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11630 SW 97 Street, Miami, Florida 33176, US
11630 SW 97 Street, Miami, Florida 33176, US
Brown & Brown, Inc. announced its unaudited financial results for the third quarter of 2020.
Revenues for the third quarter of 2020 under U.S. generally accepted accounting principles (“GAAP”) were $674.0 million, increasing $55.3 million, or 8.9%, compared to the third quarter of the prior year, with commissions and fees increasing by 8.7% and Organic Revenue(1) increasing by 4.3%. Net income was $134.0 million, increasing $18.4 million, or 15.9%, and diluted net income per share increased to $0.47, or 14.6% as compared to the third quarter of the prior year. Diluted Net Income Per Share – Adjusted(2) increased to $0.52, or 33.3%, compared to the third quarter of the prior year.
Revenues for the nine months ended September 30, 2020 under GAAP were $1,971.3 million, increasing $158.1 million, or 8.7%, as compared to the same period in 2019, with commissions and fees increasing by 8.8%, and Organic Revenue increasing by 3.5%. Net income was $383.2 million, increasing $61.2 million, or 19.0%, and diluted net income per share for the period increased to $1.35, or 18.4%, each as compared to the same period of 2019. Diluted Net Income Per Share – Adjusted increased to $1.36 or 21.4% compared to the same period of 2019.
J. Powell Brown, President and Chief Executive Officer of the Company, noted “We are really pleased with our performance for the quarter. These results are due to the hard work of all our teammates on behalf of our customers. I am proud of our team in light of this challenging operating environment.”
Reconciliation of Commissions and Fees
to Organic Revenue
Three and Nine Months Ended September 30, 2020 and 2019
(in millions, unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 09/30/2020 | 09/30/2019 | 09/30/2020 | 09/30/2019 | |||||||||||||
| Commissions and fees | $ | 671.4 | $ | 617.4 | $ | 1,966.1 | $ | 1,807.8 | ||||||||
| Profit-sharing contingent commissions | (13.7 | ) | (14.2 | ) | (56.3 | ) | (41.5 | ) | ||||||||
| Guaranteed supplemental commissions | (4.4 | ) | (4.6 | ) | (12.6 | ) | (21.0 | ) | ||||||||
| Core commissions and fees | $ | 653.3 | $ | 598.6 | $ | 1,897.2 | $ | 1,745.3 | ||||||||
| Acquisitions | (32.0 | ) | — | (100.7 | ) | — | ||||||||||
| Dispositions | — | (2.7 | ) | — | (10.0 | ) | ||||||||||
| Organic Revenue | $ | 621.3 | $ | 595.9 | $ | 1,796.5 | $ | 1,735.3 | ||||||||
| Organic Revenue growth | $ | 25.4 | $ | 61.2 | ||||||||||||
| Organic Revenue growth % | 4.3 | % | 3.5 | % | ||||||||||||
(1) “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. Organic Revenue can be expressed as a dollar amount or a percentage rate when describing Organic Revenue growth. 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 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.
Reconciliation of Diluted Net Income Per Share to
Diluted Net Income Per Share – Adjusted
Three and Nine Months Ended September 30, 2020 and 2019
(unaudited)
| Three Months Ended | Change | Nine Months Ended | Change | |||||||||||||||||||||||||||
| 09/30/2020 | 09/30/2019 | $ | % | 09/30/2020 | 09/30/2019 | $ | % | |||||||||||||||||||||||
| Diluted net income per share | $ | 0.47 | $ | 0.41 | $ | 0.06 | 14.6 | % | $ | 1.35 | $ | 1.14 | $ | 0.21 | 18.4 | % | ||||||||||||||
| Change in estimated acquisition earn-out payables | 0.05 | (0.02 | ) | 0.07 | 0.01 | (0.02 | ) | 0.03 | ||||||||||||||||||||||
| Diluted Net Income Per Share – Adjusted | $ | 0.52 | $ | 0.39 | $ | 0.13 | 33.3 | % | $ | 1.36 | $ | 1.12 | $ | 0.24 | 21.4 | % | ||||||||||||||
(2) “Diluted Net Income Per Share – Adjusted,” a non-GAAP measure, is defined as diluted net income per share, excluding the change in estimated acquisition earn-out payables. 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 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.
Income before income taxes for the third quarter of 2020 was $158.5 million, an increase of $6.6 million, or 4.3%, and Income Before Income Taxes Margin(3) decreased to 23.5% from 24.6% as compared to the third quarter of the prior year.
In order to provide a better understanding of our business, we evaluate EBITDAC(4) performance. We view EBITDAC and EBITDAC Margin(5) as important indicators when assessing and evaluating our performance, as they present more comparable, but non-GAAP, measurements of our operating margins in a meaningful and consistent manner. EBITDAC for the third quarter of 2020 was $220.8 million, an increase of $25.8 million, or 13.2%, compared to the third quarter of the prior year. EBITDAC Margin increased to 32.8% in the third quarter of 2020, as compared to 31.5% in the third quarter of the prior year.
Income before income taxes for nine months ended September 30, 2020 was $493.2 million, an increase of $69.3 million, or 16.3%, compared to the same period of the prior year. Income Before Income Taxes Margin increased to 25.0% from 23.4%, as compared to the third quarter of the prior year. EBITDAC for the nine months ended September 30, 2020 was $639.5 million, an increase of $78.8 million, or 14.1% as compared to the same period in 2019. EBITDAC Margin increased to 32.4% for the nine months ended September 30, 2020, as compared to 30.9% in same period of 2019.
Reconciliation of Income Before Income Taxes to EBITDAC
Three and Nine Months Ended September 30, 2020 and 2019
(in millions, unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 09/30/2020 | 09/30/2019 | 09/30/2020 | 09/30/2019 | |||||||||||||
| Income before income taxes | $ | 158.5 | $ | 151.9 | $ | 493.2 | $ | 423.9 | ||||||||
| Income Before Income Taxes Margin | 23.5 | % | 24.6 | % | 25.0 | % | 23.4 | % | ||||||||
| Amortization | 27.1 | 26.3 | 80.2 | 78.4 | ||||||||||||
| Depreciation | 6.7 | 5.8 | 18.8 | 17.5 | ||||||||||||
| Interest | 13.2 | 16.3 | 42.3 | 47.8 | ||||||||||||
| Change in estimated acquisition earn-out payables | 15.3 | (5.3 | ) | 5.0 | (6.9 | ) | ||||||||||
| EBITDAC | 220.8 | 195.0 | 639.5 | 560.7 | ||||||||||||
| EBITDAC Margin | 32.8 | % | 31.5 | % | 32.4 | % | 30.9 | % | ||||||||
(3) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.
(4) “EBITDAC,” a non-GAAP measure, is defined as income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables.
(5) “EBITDAC Margin,” a non-GAAP measure, is defined as EBITDAC divided by total revenues.
Brown & Brown, Inc.
Consolidated Statements of Income
(in millions, except per share data; unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| REVENUES | ||||||||||||||||
| Commissions and fees | $ | 671.4 | $ | 617.4 | $ | 1,966.1 | $ | 1,807.8 | ||||||||
| Investment income | 0.4 | 1.7 | 1.8 | 4.3 | ||||||||||||
| Other income, net | 2.2 | (0.4 | ) | 3.4 | 1.1 | |||||||||||
| Total revenues | 674.0 | 618.7 | 1,971.3 | 1,813.2 | ||||||||||||
| EXPENSES | ||||||||||||||||
| Employee compensation and benefits | 362.8 | 331.1 | 1,059.0 | 973.6 | ||||||||||||
| Other operating expenses | 91.4 | 96.4 | 274.1 | 283.2 | ||||||||||||
| (Gain) on disposal | (1.0 | ) | (3.8 | ) | (1.3 | ) | (4.3 | ) | ||||||||
| Amortization | 27.1 | 26.3 | 80.2 | 78.4 | ||||||||||||
| Depreciation | 6.7 | 5.8 | 18.8 | 17.5 | ||||||||||||
| Interest | 13.2 | 16.3 | 42.3 | 47.8 | ||||||||||||
| Change in estimated acquisition earn-out payables | 15.3 | (5.3 | ) | 5.0 | (6.9 | ) | ||||||||||
| Total expenses | 515.5 | 466.8 | 1,478.1 | 1,389.3 | ||||||||||||
| Income before income taxes | 158.5 | 151.9 | 493.2 | 423.9 | ||||||||||||
| Income taxes | 24.5 | 36.3 | 110.0 | 101.9 | ||||||||||||
| Net income | $ | 134.0 | $ | 115.6 | $ | 383.2 | $ | 322.0 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | 0.47 | $ | 0.41 | $ | 1.35 | $ | 1.14 | ||||||||
| Diluted | $ | 0.47 | $ | 0.41 | $ | 1.35 | $ | 1.14 | ||||||||
| Weighted average number of shares outstanding – in thousands: | ||||||||||||||||
| Basic | 275,515 | 272,962 | 273,803 | 272,425 | ||||||||||||
| Diluted | 276,933 | 275,075 | 275,338 | 274,529 | ||||||||||||
| Dividends declared per share | $ | 0.085 | $ | 0.080 | $ | 0.255 | $ | 0.240 | ||||||||
Brown & Brown, Inc.
Consolidated Balance Sheets
(in millions, except per share data, unaudited)
| September 30, 2020 |
December 31, 2019 |
|||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,070.1 | $ | 542.2 | ||||
| Restricted cash and investments | 431.7 | 420.8 | ||||||
| Short-term investments | 18.2 | 12.3 | ||||||
| Premiums, commissions and fees receivable | 1,020.5 | 942.9 | ||||||
| Reinsurance recoverable | 107.5 | 58.5 | ||||||
| Prepaid reinsurance premiums | 397.6 | 366.0 | ||||||
| Other current assets | 118.1 | 152.1 | ||||||
| Total current assets | 3,163.7 | 2,494.8 | ||||||
| Fixed assets, net | 187.6 | 148.6 | ||||||
| Operating lease assets | 186.3 | 184.3 | ||||||
| Goodwill | 4,124.0 | 3,746.1 | ||||||
| Amortizable intangible assets, net | 977.2 | 916.8 | ||||||
| Investments | 24.7 | 27.4 | ||||||
| Other assets | 131.9 | 104.8 | ||||||
| Total assets | $ | 8,795.4 | $ | 7,622.8 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Premiums payable to insurance companies | $ | 1,092.5 | $ | 1,014.3 | ||||
| Losses and loss adjustment reserve | 107.5 | 58.5 | ||||||
| Unearned premiums | 397.6 | 366.0 | ||||||
| Premium deposits and credits due customers | 116.9 | 113.8 | ||||||
| Accounts payable | 147.2 | 100.0 | ||||||
| Accrued expenses and other liabilities | 312.5 | 337.7 | ||||||
| Current portion of long-term debt | 66.2 | 55.0 | ||||||
| Total current liabilities | 2,240.4 | 2,045.3 | ||||||
| Long-term debt | 2,042.7 | 1,500.3 | ||||||
| Operating lease liabilities | 172.6 | 167.9 | ||||||
| Deferred income taxes, net | 332.9 | 328.3 | ||||||
| Other liabilities | 304.8 | 230.7 | ||||||
| Shareholders’ equity: | ||||||||
| Common stock, par value $0.10 per share; authorized 560,000 shares; issued 299,371 shares and outstanding 283,745 at 2020, issued 297,106 shares and outstanding 281,655 shares at 2019 – in thousands. | 29.9 | 29.7 | ||||||
| Additional paid-in capital | 763.8 | 716.0 | ||||||
| Treasury stock, at cost 15,626 shares at 2020, 15,451 at 2019, respectively – in thousands. | (543.6 | ) | (536.2 | ) | ||||
| Retained earnings | 3,451.9 | 3,140.8 | ||||||
| Total shareholders’ equity | 3,702.0 | 3,350.3 | ||||||
| Total liabilities and shareholders’ equity | $ | 8,795.4 | $ | 7,622.8 | ||||
Brown & Brown, Inc.
Consolidated Statements of Cash Flows
(in millions, unaudited)
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 383.2 | $ | 322.0 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Amortization | 80.2 | 78.4 | ||||||
| Depreciation | 18.8 | 17.5 | ||||||
| Non-cash stock-based compensation | 43.5 | 34.7 | ||||||
| Change in estimated acquisition earn-out payables | 5.0 | (6.9 | ) | |||||
| Deferred income taxes | 4.6 | 6.2 | ||||||
| Amortization of debt discount and disposal of deferred financing costs | 1.6 | 1.5 | ||||||
| Net (gain)/loss on sales of investments, fixed assets and customer accounts | (0.7 | ) | (4.1 | ) | ||||
| Payments on acquisition earn-outs in excess of original estimated payables | (1.2 | ) | (0.3 | ) | ||||
| Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: | ||||||||
| Premiums, commissions and fees receivable (increase)/decrease | (63.1 | ) | (41.1 | ) | ||||
| Reinsurance recoverables (increase)/decrease | (49.0 | ) | (244.4 | ) | ||||
| Prepaid reinsurance premiums (increase)/decrease | (31.6 | ) | (45.6 | ) | ||||
| Other assets (increase)/decrease | 4.1 | (23.1 | ) | |||||
| Premiums payable to insurance companies increase/(decrease) | 59.0 | 43.1 | ||||||
| Premium deposits and credits due customers increase/(decrease) | 1.8 | 12.3 | ||||||
| Losses and loss adjustment reserve increase/(decrease) | 49.0 | 244.6 | ||||||
| Unearned premiums increase/(decrease) | 31.6 | 45.6 | ||||||
| Accounts payable increase/(decrease) | 53.0 | 22.1 | ||||||
| Accrued expenses and other liabilities increase/(decrease) | (22.5 | ) | (22.6 | ) | ||||
| Other liabilities increase/(decrease) | (27.7 | ) | 7.2 | |||||
| Net cash provided by operating activities | 539.6 | 447.1 | ||||||
| Cash flows from investing activities: | ||||||||
| Additions to fixed assets | (55.8 | ) | (47.3 | ) | ||||
| Payments for businesses acquired, net of cash acquired | (402.4 | ) | (288.4 | ) | ||||
| Proceeds from sales of fixed assets and customer accounts | 8.6 | 3.5 | ||||||
| Purchases of investments | (10.1 | ) | (15.8 | ) | ||||
| Proceeds from sales of investments | 7.4 | 8.4 | ||||||
| Net cash used in investing activities | (452.3 | ) | (339.6 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments on acquisition earn-outs | (9.9 | ) | (7.6 | ) | ||||
| Proceeds from long-term debt | 700.0 | 350.0 | ||||||
| Payments on long-term debt | (41.3 | ) | (36.3 | ) | ||||
| Deferred debt issuance costs | (6.8 | ) | (3.7 | ) | ||||
| Borrowings on revolving credit facilities | 250.0 | 100.0 | ||||||
| Payments on revolving credit facilities | (350.0 | ) | (350.0 | ) | ||||
| Issuances of common stock for employee stock benefit plans | 30.0 | 25.0 | ||||||
| Repurchase shares to fund tax withholdings for non-cash stock-based compensation | (41.1 | ) | (10.8 | ) | ||||
| Purchase of treasury stock | (7.3 | ) | (29.7 | ) | ||||
| Settlement of accelerated share repurchase program | — | 20.0 | ||||||
| Cash dividends paid | (72.1 | ) | (67.4 | ) | ||||
| Net cash provided by/(used in) financing activities | 451.5 | (10.5 | ) | |||||
| Net increase in cash and cash equivalents inclusive of restricted cash | 538.8 | 97.0 | ||||||
| Cash and cash equivalents inclusive of restricted cash at beginning of period | 963.0 | 777.6 | ||||||
| Cash and cash equivalents inclusive of restricted cash at end of period | $ | 1,501.8 | $ | 874.6 | ||||
Conference call, webcast and slide presentation
A conference call to discuss the results of the third quarter of 2020 will be held on Tuesday, October 27, 2020 at 8:00 AM (EST). 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 & Brown
Brown & Brown, Inc. is a leading insurance brokerage firm, providing risk management solutions to individuals and businesses. With more than 80 years of proven success and thousands of teammates, we offer knowledge you can trust and strive to deliver superior customer service. For more information, please visit www.bbinsurance.com.
R. Andrew Watts
Chief Financial Officer
(386) 239-5770
