Revenues for the fourth quarter of 2018 under U.S. generally accepted accounting principles (“GAAP”) were
Revenues for the twelve months ended December 31, 2018 under GAAP were
On
For the three months ended December 31, 2018, the impact of the New Revenue Standard was a decrease in total revenues of
For the twelve months ended December 31, 2018 the impact of the New Revenue Standard was an increase in total revenues of
Reconciliation of Commissions and Fees
to Organic Revenue
Three and Twelve Months Ended December 31, 2018 and 2017
(in millions, unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||
12/31/2018 | 12/31/2017 | 12/31/2018 | 12/31/2017 | ||||||||||||
Commissions and fees | $ | 507.7 | $ | 473.4 | $ | 2,009.9 | $ | 1,857.3 | |||||||
Profit-sharing contingent commissions | (15.9 | ) | (6.8 | ) | (55.9 | ) | (52.2 | ) | |||||||
Guaranteed supplemental commissions | (1.4 | ) | (2.2 | ) | (10.0 | ) | (10.4 | ) | |||||||
Core commissions and fees | 490.4 | 464.4 | 1,944.0 | 1,794.7 | |||||||||||
New Revenue Standard impact on core commissions and fees | 15.5 | — | (16.1 | ) | — | ||||||||||
Acquisition revenues | (51.7 | ) | — | (91.2 | ) | — | |||||||||
Divested businesses | — | (0.3 | ) | — | (1.5 | ) | |||||||||
Organic Revenue | 454.2 | 464.1 | 1,836.7 | 1,793.2 | |||||||||||
Organic Revenue growth | $ | (9.9 | ) | $ | 43.5 | ||||||||||
Organic Revenue growth % | (2.1 | )% | 2.4 | % |
(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”), 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, and less (v) the impact of the New Revenue Standard(2). 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 present a more 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.
(2) “New Revenue Standard,” is defined to include Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and Accounting Standards Codification Topic 340 – Other Assets and Deferred Cost, both of which were adopted by the Company effective on
Reconciliation of Total Revenues to
Total Revenues - Adjusted(3) and
Total Revenues - Adjusted and Excluding the New Revenue Standard
Three and Twelve Months Ended
(in millions, unaudited)
Three Months Ended | Change | Twelve Months Ended | Change | ||||||||||||||||||||||||||
12/31/2018 | 12/31/2017 | $ | % | 12/31/2018 | 12/31/2017 | $ | % | ||||||||||||||||||||||
Total revenues | $ | 508.7 | $ | 474.3 | $ | 34.4 | 7.3 | % | $ | 2,014.2 | $ | 1,881.3 | $ | 132.9 | 7.1 | % | |||||||||||||
Legal Settlement | — | — | — | — | (20.0 | ) | 20.0 | ||||||||||||||||||||||
Total Revenues - Adjusted | $ | 508.7 | $ | 474.3 | $ | 34.4 | 7.3 | % | $ | 2,014.2 | $ | 1,861.3 | $ | 152.9 | 8.2 | % | |||||||||||||
New Revenue Standard impact on total revenues | 6.3 | — | 6.3 | (18.4 | ) | — | (18.4 | ) | |||||||||||||||||||||
Total Revenues - Adjusted and Excluding the New Revenue Standard | $ | 515.0 | $ | 474.3 | $ | 40.7 | 8.6 | % | $ | 1,995.8 | $ | 1,861.3 | $ | 134.5 | 7.2 | % |
(3) “Total Revenues - Adjusted,” a non-GAAP measure, is defined as total revenues, excluding the beneficial revenue impact of a
(4) “Total Revenues - Adjusted and Excluding the New Revenue Standard,” a non-GAAP measure, is defined as total revenues, excluding (i) the Legal Settlement, and (ii) the impact of the New Revenue Standard. We believe that Total Revenues - Adjusted and Excluding the New Revenue Standard provides a more meaningful representation of our operating performance and improves the comparability of our results between periods by excluding the impact of the New Revenue Standard 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.
Reconciliation of Diluted Net Income Per Share to
Diluted Net Income Per Share - Adjusted and Diluted Net Income Per Share - Adjusted and Excluding the New Revenue Standard
Three and Twelve Months Ended December 31, 2018 and 2017
(unaudited)
Three Months Ended | Change | Twelve Months Ended | Change | ||||||||||||||||||||||||||||
12/31/2018 | 12/31/2017 | $ | % |
12/31/2018 | 12/31/2017 | $ | % |
||||||||||||||||||||||||
Diluted net income per share | $ | 0.26 | $ | 0.66 | $ | (0.4 | ) | (60.6 | )% | $ | 1.22 | $ | 1.40 | $ | (0.18 | ) | (12.9 | )% | |||||||||||||
Legal Settlement | — | — | — | — | (0.04 | ) | 0.04 | ||||||||||||||||||||||||
Tax Reform Act | — | (0.43 | ) | 0.43 | — | (0.43 | ) | 0.43 | |||||||||||||||||||||||
Change in estimated acquisition earn-out payables | — | — | — | 0.01 | 0.02 | (0.01 | ) | ||||||||||||||||||||||||
Diluted Net Income Per Share - Adjusted | 0.26 | 0.24 | (7) | 0.02 | 8.3 | % | 1.23 | 0.96 | (9) | 0.27 | 28.1 | % | |||||||||||||||||||
New Revenue Standard impact on diluted net income per share | 0.01 | — | 0.01 | (0.04 | ) | — | (0.04 | ) | |||||||||||||||||||||||
Diluted Net Income Per Share - Adjusted and Excluding the New Revenue Standard | $ | 0.27 | $ | 0.24 | 0.03 | 12.5 | % | $ | 1.18 | (8) | $ | 0.96 | $ | 0.22 | 22.9 | % |
(5) “Diluted Net Income Per Share - Adjusted,” a non-GAAP measure, is defined as diluted net income per share, excluding (i) the Legal Settlement, (ii) the one-time impact of the Tax Reform Act, and (iii) the change in estimated acquisition earn-out payables. The Company historically presents Diluted Net Income Per Share - Adjusted because we believe it 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. For 2018, the Company presented a new measure that further adjusts for the impact of the adoption of the New Revenue Standard to compare periods on the same basis of accounting as defined in footnote (6) below.
(6) “Diluted Net Income Per Share - Adjusted and Excluding the New Revenue Standard,” a non-GAAP measure, is defined as diluted net income per share, excluding (i) the Legal Settlement, (ii) the one-time impact of the Tax Reform Act, (iii) the change in estimated acquisition earn-out payables, and (iv) the impact of the New Revenue Standard. We believe that Diluted Net Income Per Share - Adjusted and Excluding the New Revenue Standard provides a more 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 New Revenue Standard 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.
(7) Due to rounding, the numbers in this column do not add up to the total indicated. The Diluted Net Income Per Share - Adjusted and Excluding the New Revenue Standard for the three months ended
(8) Due to rounding, the numbers in this column do not add up to the total indicated. The Diluted Net Income Per Share - Adjusted and Excluding the New Revenue Standard for the year ended
(9) Due to rounding, the numbers in this column do not add up to the total indicated. The Diluted Net Income Per Share - Adjusted and Excluding the New Revenue Standard for the year ended
Income before income taxes for the fourth quarter of 2018 was
In order to provide a better understanding of our business, we evaluate EBITDAC(11) performance. We view EBITDAC, EBITDAC - Adjusted and Excluding the New Revenue Standard(12), EBITDAC Margin(13) and EBITDAC Margin - Adjusted and Excluding the New Revenue Standard(14) as important indicators when assessing and evaluating our performance, as they present a more comparable, but non-GAAP, measurements of our operating margins in a meaningful and consistent manner. EBITDAC - Adjusted and Excluding the New Revenue Standard for the fourth quarter of 2018 was
Income before income taxes for the twelve months ended
Reconciliation of Income Before Income Taxes to
EBITDAC and EBITDAC - Adjusted and Excluding the New Revenue Standard
Three and Twelve Months Ended December 31, 2018 and 2017
(in millions, unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||
12/31/2018 | 12/31/2017 | 12/31/2018 | 12/31/2017 | ||||||||||||
Income before income taxes | $ | 100.7 | $ | 106.3 | $ | 462.5 | $ | 449.7 | |||||||
Income Before Income Taxes Margin | 19.8 | % | 22.4 | % | 23.0 | % | 23.9 | % | |||||||
Amortization | 23.5 | 21.0 | 86.5 | 85.4 | |||||||||||
Depreciation | 6.4 | 5.5 | 22.8 | 22.7 | |||||||||||
Interest | 11.9 | 9.4 | 40.6 | 38.3 | |||||||||||
Change in estimated acquisition earn-out payables | 0.5 | 0.9 | 3.0 | 9.2 | |||||||||||
EBITDAC | $ | 143.0 | $ | 143.1 | $ | 615.4 | $ | 605.3 | |||||||
EBITDAC Margin | 28.1 | % | 30.2 | % | 30.6 | % | 32.2 | % | |||||||
Legal Settlement | — | — | — | (18.8 | ) | ||||||||||
New Revenue Standard impact on EBITDAC | 4.5 | — | (16.6 | ) | — | ||||||||||
EBITDAC - Adjusted and Excluding the New Revenue Standard | $ | 147.5 | $ | 143.1 | $ | 598.8 | $ | 586.5 | |||||||
EBITDAC Margin - Adjusted and Excluding the New Revenue Standard | 28.6 | % | 30.2 | % | 30.0 | % | 31.5 | % |
(10) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.
(11) “EBITDAC,” a non-GAAP measure, is defined as income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables.
(12) “EBITDAC - Adjusted and Excluding the New Revenue Standard,” a non-GAAP measure, is defined as EBITDAC, excluding (i) the Legal Settlement and (ii) the impact of the New Revenue Standard.
(13) “EBITDAC Margin,” a non-GAAP measure, is defined as EBITDAC divided by total revenues.
(14) “EBITDAC Margin - Adjusted and Excluding the New Revenue Standard,” a non-GAAP measure, is defined as EBITDAC - Adjusted and Excluding the New Revenue Standard divided by Total Revenues - Adjusted and Excluding the New Revenue Standard. A reconciliation of total revenues to Total Revenues - Adjusted and Excluding the New Revenue Standard is set forth in a table above in this press release.
Consolidated Statements of Income
(in millions, except per share data; unaudited)
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
REVENUES | |||||||||||||||
Commissions and fees | $ | 507.7 | $ | 473.4 | $ | 2,009.9 | $ | 1,857.3 | |||||||
Investment income | 0.6 | 0.5 | 2.7 | 1.6 | |||||||||||
Other income, net | 0.4 | 0.4 | 1.6 | 22.4 | |||||||||||
Total revenues | 508.7 | 474.3 | 2,014.2 | 1,881.3 | |||||||||||
EXPENSES | |||||||||||||||
Employee compensation and benefits | 278.0 | 258.2 | 1,068.9 | 994.7 | |||||||||||
Other operating expenses | 88.4 | 73.2 | 332.1 | 283.5 | |||||||||||
Loss (Gain) on disposal | (0.7 | ) | (0.2 | ) | (2.2 | ) | (2.2 | ) | |||||||
Amortization | 23.5 | 21.0 | 86.5 | 85.4 | |||||||||||
Depreciation | 6.4 | 5.5 | 22.8 | 22.7 | |||||||||||
Interest | 11.9 | 9.4 | 40.6 | 38.3 | |||||||||||
Change in estimated acquisition earn-out payables | 0.5 | 0.9 | 3.0 | 9.2 | |||||||||||
Total expenses | 408.0 | 368.0 | 1,551.7 | 1,431.6 | |||||||||||
Income before income taxes | 100.7 | 106.3 | 462.5 | 449.7 | |||||||||||
Income taxes (benefit) | 27.2 | (81.2 | ) | 118.2 | 50.1 | ||||||||||
Net income | $ | 73.5 | $ | 187.5 | $ | 344.3 | $ | 399.6 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.26 | $ | 0.68 | $ | 1.24 | $ | 1.43 | |||||||
Diluted | $ | 0.26 | $ | 0.66 | $ | 1.22 | $ | 1.40 | |||||||
Weighted average number of shares outstanding - in thousands: | |||||||||||||||
Basic | 272,677 | 270,784 | 270,991 | 272,580 | |||||||||||
Diluted | 275,273 | 276,202 | 275,542 | 277,586 | |||||||||||
Dividends declared per share | $ | 0.080 | $ | 0.075 | $ | 0.305 | $ | 0.280 |
Consolidated Balance Sheets
(in millions, except per share data, unaudited)
December 31, 2018 |
December 31, 2017 |
||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 439.0 | $ | 573.4 | |||
Restricted cash and investments | 338.6 | 250.7 | |||||
Short-term investments | 12.9 | 25.0 | |||||
Premiums, commissions and fees receivable | 844.8 | 546.4 | |||||
Reinsurance recoverable | 65.4 | 477.8 | |||||
Prepaid reinsurance premiums | 337.9 | 321.0 | |||||
Other current assets | 128.7 | 47.9 | |||||
Total current assets | 2,167.3 | 2,242.2 | |||||
Fixed assets, net | 100.4 | 77.1 | |||||
Goodwill | 3,432.8 | 2,716.1 | |||||
Amortizable intangible assets, net | 898.8 | 641.0 | |||||
Investments | 17.4 | 13.9 | |||||
Other assets | 72.0 | 57.3 | |||||
Total assets | $ | 6,688.7 | $ | 5,747.6 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Premiums payable to insurance companies | $ | 857.6 | $ | 685.2 | |||
Losses and loss adjustment reserve | 65.2 | 476.7 | |||||
Unearned premiums | 337.9 | 321.0 | |||||
Premium deposits and credits due customers | 105.6 | 91.6 | |||||
Accounts payable | 87.3 | 64.2 | |||||
Accrued expenses and other liabilities | 279.4 | 228.8 | |||||
Current portion of long-term debt | 50.0 | 120.0 | |||||
Total current liabilities | 1,783.0 | 1,987.5 | |||||
Long-term debt | 1,457.0 | 856.1 | |||||
Deferred income taxes, net | 315.7 | 256.2 | |||||
Other liabilities | 132.4 | 65.1 | |||||
Shareholders’ equity: | |||||||
Common stock, par value $0.10 per share; authorized 560,000 shares; issued 293,380 shares and outstanding 279,583 shares at 2018, issued 286,929 shares and outstanding 276,210 shares at 2017 - in thousands | 29.3 | 28.7 | |||||
Additional paid-in capital | 615.3 | 483.9 | |||||
Treasury stock, at cost 13,797 and 10,719 shares at 2018 and 2017, respectively - in thousands | (477.6 | ) | (386.3 | ) | |||
Retained earnings | 2,833.6 | 2,456.4 | |||||
Total shareholders’ equity | 3,000.6 | 2,582.7 | |||||
Total liabilities and shareholders’ equity | $ | 6,688.7 | $ | 5,747.6 |
Consolidated Statements of Cash Flows*
(in millions, unaudited)
Twelve Months Ended December 31, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 344.3 | $ | 399.6 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization | 86.5 | 85.4 | |||||
Depreciation | 22.8 | 22.7 | |||||
Non-cash stock-based compensation | 33.5 | 30.6 | |||||
Change in estimated acquisition earn-out payables | 3.0 | 9.2 | |||||
Deferred income taxes | 14.9 | (102.2 | ) | ||||
Amortization of debt discount | 0.2 | 0.2 | |||||
Amortization and disposal of deferred financing costs | 1.5 | 1.7 | |||||
Net (gain) on sales of investments, fixed assets and customer accounts | (1.9 | ) | (1.8 | ) | |||
Payments on acquisition earn-outs in excess of original estimated payables | (12.5 | ) | (14.5 | ) | |||
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: | |||||||
Premiums, commissions and fees receivable (increase) | (93.6 | ) | (43.3 | ) | |||
Reinsurance recoverables decrease/(increase) | 412.4 | (399.7 | ) | ||||
Prepaid reinsurance premiums (increase) | (16.9 | ) | (12.4 | ) | |||
Other assets (increase) | (22.5 | ) | (9.7 | ) | |||
Premiums payable to insurance companies increase | 141.1 | 37.4 | |||||
Premium deposits and credits due customers increase | 13.8 | 7.8 | |||||
Losses and loss adjustment reserve (decrease)/increase | (411.5 | ) | 398.6 | ||||
Unearned premiums increase | 16.9 | 12.4 | |||||
Accounts payable increase | 21.9 | 26.8 | |||||
Accrued expenses and other liabilities increase | 22.8 | 25.5 | |||||
Other liabilities (decrease) | (9.2 | ) | (32.3 | ) | |||
Net cash provided by operating activities | 567.5 | 442.0 | |||||
Cash flows from investing activities: | |||||||
Additions to fixed assets | (41.5 | ) | (24.2 | ) | |||
Payments for businesses acquired, net of cash acquired | (923.9 | ) | (41.5 | ) | |||
Proceeds from sales of fixed assets and customer accounts | 5.0 | 4.1 | |||||
Purchases of investments | (9.3 | ) | (10.6 | ) | |||
Proceeds from sales of investments | 17.9 | 9.6 | |||||
Net cash used in investing activities | (951.8 | ) | (62.6 | ) | |||
Cash flows from financing activities: | |||||||
Payments on acquisition earn-outs | (14.0 | ) | (29.2 | ) | |||
Proceeds from long-term debt | 300.0 | — | |||||
Payments on long-term debt | (120.0 | ) | (96.8 | ) | |||
Deferred debt issuance costs | (0.8 | ) | (2.8 | ) | |||
Borrowings on revolving credit facilities | 600.0 | — | |||||
Payments on revolving credit facilities | (250.0 | ) | — | ||||
Issuances of common stock for employee stock benefit plans | 19.5 | 17.4 | |||||
Repurchase shares to fund tax withholdings for non-cash stock-based compensation | (12.1 | ) | (7.6 | ) | |||
Purchase of treasury stock | (91.3 | ) | (128.6 | ) | |||
Settlement of accelerated share repurchase program | (8.8 | ) | (11.3 | ) | |||
Cash dividends paid | (84.7 | ) | (77.7 | ) | |||
Net cash provided by (used in) financing activities | 337.8 | (336.6 | ) | ||||
Net (decrease)/increase in cash and cash equivalents inclusive of restricted cash | (46.5 | ) | 42.8 | ||||
Cash and cash equivalents inclusive of restricted cash at beginning of period | 824.1 | 781.3 | |||||
Cash and cash equivalents inclusive of restricted cash at end of period | $ | 777.6 | $ | 824.1 |
*In the preparation of this Statement of Cash Flows, beginning balance sheet balances for 2018 were adjusted to reflect the
Conference call, webcast and slide presentation
A conference call to discuss the results of the fourth quarter of 2018 will be held on
About
Forward-looking statements
This 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 fourth quarter and full year of 2018. 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 fourth quarter and full year of 2018 that its financial results differ from the current preliminary unaudited numbers set forth herein; those factors relevant to
Non-GAAP supplemental financial information
This press release contains references to the following non-GAAP financial measures as defined in Regulation G of
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 excluding 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.
Chief Financial Officer
(386) 239-5770
Source: Brown & Brown, Inc.