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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-13619

 

BROWN & BROWN, INC.

(Exact name of Registrant as specified in its charter)

 

 

Florida

 

 

59-0864469

(State or other jurisdiction of

incorporation or organization)

 

 

(I.R.S. Employer

Identification Number)

300 North Beach Street,

Daytona Beach, FL

 

 

32114

(Address of principal executive offices)

 

 

(Zip Code)

Registrant’s telephone number, including area code: (386252-9601

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.10 Par Value

BRO

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

The number of shares of the Registrant’s common stock, $0.10 par value, outstanding as of July 26, 2021 was 281,607,111.

 

 

 

 

 


Table of Contents

 

 

BROWN & BROWN, INC.

INDEX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PAGE NO.

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited):

 

 

 

 

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2021 and 2020

 

5

 

 

Condensed Consolidated Statements of Comprehensive Income for the three six months ended June 30, 2021 and 2020

 

6

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

 

7

 

 

Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2021 and 2020

 

8

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

 

9

 

 

Notes to Condensed Consolidated Financial Statements

 

10

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

42

Item 4.

 

Controls and Procedures

 

42

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

43

Item 1A.

 

Risk Factors

 

43

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

Item 6.

 

Exhibits

 

44

SIGNATURE

 

45

 

2


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Disclosure Regarding Forward-Looking Statements

Brown & Brown, Inc., together with its subsidiaries (collectively, “we,” “Brown & Brown” or the “Company”), makes “forward-looking statements” within the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995, as amended, throughout this report and in the documents we incorporate by reference into this report , including those relating to the potential effects of the COVID-19 pandemic (“COVID-19”) on the Company’s business, operations, financial performance and prospects. 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 Quarterly Report on Form 10-Q and the reports, statements, information and announcements incorporated by reference into this report 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. Further, statements about the effects of COVID-19 on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of COVID-19 (including through any new variant strains of the underlying virus), the effectiveness of and accessibility to vaccines, the pace and rate at which vaccines are administered, actions taken by governmental authorities in response to COVID-19, and the direct and indirect impact of COVID-19 on our customers, insurance carriers, third parties and us. 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 materially from the forward-looking statements in this report include but are not limited to the following items, in addition to those matters described in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

 

 

The severity and duration of COVID-19 (including through any new variant strains of the underlying virus), the effectiveness of and accessibility to vaccines, the pace and rate at which vaccines are administered, and the resulting impact on the U.S. economy, the global economy, and the Company’s business, liquidity, customers, insurance carriers and third parties;

 

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, 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 and/or outsourcing relationships;

 

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 additional expense, loss of market share or material decrease in our profit-sharing contingent commissions, guaranteed supplemental commissions or incentive commissions;

 

Adverse economic conditions, natural disasters, or regulatory changes in states where we have a concentration of our business;

 

The inability to maintain our culture or a change in management, management philosophy or our business strategy;

 

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 existing shareholders have over the Company;

 

Risks related to our international operations, which may require more time and expense than our domestic operations to achieve or maintain profitability;

 

Changes in data privacy and protection laws and regulations or any failure to comply with such laws and regulations;

 

Improper disclosure of confidential information;

 

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 due to potential changes in regulations;

 

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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;

 

A decrease in demand for liability insurance as a result of tort reform litigation;

 

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;

 

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;

 

Changes in current U.S. or global economic conditions;

 

Effects related to pandemics, epidemics, or outbreaks of infectious diseases;

 

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; and

 

Other risks and uncertainties as may be detailed from time to time in our public announcements and Securities and Exchange Commission (“SEC”) filings.

Assumptions as to any of the foregoing, and all statements, are not based upon historical fact, but rather reflect our current expectations concerning future results and events. 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, which speak only as of their dates. We assume no obligation to update any of the forward-looking statements.

 

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PART I — FINANCIAL INFORMATION

ITEM 1 — Financial Statements (Unaudited)

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

(in thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commissions and fees

 

$

725,919

 

 

$

598,157

 

 

$

1,539,956

 

 

$

1,294,660

 

Investment income

 

 

229

 

 

 

333

 

 

 

479

 

 

 

1,495

 

Other income, net

 

 

1,204

 

 

 

316

 

 

 

2,193

 

 

 

1,147

 

Total revenues

 

 

727,352

 

 

 

598,806

 

 

 

1,542,628

 

 

 

1,297,302

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

395,611

 

 

 

346,515

 

 

 

825,111

 

 

 

696,139

 

Other operating expenses

 

 

96,255

 

 

 

75,568

 

 

 

190,619

 

 

 

182,700

 

(Gain)/loss on disposal

 

 

(3,851

)

 

 

(31

)

 

 

(4,044

)

 

 

(291

)

Amortization

 

 

29,546

 

 

 

26,741

 

 

 

59,039

 

 

 

53,132

 

Depreciation

 

 

8,801

 

 

 

6,168

 

 

 

16,257

 

 

 

12,189

 

Interest

 

 

16,285

 

 

 

13,809

 

 

 

32,626

 

 

 

29,100

 

Change in estimated acquisition earn-out payables

 

 

(1,604

)

 

 

635

 

 

 

(2,495

)

 

 

(10,322

)

Total expenses

 

 

541,043

 

 

 

469,405

 

 

 

1,117,113

 

 

 

962,647

 

Income before income taxes

 

 

186,309

 

 

 

129,401

 

 

 

425,515

 

 

 

334,655

 

Income taxes

 

 

47,019

 

 

 

32,617

 

 

 

86,482

 

 

 

85,471

 

Net income

 

$

139,290

 

 

$

96,784

 

 

$

339,033

 

 

$

249,184

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.49

 

 

$

0.34

 

 

$

1.20

 

 

$

0.88

 

Diluted

 

$

0.49

 

 

$

0.34

 

 

$

1.20

 

 

$

0.88

 

Dividends declared per share

 

$

0.093

 

 

$

0.085

 

 

$

0.185

 

 

$

0.170

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.


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BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

139,290

 

 

$

96,784

 

 

$

339,033

 

 

$

249,184

 

Foreign currency translation

 

 

1,471

 

 

 

 

 

 

(3,782

)

 

 

 

Unrealized (loss) gain on available-for-sale debt securities, net of tax

 

 

(30

)

 

 

 

 

 

233

 

 

 

 

Comprehensive income

 

$

140,731

 

 

$

96,784

 

 

$

335,484

 

 

$

249,184

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

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BROWN & BROWN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

(in thousands, except per share data)

 

June 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

850,230

 

 

$

817,398

 

Restricted cash

 

 

500,790

 

 

 

454,517

 

Short-term investments

 

 

13,080

 

 

 

18,332

 

Premiums, commissions and fees receivable

 

 

1,259,483

 

 

 

1,099,248

 

Reinsurance recoverable

 

 

42,414

 

 

 

43,469

 

Prepaid reinsurance premiums

 

 

368,711

 

 

 

377,615

 

Other current assets

 

 

157,134

 

 

 

147,670

 

Total current assets

 

 

3,191,842

 

 

 

2,958,249

 

Fixed assets, net

 

 

209,279

 

 

 

201,115

 

Operating lease assets

 

 

179,502

 

 

 

186,998

 

Goodwill

 

 

4,513,970

 

 

 

4,395,918

 

Amortizable intangible assets, net

 

 

1,044,999

 

 

 

1,049,660

 

Investments

 

 

32,622

 

 

 

24,971

 

Other assets

 

 

185,681

 

 

 

149,581

 

Total assets

 

$

9,357,895

 

 

$

8,966,492

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Premiums payable to insurance companies

 

$

1,394,374

 

 

$

1,198,529

 

Losses and loss adjustment reserve

 

 

42,414

 

 

 

43,469

 

Unearned premiums

 

 

368,711

 

 

 

377,615

 

Premium deposits and credits due customers

 

 

107,872

 

 

 

102,505

 

Accounts payable

 

 

222,186

 

 

 

190,497

 

Accrued expenses and other liabilities

 

 

365,365

 

 

 

371,737

 

Current portion of long-term debt

 

 

300,000

 

 

 

70,000

 

Total current liabilities

 

 

2,800,922

 

 

 

2,354,352

 

Long-term debt less unamortized discount and debt issuance costs

 

 

1,762,294

 

 

 

2,025,906

 

Operating lease liabilities

 

 

164,081

 

 

 

172,935

 

Deferred income taxes, net

 

 

371,054

 

 

 

344,222

 

Other liabilities

 

 

313,542

 

 

 

314,854

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.10 per share; authorized 560,000 shares; issued 300,096 shares and outstanding 281,621 shares at 2021, issued 299,689

   shares and outstanding 283,004 shares at 2020

 

 

30,010

 

 

 

29,969

 

Additional paid-in capital

 

 

784,620

 

 

 

794,909

 

Treasury stock, at cost at 18,475 shares at 2021, 16,685 shares at 2020, respectively

 

 

(672,763

)

 

 

(591,338

)

Accumulated other comprehensive loss

 

 

(3,549

)

 

 

 

Retained earnings

 

 

3,807,684

 

 

 

3,520,683

 

Total shareholders’ equity

 

 

3,946,002

 

 

 

3,754,223

 

Total liabilities and shareholders’ equity

 

$

9,357,895

 

 

$

8,966,492

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except per share data)

 

Shares Outstanding

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Treasury

Stock

 

 

Accumulated Other Comprehensive Loss

 

 

Retained

Earnings

 

 

Total

 

Balance at December 31, 2020

 

 

283,004

 

 

$

29,969

 

 

$

794,909

 

 

$

(591,338

)

 

$

 

 

$

3,520,683

 

 

$

3,754,223

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

199,744

 

 

 

199,744

 

Net unrealized holding (loss) gain on available-for-

   sale securities

 

 

 

 

 

 

 

 

 

 

(508

)

 

 

 

 

 

263

 

 

 

 

 

 

 

(245

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,253

)

 

 

122

 

 

 

(5,131

)

Shares issued - employee stock compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

 

 

3,032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,032

 

Stock incentive plans

 

 

1,400

 

 

 

140

 

 

 

15,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,646

 

Agency acquisition

 

 

107

 

 

 

11

 

 

 

4,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,892

 

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

(973

)

 

 

(98

)

 

 

(44,954

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45,052

)

Purchase of treasury stock

 

 

(1,558

)

 

 

 

 

 

 

 

 

 

 

(70,020

)

 

 

 

 

 

 

 

 

 

 

(70,020

)

Cash dividends paid ($0.093 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,092

)

 

 

(26,092

)

Balance at March 31, 2021

 

 

281,980

 

 

$

30,022

 

 

$

772,866

 

 

$

(661,358

)

 

$

(4,990

)

 

$

3,694,457

 

 

$

3,830,997

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139,290

 

 

 

139,290

 

Net unrealized holding (loss) gain on available-for-

   sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

 

 

 

 

(30

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,471

 

 

 

 

 

 

 

1,471

 

Shares issued - employee stock compensation plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

 

 

1,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,988

 

Stock incentive plans

 

 

(83

)

 

 

(8

)

 

 

12,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,059

 

Agency acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directors

 

 

17

 

 

 

2

 

 

 

897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

899

 

Repurchase shares to fund tax withholdings for non-cash stock-based compensation

 

 

(61

)

 

 

(6

)

 

 

(3,198

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,204

)

Purchase of treasury stock

 

 

(232

)

 

 

 

 

 

 

 

 

 

 

(11,405

)

 

 

 

 

 

 

 

 

 

 

(11,405

)

Cash dividends paid ($0.093 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,063

)

 

 

(26,063

)

Balance at June 30, 2021

 

 

281,621

 

 

$

30,010

 

 

$

784,620

 

 

$

(672,763

)

 

$

(3,549

)

 

$

3,807,684

 

 

$

3,946,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

281,655

 

 

$

29,711

 

 

$

716,049

 

 

$

(536,243

)

 

$

 

 

$

3,140,762

 

 

$

3,350,279

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

152,400

 

 

 

152,400

 

Net unrealized holding (loss) gain on available-for-

   sale securities

 

 

 

 

 

 

 

 

 

 

194

 

 

 

 

 

 

 

 

 

 

 

99

 

 

 

293

 

Shares issued - employee stock compensation plans