUTED EARNINGS PER
SHARE TO |
DILUTED EARNINGS PER SHARE -
ADJUSTED(3) |
Three and Nine Months Ended September 30,
2017 and 2016 |
(unaudited) |
|
|
Three Months Ended |
|
Change |
|
Nine Months Ended |
|
Change |
|
9/30/2017 |
|
9/30/2016 |
|
$ |
% |
|
9/30/2017 |
|
9/30/2016 |
|
$ |
% |
Diluted
earnings per share - GAAP basis |
$ |
0.53 |
|
|
$ |
0.50 |
|
|
$ |
0.03 |
|
6.0 |
% |
|
$ |
1.49 |
|
|
$ |
1.41 |
|
|
$ |
0.08 |
|
5.7 |
% |
Legal
Settlement - net of associated legal costs |
— |
|
|
— |
|
|
— |
|
|
|
(0.08 |
) |
|
— |
|
|
(0.08 |
) |
|
Change in
estimated acquisition earn-out payables |
— |
|
|
0.02 |
|
|
(0.02 |
) |
|
|
0.03 |
|
|
0.03 |
|
|
— |
|
|
Impact of
accounting change(4) |
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
0.01 |
|
|
(0.01 |
) |
|
Diluted
earnings per share - adjusted |
$ |
0.53 |
|
|
$ |
0.52 |
|
|
$ |
0.01 |
|
1.9 |
% |
|
$ |
1.44 |
|
|
$ |
1.45 |
|
|
$ |
(0.01 |
) |
(0.7 |
)% |
|
(3) “Diluted earnings per share - adjusted,” a non-GAAP
measure, is defined as Diluted earnings per share, excluding the
Legal Settlement net of associated legal costs, the Change in
estimated acquisition earn-out payables, and the impact of adopting
ASU 2016-09. |
(4) Presents prior year on the same basis as current year due
to adoption of ASU 2016-09. |
Income before income taxes for the third quarter
was $124.4 million, an increase of $7.6 million or 6.5%, and the
Income before income taxes margin increased from 25.3% to 26.2%.
For the nine months ended September 30, 2017, Income before income
taxes was $343.4 million, an increase of $14.9 million or 4.5%, and
the Income before income taxes margin decreased from 24.6% to
24.4%. In order to provide a better understanding of our
business, we evaluate EBITDAC (as defined below) performance.
EBITDAC for the third quarter of 2017 was $159.2 million, an
increase of $1.9 million or 1.2%, compared to the third quarter of
the prior year. EBITDAC Margin (as defined below) decreased
from 34.0% in the third quarter of 2016 to 33.5% in the third
quarter of 2017. For the nine months ended September 30, 2017,
EBITDAC was $462.2 million, an increase of 3.7% compared to the
first nine months of 2016. Our EBITDAC Margin - adjusted (as
defined below) decreased from 33.4% for the nine months ended
September 30, 2016 to 31.5% compared to the first nine months of
2017. We view EBITDAC, EBITDAC Margin and EBITDAC Margin - adjusted
(as defined below) as important indicators when assessing and
evaluating our performance because they allow us to determine
comparable, but non-GAAP, measurements of our operating margins in
a meaningful and consistent manner.
Brown & Brown, Inc. |
RECONCILIATION OF |
INCOME BEFORE INCOME TAXES TO
EBITDAC(5) |
Three and Nine Months Ended September 30,
2017 and 2016 |
(in millions, unaudited) |
|
|
Three Months Ended |
|
Nine Months Ended |
|
9/30/2017 |
|
9/30/2016 |
|
9/30/2017 |
|
9/30/2016 |
Income before income taxes |
$ |
124.4 |
|
|
$ |
116.8 |
|
|
$ |
343.4 |
|
|
$ |
328.5 |
|
Income before income taxes margin(6) |
26.2 |
% |
|
25.3 |
% |
|
24.4 |
% |
|
24.6 |
% |
|
|
|
|
|
|
|
|
Amortization |
21.4 |
|
|
21.8 |
|
|
64.4 |
|
|
65.0 |
|
Depreciation |
5.4 |
|
|
5.2 |
|
|
17.2 |
|
|
15.9 |
|
Interest |
9.3 |
|
|
9.9 |
|
|
28.9 |
|
|
29.6 |
|
Change in
estimated acquisition earn-out payables |
(1.3 |
) |
|
3.6 |
|
|
8.3 |
|
|
6.8 |
|
EBITDAC |
$ |
159.2 |
|
|
$ |
157.3 |
|
|
$ |
462.2 |
|
|
$ |
445.8 |
|
EBITDAC Margin(7) |
33.5 |
% |
|
34.0 |
% |
|
32.9 |
% |
|
33.4 |
% |
|
|
|
|
|
|
|
|
Legal
Settlement - net of associated legal costs |
— |
|
|
— |
|
|
(18.8 |
) |
|
— |
|
EBITDAC - adjusted |
$ |
159.2 |
|
|
$ |
157.3 |
|
|
$ |
443.4 |
|
|
$ |
445.8 |
|
EBITDAC Margin - adjusted(8) |
33.5 |
% |
|
34.0 |
% |
|
31.5 |
% |
|
33.4 |
% |
|
5. "EBITDAC," a non-GAAP measure, is defined as income
before interest, income taxes, depreciation, amortization and the
change in estimated acquisition earn-out payables. |
6. "Income before income taxes margin" is defined as
Income before income taxes divided by Total revenues. |
7. "EBITDAC Margin," a non-GAAP measure, is defined as
EBITDAC divided by Total revenues. |
8. "EBITDAC Margin - adjusted," a non-GAAP measure, is
defined as EBITDAC - adjusted divided by Total revenues-adjusted. A
reconciliation of Total revenues to Total revenues - adjusted is
set forth in a table above in this press release. |
Brown & Brown, Inc. |
CONSOLIDATED STATEMENTS OF
INCOME |
(in millions, except per share data; unaudited) |
|
|
For the three months endedSeptember
30, |
|
For the nine months endedSeptember
30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions and
fees |
$ |
474.6 |
|
|
$ |
461.8 |
|
|
$ |
1,383.9 |
|
|
$ |
1,329.7 |
|
Investment income |
0.5 |
|
|
0.1 |
|
|
1.1 |
|
|
1.1 |
|
Other income, net |
0.5 |
|
|
0.4 |
|
|
22.0 |
|
|
2.2 |
|
Total
revenues |
475.6 |
|
|
462.3 |
|
|
1,407.0 |
|
|
1,333.0 |
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
Employee compensation
and benefits |
246.2 |
|
|
237.7 |
|
|
736.5 |
|
|
692.9 |
|
Other operating
expenses |
72.1 |
|
|
67.7 |
|
|
210.3 |
|
|
197.5 |
|
Gain on disposal |
(1.9 |
) |
|
(0.4 |
) |
|
(2.0 |
) |
|
(3.2 |
) |
Amortization |
21.4 |
|
|
21.8 |
|
|
64.4 |
|
|
65.0 |
|
Depreciation |
5.4 |
|
|
5.2 |
|
|
17.2 |
|
|
15.9 |
|
Interest |
9.3 |
|
|
9.9 |
|
|
28.9 |
|
|
29.6 |
|
Change in estimated
acquisition earn-out payables |
(1.3 |
) |
|
3.6 |
|
|
8.3 |
|
|
6.8 |
|
Total
expenses |
351.2 |
|
|
345.5 |
|
|
1,063.6 |
|
|
1,004.5 |
|
|
|
|
|
|
|
|
|
Income before income
taxes |
124.4 |
|
|
116.8 |
|
|
343.4 |
|
|
328.5 |
|
|
|
|
|
|
|
|
|
Income taxes |
48.5 |
|
|
45.4 |
|
|
131.3 |
|
|
128.7 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
75.9 |
|
|
$ |
71.4 |
|
|
$ |
212.1 |
|
|
$ |
199.8 |
|
|
|
|
|
|
|
|
|
Net income per
share: |
|
|
|
|
|
|
|
Basic |
$ |
0.54 |
|
|
$ |
0.51 |
|
|
$ |
1.52 |
|
|
$ |
1.43 |
|
Diluted |
$ |
0.53 |
|
|
$ |
0.50 |
|
|
$ |
1.49 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
Weighted average number
of shares outstanding - in thousands: |
|
|
|
|
|
|
|
Basic |
136,346 |
|
|
136,461 |
|
|
136,592 |
|
|
136,002 |
|
Diluted |
138,893 |
|
|
138,182 |
|
|
139,011 |
|
|
137,584 |
|
|
|
|
|
|
|
|
|
Dividends declared per
share |
$ |
0.14 |
|
|
$ |
0.12 |
|
|
$ |
0.41 |
|
|
$ |
0.37 |
|
Brown & Brown, Inc. |
CONSOLIDATED BALANCE SHEETS |
(in millions, except per share data,
unaudited) |
|
|
September 30, 2017 |
|
December 31, 2016 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
546.5 |
|
|
$ |
515.7 |
|
Restricted cash and investments |
276.7 |
|
|
265.6 |
|
Short-term investments |
29.2 |
|
|
15.0 |
|
Premiums,
commissions and fees receivable |
526.0 |
|
|
502.5 |
|
Reinsurance recoverable |
2,160.3 |
|
|
78.1 |
|
Prepaid
reinsurance premiums |
332.2 |
|
|
308.7 |
|
Other
current assets |
45.5 |
|
|
50.6 |
|
Total
current assets |
3,916.4 |
|
|
1,736.2 |
|
|
|
|
|
Fixed assets, net |
71.3 |
|
|
75.8 |
|
Goodwill |
2,701.4 |
|
|
2,675.4 |
|
Amortizable intangible
assets, net |
656.1 |
|
|
707.5 |
|
Investments |
14.1 |
|
|
23.0 |
|
Other assets |
55.0 |
|
|
44.9 |
|
Total
assets |
$ |
7,414.3 |
|
|
$ |
5,262.8 |
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY |
|
|
|
Current
liabilities: |
|
|
|
Premiums
payable to insurance companies |
$ |
653.3 |
|
|
$ |
647.6 |
|
Losses
and loss adjustment reserve |
2,160.3 |
|
|
78.1 |
|
Unearned
premiums |
332.2 |
|
|
308.7 |
|
Premium
deposits and credits due customers |
97.9 |
|
|
83.8 |
|
Accounts
payable |
63.6 |
|
|
69.6 |
|
Accrued
expenses and other liabilities |
204.3 |
|
|
202.0 |
|
Current
portion of long-term debt |
120.0 |
|
|
55.5 |
|
Total
current liabilities |
3,631.6 |
|
|
1,445.3 |
|
|
|
|
|
Long-term debt |
860.7 |
|
|
1,018.4 |
|
|
|
|
|
Deferred income taxes,
net |
382.2 |
|
|
357.7 |
|
|
|
|
|
Other liabilities |
56.1 |
|
|
81.3 |
|
|
|
|
|
Shareholders’
equity: |
|
|
|
Common
stock, par value $0.10 per share; authorized 280,000 shares; issued
148,838 shares and outstanding 139,518 shares at 2017, issued
148,107 shares and outstanding 140,104 shares at 2016 |
14.9 |
|
|
14.8 |
|
Additional paid-in capital |
493.9 |
|
|
468.4 |
|
Treasury
stock, at cost 9,320 and 8,003 shares at 2017 and 2016,
respectively - in thousands |
(315.1 |
) |
|
(257.7 |
) |
Retained
earnings |
2,290.0 |
|
|
2,134.6 |
|
Total
shareholders’ equity |
2,483.7 |
|
|
2,360.1 |
|
Total
liabilities and shareholders’ equity |
$ |
7,414.3 |
|
|
$ |
5,262.8 |
|
Conference call, webcast and slide
presentationA conference call to discuss the results of
the third quarter of 2017 will be held on Tuesday, October 17, 2017
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 www.bbinsurance.com.
About Brown & BrownBrown
& Brown, Inc., through its subsidiaries, offers a broad range
of insurance products and services. Additionally, certain
Brown & Brown subsidiaries offer a variety of risk management,
third-party administration, and other services. Serving business,
public entity, individual, trade and professional association
clients nationwide, the Company is ranked by Business Insurance
magazine as the United States’ sixth largest independent insurance
intermediary. The Company’s Web address is
www.bbinsurance.com.
Forward-looking statementsThis
press release may contain certain statements relating to future
results which are forward-looking statements, including those
relating to the Company's anticipated financial results for the
third quarter of 2017. These statements are not historical facts,
but instead represent only the Company’s current belief regarding
future events, many of which, by their nature, are inherently
uncertain and outside of the Company’s control. It is possible that
the Company’s actual results, financial condition and achievements
may differ, possibly materially, from the anticipated results,
financial condition and achievements contemplated by these
forward-looking statements. These risks and uncertainties include,
but are not limited to, the Company's determination as it finalizes
its financial results for the third quarter of 2017 that its
financial results differ from the current preliminary unaudited
numbers set forth herein; the impact of any regional, national or
global political, economic, business, competitive, market,
environmental or regulatory conditions on our business operations;
the impact of current market conditions on our results of
operations and financial condition; any insolvencies of, or other
difficulties experienced by our clients, insurance carriers or
financial institutions; volatility or declines in insurance markets
and premiums on which our commissions are based, but which we do
not control; our ability to continue to manage our indebtedness;
our ability to compete effectively in our industry, material
changes in commercial property and casualty markets generally or
the availability of insurance products or changes in premiums
resulting from a catastrophic event, such as a hurricane; our
ability to retain key employees and clients and attract new
business; risks that could negatively affect the success of our
acquisition strategy, including continuing consolidation in our
industry, which could make it more difficult to identify targets
and could make them more expensive, execution risks, integration
risks, the risk of post-acquisition deterioration leading to
intangible asset impairment charges, and the risk we could incur or
assume unanticipated regulatory liabilities such as those relating
to violations of anti-corruption and sanctions laws; the timing or
ability to carry out share repurchases; the timing or ability to
carry out refinancing or take other steps to manage our capital and
the limitations in our long-term debt agreements that may restrict
our ability to take these actions; fluctuations in our earnings as
a result of potential changes to our valuation allowance(s) on our
deferred taxes; any fluctuations in exchange and interest rates
that could affect expenses and revenue; the potential costs and
difficulties in complying with a wide variety of laws and
regulations and any related changes; changes in the tax or
accounting policies or treatment of our operations and fluctuations
in our tax rate; any potential impact of US healthcare or Federal
Income Tax reform, National Flood Insurance Program legislation;
exposure to potential liabilities arising from errors and omissions
and other potential claims against us; and the interruption or loss
of our information processing systems or failure to maintain secure
information systems and other factors that the Company may not have
currently identified or quantified, and other risks, relevant
factors and uncertainties identified in the Company's Annual Report
on Form 10-K for the year ended December 31, 2016, and the
Company’s other filings with the Securities and Exchange
Commission. 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 the
following non-GAAP financial measures as defined in Regulation G of
SEC rules: Organic Revenue, Total Revenues - Adjusted, Diluted
Earnings Per Share - Adjusted, EBITDAC, EBITDAC - Adjusted, EBITDAC
Margin, and EBITDAC Margin - Adjusted.
Reconciliations of these supplemental non-GAAP
financial information to the Company's GAAP information are
contained in this earnings release. These measures are not in
accordance with, or an alternative to the GAAP information provided
in the Company's condensed consolidated financial statements.
We present such non-GAAP supplemental financial information
because we believe such information is of interest to the
investment community and because we believe it provides additional
meaningful methods of evaluating certain aspects of the Company’s
operating performance from period to period on a basis that may not
be otherwise apparent on a GAAP basis. We believe these non-GAAP
measures improve the comparability of results between periods by
eliminating the impact of certain items that have a high degree of
variability. We believe that Organic Revenue provides a
meaningful representation of the Company’s operating performance;
the Company has historically viewed Organic Revenue growth as an
important indicator when assessing and evaluating the performance
of its four segments. As disclosed in our most recent proxy
statement, we use Organic Revenue and EBITDAC Margin for incentive
compensation determinations for executive officers and other key
employees.
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.
This supplemental financial information should be considered
in addition to, and not in lieu of, the Company’s condensed
consolidated financial statements.
R. Andrew WattsChief Financial Officer(386)
239-5770
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