UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission 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: (386)(386) 252-9601
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
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
The number of shares of the Registrant’s common stock, $0.10 par value, outstanding as of October 30, 2017November 1, 2022 was 139,403,675.
BROWN & BROWN, INC.
INDEX
PAGE NO. | ||||
Item 1. | ||||
5 | ||||
6 | ||||
Condensed Consolidated Balance Sheets as of September 30, | 7 | |||
8 | ||||
10 | ||||
11 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 | ||
Item 3. | 50 | |||
Item 4. | 50 | |||
Item 1. | 52 | |||
Item 1A. | 52 | |||
Item 2. | 52 | |||
Item 6. | 53 | |||
54 |
2
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. 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. 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 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”:
3
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. All forward-looking statements 4 PART I — FINANCIAL INFORMATION ITEM 1 — Financial Statements (Unaudited) BROWN & BROWN, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended September 30, Nine months ended September 30, (in millions, except per share data) 2022 2021 2022 2021 REVENUES Commissions and fees $ 925.2 $ 769.7 $ 2,668.2 $ 2,309.6 Investment income 1.2 0.4 1.8 0.9 Other income, net 1.2 0.2 2.0 2.4 Total revenues 927.6 770.3 2,672.0 2,312.9 EXPENSES Employee compensation and benefits 470.3 395.0 1,341.3 1,220.1 Other operating expenses 169.6 101.1 450.6 291.7 (Gain)/loss on disposal — (0.3 ) (0.9 ) (4.3 ) Amortization 43.5 29.5 108.2 88.6 Depreciation 11.3 9.2 28.3 25.4 Interest 41.5 16.2 95.8 48.8 Change in estimated acquisition earn-out payables (26.6 ) 23.1 (33.1 ) 20.6 Total expenses 709.6 573.8 1,990.2 1,690.9 Income before income taxes 218.0 196.5 681.8 622.0 Income taxes 56.9 50.1 155.2 136.6 Net income $ 161.1 $ 146.4 $ 526.6 $ 485.4 Net income per share: Basic $ 0.57 $ 0.52 $ 1.86 $ 1.72 Diluted $ 0.57 $ 0.52 $ 1.85 $ 1.71 Dividends declared per share $ 0.103 $ 0.093 $ 0.309 $ 0.278 See accompanying Notes to Condensed Consolidated Financial Statements. 5 BROWN & BROWN, INC. CONDENSED CONSOLIDATED (UNAUDITED) Three months ended September 30, Nine months ended September 30, (in millions) 2022 2021 2022 2021 Net income $ 161.1 $ 146.4 $ 526.6 $ 485.4 Foreign currency translation (172.3 ) (2.9 ) (304.5 ) (6.7 ) Unrealized (loss) gain on available-for-sale debt securities, net of tax (0.4 ) (0.1 ) (1.6 ) 0.2 Comprehensive (loss) income $ (11.6 ) $ 143.4 $ 220.5 $ 478.9 See accompanying Notes to Condensed Consolidated Financial Statements. 6 BROWN & BROWN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in millions, except per share data) September 30, 2022 December 31, 2021 ASSETS Current Assets: Cash and cash equivalents $ 579.5 $ 693.2 Fiduciary cash 1,271.3 777.0 Short-term investments 11.2 12.9 Commission, fees and other receivables 625.3 522.6 Fiduciary receivables 723.4 693.7 Reinsurance recoverable 1,021.6 63.1 Prepaid reinsurance premiums 409.9 392.2 Other current assets 208.6 175.6 Total current assets 4,850.8 3,330.3 Fixed assets, net 239.2 212.0 Operating lease assets 214.5 197.0 Goodwill 6,522.3 4,736.8 Amortizable intangible assets, net 1,588.0 1,081.5 Investments 24.0 31.0 Other assets 219.5 206.8 Total assets $ 13,658.3 $ 9,795.4 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Fiduciary liabilities $ 1,994.7 $ 1,470.7 Losses and loss adjustment reserve 1,033.5 63.1 Unearned premiums 430.7 392.2 Accounts payable 276.3 242.7 Accrued expenses and other liabilities 435.9 456.2 Current portion of long-term debt 67.5 42.5 Total current liabilities 4,238.6 2,667.4 Long-term debt less unamortized discount and debt issuance costs 4,040.4 1,980.4 Operating lease liabilities 191.4 180.0 Deferred income taxes, net 572.3 386.8 Other liabilities 305.0 383.9 Shareholders’ Equity: Common stock, par value $0.10 per share; authorized 560.0 shares; issued 302.9 shares and outstanding 283.3 shares at 2022, issued 301.0 30.3 30.1 Additional paid-in capital 903.4 849.4 Treasury stock, at cost at 19.6 shares at 2022, 18.5 shares at 2021, respectively (748.0 ) (673.9 ) Accumulated other comprehensive loss (315.5 ) (9.4 ) Retained earnings 4,440.4 4,000.7 Total shareholders’ equity 4,310.6 4,196.9 Total liabilities and shareholders’ equity $ 13,658.3 $ 9,795.4 See accompanying Notes to Condensed Consolidated Financial Statements. 7 BROWN & BROWN, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) Common Stock (in millions, except per share data) Shares Outstanding Par Value Additional Treasury Accumulated Other Comprehensive Loss Retained Total Balance at December 31, 2021 282.5 $ 30.1 $ 849.4 $ (673.9 ) $ (9.4 ) $ 4,000.7 $ 4,196.9 Net income 220.3 220.3 Net unrealized holding (loss) gain on available-for-sale securities (0.9 ) (0.9 ) Foreign currency translation (2.1 ) (2.1 ) Shares issued - employee stock compensation plans: Employee stock purchase plan 2.7 2.7 Stock incentive plans 1.7 0.2 17.3 17.5 Repurchase shares to fund tax withholdings for non-cash stock-based compensation (0.7 ) (0.1 ) (45.9 ) (46.0 ) Purchase of treasury stock (0.4 ) (24.1 ) (24.1 ) Cash dividends paid ($0.1025 per share) (28.9 ) (28.9 ) Balance at March 31, 2022 283.1 $ 30.2 $ 823.5 $ (698.0 ) $ (12.4 ) $ 4,192.1 $ 4,335.4 Net income 145.2 145.2 Net unrealized holding (loss) gain on available-for- (0.3 ) (0.3 ) Foreign currency translation (0.1 ) (130.1 ) (130.2 ) Shares issued - employee stock compensation plans: Employee stock purchase plan 1.7 1.7 Stock incentive plans (0.1 ) — 12.1 12.1 Directors — — 0.9 0.9 Repurchase shares to fund tax withholdings for non-cash stock-based compensation — — (2.4 ) (2.4 ) Purchase of treasury stock (0.8 ) (50.0 ) (50.0 ) Cash dividends paid ($0.1025 per share) (29.0 ) (29.0 ) Balance at June 30, 2022 282.2 $ 30.2 $ 835.7 $ (748.0 ) $ (142.8 ) $ 4,308.3 $ 4,283.4 Net income 161.1 161.1 Net unrealized holding (loss) gain on available-for-sale securities (0.4 ) (0.4 ) Foreign currency translation 0.6 (172.3 ) (171.7 ) Shares issued - employee stock compensation plans: Employee stock purchase plan 0.8 0.1 39.1 39.2 Stock incentive plans — — 13.6 13.6 Agency acquisition 0.3 — 14.7 14.7 Repurchase shares to fund tax withholdings for non-cash stock-based compensation — — (0.3 ) (0.3 ) Purchase of treasury stock — Cash dividends paid ($0.1025 per share) (29.0 ) (29.0 ) Balance at September 30, 2022 283.3 $ 30.3 $ 903.4 $ (748.0 ) $ (315.5 ) $ 4,440.4 $ 4,310.6 Balance at December 31, 2020 283.0 $ 30.0 $ 794.9 $ (591.4 ) $ — $ 3,520.7 $ 3,754.2 Net income 199.7 199.7 Net unrealized holding (loss) gain on available-for-sale securities (0.5 ) 0.3 (0.2 ) Foreign currency translation (5.3 ) 0.2 (5.1 ) Shares issued - employee stock compensation plans: Employee stock purchase plan 3.0 3.0 Stock incentive plans 1.4 0.1 15.5 15.6 Agency acquisition 0.1 — 4.9 4.9 Repurchase shares to fund tax withholdings for non-cash stock-based compensation (1.0 ) (0.1 ) (44.9 ) (45.0 ) Purchase of treasury stock (1.5 ) (70.0 ) (70.0 ) Cash dividends paid ($0.0925 per share) (26.1 ) (26.1 ) Balance at March 31, 2021 282.0 $ 30.0 $ 772.9 $ (661.4 ) $ (5.0 ) $ 3,694.5 $ 3,831.0 Net income 139.3 139.3 Foreign currency translation 1.5 1.5 Shares issued - employee stock compensation plans: Employee stock purchase plan 2.0 2.0 Stock incentive plans — — 12.0 12.0 Directors — — 0.9 0.9 8 Repurchase shares to fund tax withholdings for non-cash stock-based compensation (0.1 ) — (3.2 ) (3.2 ) Purchase of treasury stock (0.2 ) (11.4 ) (11.4 ) Cash dividends paid ($0.0925 per share) (26.1 ) (26.1 ) Balance at June 30, 2021 281.7 $ 30.0 $ 784.6 $ (672.8 ) $ (3.5 ) $ 3,807.7 $ 3,946.0 Net income 146.4 146.4 Net unrealized holding (loss) gain on available-for-sale securities (0.1 ) (0.1 ) Foreign currency translation (2.9 ) (2.9 ) Shares issued - employee stock compensation plans: Employee stock purchase plan 0.8 0.1 35.2 35.3 Stock incentive plans — — 11.6 11.6 Repurchase shares to fund tax withholdings for non-cash stock-based compensation — — (1.3 ) (1.3 ) Purchase of treasury stock — (1.1 ) (1.1 ) Cash dividends paid ($0.0925 per share) (26.1 ) (26.1 ) Balance at September 30, 2021 282.5 $ 30.1 $ 830.1 $ (673.9 ) $ (6.5 ) $ 3,928.0 $ 4,107.8 See accompanying Notes to Condensed Consolidated Financial Statements. 9 BROWN & BROWN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH (UNAUDITED) Nine months ended September 30, (in millions) 2022 2021 Cash flows from operating activities: Net income $ 526.6 $ 485.4 Adjustments to reconcile net income to net cash provided by operating activities: Amortization 108.2 88.6 Depreciation 28.3 25.4 Non-cash stock-based compensation 50.3 46.7 Change in estimated acquisition earn-out payables (33.1 ) 20.6 Deferred income taxes 40.2 25.4 Amortization of debt discount and disposal of deferred financing costs 2.8 2.1 Amortization (accretion) of discounts and premiums, investment 0.2 0.1 Net (gain)/loss on sales/disposals of investments, fixed assets and customer accounts — (2.0 ) Payments on acquisition earn-outs in excess of original estimated payables (24.3 ) (5.7 ) Effect of changes in foreign exchange rate changes (0.4 ) 0.5 Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: Commissions, fees and other receivables (increase) decrease (47.4 ) (75.8 ) Reinsurance recoverable (increase) decrease (958.5 ) (177.0 ) Prepaid reinsurance premiums (increase) decrease (17.7 ) (33.6 ) Other assets (increase) decrease (15.1 ) (6.5 ) Losses and loss adjustment reserve increase (decrease) 970.4 177.0 Unearned premiums increase (decrease) 38.5 33.6 Accounts payable increase (decrease) 80.3 54.5 Accrued expenses and other liabilities increase (decrease) (63.4 ) (0.8 ) Other liabilities increase (decrease) (86.1 ) (30.7 ) Net cash provided by operating activities 599.8 627.8 Cash flows from investing activities: Additions to fixed assets (32.4 ) (34.6 ) Payments for businesses acquired, net of cash acquired (1,889.7 ) (178.0 ) Proceeds from sales of fixed assets and customer accounts 2.2 9.3 Purchases of investments — (12.4 ) Proceeds from sales of investments 7.3 9.3 Net cash used in investing activities (1,912.6 ) (206.4 ) Cash flows from financing activities: Fiduciary receivables and liabilities, net 24.4 0.1 Deferred acquisition purchase payment (5.1 ) — Payments on acquisition earn-outs (52.8 ) (36.1 ) Proceeds from long-term debt 2,000.0 — Payments on long-term debt (44.4 ) (52.5 ) Deferred debt issuance costs (23.3 ) — Borrowings on revolving credit facility 350.0 — Payments on revolving credit facilities (200.0 ) — Issuances of common stock for employee stock benefit plans 37.4 33.8 Repurchase shares to fund tax withholdings for non-cash stock-based compensation (48.7 ) (49.6 ) Purchase of treasury stock (74.1 ) (82.6 ) Cash dividends paid (86.9 ) (78.2 ) Net cash provided by (used in) financing activities 1,876.5 (265.1 ) Effect of foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash (183.1 ) (2.3 ) Net increase in cash and cash equivalents inclusive of fiduciary cash 380.6 154.0 Cash and cash equivalents inclusive of fiduciary cash at beginning of period 1,470.2 1,271.9 Cash and cash equivalents inclusive of fiduciary cash at end of period $ 1,850.8 $ 1,425.9 See accompanying Notes to Condensed Consolidated Financial Statements. Refer to Note 10 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSwhich speakmade herein are made only as of their dates. We assume nothe date of this filing, 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 forward-looking statements.(in thousands, except per share data) For the three months
ended September 30, For the nine months
ended September 30, 2017 2016 2017 2016 REVENUES Commissions and fees $ 474,609 $ 461,652 $ 1,383,899 $ 1,329,649 Investment income 491 230 1,085 1,150 Other income, net 546 392 22,047 2,166 Total revenues 475,646 462,274 1,407,031 1,332,965 EXPENSES Employee compensation and benefits 246,062 237,653 736,445 692,814 Other operating expenses 72,058 67,433 210,289 197,329 Loss/(gain) on disposal (1,902 ) (277 ) (1,993 ) (3,131 ) Amortization 21,435 21,805 64,402 65,025 Depreciation 5,489 5,195 17,242 15,867 Interest 9,393 9,883 28,949 29,617 Change in estimated acquisition earn-out payables (1,308 ) 3,610 8,309 6,846 Total expenses 351,227 345,302 1,063,643 1,004,367 Income before income taxes 124,419 116,972 343,388 328,598 Income taxes 48,506 45,427 131,263 128,733 Net income $ 75,913 $ 71,545 $ 212,125 $ 199,865 Net income per share: Basic $ 0.54 $ 0.51 $ 1.52 $ 1.43 Diluted $ 0.53 $ 0.50 $ 1.49 $ 1.41 Dividends declared per share $ 0.14 $ 0.12 $ 0.41 $ 0.37 BALANCE SHEETS(in thousands, except per share data) September 30,
2017 December 31,
2016ASSETS Current Assets: Cash and cash equivalents $ 546,520 $ 515,646 Restricted cash and investments 276,687 265,637 Short-term investments 29,156 15,048 Premiums, commissions and fees receivable 525,943 502,482 Reinsurance recoverable 2,160,286 78,083 Prepaid reinsurance premiums 332,246 308,661 Other current assets 45,545 50,571 Total current assets 3,916,383 1,736,128 Fixed assets, net 71,296 75,807 Goodwill 2,701,488 2,675,402 Amortizable intangible assets, net 656,054 707,454 Investments 14,085 23,048 Other assets 54,971 44,895 Total assets $ 7,414,277 $ 5,262,734 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Premiums payable to insurance companies $ 653,289 $ 647,564 Losses and loss adjustment reserve 2,160,286 78,083 Unearned premiums 332,246 308,661 Premium deposits and credits due customers 97,917 83,765 Accounts payable 63,623 69,595 Accrued expenses and other liabilities 204,153 201,989 Current portion of long-term debt 120,000 55,500 Total current liabilities 3,631,514 1,445,157 Long-term debt less unamortized discount and debt issuance costs 860,741 1,018,372 Deferred income taxes, net 382,228 357,686 Other liabilities 56,147 81,308 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 14,884 14,811 Additional paid-in capital 493,821 468,443 Treasury stock, at cost at 9,320 shares at 2017 and 8,003 shares at 2016, respectively (315,072 ) (257,683 ) Retained earnings 2,290,014 2,134,640 Total shareholders’ equity 2,483,647 2,360,211 Total liabilities and shareholders’ equity $ 7,414,277 $ 5,262,734
shares and outstanding 282.5 shares at 2021, respectively
Paid-In
Capital
Stock
Earnings
sale securitiesFLOWS(UNAUDITED) For the nine months
ended September 30,(in thousands) 2017 2016 Cash flows from operating activities: Net income $ 212,125 $ 199,865 Adjustments to reconcile net income to net cash provided by operating activities: Amortization 64,402 65,025 Depreciation 17,242 15,867 Non-cash stock-based compensation 22,362 11,593 Change in estimated acquisition earn-out payables 8,309 6,846 Deferred income taxes 23,941 20,081 Amortization of debt discount 119 118 Amortization and disposal of deferred financing costs 1,309 1,207 Accretion of discounts and premiums, investment 20 36 Income tax benefit from exercise of shares from the stock benefit plans — (7,213 ) Net loss/(gain) on sales of investments, fixed assets and customer accounts (1,739 ) (2,860 ) Payments on acquisition earn-outs in excess of original estimated payables (13,800 ) (3,683 ) Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: Premiums, commissions and fees receivable (increase) (23,350 ) (31,324 ) Reinsurance recoverables (increase) (2,082,203 ) (300,036 ) Prepaid reinsurance premiums (increase) (23,585 ) (24,324 ) Other assets (increase) decrease (5,314 ) 1,231 Premiums payable to insurance companies increase 5,585 39,787 Premium deposits and credits due customers increase 14,030 27,914 Losses and loss adjustment reserve increase 2,082,203 300,036 Unearned premiums increase 23,585 24,324 Accounts payable increase 22,113 13,858 Accrued expenses and other liabilities increase (decrease) 1,018 (22,119 ) Other liabilities (decrease) (34,802 ) (17,094 ) Net cash provided by operating activities 313,570 319,135 Cash flows from investing activities: Additions to fixed assets (12,897 ) (13,135 ) Payments for businesses acquired, net of cash acquired (26,478 ) (113,219 ) Proceeds from sales of fixed assets and customer accounts 4,085 3,411 Purchases of investments (10,393 ) (24,332 ) Proceeds from sales of investments 5,178 16,716 Net cash used in investing activities (40,505 ) (130,559 ) Cash flows from financing activities: Payments on acquisition earn-outs (25,488 ) (23,872 ) Payments on long-term debt (91,750 ) (34,375 ) Deferred debt issuance costs (2,809 ) — Income tax benefit from exercise of shares from the stock benefit plans — 7,213 Issuances of common stock for employee stock benefit plans 17,387 15,959 (6,791 ) (8,395 ) Purchase of treasury stock (57,389 ) (11,250 ) Settlement (prepayment) of accelerated share repurchase program (7,500 ) 11,250 Cash dividends paid (56,801 ) (51,317 ) Net cash used in financing activities (231,141 ) (94,787 ) 41,924 93,789 781,283 673,173 $ 823,207 $ 766,962 810 for reconciliationthe reconciliations of cash and cash equivalents inclusive of restrictedfiduciary cash.BROWN & BROWN, INC.
(UNAUDITED)
NOTE 1·1 Nature of Operations
Brown & Brown, Inc., a Florida corporation, and its subsidiaries (collectively, “Brown & Brown” or the “Company”) is a diversified insurance agency, wholesale brokerage, insurance programs and servicesservice organization that markets and sells to its customers, insurance products and services, primarily in the property, casualty and employee benefits areas. Brown & Brown’s business is divided into four reportable segments: thesegments. The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual customers; theinsured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. The National Programs Segment, actingwhich acts as a managing general agent (“MGA”), provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through a nationwide networksnetwork of independent agents, including Brown & Brown retail agents; theagents. The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown Retail offices; and theretail agents. The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services and claims adjusting services.
The Company primarily operates as an agent or broker not assuming underwriting risks. However, we operate a write-your-own flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”). WNFIC’s underwriting business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the program administered by the Federal Emergency Management Agency (“FEMA”) to which premiums and underwriting exposure are ceded. The Company also operates two capitalized captive insurance facilities (the "Captives") for the purpose of facilitating additional underwriting capacity and to participate in underwriting results, one on a quota share basis, currently focused on property insurance for earthquake and wind exposed properties for policies placed by certain of our MGA businesses, and the other through excess of loss reinsurance layers associated with placements made by one of our MGA businesses focused on personal property primarily in the southeastern United States. The quota share Captive buys reinsurance, limiting, but not fully eliminating the Company's exposure to underwriting losses. The other Captive has capped exposure through contractual aggregate limits on the reinsurance participations it assumes.
NOTE 2·2 Basis of Financial Reporting
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Beginning January 1, 2022 the Company is presenting certain assets and liabilities that arise from activities in which the Company engages as an intermediary, where we collect premiums from insureds to remit to insurance companies, hold funds from insurance companies to distribute to insureds for claims on covered losses and hold refunds due to customers as fiduciary assets and fiduciary liabilities. Uncollected premiums are no longer presented in the same caption with commissions, fees and other receivables, but rather represented in a separate caption as fiduciary receivables. Likewise, payables to insurance companies and premium deposits due customers are now combined into a new caption as fiduciary liabilities. The caption “restricted cash” is now reflected as “fiduciary cash” along with non-restricted fiduciary cash balances previously reported within “cash and cash equivalents.” Fiduciary cash represents funds in the Company's possession collected from customers to be remitted to insurance companies and funds from insurance companies to be distributed to insureds for the settlement of claims or refunds. The net change in fiduciary cash is represented by the net change in fiduciary liabilities and fiduciary receivables and is presented as cash flows from financing activities in the statement of cash flows. Previously the net change in cash balances held to remit to insurance carriers or to return to customers was presented as cash flows from operating activities. All prior periods included in these financial statements have been recast to conform to this basis of presentation. The relevant balance sheet captions and how the December 31, 2021 balances as presented under the prior method relate to the current presentation are reflected in the tables below. Certain liabilities reported as premiums payable to insurance companies or within premiums deposits and credits due customers were deemed not to be fiduciary in nature and have been included within accounts payable in the current presentation. Likewise, a small component of accounts payable was deemed to be fiduciary in nature and is now included within fiduciary liabilities.
11
December 31, 2021 |
| ||||||||||
(in millions) | As reported |
|
| Change in presentation |
|
| As revised |
| |||
Cash and cash equivalents | $ | 887.0 |
|
| $ | (193.8 | ) |
| $ | 693.2 |
|
Restricted cash and investments |
| 583.2 |
|
|
| (583.2 | ) |
|
| — |
|
Fiduciary cash |
| — |
|
|
| 777.0 |
|
|
| 777.0 |
|
Total |
| 1,470.2 |
|
|
| — |
|
|
| 1,470.2 |
|
|
|
|
|
|
|
|
|
| |||
Premiums, commissions and fees receivables |
| 1,216.3 |
|
|
| (1,216.3 | ) |
|
| — |
|
Commissions, fees and other receivables |
| — |
|
|
| 522.6 |
|
|
| 522.6 |
|
Fiduciary receivables |
| — |
|
|
| 693.7 |
|
|
| 693.7 |
|
Total |
| 1,216.3 |
|
|
| — |
|
|
| 1,216.3 |
|
|
|
|
|
|
|
|
|
| |||
Premium payable to insurance companies |
| 1,384.6 |
|
|
| (1,384.6 | ) |
|
| — |
|
Premium deposits and credits due customers |
| 122.4 |
|
|
| (122.4 | ) |
|
| — |
|
Accounts payable |
| 206.4 |
|
|
| 36.3 |
|
|
| 242.7 |
|
Fiduciary liabilities |
| — |
|
|
| 1,470.7 |
|
|
| 1,470.7 |
|
Total | $ | 1,713.4 |
|
| $ | — |
|
| $ | 1,713.4 |
|
For the nine months ended September 30, 2021 |
| ||||||||||
(in millions) | As reported |
|
| Change in presentation |
|
| As revised |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
| |||
Premiums, commissions and fees receivable (1) | $ | (66.4 | ) |
| $ | (9.4 | ) |
| $ | (75.8 | ) |
Premiums payable to insurance companies |
| (38.0 | ) |
|
| 38.0 |
|
|
| — |
|
Premium deposits and credits due customers |
| 37.4 |
|
|
| (37.4 | ) |
|
| — |
|
Accounts payable |
| 45.8 |
|
|
| 8.7 |
|
|
| 54.5 |
|
|
|
|
|
|
|
|
|
| |||
Cash flows from financing activities: |
|
|
|
|
|
|
|
| |||
Fiduciary receivables and liabilities, net |
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Total restated changes in cash flows | $ | (21.2 | ) |
| $ | — |
|
| $ | (21.2 | ) |
(1) The caption of "Premiums, commissions and fees receivable" is now shown as "Commissions, fees and other receivables" in the Condensed Consolidated Statements of Cash Flows.
Recently Issued Accounting Pronouncements
In November 2016,March 2020, the Financial AccountingsAccounting Standards Board (“FASB”) issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We have evaluated our contracts and the available expedients provided by the new standard and can assert there is no impact to any carrying value of assets or liabilities as our floating-rate debt instruments that are indexed to LIBOR are carried at amortized cost.
Recently Adopted Accounting Standards Update (“ASU”) 2016-18, “Statement
None.
12
NOTE 3 Revenues
The following tables present the revenues disaggregated by revenue source:
|
| Three months ended September 30, 2022 |
| |||||||||||||||||||||
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other (8) |
|
| Total |
| ||||||
Base commissions (1) |
| $ | 360.6 |
|
| $ | 165.8 |
|
| $ | 103.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 630.1 |
|
Fees (2) |
|
| 130.6 |
|
|
| 56.2 |
|
|
| 18.4 |
|
|
| 41.1 |
|
|
| (0.2 | ) |
|
| 246.1 |
|
Other supplemental commissions (3) |
|
| 25.0 |
|
|
| 3.7 |
|
|
| 0.9 |
|
|
| — |
|
|
| — |
|
|
| 29.6 |
|
Profit-sharing contingent commissions (4) |
|
| 10.9 |
|
|
| (6.2 | ) |
|
| 3.1 |
|
|
| — |
|
|
| — |
|
|
| 7.8 |
|
Earned premium (5) |
|
| — |
|
|
| 11.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11.6 |
|
Investment income (6) |
|
| — |
|
|
| 0.3 |
|
|
| 0.1 |
|
|
| — |
|
|
| 0.8 |
|
|
| 1.2 |
|
Other income, net (7) |
|
| 1.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| 1.2 |
|
Total Revenues |
| $ | 528.2 |
|
| $ | 231.4 |
|
| $ | 126.3 |
|
| $ | 41.1 |
|
| $ | 0.6 |
|
| $ | 927.6 |
|
|
| Three months ended September 30, 2021 |
| |||||||||||||||||||||
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other (8) |
|
| Total |
| ||||||
Base commissions (1) |
| $ | 284.6 |
|
| $ | 133.6 |
|
| $ | 91.0 |
|
| $ | — |
|
| $ | — |
|
| $ | 509.2 |
|
Fees (2) |
|
| 109.9 |
|
|
| 49.9 |
|
|
| 17.9 |
|
|
| 43.7 |
|
|
| (0.5 | ) |
|
| 220.9 |
|
Other supplemental commissions (3) |
|
| 19.9 |
|
|
| 0.9 |
|
|
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| 22.0 |
|
Profit-sharing contingent commissions (4) |
|
| 8.7 |
|
|
| 6.5 |
|
|
| 2.4 |
|
|
| — |
|
|
| — |
|
|
| 17.6 |
|
Earned premium (5) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Investment income (6) |
|
| 0.2 |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.4 |
|
Other income, net (7) |
|
| 0.1 |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
|
Total Revenues |
| $ | 423.4 |
|
| $ | 191.1 |
|
| $ | 112.5 |
|
| $ | 43.7 |
|
| $ | (0.4 | ) |
| $ | 770.3 |
|
|
| Nine months ended September 30, 2022 |
| |||||||||||||||||||||
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other (8) |
|
| Total |
| ||||||
Base commissions (1) |
| $ | 1,055.7 |
|
| $ | 443.2 |
|
| $ | 277.1 |
|
| $ | — |
|
| $ | (0.1 | ) |
| $ | 1,775.9 |
|
Fees (2) |
|
| 369.4 |
|
|
| 137.6 |
|
|
| 52.0 |
|
|
| 128.8 |
|
|
| (1.0 | ) |
|
| 686.8 |
|
Other supplemental commissions (3) |
|
| 117.3 |
|
|
| 7.7 |
|
|
| 3.9 |
|
|
| — |
|
|
| — |
|
|
| 128.9 |
|
Profit-sharing contingent commissions (4) |
|
| 38.3 |
|
|
| 12.0 |
|
|
| 8.2 |
|
|
| — |
|
|
| — |
|
|
| 58.5 |
|
Earned premium (5) |
|
| — |
|
|
| 18.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18.1 |
|
Investment income (6) |
|
| — |
|
|
| 0.6 |
|
|
| 0.2 |
|
|
| — |
|
|
| 1.0 |
|
|
| 1.8 |
|
Other income, net (7) |
|
| 1.6 |
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| — |
|
|
| 0.1 |
|
|
| 2.0 |
|
Total Revenues |
| $ | 1,582.3 |
|
| $ | 619.3 |
|
| $ | 341.6 |
|
| $ | 128.8 |
|
| $ | — |
|
| $ | 2,672.0 |
|
|
| Nine months ended September 30, 2021 |
| |||||||||||||||||||||
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other (8) |
|
| Total |
| ||||||
Base commissions (1) |
| $ | 905.5 |
|
| $ | 369.7 |
|
| $ | 246.2 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,521.4 |
|
Fees (2) |
|
| 307.3 |
|
|
| 125.3 |
|
|
| 51.6 |
|
|
| 135.6 |
|
|
| (1.4 | ) |
|
| 618.4 |
|
Other supplemental commissions (3) |
|
| 100.6 |
|
|
| 2.8 |
|
|
| 3.2 |
|
|
| — |
|
|
| — |
|
|
| 106.6 |
|
Profit-sharing contingent commissions (4) |
|
| 32.8 |
|
|
| 23.9 |
|
|
| 6.5 |
|
|
| — |
|
|
| — |
|
|
| 63.2 |
|
Earned premium (5) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Investment income (6) |
|
| 0.3 |
|
|
| 0.4 |
|
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.9 |
|
Other income, net (7) |
|
| 0.9 |
|
|
| 0.2 |
|
|
| 0.3 |
|
|
| — |
|
|
| 1.0 |
|
|
| 2.4 |
|
Total Revenues |
| $ | 1,347.4 |
|
| $ | 522.3 |
|
| $ | 307.9 |
|
| $ | 135.6 |
|
| $ | (0.3 | ) |
| $ | 2,312.9 |
|
13
Contract Assets and Liabilities
The balances of contract assets and contract liabilities arising from contracts with customers as restricted cash. ASU 2016-18 is effective for periods beginning afterof September 30, 2022 and December 15, 2017. However,31, 2021 were as follows:
(in millions) |
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Contract assets |
| $ | 431.9 |
|
| $ | 361.8 |
|
Contract liabilities |
| $ | 89.4 |
|
| $ | 97.9 |
|
Unbilled receivables (contract assets) arise when the Company electedrecognizes revenue for amounts which have not yet been billed in the Company's systems and are reflected in commissions, fees and other receivables in the Company's Condensed Consolidated Balance Sheet. The increase in contract assets over the balance as of December 31, 2021 is due to early adopt fornormal seasonality, growth in our business, and from businesses acquired in the reporting period ended March 31, 2017current year.
Deferred revenue (contract liabilities) relates to payments received in advance of performance under the full retrospective approachcontract before the transfer of a good or service to the customer. Deferred revenue is reflected within accrued expenses and other liabilities for all periods presented. Withthose to be recognized in less than 12 months and in other liabilities for those to be recognized more than 12 months from the adoption of ASU 2016-18, the change in restricted cash is no longer reflected as a change in operating assets and liabilities, and the Statement of Cash Flows details the changesdate presented in the balanceCompany's Condensed Consolidated Balance Sheet.
As of cashSeptember 30, 2022, deferred revenue consisted of $55.9 million as current portion to be recognized within one year and cash equivalents inclusive$33.5 million in long-term to be recognized beyond one year. As of restricted cash. Net cash provided by operating activities forDecember 31, 2021, deferred revenue consisted of $67.4 million as current portion to be recognized within one year and $30.5 million in long-term deferred revenue to be recognized beyond one year.
During the nine months ended September 30, 2016 were previously reported as $270.6 million. With the retrospective adoption,2022 and 2021, the net cash provided by operating activities for the nine months ended September 30, 2016 is now reported as $319.1 million. The Company reflects cash collected from customers that is payable to insurance companies as restricted cash if segregationamount of this cash is required by the state of domicile for the office conducting this transaction or if required by contract with the relevant insurance company providing coverage. Cash collected from customers that is payable to insurance companies is reported in cash and cash equivalents if no such restriction is required.
Other Assets and Deferred Cost ("ASC 340")
Incremental cost to capitalizeobtain - The Company defers certain costs to obtain and costs to fulfill, customer contracts and recognize these costs over the associated life of the contract as the performance obligations are fulfilled. This evaluation includes assessing the costs that would qualify for capitalization as well as the timing to recognize these costs in future periods in accordance with ASC 340. Presently all costs to obtain, and costs to fulfill, customer contracts are expensed by the Company as incurred.
Cost to deferfulfill - The Company defers certain costs to fulfill a contractcontracts and recognizerecognizes these costs as the associated performance obligations are fulfilled. In order forThe cost to fulfill balance within the other current assets caption in the Company's Condensed Consolidated Balance Sheet as of September 30, 2022 was $89.7 million, which is inclusive of deferrals from businesses acquired in the current year of $12.1 million. The cost to fulfill balance as of December 31, 2021 was $89.3 million. For the nine months ended September 30, 2022, the Company had net expense of $11.7 million related to the release of previously deferred contract fulfillment costs associated with performance obligations that were satisfied in the period, net of current year deferrals for costs incurred that related to performance obligations yet to be deferred under ASC 340, the costs must (1) relate directly to a specific contract or anticipated contract, (2) generate or enhance resources that the Company will use in satisfying its obligations under the contract, and (3) be expected to be recovered through sufficient net cashflows from the contract. We are evaluating and believe the impact of ASC 340 related to contract fulfillment costs will primarily affect businesses that recognize revenue based upon on fees. Based upon the work completed to date, the Company does not expect the overall impact of the potential change to be significant on a full-year basis, but may impact the timing of recognizing expense among quarters.fulfilled.
14
NOTE 3·4 Net Income Per Share
Basic EPSnet income per share is computed based on the weighted average number of common shares (including restricted shares)participating securities) issued and outstanding during the period. Diluted EPSnet income per share is computed based on the weighted average number of common shares issued and outstanding plus equivalent shares, assuming the exerciseissuance of stock options.all potentially issuable common shares. The dilutive effect of stock optionspotentially issuable common shares is computed by application of the treasury-stocktreasury stock method. The following is a reconciliation between basic and diluted weighted average shares outstanding:
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||||||||||
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||||||||||||
(in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||
(in millions, except per share data) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||||
Net income | $ | 75,913 | $ | 71,545 | $ | 212,125 | $ | 199,865 |
| $ | 161.1 |
|
| $ | 146.4 |
|
| $ | 526.6 |
|
| $ | 485.4 |
| |||||||
Net income attributable to unvested awarded performance stock | (1,852 | ) | (1,873 | ) | (5,181 | ) | (5,210 | ) |
|
| (2.9 | ) |
|
| (3.1 | ) |
|
| (10.1 | ) |
|
| (10.9 | ) | |||||||
Net income attributable to common shares | $ | 74,061 | $ | 69,672 | $ | 206,944 | $ | 194,655 |
| $ | 158.2 |
|
| $ | 143.3 |
|
| $ | 516.5 |
|
| $ | 474.5 |
| |||||||
Weighted average number of common shares outstanding – basic | 139,756 | 140,129 | 140,012 | 139,642 |
|
| 283.0 |
|
|
| 282.1 |
|
|
| 282.7 |
|
|
| 282.1 |
| |||||||||||
Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic | (3,410 | ) | (3,668 | ) | (3,420 | ) | (3,640 | ) |
|
| (5.2 | ) |
|
| (5.9 | ) |
|
| (5.4 | ) |
|
| (6.3 | ) | |||||||
Weighted average number of common shares outstanding for basic earnings per common share | 136,346 | 136,461 | 136,592 | 136,002 | |||||||||||||||||||||||||||
Dilutive effect of stock options | 2,547 | 1,721 | 2,419 | 1,582 | |||||||||||||||||||||||||||
Weighted average number of common shares outstanding for basic |
|
| 277.8 |
|
|
| 276.2 |
|
|
| 277.3 |
|
|
| 275.8 |
| |||||||||||||||
Dilutive effect of potentially issuable common shares |
|
| 0.9 |
|
|
| 1.3 |
|
|
| 1.2 |
|
|
| 1.3 |
| |||||||||||||||
Weighted average number of shares outstanding – diluted | 138,893 | 138,182 | 139,011 | 137,584 |
|
| 278.7 |
|
|
| 277.5 |
|
|
| 278.5 |
|
|
| 277.1 |
| |||||||||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic | $ | 0.54 | $ | 0.51 | $ | 1.52 | $ | 1.43 |
| $ | 0.57 |
|
| $ | 0.52 |
|
| $ | 1.86 |
|
| $ | 1.72 |
| |||||||
Diluted | $ | 0.53 | $ | 0.50 | $ | 1.49 | $ | 1.41 |
| $ | 0.57 |
|
| $ | 0.52 |
|
| $ | 1.85 |
|
| $ | 1.71 |
|
NOTE 4·5 Business Combinations
During the nine months ended September 30, 2017,2022, Brown & Brown acquired all of the stock of seven insurance intermediaries, assets and assumed certain liabilities of sixten insurance intermediaries.intermediaries, and four books of business (customer accounts) for a total of 21 acquisitions. Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve12 months as permitted by Accounting Standards Codification Topic 805 —
The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.
Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Condensed Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the nine months ended September 30, 2017, several2022, adjustments were made within the permitted measurement period that resulted in an increasea decrease in the aggregate purchase price of the affected acquisitions of $1.5 million relating to the assumption of certain liabilities.$0.4 million. These measurement period adjustments have been reflected as current period adjustments in the nine months ended September 30, 20172022 in accordance with the guidance in ASU 2015-16 “Business Combinations”.Combinations.” The measurement period adjustments primarily impacted goodwill, with no effect on earnings or cash in the current period.
The following table summarizes the purchase price allocations made as of the date of each acquisition for current year acquisitions and adjustments made during the measurement period for prior year acquisitions. Cash paid for 21 acquisitions was $2,504.7 million during the nine months ended September 30, 2022. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. These adjustments are made in the period in which the amounts are determined, and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.
15
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Name |
| Business |
| Effective |
| Cash |
|
| Common stock issued |
|
| Other |
|
| Recorded |
|
| Net assets |
|
| Maximum |
| ||||||
Orchid Intermediate Holdings, L.P. (Orchid) |
| National Programs |
| March 31, 2022 |
| $ | 476.2 |
|
| $ | — |
|
| $ | — |
|
| $ | 10.8 |
|
| $ | 487.0 |
|
| $ | 20.0 |
|
GRP (Jersey) Holdco Limited (GRP) |
| Retail |
| July 1, 2022 |
|
| 1,839.8 |
|
|
| 14.7 |
|
|
| — |
|
|
| — |
|
|
| 1,854.5 |
|
|
| — |
|
First Insurance Solutions Ltd. (First) |
| Retail |
| July 8, 2022 |
|
| 13.0 |
|
|
| — |
|
|
| 1.4 |
|
|
| 8.3 |
|
|
| 22.7 |
|
|
| 8.4 |
|
BdB Holdings Limited (BdB) |
| Wholesale |
| August 1, 2022 |
|
| 75.3 |
|
|
| — |
|
|
| — |
|
|
| 11.4 |
|
|
| 86.7 |
|
|
| 36.3 |
|
Smithwick & Mariners Insurance, Inc. (Smithwick) |
| Retail |
| September 1, 2022 |
|
| 23.2 |
|
|
| — |
|
|
| 1.0 |
|
|
| 1.6 |
|
|
| 25.8 |
|
|
| 6.5 |
|
VistaNational Insurance Group, Inc. (VistaNational) |
| Retail |
| September 1, 2022 |
|
| 26.7 |
|
|
| — |
|
|
| 0.8 |
|
|
| 1.1 |
|
|
| 28.6 |
|
|
| 3.0 |
|
Other |
| Various |
| Various |
|
| 50.5 |
|
|
| — |
|
|
| 1.4 |
|
|
| 8.9 |
|
|
| 60.8 |
|
|
| 17.9 |
|
Total |
|
|
|
|
| $ | 2,504.7 |
|
| $ | 14.7 |
|
| $ | 4.6 |
|
| $ | 42.1 |
|
| $ | 2,566.1 |
|
| $ | 92.1 |
|
(in thousands) | |||||||||||||||||||||||
Name | Business Segment | Effective Date of Acquisition | Cash Paid | Other Payable | Recorded Earn-Out Payable | Net Assets Acquired | Maximum Potential Earn- Out Payable | ||||||||||||||||
Other | Various | Various | 26,478 | 11,395 | 1,332 | 39,205 | 11,605 | ||||||||||||||||
Total | $ | 26,478 | $ | 11,395 | $ | 1,332 | $ | 39,205 | $ | 11,605 |
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition and adjustments made during the measurement period of the prior year acquisitions.
(in millions) |
| Orchid |
|
| GRP |
|
| First |
|
| BdB |
|
| Smithwick |
|
| VistaNational |
|
| Other (1) |
|
| Total |
| ||||||||
Cash and equivalents |
| $ | 3.2 |
|
| $ | 80.3 |
|
| $ | 2.4 |
|
| $ | 15.8 |
|
| $ | — |
|
| $ | — |
|
| $ | 0.3 |
|
| $ | 102.0 |
|
Fiduciary cash |
|
| 40.5 |
|
|
| 457.5 |
|
|
| 1.4 |
|
|
| 13.6 |
|
|
| — |
|
|
| — |
|
|
| �� |
|
|
| 513.0 |
|
Fiduciary receivables |
|
| 12.5 |
|
|
| 127.4 |
|
|
| — |
|
|
| 21.6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 161.5 |
|
Other current assets |
|
| 0.1 |
|
|
| 86.9 |
|
|
| 1.0 |
|
|
| 5.1 |
|
|
| 0.2 |
|
|
| 1.4 |
|
|
| (9.2 | ) |
|
| 85.5 |
|
Fixed assets |
|
| 1.8 |
|
|
| 17.9 |
|
|
| — |
|
|
| 0.6 |
|
|
| — |
|
|
| 0.1 |
|
|
| 5.3 |
|
|
| 25.7 |
|
Goodwill |
|
| 400.5 |
|
|
| 1,365.1 |
|
|
| 12.9 |
|
|
| 53.7 |
|
|
| 20.5 |
|
|
| 21.2 |
|
|
| 48.3 |
|
|
| 1,922.2 |
|
Purchased customer accounts and other |
|
| 119.2 |
|
|
| 490.7 |
|
|
| 6.9 |
|
|
| 16.0 |
|
|
| 6.7 |
|
|
| 6.1 |
|
|
| 15.7 |
|
|
| 661.3 |
|
Non-compete agreements |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.7 |
|
|
| 1.2 |
|
Operating lease right-of-use assets |
|
| 6.0 |
|
|
| 18.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24.7 |
|
Other assets |
|
| 1.9 |
|
|
| 8.8 |
|
|
| — |
|
|
| 3.1 |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| 14.0 |
|
Total assets acquired |
|
| 585.7 |
|
|
| 2,653.3 |
|
|
| 24.6 |
|
|
| 129.8 |
|
|
| 27.5 |
|
|
| 28.9 |
|
|
| 61.3 |
|
|
| 3,511.1 |
|
Fiduciary liabilities |
|
| (53.0 | ) |
|
| (584.9 | ) |
|
| (1.4 | ) |
|
| (35.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (674.5 | ) |
Other current liabilities |
|
| (9.5 | ) |
|
| (62.3 | ) |
|
| (0.5 | ) |
|
| (2.1 | ) |
|
| (1.7 | ) |
|
| (0.3 | ) |
|
| (0.5 | ) |
|
| (76.9 | ) |
Deferred income tax, net |
|
| (30.2 | ) |
|
| (122.5 | ) |
|
| — |
|
|
| (4.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (156.7 | ) |
Operating lease liabilities |
|
| (6.0 | ) |
|
| (18.7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24.7 | ) |
Other long-term liabilities |
|
| — |
|
|
| (10.4 | ) |
|
| — |
|
|
| (1.8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12.2 | ) |
Total liabilities assumed |
|
| (98.7 | ) |
|
| (798.8 | ) |
|
| (1.9 | ) |
|
| (43.1 | ) |
|
| (1.7 | ) |
|
| (0.3 | ) |
|
| (0.5 | ) |
|
| (945.0 | ) |
Net assets acquired |
| $ | 487.0 |
|
| $ | 1,854.5 |
|
| $ | 22.7 |
|
| $ | 86.7 |
|
| $ | 25.8 |
|
| $ | 28.6 |
|
| $ | 60.8 |
|
| $ | 2,566.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) | Other | Total | ||||||
Other current assets | 98 | 98 | ||||||
Fixed assets | 47 | 47 | ||||||
Goodwill | 27,580 | 27,580 | ||||||
Purchased customer accounts | 12,858 | 12,858 | ||||||
Non-compete agreements | 595 | 595 | ||||||
Total assets acquired | 41,178 | 41,178 | ||||||
Other current liabilities | (1,284 | ) | (1,284 | ) | ||||
Deferred income tax, net | (689 | ) | (689 | ) | ||||
Total liabilities assumed | (1,973 | ) | (1,973 | ) | ||||
Net assets acquired | $ | 39,205 | $ | 39,205 |
The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 1514.3 years; and non-compete agreements, 54.2 years.
Goodwill of $27.6$1,922.2 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, National Programs, and Wholesale Brokerage and Service Segments in the amounts of $18.8$1,389.0 million, $7.3 million, $0.8$427.8 million, and $0.7$105.4 million, respectively. Of the total goodwill of $27.6$1,922.2 million, the amount currently deductible for income tax purposes is $26.3 million and$70.7 million. Of the remaining $1.3$1,851.5 million of goodwill, $1,846.5 million relates to thegoodwill that will not be deductible for income tax purposes and $5.0 million relates to recorded earn-out payables andwhich will not be deductible for income tax purposes until it is earned and paid.
16
For the acquisitions completed during 2017,2022, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through September 30, 2017,2022, included in the Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2017, were $3.2 million and $3.6 million, respectively.2022, was $116.9 million. The income before income taxes including the intercompany cost of capital charge, from the acquisitions completed through September 30, 2017,2022, included in the Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2017, were $0.9 million and $1.0 million, respectively.2022, was $7.5 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s estimated results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.
(UNAUDITED) |
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
(in millions, except per share data) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Total revenues |
| $ | 931.1 |
|
| $ | 879.1 |
|
| $ | 2,873.6 |
|
| $ | 2,641.1 |
|
Income before income taxes |
| $ | 218.9 |
|
| $ | 193.4 |
|
| $ | 696.0 |
|
| $ | 613.1 |
|
Net income |
| $ | 161.8 |
|
| $ | 144.1 |
|
| $ | 537.5 |
|
| $ | 478.5 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.57 |
|
| $ | 0.51 |
|
| $ | 1.90 |
|
| $ | 1.69 |
|
Diluted |
| $ | 0.57 |
|
| $ | 0.51 |
|
| $ | 1.89 |
|
| $ | 1.69 |
|
Weighted average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 277.8 |
|
|
| 276.5 |
|
|
| 277.5 |
|
|
| 276.1 |
|
Diluted |
|
| 278.7 |
|
|
| 277.8 |
|
|
| 278.7 |
|
|
| 277.4 |
|
(UNAUDITED) | For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||
(in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Total revenues | $ | 476,124 | $ | 465,014 | $ | 1,413,278 | $ | 1,341,511 | |||||||
Income before income taxes | $ | 124,582 | $ | 117,929 | $ | 345,608 | $ | 331,574 | |||||||
Net income | $ | 76,012 | $ | 72,130 | $ | 213,496 | $ | 201,675 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.54 | $ | 0.51 | $ | 1.52 | $ | 1.44 | |||||||
Diluted | $ | 0.53 | $ | 0.51 | $ | 1.50 | $ | 1.43 | |||||||
Weighted average number of shares outstanding: | |||||||||||||||
Basic | 136,346 | 136,461 | 136,592 | 136,002 | |||||||||||
Diluted | 138,893 | 138,182 | 139,011 | 137,584 |
As of September 30, 20172022 and 2016,2021, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
(in millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance as of the beginning of the period |
| $ | 232.9 |
|
| $ | 242.0 |
|
| $ | 291.0 |
|
| $ | 258.9 |
|
Additions to estimated acquisition earn-out payables |
|
| 25.2 |
|
|
| — |
|
|
| 42.1 |
|
|
| 25.2 |
|
Assumed acquisition earn-out payables |
|
| 34.8 |
|
|
| — |
|
|
| 34.8 |
|
|
| — |
|
Payments for estimated acquisition earn-out payables |
|
| (10.6 | ) |
|
| (1.9 | ) |
|
| (77.1 | ) |
|
| (41.8 | ) |
Subtotal |
|
| 282.3 |
|
|
| 240.1 |
|
|
| 290.8 |
|
|
| 242.3 |
|
Net change in earnings from estimated acquisition earn-out payables: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Change in fair value on estimated acquisition earn-out payables |
|
| (28.5 | ) |
|
| 21.8 |
|
|
| (38.1 | ) |
|
| 15.8 |
|
Interest expense accretion |
|
| 1.9 |
|
|
| 1.3 |
|
|
| 5.0 |
|
|
| 4.8 |
|
Net change in earnings from estimated acquisition |
|
| (26.6 | ) |
|
| 23.1 |
|
|
| (33.1 | ) |
|
| 20.6 |
|
Foreign currency translation adjustments during the year |
|
| (5.8 | ) |
|
| (0.3 | ) |
|
| (7.8 | ) |
|
| — |
|
Balance as of September 30, |
| $ | 249.9 |
|
| $ | 262.9 |
|
| $ | 249.9 |
|
| $ | 262.9 |
|
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Balance as of the beginning of the period | $ | 57,943 | $ | 73,447 | $ | 63,821 | $ | 78,387 | |||||||
Additions to estimated acquisition earn-out payables | 1,050 | 1,437 | 1,332 | 3,828 | |||||||||||
Payments for estimated acquisition earn-out payables | (23,511 | ) | (16,988 | ) | (39,288 | ) | (27,555 | ) | |||||||
Subtotal | 35,482 | 57,896 | 25,865 | 54,660 | |||||||||||
Net change in earnings from estimated acquisition earn-out payables: | |||||||||||||||
Change in fair value on estimated acquisition earn-out payables | (1,784 | ) | 2,883 | 6,402 | 4,704 | ||||||||||
Interest expense accretion | 476 | 727 | 1,907 | 2,142 | |||||||||||
Net change in earnings from estimated acquisition earn-out payables | (1,308 | ) | 3,610 | 8,309 | 6,846 | ||||||||||
Balance as of September 30, | $ | 34,174 | $ | 61,506 | $ | 34,174 | $ | 61,506 |
Of the $34.2$249.9 million estimated acquisition earn-out payables as of September 30, 2017, $28.72022, $100.5 million was recorded as accounts payable and $5.5$149.4 million was recorded as other non-current liabilities. As of September 30, 2017,2022, the maximum future acquisition contingency payments related to all acquisitions was $81.5$550.3 million, inclusive of the $34.2$249.9 million estimated acquisition earn-out payables as of September 30, 2017.2022. Four of the estimated acquisition earn-out payables assumed in connection with the acquisition of GRP included provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of September 30, 2022 is $2.8 million. The Company deems a significant increase to this amount to be unlikely. Included within the additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items within the allowable measurement period, which may therefore differ from previously reported amounts.
17
NOTE 5·6 Goodwill
Goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test. The Company completed its most recent annual assessment as of November 30, 2016,2021 and identified no impairment as a result of the evaluation.
The changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 20172022 are as follows:
(in thousands) | Retail | National Programs | Wholesale Brokerage | Services | Total | ||||||||||||||
Balance as of January 1, 2017 | $ | 1,354,667 | $ | 901,294 | $ | 284,869 | $ | 134,572 | $ | 2,675,402 | |||||||||
Goodwill of acquired businesses | 18,807 | 7,314 | 770 | 689 | 27,580 | ||||||||||||||
Goodwill disposed of relating to sales of businesses | (1,494 | ) | — | — | — | (1,494 | ) | ||||||||||||
Balance as of September 30, 2017 | $ | 1,371,980 | $ | 908,608 | $ | 285,639 | $ | 135,261 | $ | 2,701,488 |
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Total |
| |||||
Balance as of December 31, 2021 |
| $ | 2,987.2 |
|
| $ | 1,089.9 |
|
| $ | 488.4 |
|
| $ | 171.3 |
|
| $ | 4,736.8 |
|
Goodwill of acquired businesses |
|
| 1,389.0 |
|
|
| 427.8 |
|
|
| 105.4 |
|
|
| — |
|
|
| 1,922.2 |
|
Goodwill disposed of relating to sales of businesses |
|
| (2.6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2.6 | ) |
Foreign currency translation adjustments during the year |
|
| (118.1 | ) |
|
| (6.9 | ) |
|
| (9.1 | ) |
|
| — |
|
|
| (134.1 | ) |
Balance as of September 30, 2022 |
| $ | 4,255.5 |
|
| $ | 1,510.8 |
|
| $ | 584.7 |
|
| $ | 171.3 |
|
| $ | 6,522.3 |
|
NOTE 6·7 Amortizable Intangible Assets
Amortizable intangible assets at September 30, 20172022 and December 31, 20162021 consisted of the following:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||||||||||||||||||
(in millions) |
| Gross |
|
| Accumulated |
|
| Net |
|
| Weighted |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Weighted |
| ||||||||
Purchased customer accounts and other |
| $ | 2,972.9 |
|
| $ | (1,342.3 | ) |
| $ | 1,630.6 |
|
|
| 14.7 |
|
| $ | 2,311.6 |
|
| $ | (1,235.3 | ) |
| $ | 1,076.3 |
|
|
| 14.9 |
|
Non-compete agreements |
|
| 38.8 |
|
|
| (33.6 | ) |
|
| 5.2 |
|
|
| 4.5 |
|
|
| 37.6 |
|
|
| (32.4 | ) |
|
| 5.2 |
|
|
| 4.5 |
|
Foreign currency translation adjustments during the year |
|
| (49.3 | ) |
|
| 1.5 |
|
|
| (47.8 | ) |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| ||
Total |
| $ | 2,962.4 |
|
| $ | (1,374.4 | ) |
| $ | 1,588.0 |
|
|
|
|
| $ | 2,349.2 |
|
| $ | (1,267.7 | ) |
| $ | 1,081.5 |
|
|
|
|
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||||
(in thousands) | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Weighted Average Life (Years)(1) | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Weighted Average Life (Years)(1) | |||||||||||||||||||
Purchased customer accounts | $ | 1,458,405 | $ | (803,764 | ) | $ | 654,641 | 15.0 | $ | 1,447,680 | $ | (741,770 | ) | $ | 705,910 | 15.0 | |||||||||||
Non-compete agreements | 30,161 | (28,748 | ) | 1,413 | 6.8 | 29,668 | (28,124 | ) | 1,544 | 6.8 | |||||||||||||||||
Total | $ | 1,488,566 | $ | (832,512 | ) | $ | 656,054 | $ | 1,477,348 | $ | (769,894 | ) | $ | 707,454 |
Amortization expense for amortizable intangible assets for the years ending December 31, 2017, 2018, 2019, 20202022, 2023, 2024, 2025 and 20212026 is estimated to be $85.3$150.6 million, $80.6$165.8 million, $76.1$161.6 million, $68.7$158.8 million, and $65.4$152.8 million, respectively.
18
NOTE 7·8 Long-Term Debt
Long-term debt atSeptember 30, 2017 2022andDecember 31, 2016 2021consisted of the following:
(in millions) |
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Current portion of long-term debt: |
|
|
|
|
|
| ||
Current portion of 5-year term loan facility expires 2026 |
| $ | 12.5 |
|
| $ | 12.5 |
|
Current portion of 5-year term loan facility expires 2023 |
|
| 30.0 |
|
|
| 30.0 |
|
Current portion of 5-year term loan facility expires 2027 |
|
| 25.0 |
|
|
| — |
|
Total current portion of long-term debt |
|
| 67.5 |
|
|
| 42.5 |
|
Long-term debt: |
|
|
|
|
|
| ||
Note agreements: |
|
|
|
|
|
| ||
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, |
| $ | 499.7 |
|
| $ | 499.5 |
|
4.500% senior notes, semi-annual interest payments, net of the unamortized discount, |
|
| 349.6 |
|
|
| 349.6 |
|
2.375% senior notes, semi-annual interest payments, net of the unamortized discount, |
|
| 699.4 |
|
|
| 699.3 |
|
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, |
|
| 598.0 |
|
|
| — |
|
4.950% senior notes, semi-annual interest payments, net of the unamortized discount, |
|
| 591.9 |
|
|
| — |
|
Total notes |
|
| 2,738.6 |
|
|
| 1,548.4 |
|
Credit agreements: |
|
|
|
|
|
| ||
5-year term loan facility, periodic interest and principal payments, LIBOR plus up to |
|
| 225.0 |
|
|
| 234.4 |
|
5-year revolving loan facility, periodic interest payments, LIBOR plus up to 1.525%, plus commitment fees up to 0.225%, expires October 27, 2026 |
|
| 150.0 |
|
|
| — |
|
5-year term loan facility, periodic interest and principal payments, LIBOR plus up to |
|
| 187.5 |
|
|
| 210.0 |
|
3-year term loan facility, periodic interest and principal payments, SOFR plus up to 1.625%, expires March 31, 2025 |
|
| 300.0 |
|
|
| — |
|
5-year term loan facility, periodic interest and principal payments, SOFR plus up to 1.750%, expires March 31, 2027 |
|
| 462.5 |
|
|
| — |
|
Total credit agreements |
|
| 1,325.0 |
|
|
| 444.4 |
|
Debt issuance costs (contra) |
|
| (23.2 | ) |
|
| (12.4 | ) |
Total long-term debt less unamortized discount and debt issuance costs |
|
| 4,040.4 |
|
|
| 1,980.4 |
|
Current portion of long-term debt |
|
| 67.5 |
|
|
| 42.5 |
|
Total debt |
| $ | 4,107.9 |
|
| $ | 2,022.9 |
|
(in thousands) | September 30, 2017 | December 31, 2016 | |||||
Current portion of long-term debt: | |||||||
Current portion of 5-year term loan facility expires June 28, 2022 | $ | 20,000 | $ | 55,000 | |||
4.500% senior notes, Series E, quarterly interest payments, balloon due 2018 | 100,000 | — | |||||
Short-term promissory note | — | 500 | |||||
Total current portion of long-term debt | 120,000 | 55,500 | |||||
Long-term debt: | |||||||
Note agreements: | |||||||
4.500% senior notes, Series E, quarterly interest payments, balloon due 2018 | — | 100,000 | |||||
4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2024 | 498,904 | 498,785 | |||||
Total notes | 498,904 | 598,785 | |||||
Credit agreements: | |||||||
5-year term-loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires June 28, 2022 | 370,000 | 426,250 | |||||
5-year revolving-loan facility, periodic interest payments, LIBOR plus up to 1.500%, plus commitment fees up to 0.250%, expires June 28, 2022 | — | — | |||||
Total credit agreements | 370,000 | 426,250 | |||||
Debt issuance costs (contra) | (8,163 | ) | (6,663 | ) | |||
Total long-term debt less unamortized discount and debt issuance costs | 860,741 | 1,018,372 | |||||
Current portion of long-term debt | 120,000 | 55,500 | |||||
Total debt | $ | 980,741 | $ | 1,073,872 |
On September 18, 2014, the Company issued $500.0$500.0 million of 4.200%4.200% unsecured senior notesSenior Notes due in 2024. The senior notesSenior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions and regulations which are customary for credit rated obligations. At the time of funding, the proceeds were offered at a discount of the original note amount which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay the outstanding balance of $475.0$475.0 million on the revolvingRevolving Credit Facility and for other general corporate purposes. As of September 30, 20172022 and December 31, 2016,2021, there was an outstanding debt balance of $500.0$500.0 million exclusive of the associated discount balance.
On December 21, 2018, the Company entered into a term loan credit agreement (the “Term Loan Credit Agreement”) with the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, and certain other banks as co-syndication agents and as joint lead arrangers and joint bookrunners. The Term Loan Credit Agreement provides for an unsecured term loan in the initial amount of $300.0 million, which may, subject to lenders’ discretion, potentially be increased up to an aggregate amount of $450.0 million (the “Term Loan”). The Term Loan is repayable over the five-year term from the effective date of the Term Loan Credit Agreement, which was December 21, 2018. Based on the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating as determined by Moody’s Investor Service and Standard & Poor’s Rating Service, the rates of interest charged on the term loan are 1.00% to 1.75%, above the adjusted 1-Month LIBOR rate. On December 21, 2018, the Company borrowed $300.0 million under the Term Loan Credit Agreement and used $250.0 million of the proceeds to reduce indebtedness under the Revolving Credit Facility. As of September 30, 2022, there was an outstanding debt balance issued under the Term Loan of $217.5 million. As of December 31, 2021, there was an outstanding debt balance issued under the Term Loan of $240.0 million.
19
On March 11, 2019, the Company completed the issuance of $350.0 million aggregate principal amount of the Company's 4.500% Senior Notes due 2029. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions, which are customary for credit rated obligations. At the time of funding, the proceeds were offered at a discount of the original note amount, which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay a portion of the outstanding balance of $350.0 million on the Revolving Credit Facility, utilized in connection with the financing related to the Hays Companies acquisition and for other general corporate purposes. As of September 30, 2022 and December 31, 2021, there was an outstanding debt balance of $350.0 million exclusive of the associated discount balance.
On September 24, 2020, the Company completed the issuance of $700.0 million aggregate principal amount of the Company's 2.375% Senior Notes due 2031. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The notes are subject to certain covenant restrictions, which are customary for credit rated obligations. At the time of funding, the proceeds were offered at a discount of the original note amount, which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay a portion of the outstanding balance of $200.0 million on the Revolving Credit Facility, utilized in connection with the financing related to the acquisitions of LP Insurance Services, LLP and CKP Insurance, LLC and for other general corporate purposes. As of September 30, 2022 and December 31, 2021, there was an outstanding debt balance of $700.0 million exclusive of the associated discount balance.
On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the revolving credit facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. As of September 30, 2022, there was an outstanding debt balance issued under the term loan of the Second Amended and Restated Credit Agreement of $237.5 million and $150.0 million outstanding against the Revolving Credit Facility. As of December 31, 2021, there was an outstanding debt balance issued under the term loan of the Second Amended and Restated Credit Agreement of $246.9 million with no borrowings outstanding against the Revolving Credit Facility.
On March 17, 2022, the Company completed the issuance of $600.0 million aggregate principal amount of the Company’s 4.200% Senior Notes due 2032 (the “2032 Notes”) and $600.0 million aggregate principal amount of the Company’s 4.950% Senior Notes due 2052 (the “2052 Notes,” and together with the 2032 Notes, the “Notes”). The net proceeds to the Company from the issuance of the Notes, after deducting underwriting discounts and estimated offering expenses, were approximately $1,178.2 million. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 stable outlook. The 2032 Notes bear interest at the rate of 4.200% per year and will mature on March 17, 2032. The 2052 Notes bear interest at the rate of 4.950% per year and will mature on March 17, 2052. Interest on the Notes will be payable semi-annually in arrears. The Notes are senior unsecured obligations of the Company and will rank equal in right of payment to all of the Company’s existing and future senior unsecured indebtedness. The Company may redeem the Notes in whole or in part at any time and from time to time, at the “make whole” redemption prices specified in the Prospectus Supplement for the Notes being redeemed, plus accrued and unpaid interest thereon to but excluding the redemption date. The Company used the net proceeds from the offering of the Notes, together with borrowings under its revolving credit facility, cash on hand and other borrowings, to fund the cash consideration and other amounts payable in connection with our acquisition of Social Security AdvocatesGRP (Jersey) Holdco Limited and its businesses ("GRP") and to pay fees and expenses associated with the foregoing. As of September 30, 2022, there was a total outstanding debt balance of $1,200.0 million exclusive of the associated discount balance on both Notes.
On March 31, 2022 (the "Effective Date"), the Company entered into a Loan Agreement (the “Loan Agreement”) with the lenders named therein, BMO Harris Bank N.A., as administrative agent, Fifth Third Bank, National Association, PNC Bank, National Association, U.S. Bank National Association and Wells Fargo Bank, National Association, as co-syndication agents and BMO Capital Markets Corp., BofA Securities, Inc., JPMorgan Chase Bank, N.A. and Truist Securities, Inc., as joint bookrunners and joint lead arrangers. The Loan Agreement evidences commitments for (i) unsecured delayed draw term loans in an aggregate amount of up to $300.0 million (the “Term A-1 Loan Commitment”) and (ii) unsecured delayed draw term loans in an amount of up to $500.0 million (the “Term A-2 Commitment” and, together with the Disabled (SSAD) effective February 1, 2016,Term A-1 Loan Commitments, the company added a $0.5 million promissory note incurred as a payment“Term Loan Commitments”). The Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment or the sellersterm loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. The Company may borrow term loans (the “Term Loans”) under either of the Term Loan Commitments during the period from the Effective Date until the date which is the first anniversary thereof. The Term Loans issued under the Term A-1 Loan Commitment (“Term A-1 Loans”) are due and payable afteron the one-yeardate that is the third anniversary of the acquisition.Effective Date unless such maturity date is extended as provided under the Loan Agreement. The note had a nominal rateTerm Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) are repayable in installments until the fifth anniversary the Effective Date with any remaining outstanding amounts due and payable on such fifth anniversary of interest 0.810%. On March 10, 2017, the promissory noteEffective Date unless such maturity date is extended as
20
provided under the Loan Agreement. The Loan Agreement includes various covenants (including financial covenants), limitations and events of default customary for similar facilities for similarly rated borrowers. As of September 30, 2022, there was settled, plus anyan outstanding accrued interest, using cash.
The Master Agreement and theSecond Amended and Restated Credit Agreement, Term Loan Credit Agreement and Loan Agreement require the Company to maintain certain financial ratios and comply with certain other covenants. The Company was in compliance with all such covenants as of September 30, 20172022 and December 31, 2016.
The 30-day Adjusted LIBOR Rate for the term loan of the Second Amended and Restated Credit Agreement and the Term Loan Credit Agreement as of September 30, 2017 was 1.250%2022 were each 3.125%. The 1-month Term SOFR Rate for the Term A-1 Loans is 2.945% and the 1-month Term SOFR Rate for the Term A-2 Loans is 3.134% as of September 30, 2022.
NOTE 9 Leases
Substantially all of the Company's operating lease right-of-use assets and operating lease liabilities represent real estate leases for office space used to conduct the Company's business that expire on various dates through 2041. Leases generally contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges. The Company anticipates that most of these leases will be renewed or replaced upon expiration.
The Company assesses at inception of a contract if it contains a lease. This assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.
The right-of-use asset is initially measured at cost, which is primarily composed of the initial lease liability, plus any initial direct costs incurred, less any lease incentives received. The lease liability is initially measured at the present value of the minimum lease payments through the term of the lease. Minimum lease payments are discounted to present value using the incremental borrowing rate at the lease commencement date, which approximates the rate of interest the Company expects to pay on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms and economic conditions. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a total term of 12 months or less. The effect of short-term leases on the Company's right-of-use asset and lease liability would not be significant.
The balances and classification of operating lease right-of-use assets and operating lease liabilities within the Condensed Consolidated Balance Sheet is as follows:
(in millions) |
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Assets: |
|
|
|
|
|
|
| ||
Operating lease right-of-use assets | Operating lease assets |
| $ | 214.5 |
|
| $ | 197.0 |
|
Total assets |
|
|
| 214.5 |
|
|
| 197.0 |
|
Liabilities: |
|
|
|
|
|
|
| ||
Current operating lease liabilities | Accrued expenses and other liabilities |
|
| 46.7 |
|
|
| 43.4 |
|
Non-current operating lease liabilities | Operating lease liabilities |
|
| 191.4 |
|
|
| 180.0 |
|
Total liabilities |
|
| $ | 238.1 |
|
| $ | 223.4 |
|
As of September 30, 2022, the Company has entered into future lease agreements expected to commence later in 2022 and 2023 consisting of undiscounted lease liabilities of $6.7 million and $2.7 million, respectively.
Lease expense for operating leases consists of the lease payments, inclusive of lease incentives, plus any initial direct costs, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Variable lease cost is lease payments that are based on an index or similar rate. They are initially measured using the index or rate in effect at lease commencement and are based on the minimum payments stated in the lease. Additional payments based on the change in an index or rate, or payments based on a change in the Company's portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred.
21
The components of lease cost for operating leases for the three and nine months ended September 30, 2022 and 2021 were:
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
(in millions) | 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating leases: |
|
|
|
|
|
|
|
|
|
|
| ||||
Lease cost | $ | 14.5 |
|
| $ | 13.0 |
|
| $ | 40.8 |
|
| $ | 39.6 |
|
Variable lease cost |
| 1.0 |
|
|
| 1.1 |
|
|
| 3.2 |
|
|
| 3.1 |
|
Short-term lease cost |
| 0.4 |
|
|
| 0.3 |
|
|
| 0.9 |
|
|
| 0.9 |
|
Operating lease cost | $ | 15.9 |
|
| $ | 14.4 |
|
| $ | 44.9 |
|
| $ | 43.6 |
|
Sublease income |
| (0.4 | ) |
|
| (0.6 | ) |
|
| (1.2 | ) |
|
| (1.3 | ) |
Total lease cost net | $ | 15.5 |
|
| $ | 13.8 |
|
| $ | 43.7 |
|
| $ | 42.3 |
|
The weighted average remaining lease term and the weighted average discount rate for operating leases as of September 30, 2022 were:
Weighted average remaining lease term | 6.21 | |||
Weighted average discount rate | 2.84 | % |
Maturities of the operating lease liabilities by fiscal year at September 30, 2022 for the Company's operating leases are as follows:
(in millions) |
| Operating leases |
| |
2022 (Remainder) |
| $ | 14.9 |
|
2023 |
|
| 55.5 |
|
2024 |
|
| 48.1 |
|
2025 |
|
| 40.1 |
|
2026 |
|
| 29.7 |
|
Thereafter |
|
| 74.3 |
|
Total undiscounted lease payments |
|
| 262.6 |
|
Less: Imputed interest |
|
| 24.5 |
|
Present value of lease payments |
| $ | 238.1 |
|
Supplemental cash flow information for operating leases for the three and nine months ended September 30, 2022 and 2021:
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
(in millions) | 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Cash paid for amounts included in measurement of liabilities |
|
|
|
|
|
|
|
|
|
|
| ||||
Operating cash flows from operating leases | $ | 16.1 |
|
| $ | 13.9 |
|
| $ | 43.9 |
|
| $ | 41.7 |
|
Right-of-use assets obtained in exchange for new operating liabilities | $ | 8.4 |
|
| $ | 14.1 |
|
| $ | 35.9 |
|
| $ | 34.1 |
|
NOTE 8·10 Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities
Throughout 2020, the Company deferred $31.1 million in employer-only payroll tax payments as allowed under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), which was signed into law on March 27, 2020. During the first nine months of 2022, there were no additional deferrals under the CARES Act. A payment of the cumulative deferred employer payroll taxes as of December 31, 2020 was paid in December 2021 and a second payment of $15.6 million is planned for December 31, 2022, as permitted under the CARES Act.
During the second quarter of 2021, the Company received an $8.1 million reimbursement for capitalizable costs of public infrastructure improvements related to the construction of the Company’s headquarters in accordance with an economic development grant agreement between the Company and the City of Daytona Beach and Volusia County. The reimbursement has been reflected as a reduction to the additions to fixed asset line item on the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021.
During the nine months ended September 30, 2022, the Company had an impact of $183.1 million on foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash reported on its Condensed Consolidated Statements of Cash Flows which is primarily due to the decrease in currency exchange rates for British pounds and an additional smaller loss from the decline in currency exchange rates related to euro and Canadian dollar.
22
Cash paid during the period for interest and income taxes are summarized as follows:
|
| Nine months ended September 30, |
| |||||
(in millions) |
| 2022 |
|
| 2021 |
| ||
Cash paid during the period for: |
|
|
|
|
|
| ||
Interest |
| $ | 103.3 |
|
| $ | 59.7 |
|
Income taxes, net of refunds |
| $ | 118.2 |
|
| $ | 103.9 |
|
For the nine months ended September 30, | |||||||
(in thousands) | 2017 | 2016 | |||||
Cash paid during the period for: | |||||||
Interest | $ | 32,504 | $ | 33,122 | |||
Income taxes | $ | 110,853 | $ | 104,739 |
Significant non-cash investing and financing activities are summarized as follows:
|
| Nine months ended September 30, |
| |||||
(in millions) |
| 2022 |
|
| 2021 |
| ||
Other payables issued for agency acquisitions and purchased customer accounts |
| $ | 4.6 |
|
| $ | 3.5 |
|
Estimated acquisition earn-out payables issued for agency acquisitions |
| $ | 42.1 |
|
| $ | 25.1 |
|
Assumed acquisition earn-out payables |
| $ | 34.8 |
|
| $ | — |
|
Contingent payable issued for agency acquisition |
| $ | — |
|
| $ | 24.1 |
|
Common stock issued for agency acquisition |
| $ | 14.7 |
|
| $ | 4.9 |
|
Notes payable assumed for agency acquisition |
| $ | 1.8 |
|
| $ | 1.3 |
|
For the nine months ended September 30, | |||||||
(in thousands) | 2017 | 2016 | |||||
Other payable issued for purchased customer accounts | $ | 11,395 | $ | 10,505 | |||
Estimated acquisition earn-out payables and related charges | $ | 1,332 | $ | 3,828 | |||
Notes payable issued or assumed for purchased customer accounts | $ | — | $ | 492 |
The Company's restricted cash balance is composed of funds held in separate premium trust accounts as required by state law or, in some cases, by agreement with carrier partners. The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of September 30, 20172022 and 2016.
Balance as of September 30, | |||||||
(in thousands) | 2017 | 2016 | |||||
Table to reconcile cash and cash equivalents inclusive of restricted cash | |||||||
Cash and cash equivalents | $ | 546,520 | $ | 488,683 | |||
Restricted cash | 276,687 | 278,279 | |||||
Total cash and cash equivalents inclusive of restricted cash at the end of the period | $ | 823,207 | $ | 766,962 |
(in millions) |
| September 30, |
|
| December 31, |
| ||
Table to reconcile restricted and non-restricted fiduciary cash |
|
|
|
|
|
| ||
Restricted fiduciary cash |
| $ | 1,113.0 |
|
| $ | 583.2 |
|
Non-restricted fiduciary cash |
|
| 158.3 |
|
|
| 193.8 |
|
Total restricted and non-restricted fiduciary cash at the end of the period |
| $ | 1,271.3 |
|
| $ | 777.0 |
|
The following is a reconciliation ofCompany's fiduciary cash and cash equivalents inclusive of restricted cashincreased as of September 30, 2022 compared to December 31, 2016 and 2015.
|
| Balance as of September 30, |
| |||||
(in millions) |
| 2022 |
|
| 2021 |
| ||
Table to reconcile cash, cash equivalents and fiduciary cash |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 579.5 |
|
| $ | 784.6 |
|
Fiduciary cash |
|
| 1,271.3 |
|
|
| 641.3 |
|
Total cash, cash equivalents and fiduciary cash at the end of the period |
| $ | 1,850.8 |
|
| $ | 1,425.9 |
|
Balance as of December 31, | |||||||
(in thousands) | 2016 | 2015 | |||||
Table to reconcile cash and cash equivalents inclusive of restricted cash | |||||||
Cash and cash equivalents | $ | 515,646 | $ | 443,420 | |||
Restricted cash | 265,637 | 229,753 | |||||
Total cash and cash equivalents inclusive of restricted cash at the end of the period | $ | 781,283 | $ | 673,173 |
NOTE 9·11 Legal and Regulatory Proceedings
The Company is involved in numerous pending or threatened proceedings by or against Brown & Brown, Inc. or one or more of its subsidiaries that arise in the ordinary course of business. The damages that may be claimed against the Company in these various proceedings are in some cases substantial, including in certain instances claims for punitive or extraordinary damages. Some of these claims and lawsuits have been resolved,resolved; others are in the process of being resolved and others are still in the investigation or discovery phase. The Company will continue to respond appropriately to these claims and lawsuits and to vigorously protect its interests.
The Company was successful in settling a lawsuit it had brought against certain former employees of Brown & Brown, their employer, AssuredPartners, Inc. and certain key executives of AssuredPartners. The settlement included a payment of $20,000,000 by AssuredPartners to Brown & Brown in exchange for releasing certain individuals from restrictive covenants in the employment contracts they had signed with the Company and provides protection for current Brown & Brown teammates from continued solicitation for employment by AssuredPartners.
23
On the basis of current information, the availability of insurance and legal advice, in management’s opinion, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, would have a material adverse effect on its financial condition, operations and/or cash flows.
NOTE 10·12 Segment Information
Brown & Brown’s business is divided into four reportable segments:(1) the Retail Segment, which provides a broad range of insurance products and services to commercial, public and quasi-public entities, and to professional and individual customers;customers, and non-insurance risk-mitigating products through our F&I businesses, (2) the National Programs Segment, which acts as aan MGA, provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through nationwide networks of independent agents, and Brown & Brown retail agents;agents, (3) the Wholesale Brokerage Segment, which markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown retail agents;agents, and (4) the Services Segment, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services and claims adjusting services.
Brown & Brown conducts allmost of its operations within the United States of America, except for a wholesale brokerage operationAmerica. International operations include Retail operations in England, Bermuda, the Cayman Islands, Ireland and Northern Ireland, National Programs operations in Canada and England, and Wholesale Brokerage operations based in London, England, Italy and retail operations in Bermuda and the Cayman Islands.Belgium. These operations earned $3.9$92.1 million and $3.8$17.4 million of total revenues for the three months ended September 30, 20172022 and 2016,2021, respectively. These operations earned $11.1$132.8 million and $10.3$54.0 million of total revenues for the nine months ended September 30, 20172022 and 2016,2021, respectively. Long-lived assets held outside of the United States as of September 30, 2017 and 2016 were not material.
The accounting policies of the reportable segments are the same as those described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company evaluates the performance of its segments based upon revenues and income before income taxes. Inter-segment2021. Intersegment revenues are eliminated.
Summarized financial information concerning the Company’s reportable segments is shown in the following table.tables. The “Other” column includes any income and expenses not allocated to reportable segments, corporate-related items, including the inter-companyintercompany interest expense charge to the reporting segment, and the elimination of inter-segment activities.
For the three months ended September 30, 2017 | |||||||||||||||||||||||
(in thousands) | Retail | National Programs | Wholesale Brokerage | Services | Other | Total | |||||||||||||||||
Total revenues | $ | 234,483 | $ | 127,718 | $ | 71,574 | $ | 41,491 | $ | 380 | $ | 475,646 | |||||||||||
Investment income | $ | 3 | $ | 124 | $ | — | $ | 72 | $ | 292 | $ | 491 | |||||||||||
Amortization | $ | 10,540 | $ | 6,913 | $ | 2,845 | $ | 1,137 | $ | — | $ | 21,435 | |||||||||||
Depreciation | $ | 1,262 | $ | 1,412 | $ | 471 | $ | 402 | $ | 1,942 | $ | 5,489 | |||||||||||
Interest expense | $ | 7,216 | $ | 8,304 | $ | 1,515 | $ | 876 | $ | (8,518 | ) | $ | 9,393 | ||||||||||
Income before income taxes | $ | 54,950 | $ | 32,203 | $ | 21,219 | $ | 7,910 | $ | 8,137 | $ | 124,419 | |||||||||||
Total assets | $ | 4,246,422 | $ | 5,026,918 | $ | 1,258,783 | $ | 432,331 | $ | (3,550,177 | ) | $ | 7,414,277 | ||||||||||
Capital expenditures | $ | 844 | $ | 1,357 | $ | 214 | $ | 364 | $ | 1,270 | $ | 4,049 |
For the three months ended September 30, 2016 | |||||||||||||||||||||||
(in thousands) | Retail | National Programs | Wholesale Brokerage | Services | Other | Total | |||||||||||||||||
Total revenues | $ | 228,645 | $ | 123,632 | $ | 70,192 | $ | 39,586 | $ | 219 | $ | 462,274 | |||||||||||
Investment income | $ | 5 | $ | 96 | $ | — | $ | 57 | $ | 72 | $ | 230 | |||||||||||
Amortization | $ | 10,861 | $ | 6,921 | $ | 2,882 | $ | 1,140 | $ | 1 | $ | 21,805 | |||||||||||
Depreciation | $ | 1,508 | $ | 1,945 | $ | 503 | $ | 473 | $ | 766 | $ | 5,195 | |||||||||||
Interest expense | $ | 9,026 | $ | 10,844 | $ | 1,540 | $ | 1,257 | $ | (12,784 | ) | $ | 9,883 | ||||||||||
Income before income taxes | $ | 44,894 | $ | 32,319 | $ | 20,862 | $ | 5,971 | $ | 12,926 | $ | 116,972 | |||||||||||
Total assets | $ | 3,652,977 | $ | 2,933,568 | $ | 1,053,516 | $ | 342,360 | $ | (2,460,394 | ) | $ | 5,522,027 | ||||||||||
Capital expenditures | $ | 1,443 | $ | 2,153 | $ | 11 | $ | 80 | $ | 504 | $ | 4,191 |
|
| Three months ended September 30, 2022 |
| |||||||||||||||||||||
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other |
|
| Total |
| ||||||
Total revenues |
| $ | 528.2 |
|
| $ | 231.4 |
|
| $ | 126.3 |
|
| $ | 41.1 |
|
| $ | 0.6 |
|
| $ | 927.6 |
|
Investment income |
| $ | — |
|
| $ | 0.3 |
|
| $ | 0.1 |
|
| $ | — |
|
| $ | 0.8 |
|
| $ | 1.2 |
|
Amortization |
| $ | 28.2 |
|
| $ | 11.4 |
|
| $ | 2.6 |
|
| $ | 1.3 |
|
| $ | — |
|
| $ | 43.5 |
|
Depreciation |
| $ | 3.9 |
|
| $ | 4.6 |
|
| $ | 0.7 |
|
| $ | 0.4 |
|
| $ | 1.7 |
|
| $ | 11.3 |
|
Interest expense |
| $ | 22.8 |
|
| $ | 10.2 |
|
| $ | 3.2 |
|
| $ | 0.5 |
|
| $ | 4.8 |
|
| $ | 41.5 |
|
Income before income taxes |
| $ | 112.2 |
|
| $ | 69.7 |
|
| $ | 35.4 |
|
| $ | 4.7 |
|
| $ | (4.0 | ) |
| $ | 218.0 |
|
Total assets |
| $ | 7,128.1 |
|
| $ | 4,476.3 |
|
| $ | 1,366.5 |
|
| $ | 289.1 |
|
| $ | 398.3 |
|
| $ | 13,658.3 |
|
Capital expenditures |
| $ | 4.7 |
|
| $ | 3.3 |
|
| $ | 0.7 |
|
| $ | 0.3 |
|
| $ | 5.1 |
|
| $ | 14.1 |
|
|
| Three months ended September 30, 2021 |
| |||||||||||||||||||||
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other |
|
| Total |
| ||||||
Total revenues |
| $ | 423.4 |
|
| $ | 191.1 |
|
| $ | 112.5 |
|
| $ | 43.7 |
|
| $ | (0.4 | ) |
| $ | 770.3 |
|
Investment income |
| $ | 0.2 |
|
| $ | 0.1 |
|
| $ | — |
|
| $ | — |
|
| $ | 0.1 |
|
| $ | 0.4 |
|
Amortization |
| $ | 19.1 |
|
| $ | 6.8 |
|
| $ | 2.3 |
|
| $ | 1.3 |
|
| $ | — |
|
| $ | 29.5 |
|
Depreciation |
| $ | 2.8 |
|
| $ | 3.0 |
|
| $ | 0.6 |
|
| $ | 0.3 |
|
| $ | 2.5 |
|
| $ | 9.2 |
|
Interest expense |
| $ | 22.4 |
|
| $ | 2.2 |
|
| $ | 3.9 |
|
| $ | 0.7 |
|
| $ | (13.0 | ) |
| $ | 16.2 |
|
Income before income taxes |
| $ | 71.6 |
|
| $ | 72.4 |
|
| $ | 29.4 |
|
| $ | 7.1 |
|
| $ | 16.0 |
|
| $ | 196.5 |
|
Total assets |
| $ | 7,385.8 |
|
| $ | 3,789.4 |
|
| $ | 1,918.2 |
|
| $ | 449.5 |
|
| $ | (3,913.7 | ) |
| $ | 9,629.2 |
|
Capital expenditures |
| $ | 2.1 |
|
| $ | 4.7 |
|
| $ | 0.2 |
|
| $ | 0.9 |
|
| $ | 1.6 |
|
| $ | 9.5 |
|
24
|
| Nine months ended September 30, 2022 |
| |||||||||||||||||||||
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other |
|
| Total |
| ||||||
Total revenues |
| $ | 1,582.3 |
|
| $ | 619.3 |
|
| $ | 341.6 |
|
| $ | 128.8 |
|
| $ | — |
|
| $ | 2,672.0 |
|
Investment income |
| $ | — |
|
| $ | 0.6 |
|
| $ | 0.2 |
|
| $ | — |
|
| $ | 1.0 |
|
| $ | 1.8 |
|
Amortization |
| $ | 69.8 |
|
| $ | 27.9 |
|
| $ | 6.7 |
|
| $ | 3.9 |
|
| $ | (0.1 | ) |
| $ | 108.2 |
|
Depreciation |
| $ | 9.1 |
|
| $ | 10.9 |
|
| $ | 2.0 |
|
| $ | 1.2 |
|
| $ | 5.1 |
|
| $ | 28.3 |
|
Interest expense |
| $ | 69.9 |
|
| $ | 22.8 |
|
| $ | 10.0 |
|
| $ | 1.6 |
|
| $ | (8.5 | ) |
| $ | 95.8 |
|
Income before income taxes |
| $ | 378.8 |
|
| $ | 187.9 |
|
| $ | 94.8 |
|
| $ | 18.0 |
|
| $ | 2.3 |
|
| $ | 681.8 |
|
Total assets |
| $ | 7,128.1 |
|
| $ | 4,476.3 |
|
| $ | 1,366.5 |
|
| $ | 289.1 |
|
| $ | 398.3 |
|
| $ | 13,658.3 |
|
Capital expenditures |
| $ | 8.4 |
|
| $ | 14.2 |
|
| $ | 1.5 |
|
| $ | 0.8 |
|
| $ | 7.5 |
|
| $ | 32.4 |
|
|
| Nine months ended September 30, 2021 |
| |||||||||||||||||||||
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other |
|
| Total |
| ||||||
Total revenues |
| $ | 1,347.4 |
|
| $ | 522.3 |
|
| $ | 307.9 |
|
| $ | 135.6 |
|
| $ | (0.3 | ) |
| $ | 2,312.9 |
|
Investment income |
| $ | 0.3 |
|
| $ | 0.4 |
|
| $ | 0.1 |
|
| $ | — |
|
| $ | 0.1 |
|
| $ | 0.9 |
|
Amortization |
| $ | 56.9 |
|
| $ | 20.6 |
|
| $ | 7.1 |
|
| $ | 4.0 |
|
| $ | — |
|
| $ | 88.6 |
|
Depreciation |
| $ | 8.3 |
|
| $ | 7.5 |
|
| $ | 2.0 |
|
| $ | 1.1 |
|
| $ | 6.5 |
|
| $ | 25.4 |
|
Interest expense |
| $ | 67.6 |
|
| $ | 9.2 |
|
| $ | 12.2 |
|
| $ | 2.2 |
|
| $ | (42.4 | ) |
| $ | 48.8 |
|
Income before income taxes |
| $ | 293.4 |
|
| $ | 180.2 |
|
| $ | 74.5 |
|
| $ | 24.0 |
|
| $ | 49.9 |
|
| $ | 622.0 |
|
Total assets |
| $ | 7,385.8 |
|
| $ | 3,789.4 |
|
| $ | 1,918.2 |
|
| $ | 449.5 |
|
| $ | (3,913.7 | ) |
| $ | 9,629.2 |
|
Capital expenditures |
| $ | 5.8 |
|
| $ | 11.3 |
|
| $ | 1.3 |
|
| $ | 1.4 |
|
| $ | 14.8 |
|
| $ | 34.6 |
|
For the nine months ended September 30, 2017 | |||||||||||||||||||||||
(in thousands) | Retail | National Programs | Wholesale Brokerage | Services | Other | Total | |||||||||||||||||
Total revenues | $ | 712,739 | $ | 342,576 | $ | 208,812 | $ | 122,397 | $ | 20,507 | $ | 1,407,031 | |||||||||||
Investment income | $ | 6 | $ | 279 | $ | — | $ | 224 | $ | 576 | $ | 1,085 | |||||||||||
Amortization | $ | 31,704 | $ | 20,664 | $ | 8,621 | $ | 3,412 | $ | 1 | $ | 64,402 | |||||||||||
Depreciation | $ | 3,975 | $ | 4,975 | $ | 1,438 | $ | 1,191 | $ | 5,663 | $ | 17,242 | |||||||||||
Interest expense | $ | 23,918 | $ | 27,257 | $ | 4,803 | $ | 2,783 | $ | (29,812 | ) | $ | 28,949 | ||||||||||
Income before income taxes | $ | 151,783 | $ | 68,127 | $ | 56,569 | $ | 22,480 | $ | 44,429 | $ | 343,388 | |||||||||||
Total assets | $ | 4,246,422 | $ | 5,026,918 | $ | 1,258,783 | $ | 432,331 | $ | (3,550,177 | ) | $ | 7,414,277 | ||||||||||
Capital expenditures | $ | 3,384 | $ | 3,885 | $ | 1,606 | $ | 856 | $ | 3,166 | $ | 12,897 |
For the nine months ended September 30, 2016 | |||||||||||||||||||||||
(in thousands) | Retail | National Programs | Wholesale Brokerage | Services | Other | Total | |||||||||||||||||
Total revenues | $ | 695,393 | $ | 333,522 | $ | 184,893 | $ | 117,906 | $ | 1,251 | $ | 1,332,965 | |||||||||||
Investment income | $ | 33 | $ | 583 | $ | 4 | $ | 204 | $ | 326 | $ | 1,150 | |||||||||||
Amortization | $ | 32,743 | $ | 21,011 | $ | 7,915 | $ | 3,345 | $ | 11 | $ | 65,025 | |||||||||||
Depreciation | $ | 4,761 | $ | 5,881 | $ | 1,487 | $ | 1,432 | $ | 2,306 | $ | 15,867 | |||||||||||
Interest expense | $ | 29,415 | $ | 34,895 | $ | 2,472 | $ | 3,820 | $ | (40,985 | ) | $ | 29,617 | ||||||||||
Income before income taxes | $ | 144,496 | $ | 68,367 | $ | 51,711 | $ | 17,929 | $ | 46,095 | $ | 328,598 | |||||||||||
Total assets | $ | 3,652,977 | $ | 2,933,568 | $ | 1,053,516 | $ | 342,360 | $ | (2,460,394 | ) | $ | 5,522,027 | ||||||||||
Capital expenditures | $ | 4,664 | $ | 5,399 | $ | 925 | $ | 561 | $ | 1,586 | $ | 13,135 |
NOTE 11·13 Investments
AtSeptember 30, 2017,2022, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:
(in millions) |
| Cost |
|
| Gross |
|
| Gross |
|
| Fair value |
| ||||
U.S. Treasury securities, obligations of U.S. Government |
| $ | 22.9 |
|
| $ | — |
|
| $ | (1.9 | ) |
| $ | 21.0 |
|
Corporate debt |
|
| 8.2 |
|
|
| — |
|
|
| (0.4 | ) |
|
| 7.8 |
|
Other |
|
| 0.9 |
|
|
| — |
|
|
| — |
|
|
| 0.9 |
|
Total |
| $ | 32.0 |
|
| $ | — |
|
| $ | (2.3 | ) |
| $ | 29.7 |
|
(in thousands) | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities | $ | 32,724 | $ | 1 | $ | (94 | ) | $ | 32,631 | ||||||
Corporate debt | 1,407 | 16 | — | 1,423 | |||||||||||
Total | $ | 34,131 | $ | 17 | $ | (94 | ) | $ | 34,054 |
At September 30, 2017,2022, the Company held $32.6$21.0 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and $1.4$7.8 million issued by corporations with investment grade ratings. Of that total, $20.0$5.7 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one-year.one year. Additionally, the Company holds $9.2$5.5 million in short-term investments, which are related to time deposits held with various financial institutions.
For securities in a loss position, the following table shows the investments’ gross unrealized loss and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2017:2022:
|
| Less than 12 Months |
|
| 12 Months or More |
|
| Total |
| |||||||||||||||
(in millions) |
| Fair value |
|
| Unrealized |
|
| Fair value |
|
| Unrealized |
|
| Fair value |
|
| Unrealized |
| ||||||
U.S. Treasury securities, obligations of U.S. Government |
| $ | 5.6 |
|
| $ | (0.2 | ) |
| $ | 15.4 |
|
| $ | (1.7 | ) |
| $ | 21.0 |
|
| $ | (1.9 | ) |
Corporate debt |
|
| 5.2 |
|
|
| (0.1 | ) |
|
| 2.6 |
|
|
| (0.3 | ) |
|
| 7.8 |
|
|
| (0.4 | ) |
Total |
| $ | 10.8 |
|
| $ | (0.3 | ) |
| $ | 18.0 |
|
| $ | (2.0 | ) |
| $ | 28.8 |
|
| $ | (2.3 | ) |
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
(in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities | $ | 24,444 | $ | (60 | ) | $ | 7,364 | $ | (34 | ) | $ | 31,808 | $ | (94 | ) | ||||||||
Corporate debt | 200 | — | — | — | 200 | — | |||||||||||||||||
Total | $ | 24,644 | $ | (60 | ) | $ | 7,364 | $ | (34 | ) | $ | 32,008 | $ | (94 | ) |
At September 30, 2022, the Company had 42 securities in an unrealized loss position. The unrealized losses for the period ended June 30, 2022 were caused by interest rate increases. At September 30, 2017, the Company had 27 securities in an unrealized loss position. The corporate securities are highly rated securities with no indicators of potential impairment. Based on the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at September 30, 2017.
25
At December 31, 2016,2021, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:
(in millions) |
| Cost |
|
| Gross |
|
| Gross |
|
| Fair value |
| ||||
U.S. Treasury securities, obligations of U.S. Government |
| $ | 30.2 |
|
| $ | 0.2 |
|
| $ | (0.4 | ) |
| $ | 30.0 |
|
Corporate debt |
|
| 8.3 |
|
|
| 0.1 |
|
|
| (0.1 | ) |
|
| 8.3 |
|
Total |
| $ | 38.5 |
|
| $ | 0.3 |
|
| $ | (0.5 | ) |
| $ | 38.3 |
|
(in thousands) | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities | $ | 26,280 | $ | 11 | $ | (59 | ) | $ | 26,232 | ||||||
Corporate debt | 2,358 | 13 | (1 | ) | 2,370 | ||||||||||
Total | $ | 28,638 | $ | 24 | $ | (60 | ) | $ | 28,602 |
At December 31, 2016,2021, the Company held $26.2$30.0 million in fixed income securities composed of U.S. Treasury securities, securities issued by U.S. Government agencies and municipalities, and $2.4$8.3 million issued by corporations with investment grade ratings. Of that total, $5.6$7.4 million is classified as short-term investments on the Condensed Consolidated Balance Sheet as maturities are less than one-year. Additionally, the Company holds $9.5one year, which also includes $5.5 million in short-term investments which arethat is related to time deposits held with various financial institutions.
For securities in a loss position, the following table shows the investments’ gross unrealized loss and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2016:2021:
|
| Less than 12 Months |
|
| 12 Months or More |
|
| Total |
| |||||||||||||||
(in millions) |
| Fair value |
|
| Unrealized |
|
| Fair value |
|
| Unrealized |
|
| Fair value |
|
| Unrealized |
| ||||||
U.S. Treasury securities, obligations of U.S. Government |
| $ | 16.8 |
|
| $ | (0.3 | ) |
| $ | 1.0 |
|
| $ | — |
|
| $ | 17.8 |
|
| $ | (0.3 | ) |
Corporate debt |
|
| 3.9 |
|
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| 3.9 |
|
|
| (0.1 | ) |
Total |
| $ | 20.7 |
|
| $ | (0.4 | ) |
| $ | 1.0 |
|
| $ | — |
|
| $ | 21.7 |
|
| $ | (0.4 | ) |
Less than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
(in thousands) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities | $ | 14,663 | $ | (59 | ) | $ | — | $ | — | $ | 14,663 | $ | (59 | ) | |||||||||
Corporate debt | 1,001 | (1 | ) | — | — | 1,001 | (1 | ) | |||||||||||||||
Total | $ | 15,664 | $ | (60 | ) | $ | — | $ | — | $ | 15,664 | $ | (60 | ) |
The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2016,2021, the Company had 2023 securities in an unrealized loss position. The corporate securities are highly rated securities with no indicators of potential impairment. Based on the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at December 31, 2016.
The amortized cost and estimated fair value of the fixed maturity securities at September 30, 20172022 by contractual maturity are set forth below:
(in thousands) | Amortized Cost | Fair Value | |||||
Years to maturity: | |||||||
Due in one year or less | $ | 20,005 | $ | 19,969 | |||
Due after one year through five years | 13,893 | 13,843 | |||||
Due after five years | 233 | 242 | |||||
Total | $ | 34,131 | $ | 34,054 |
(in millions) |
| Amortized cost |
|
| Fair value |
| ||
Years to maturity: |
|
|
|
|
|
| ||
Due in one year or less |
| $ | 5.7 |
|
| $ | 5.7 |
|
Due after one year through five years |
| $ | 25.4 |
|
| $ | 23.1 |
|
Due after five years |
| $ | — |
|
| $ | — |
|
Total |
| $ | 31.1 |
|
| $ | 28.8 |
|
The amortized cost and estimated fair value of the fixed maturity securities at December 31, 20162021 by contractual maturity are set forth below:
(in millions) |
| Amortized cost |
|
| Fair value |
| ||
Years to maturity: |
|
|
|
|
|
| ||
Due in one year or less |
| $ | 7.3 |
|
| $ | 7.3 |
|
Due after one year through five years |
|
| 30.2 |
|
|
| 30.0 |
|
Due after five years |
|
| 1.0 |
|
|
| 1.0 |
|
Total |
| $ | 38.5 |
|
| $ | 38.3 |
|
(in thousands) | Amortized Cost | Fair Value | |||||
Years to maturity: | |||||||
Due in one year or less | $ | 5,551 | $ | 5,554 | |||
Due after one year through five years | 22,757 | 22,708 | |||||
Due after five years | 330 | 340 | |||||
Total | $ | 28,638 | $ | 28,602 |
The expected maturities in the foregoing table may differ from the contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalty.
Proceeds from the sales and maturity of the Company’s investment in fixed maturity securities were $2.7 million. This along withand maturing time deposits yielded total cash proceedswere $7.3 million from the sale of investments of $5.2 million in the period of January 1, 20172022 to September 30, 2017.2022. These proceeds were principally used to purchase additional fixed maturity securities and time deposits. The gains andfor general corporate purposes. There were losses realized on those salesthe sale of securities for the period from January 1, 20172022 to September 30, 2017 were insignificant.
Realized gains and losses are reported on the Condensed Consolidated Statements of Income, with the cost of securities sold determined on a specific identification basis.
At September 30, 2017,2022, investments with a fair value of approximately $4.0$4.0 million were on deposit with state insurance departments to satisfy regulatory requirements.
26
NOTE 12· Reinsurance
Although the reinsurers are liable to the Company for amounts reinsured, our subsidiary, Wright National Flood Insurance Company (“Wright Flood”WNFIC”) remains primarily liable to its policyholders for the full amount of the policies written whether or not the reinsurers meet their obligations to the Company when they become due. The Company also operates two Captives for the purpose of facilitating additional underwriting capacity and to participate in a portion of the underwriting results. One Captive participates on a quota share basis for policies placed by certain of our MGA businesses that are currently focused on property insurance for earthquake and wind exposed properties with a portion of premiums ceded to reinsurance companies, limiting, but not fully eliminating the Company's exposure to underwriting losses. The other Captive participates through excess of loss reinsurance layers associated with one of our MGA businesses focused on placements of personal property, excluding flood, primarily in the southeastern United States with one layer of per risk excess reinsurance and three layers of catastrophe ("CAT") per occurrence reinsurance. All four layers have limited reinstatements and therefore have capped, maximum aggregate limits. The effects of reinsurance on premiums written and earned are as follows:
Period from January 1, 2017 to September 30, 2017 | |||||||
(in thousands) | Written | Earned | |||||
Direct premiums | $ | 462,718 | $ | 439,134 | |||
Ceded premiums | (462,710 | ) | (439,126 | ) | |||
Net premiums | $ | 8 | $ | 8 |
|
| Nine months ended September 30, 2022 |
| |||||
(in millions) |
| Written |
|
| Earned |
| ||
Direct premiums - WNFIC |
| $ | 567.9 |
|
| $ | 563.0 |
|
Ceded premiums - WNFIC |
|
| (567.9 | ) |
|
| (563.0 | ) |
Net premiums - WNFIC |
|
| — |
|
|
| — |
|
Assumed premiums - Quota share captive and excess of loss layer captive |
|
| 54.0 |
|
|
| 27.6 |
|
Ceded premiums - Quota share captive |
|
| (22.3 | ) |
|
| (9.5 | ) |
Net premiums - Quota share captive and excess of loss layer captive |
|
| 31.7 |
|
|
| 18.1 |
|
Net premiums - Total |
| $ | 31.7 |
|
| $ | 18.1 |
|
All premiums written by Wright FloodWNFIC under the National Flood Insurance Program (“NFIP”) are 100%100% ceded to the Federal Emergency Management Agency, or FEMA, for which Wright FloodWNFIC received a 30.9%29.9% gross expense allowance from January 1, 20172022 through September 30, 2017.2022. For the period from January 1, 20172022 through September 30, 2017,2022, the Company ceded $461.5$565.7 million of written premiums.
As of September 30, 2017, no ceded unpaid losses and loss adjustment expenses or incurred but not reported expenses for Homeowners, Private Passenger Auto Liability and Other Liability Occurrence existed.
WNFIC maintains capital in excess of the minimum statutory amount of $7.5$7.5 million as required by regulatory authorities. The unaudited statutory capital and surplus of Wright FloodWNFIC was $26.7$33.5 million at September 30, 20172022 and $23.5$33.1 million as of December 31, 2016.2021. For the period from January 1, 20172022 through September 30, 2017, Wright Flood2022, WNFIC generated statutory net income of $2.9$0.6 million. For the period from January 1, 20162021 through December 31, 2016, Wright Flood2021, WNFIC generated statutory net income of $8.2$1.6 million.
In December 2021, the initial funding to capitalize the quota share Captive was $5.9 million. This capital in addition to current earnings of $1.8 million through September 30, 2022 is considered at risk for loss. Assumed net written and net earned premiums for the quota share Captive for the nine months ended September 30, 2022 were $31.7 million and $13.5 million, respectively. For nine months ended September 30, 2022, the ultimate loss expense inclusive of incurred but not reported ("IBNR") claims was $11.7 million, of which $11.2 million is related to the estimated insured losses with Hurricane Ian. In connection with the estimated IBNR from Hurricane Ian claims, $6.8 million was recorded as estimated reinsurance recoverable for a net expected loss of $4.4 million. As of September 30, 2022, there were no reported insured losses associated with Hurricane Ian due to the timing of its landfall in Florida on September 28, 2022 and in South Carolina on September 30, 2022. As of September 30, 2022 the Condensed Consolidated Balance Sheet contained prepaid reinsurance premiums of $12.8 million, deferred acquisitions costs of $13.5 million, reinsurance payable for $8.9 million, and the reserve for losses and loss adjustment expense, excluding related reinsurance recoverable, was $11.7 million. The first collateral release is expected in 2023 and is based on an IBNR factor times earned premium compared to the current collateral balance.
The excess of loss layer Captive was renewed in September 2022 with underlying reinsurance treaties effective from June 1 through May 31, 2023. This Captive’s maximum underwriting exposure is $5.2 million. Assumed net earned premiums for the captive for the nine months ended September 30, 2022 were $4.6 million. In September 2022, the captive recorded a CAT IBNR reserve of $7.0 million associated with estimated impacts from Hurricane Ian plus a non-CAT IBNR Reserve of $0.1 million. These reserves were partially offset by accelerated earned premiums of $2.4 million upon reaching the maximum aggregate loss for one of our reinsurance layers. The combination of earned premium of $2.2 million plus the accelerated earned premium resulted in an underwriting loss of $2.4 million for nine months ended September 30, 2022. As of September 30, 2022 the Condensed Consolidated Balance Sheet contained the reserve for losses and loss adjustment expense of $7.0 million.
27
NOTE 15·15 Shareholders’ Equity
Under the authorization from the Company’s Board of Directors, shares may be purchased from time to time, at the Company’s discretion and subject to the availability of stock, market conditions, the trading price of the stock, alternative uses for capital, the Company’s financial performance and other potential factors. These purchases may be carried out through open market purchases, block trades, accelerated share repurchase plans of up to $100.0$100.0 million each (unless otherwise approved by the Board of Directors), negotiated private transactions or
From April, 1 2022 to June 30, 2022, the Company completed share repurchases in the open market of 777,926 shares at a total cost of $50.0 million, at an average price of $64.27 per share.
From January 1, 2022 to March 31, 2022, the Company completed share repurchases in the open market of 386,083 shares at a total cost of $24.1 million, at an average price of $62.31 per share.
After completion of this ASR transaction,completing these open market share repurchases, the Company has outstanding approval to repurchasepurchase up to $302.4approximately $249.6 million, in the aggregate, of the Company's outstanding common stock.
During the first quarter, the Company paid a dividend of $0.1025 per share, which was approved by the Board of Directors on January 20, 2022 and paid on February 16, 2022 for a total of $28.9 million. During the second quarter, the Company paid a dividend of $0.1025 per share, which was approved by the Board of Directors on April 25, 2022 and paid on May 18, 2022 for a total of $29.0 million. During the third quarter, the Company paid a dividend of $0.1025 per share, which was approved by the Board of Directors on July 20, 2022 and paid on August 17, 2022 for a total of $29.0 million.
On October 18, 2022 the Board of Directors approved a dividend of $0.1150 per share payable on November 16, 2022 to shareholders of record on November 2, 2022.
On July 1, 2022, the Company issued 252,802 shares at a total value of $14.7 million associated with the acquisition of GRP.
28
ITEM 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion updates the MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s annual reportAnnual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, and the two discussions should be read together.
GENERAL
Company Overview —Third Quarterof 2017
The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, please see “Information Regarding Non-GAAP Financial Measures” below regarding important information on non-GAAP financial measures contained in our discussion and analysis.
We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquartered in Daytona Beach, Florida. As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales andor payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.
The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, and changes in general economic and competitive conditions, a health pandemic, and the occurrence of catastrophic weather events all affect our revenues. For example, level rateshigher levels of inflation, which increase the value of insurable exposure units, or a general decline in economic activity, which could limit increases indecrease the valuesvalue of insurable exposure units. Conversely, increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance coverage. Historically, we have grown our revenues have typically grown as a result of our focus on net new business growth and acquisitions. We foster a strong, decentralized sales and service culture, with the goal of consistent, sustained growth over the long-term.
The term “Organic Revenue”, a non-GAAP financial measure, is our “core commissions and fees” (which are our commissions and fees lessexcludes profit-sharing contingent commissions and less guaranteed supplemental commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered) less (i) therendered. The net change in core commissions and fees earned for the first twelve months by newly-acquired operations and (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period). “Organic Revenue” is reported in this manner in order to express the current year’s core commissions and fees on a comparable basis with the prior year’s core commissions and fees. The resulting net change reflects the aggregate changes attributable toto: (i) net new and lost accounts,accounts; (ii) net changes in our customers’ exposure units,units; (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners; and (iv) the net change in fees paid to us by our customers. 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 assessingcustomers; and evaluating the performance of its four segments. Organic revenue is reported in the Results of Operations and in the Results of Operations - Segment sections of this Quarterly Report on Form 10-Q.
We also earn “profit-sharing contingent commissions,” which are profit-sharing commissions based primarily on underwriting results, but whichin select situations may also reflect additional considerations for volume, growth and/or retention. These commissions, which are included in our commissions and fees in the Condensed Consolidated Statements of Income, are accrued throughout the year based on actual premiums written and are primarily received in the first and second quarters of each subsequent year, based upon the aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 3.6%3.0% of the previous year’s commissions and fees revenue. Profit-sharing contingent commissions are included in our commissions and fees in the Consolidated Statement of Income in the year received. For the three-month period ended September 30, 2017, profit-sharing contingent commissions were down $4.7 million as compared to the same period of the prior year, primarily realized in our Wholesale Brokerage Segment.
Fee revenues primarily relate to services other than securing coverage for our customers, and are recognized as services are rendered, as wellto a lesser extent as fees negotiated in lieu of commissions. Fee revenues have historically beenare generated primarily by: (1)(i) our Services Segment,segment, which is primarily a fee-based business that provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services; (2)(ii) our National Programs and Wholesale Brokerage Segments,segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and to a lesser extent (3)(iii) our Retail Segmentsegment in our large-account customer base.base, where we primarily earn fees for securing insurance for our customers, and in our automobile dealer services (“F&I”) businesses where we earn fees for assisting our customers with creating and selling warranty and service risk management programs. Fee revenues on a consolidated basis, as a percentage of our total commissions and fees, represented 31.3%27.4% in 2016, 30.6%2021 and 26.1% in 2015 and 30.6% in 2014.
For the three-month periodthree months ended September 30, 2017,2022, our total commissions and fees growth rate was 2.8%20.2%, and our consolidated organic revenueOrganic Revenue growth rate was 3.4%6.7%. In the event that the gradual increases in insurable exposure units that occurred in the past few years continues through 2017 and premium rate changes are similar with 2016, we believe we will continue to see positive quarterly organic revenue growth for the remainder of 2017.
Historically, investment income has consisted primarily of interest earnings on operating cash and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy as it relates to the Company’s capital is to invest available funds in high-quality, short-term money-market funds and fixed income investment securities. Investment income also includes gains and losses realized from the sale of investments. Other income primarily reflects legal settlements and other miscellaneous income.
29
Income before income taxes for the three-month periodthree months ended September 30, 20172022 increased from the third quarter of 20162021 by $7.4$21.5 million primarily as a result of aor 10.9%, driven by net new business, acquisitions completed in the past 12 months, and the year-over-year change in estimated acquisition earn-out payables which were partially offset by increased amortization expense as a result of our recent acquisitions completedalong with increased interest expense associated with higher average debt balances from debt issued and bank financing in the past twelve monthsfirst quarter of 2022 to fund the acquisitions of GRP (Jersey) Holdco Limited and profitsits businesses ("GRP"), Orchid Underwriters Agency and CrossCover Insurance Services ("Orchid") and BdB Limited companies ("BdB") as well as increases in the floating-rate benchmark used on our adjustable rate debt. The change in income before income taxes also reflects: (i) a negative impact to our profit-sharing contingent commissions of approximately $15.0 million and; (ii) losses of approximately $11.5 million associated with our Captives, both relating to the impacts from existing customers and net new business.
Information Regarding Non-GAAP Measures
In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with generally accepted accounting principles ("GAAP"(“GAAP”), we provide references to the following non-GAAP financial measures as defined in Regulation G of the SEC rules: organic revenueTotal Revenues - Adjusted, Organic Revenue, EBITDAC, EBITDAC Margin, EBITDAC - Adjusted and organic revenue growth. EBITDAC Margin - 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 and that we believe are not indicative of ongoing performance. 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 tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q under “Results of Operations - Segment Information.”
We view these non-GAAP financial measuresOrganic 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 they allowit 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.year and that are expected to continue in the future. We believe that organic revenue provides a meaningful representation of our operating performancealso view Total Revenues - Adjusted, EBITDAC, EBITDAC - Adjusted, EBITDAC Margin and view organic revenue growthEBITDAC Margin - Adjusted as an important indicatorindicators when assessing and evaluating theour performance, as they present more comparable measurements of our four segments. We alsooperating margins in a meaningful and consistent manner. As disclosed in our most recent proxy statement, we use organic revenue growthOrganic Revenue and EBITDAC Margin as key performance metrics for our short-term and long-term incentive compensation determinationsplans for executive officers and other key employees.
Beginning January 1, 2022, we include guaranteed supplemental commissions ("GSCs") as part of core commissions and fees and, therefore, GSCs are not in accordance with, or an alternative to the GAAP information provided ina component of Organic Revenue. All current and prior periods contained within this Quarterly Report on Form 10-Q. We present such10-Q have been adjusted for this treatment. GSCs are a stable source of revenue that are highly correlated to core commissions, so isolating them separately provided no meaningful incremental value in evaluating our revenue.
Beginning January 1, 2022, the following, in addition to the change in estimated acquisition earn-out payables, are excluded from certain non-GAAP supplemental financial information becausemeasures, as we believe these amounts are not indicative of the ongoing operating performance of the business and are not easily comparable from period-to-period:
We are presenting EBITDAC - Adjusted and because we believe they provide additional meaningful methods of evaluating certain aspects ofEBITDAC Margin - Adjusted for the Company’s operating performance from period to periodcurrent and prior year periods contained within this Quarterly Report on a basis that may not be otherwise apparent on a GAAP basis. We believeForm 10-Q so these non-GAAP financial measures improvecompare both periods on the comparability of results between periods by eliminatingsame basis.
Non-GAAP Revenue Measures
30
Non-GAAP Earnings Measures
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.adjustments and, therefore, comparability may be limited. This supplemental non-GAAP financial information should be considered in addition to, and not in lieu of, ourthe Company's Condensed Consolidated Financial Statements.
Acquisitions
Part of our continuing business strategy is to attract high-quality insurance intermediaries to join our operations. From 1993 through the third quarter of 2017,2022, we acquired 485601 insurance intermediary operations, excluding acquired books of business (customer accounts).
Critical Accounting Policies
We have had no changes to our Critical Accounting Policies.Policies as described in our most recent Form 10-K for the year ended December 31, 2021. We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business combinations and purchase price allocations including potential earn-out obligations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 in the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2016 on file with the Securities and Exchange Commission2021 for details regarding our critical and significant accounting policies.
31
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172022 AND 2016
The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Condensed Consolidated Financial Statements and related Notes.
Financial information relating to our Condensed Consolidated Financialcondensed consolidated financial results for the three andnine months ended September 30, 2017 2022and 2016 2021is as follows:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||
(in thousands, except percentages) | 2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||
REVENUES | |||||||||||||||||||||
Core commissions and fees | $ | 468,574 | $ | 450,464 | 4.0 | % | $ | 1,330,341 | $ | 1,274,170 | 4.4 | % | |||||||||
Profit-sharing contingent commissions | 3,542 | 8,247 | (57.1 | )% | 45,409 | 46,586 | (2.5 | )% | |||||||||||||
Guaranteed supplemental commissions | 2,493 | 2,941 | (15.2 | )% | 8,149 | 8,893 | (8.4 | )% | |||||||||||||
Investment income | 491 | 230 | 113.5 | % | 1,085 | 1,150 | (5.7 | )% | |||||||||||||
Other income, net | 546 | 392 | 39.3 | % | 22,047 | 2,166 | NMF | ||||||||||||||
Total revenues | 475,646 | 462,274 | 2.9 | % | 1,407,031 | 1,332,965 | 5.6 | % | |||||||||||||
EXPENSES | |||||||||||||||||||||
Employee compensation and benefits | 246,062 | 237,653 | 3.5 | % | 736,445 | 692,814 | 6.3 | % | |||||||||||||
Other operating expenses | 72,058 | 67,433 | 6.9 | % | 210,289 | 197,329 | 6.6 | % | |||||||||||||
Loss/(gain) on disposal | (1,902 | ) | (277 | ) | NMF | (1,993 | ) | (3,131 | ) | (36.3 | )% | ||||||||||
Amortization | 21,435 | 21,805 | (1.7 | )% | 64,402 | 65,025 | (1.0 | )% | |||||||||||||
Depreciation | 5,489 | 5,195 | 5.7 | % | 17,242 | 15,867 | 8.7 | % | |||||||||||||
Interest | 9,393 | 9,883 | (5.0 | )% | 28,949 | 29,617 | (2.3 | )% | |||||||||||||
Change in estimated acquisition earn-out payables | (1,308 | ) | 3,610 | (136.2 | )% | 8,309 | 6,846 | 21.4 | % | ||||||||||||
Total expenses | 351,227 | 345,302 | 1.7 | % | 1,063,643 | 1,004,367 | 5.9 | % | |||||||||||||
Income before income taxes | 124,419 | 116,972 | 6.4 | % | 343,388 | 328,598 | 4.5 | % | |||||||||||||
Income taxes | 48,506 | 45,427 | 6.8 | % | 131,263 | 128,733 | 2.0 | % | |||||||||||||
NET INCOME | $ | 75,913 | $ | 71,545 | 6.3 | % | $ | 212,125 | $ | 199,865 | 6.2 | % | |||||||||
Organic revenue growth rate (1) | 3.4 | % | 4.3 | % | 2.8 | % | 2.8 | % | |||||||||||||
Employee compensation and benefits relative to total revenues | 51.7 | % | 51.4 | % | 52.3 | % | 52.0 | % | |||||||||||||
Other operating expenses relative to total revenues | 15.1 | % | 14.6 | % | 14.9 | % | 14.8 | % | |||||||||||||
Capital expenditures | $ | 4,049 | $ | 4,191 | $ | 12,897 | $ | 13,135 | |||||||||||||
Total assets at September 30 | $ | 7,414,277 | $ | 5,522,027 |
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||
(in millions, except percentages) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Core commissions and fees |
| $ | 917.4 |
|
| $ | 752.1 |
|
|
| 22.0 | % |
| $ | 2,609.7 |
|
| $ | 2,246.4 |
|
|
| 16.2 | % |
Profit-sharing contingent commissions |
|
| 7.8 |
|
|
| 17.6 |
|
|
| (55.7 | )% |
|
| 58.5 |
|
|
| 63.2 |
|
|
| (7.4 | )% |
Investment income |
|
| 1.2 |
|
|
| 0.4 |
|
|
| 200.0 | % |
|
| 1.8 |
|
|
| 0.9 |
|
|
| 100.0 | % |
Other income, net |
|
| 1.2 |
|
|
| 0.2 |
|
| NMF |
|
|
| 2.0 |
|
|
| 2.4 |
|
|
| (16.7 | )% | |
Total revenues |
|
| 927.6 |
|
|
| 770.3 |
|
|
| 20.4 | % |
|
| 2,672.0 |
|
|
| 2,312.9 |
|
|
| 15.5 | % |
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Employee compensation and benefits |
|
| 470.3 |
|
|
| 395.0 |
|
|
| 19.1 | % |
|
| 1,341.3 |
|
|
| 1,220.1 |
|
|
| 9.9 | % |
Other operating expenses |
|
| 169.6 |
|
|
| 101.1 |
|
|
| 67.8 | % |
|
| 450.6 |
|
|
| 291.7 |
|
|
| 54.5 | % |
(Gain)/loss on disposal |
|
| — |
|
|
| (0.3 | ) |
| NMF |
|
|
| (0.9 | ) |
|
| (4.3 | ) |
| NMF |
| ||
Amortization |
|
| 43.5 |
|
|
| 29.5 |
|
|
| 47.5 | % |
|
| 108.2 |
|
|
| 88.6 |
|
|
| 22.1 | % |
Depreciation |
|
| 11.3 |
|
|
| 9.2 |
|
|
| 22.8 | % |
|
| 28.3 |
|
|
| 25.4 |
|
|
| 11.4 | % |
Interest |
|
| 41.5 |
|
|
| 16.2 |
|
|
| 156.2 | % |
|
| 95.8 |
|
|
| 48.8 |
|
|
| 96.3 | % |
Change in estimated acquisition |
|
| (26.6 | ) |
|
| 23.1 |
|
| NMF |
|
|
| (33.1 | ) |
|
| 20.6 |
|
| NMF |
| ||
Total expenses |
|
| 709.6 |
|
|
| 573.8 |
|
|
| 23.7 | % |
|
| 1,990.2 |
|
|
| 1,690.9 |
|
|
| 17.7 | % |
Income before income taxes |
|
| 218.0 |
|
|
| 196.5 |
|
|
| 10.9 | % |
|
| 681.8 |
|
|
| 622.0 |
|
|
| 9.6 | % |
Income taxes |
|
| 56.9 |
|
|
| 50.1 |
|
|
| 13.6 | % |
|
| 155.2 |
|
|
| 136.6 |
|
|
| 13.6 | % |
NET INCOME |
| $ | 161.1 |
|
| $ | 146.4 |
|
|
| 10.0 | % |
| $ | 526.6 |
|
| $ | 485.4 |
|
|
| 8.5 | % |
Income Before Income Taxes |
|
| 23.5 | % |
|
| 25.5 | % |
|
|
|
|
| 25.5 | % |
|
| 26.9 | % |
|
|
| ||
EBITDAC - Adjusted (2) |
| $ | 289.8 |
|
| $ | 274.0 |
|
|
| 5.8 | % |
| $ | 887.7 |
|
| $ | 800.3 |
|
|
| 10.9 | % |
EBITDAC Margin - Adjusted (2) |
|
| 31.2 | % |
|
| 35.6 | % |
|
|
|
|
| 33.2 | % |
|
| 34.6 | % |
|
|
| ||
Organic Revenue growth rate (2) |
|
| 6.7 | % |
|
| 8.6 | % |
|
|
|
|
| 8.3 | % |
|
| 10.9 | % |
|
|
| ||
Employee compensation and benefits |
|
| 50.7 | % |
|
| 51.3 | % |
|
|
|
|
| 50.2 | % |
|
| 52.8 | % |
|
|
| ||
Other operating expenses relative |
|
| 18.3 | % |
|
| 13.1 | % |
|
|
|
|
| 16.9 | % |
|
| 12.6 | % |
|
|
| ||
Capital expenditures |
| $ | 14.1 |
|
| $ | 9.5 |
|
|
| 48.4 | % |
| $ | 32.4 |
|
| $ | 34.6 |
|
|
| (6.4 | )% |
Total assets at September 30, |
|
|
|
|
|
|
|
|
|
| $ | 13,658.3 |
|
| $ | 9,629.2 |
|
|
| 41.8 | % |
(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure
NMF = Not a meaningful figure
Commissions and Fees
Commissions and fees, including profit-sharing contingent commissions, and GSCs, for the three months ended September 30, 20172022 increased $13.0$155.5 million to $474.6$925.2 million, or 2.8%20.2%, over the same period in 2016.2021. Core commissions and fees revenue for the third quarter of 20172022 increased $18.1$165.3 million, composed of : (i) approximately $50.4 million of net new and renewal business, which approximately $4.3reflects an Organic Revenue growth rate of 6.7%; (ii) $118.3 million represented core commissions and fees from agencies acquired since 2016acquisitions that had no comparable revenues in the same period of 2016. After accounting for2021; (iii) an offsetting decrease from the impact of foreign currency translation of $1.2 million; and (iv) an offsetting decrease of $2.2 million related to commissions and fees revenue from business divested business of $1.3 million,in the remaining net increase of $15.1 million represented net new and renewal business, which reflects an organic revenue growth rate of 3.4%.preceding twelve months. Profit-sharing contingent commissions and GSCs for the third quarter of 20172022 decreased by $5.2$9.8 million, or 46.1%55.7%, compared to the same period in 2016. The net decrease of $5.2 million in the third quarter was mainly2021, driven by a decreasereduction of approximately $15.0 million in profit-sharing contingent commissions inour National Programs segment relating to the Wholesale Brokerage Segment as a result of loss experience for insurance carriers.
For the nine months ended September 30, 20172022, commissions and fees, including profit-sharing contingent commissions, and GSCs, increased $54.3$358.6 million to $1,383.9$2,668.2 million, or 4.1%15.5%, over the same period in 2016.2021. Core commissions and fees revenue for the nine months ended September 30, 20172022 increased $56.2$363.3 million, composed of: (i) approximately $184.6 million of net new and renewal business, which approximately $22.9reflects an Organic Revenue growth rate of 8.3%; (ii) $188.4 million represented core commissions and fees from acquisitions that had no comparable revenues in the same period of 2016. After accounting for2021;
32
(iii) an offsetting decrease from the impact from foreign currency translation of $3.0 million; and (iv) an offsetting decrease of $6.7 million related to commissions and fees revenue from businesses divested business of $2.2 million,in the remaining net increase of $35.5 million represented net new and renewal business, which reflects an organic revenue growth rate of 2.8%.preceding 12 months. Profit-sharing contingent commissions and GSCs for the nine months ended September 30, 20172022 decreased by $1.9$4.7 million, or 3.5%7.4%, compared to the same period in 2016. The net decrease of $1.9 million in the first nine months of 2017 was mainly2021, driven by a decreasereduction of approximately $15.0 million in profit-sharing contingent commissions in the Retail and Wholesale Brokerage Segments as a result of loss experience for insurance carriers partially offset by an increase in theour National Programs Segment.
Investment Income
Investment income for the three months ended September 30, 20172022 increased $0.3$0.8 million, or 113.5% over200.0%, from the same period in 2016. The increase was primarily driven by cash management activities to earn a higher yield on excess cash balances.
Other Income net
Other income for the three months ended September 30, 2017 was $0.52022 increased $1.0 million to $1.2 million as compared with $0.4 million into the same period in 2016. Other income consists primarily of legal settlements and other miscellaneous income.
Employee Compensation and Benefits
Employee compensation and benefits expense as a percentage of total revenues increased to 51.7%was 50.7% for the three months ended September 30, 2017, from 51.4%2022 as compared to 51.3% for the three months ended September 30, 2016. Employee compensation2021, and benefits for the third quarter of 2017 increased approximately 3.5%19.1%, or $8.4 million, over the same period in 2016.$75.3 million. This net increase included (i) $0.4$55.2 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2016;2021. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2022 and 2021 increased by $20.1 million, or 5.2%. This underlying employee compensation and benefits expense increase was primarily related to: (i) increased claims associated with our self-insured employee health plan; (ii) an increase in staff salaries attributable to salary inflation and higher volumesinflation; (iii) an increase in portionsproducer compensation associated with revenue growth; partially offset by (iv) the year-over-year decrease of approximately $6.1 million in the value of deferred compensation liabilities driven by changes in the market prices of our business; (iii) increased producer commissions due to higher revenue; and (iv) the additional costemployees' investment elections associated with our deferred compensation plan, with such amount substantially offset within other operating expenses as we hold assets to fund these liabilities that closely match the Retail Segment's performance incentive plan introduced in 2017.
Employee compensation and benefits expense as a percentage of total revenues increased to 52.3%was 50.2% for the nine months ended September 30, 2017, from 52.0%2022 as compared to 52.8% for the nine months ended September 30, 2016. Employee compensation2021, and benefits for the first nine months of 2017 increased by approximately 6.3%9.9%, or $43.6 million, over the same period in 2016.$121.2 million. This increase included (i) $10.1$80.1 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2016;2021. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2022 and 2021 increased by $41.1 million, or 3.4%. This underlying employee compensation and benefits expense increase was primarily related to: (i) increased claims associated with our self-insured employee health plan; (ii) an increase in staff salaries attributable to salary inflation and higher volumesinflation; (iii) an increase in portionsaccrued performance bonuses; (iv) an increase in producer compensation associated with revenue growth; partially offset by (v) the year-over-year decrease of approximately $39.8 million in the value of deferred compensation liabilities driven by changes in the market prices of our business; (iii) increased producer commissions due to higher revenue; (iv) increased non-cash stock based compensation due to larger forfeiture credits recorded in 2016; and (v) the additional costemployees' investment elections associated with our deferred compensation plan, which was substantially offset by other operating expenses as we hold assets to fund these liabilities that closely match the Retail Segment's performance incentive plan introduced in 2017.
Other Operating Expenses
Other operating expenses represented 18.3% of total revenues other operating expenses represented 15.1% infor the third quarter of 2017, versus 14.6% reported in2022 as compared to 13.1% for the third quarter of 2016.2021. Other operating expenses for the third quarter of 20172022 increased $4.6$68.5 million, or 6.9%67.8%, overfrom the same period of 2016,2021. The net increase included: (i) $32.7 million of which $0.1 million wasother operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2016. The remaining other operating expenses for both three-month periods ended September 30, 20172021; (ii) losses of approximately $11.5 million recorded within our Captives as a result of the estimated insured property losses associated with Hurricane Ian; (iii) increased variable costs with travel and 2016, respectively, increased by $4.5entertainment being the largest driver; (iv) acquisition and integration costs associated with the acquisitions of Orchid, GRP, and BdB, and; (v) the year-over-year decrease of approximately $6.1 million in the value of assets held to fund the associated liabilities within our deferred compensation plan, which was primarily attributable to (i) increased expenses associated with our investment in information technologysubstantially offset within employee compensation and consulting; partially offset by (ii) a foreign exchange gains and (iii) the benefits from our strategic purchasing program.
Other operating expenses represented 14.9%16.9% of total revenues for the nine months ended September 30, 2017, versus 14.8%2022, as compared to 12.6% for the nine months ended September 30, 2016.2021. Other operating expenses for the first nine months of 20172022 increased $13.0$158.9 million, or 6.6%54.5%, overfrom the same period of 2016,2021. The net increase included: (i) $45.4 million of which $3.1 million wasother operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2016. The remaining other operating expenses for both2021; (ii) increased variable costs with travel and entertainment being the largest driver; (iii) losses of approximately $11.5 million recorded within our Captives as a result of the nine months ended September 30, 2017estimated insured property losses associated with Hurricane Ian; (iv) acquisition and 2016, respectively, increased by $9.8integration costs associated with the acquisitions of Orchid, GRP, and BdB, and; (v) the year-over-year decrease of approximately $39.8 million in the value of assets held to fund the associated liabilities within our deferred compensation plan, which was primarily attributable to (i) increased expenses associated with our investment in information technology; (ii) a credit of approximately $5.3 million associated with premium tax refunds recognized in the first nine months of 2016;substantially offset within employee compensation and (iii) partially offset by foreign exchange gains and (iv) the benefits from our strategic purchasing program.
33
(Gain)/Loss on Disposal
Gain on disposal for the third quarter of 2017 increased $1.62022 decreased $0.3 million from the third quarter of 2016.2021. Gain on disposal for the nine months ended September 30, 20172022 decreased $1.1$3.4 million from the nine months ended September 30, 2016.2021. The change in the gaingains on disposal for the three and nine months ended September 30, 2017 waswere due to activity associated with book of business sales. Although we aredo not in the business of sellingroutinely sell businesses or customer accounts, or businesses, we periodically sell an office or a book of business (one or more customer accounts) becausethat we believe does not produce reasonable margins or demonstrate a potential for growth, or because doing so is in the Company’s best interest.
Amortization
Amortization expense for the third quarter of 2017 decreased $0.42022 increased $14.0 million, or 1.7%47.5%, overcompared to the third quarter of 2016.2021. Amortization expense for the nine months ended September 30, 2017 decreased $0.62022 increased $19.6 million, or 1.0%22.1%, overcompared to the nine months ended September 30, 2016.2021. These decreasesincreases reflect certain intangibles becoming fully amortized, partially offset withthe amortization of new intangibles from recentlybusinesses acquired businesses.
Depreciation
Depreciation expense for the third quarter of 20172022 increased $0.3$2.1 million, or 5.7%22.8%, compared to the third quarter of 2016.2021. Depreciation expense for the nine months ended September 30, 20172022 increased $1.4$2.9 million, or 8.7%11.4%, overcompared to the nine months ended September 30, 2016. These changes were due primarily to2021. Changes in depreciation expense reflect the addition of fixed assets resulting from acquisitions completed sincebusiness initiatives, and net additions of fixed assets resulting from businesses acquired in the first ninepast 12 months, of 2016, net ofwhich were partially offset by fixed assets whichthat became fully depreciated.
Interest Expense
Interest expense for the third quarter of 2017 decreased $0.52022 increased $25.3 million, or 5.0%156.2%, compared to the third quarter of 2016.2021. Interest expense for the nine months ended September 30, 2017 decreased $0.72022 increased $47.0 million, or 2.3%96.3%, overcompared to the first nine months ended September 30, 2016. This decrease wasof 2021. These increases were due to a lower effective interest rate for our Credit Facility term loan and the scheduled amortized principal payments on the Credit Facility term loan, which has reduced the Company'shigher average debt balance.
Change in Estimated Acquisition Earn-Out Payables
Accounting Standards Codification (“ASC”) Topic 805-
The net charge or credit to the Condensed Consolidated StatementStatements of Income for the period is the combination of the net change in the estimated acquisition earn-out payables balance, and the interest expense imputed on the outstanding balance of the estimated acquisition earn-out payables.
As of September 30, 20172022 and 2016,2021, the fair values of the estimated acquisition earn-out payables were re-evaluated based upon projected operating results and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Change in fair value of estimated acquisition earn-out payables | $ | (1,784 | ) | $ | 2,883 | $ | 6,402 | $ | 4,704 | ||||||
Interest expense accretion | 476 | 727 | 1,907 | 2,142 | |||||||||||
Net change in earnings from estimated acquisition earn-out payables | $ | (1,308 | ) | $ | 3,610 | $ | 8,309 | $ | 6,846 |
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
(in millions) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Change in fair value of estimated acquisition earn-out payables |
| $ | (28.5 | ) |
| $ | 21.8 |
|
| $ | (38.1 | ) |
| $ | 15.8 |
|
Interest expense accretion |
|
| 1.9 |
|
|
| 1.3 |
|
|
| 5.0 |
|
|
| 4.8 |
|
Net change in earnings from estimated acquisition earn-out payables |
| $ | (26.6 | ) |
| $ | 23.1 |
|
| $ | (33.1 | ) |
| $ | 20.6 |
|
For the three months and nine months ended September 30, 2017 and 2016,2022, the fair value of estimated earn-out payables was re-evaluated and decreased by $1.8$28.5 million and increased by $2.9$38.1 million, respectively, which resulted in credits and charges to the Condensed Consolidated StatementStatements of Income, respectively. For the nine months ended September 30, 2017 and 2016, the fair value of estimated earn-out payables was re-evaluated and increased by $6.4 million and $4.7 million, respectively, which resulted in charges to the Condensed Consolidated Statement of Income.
As of September 30, 2017, the2022, estimated acquisition earn-out payables equaled $34.2totaled $249.9 million, of which $28.7$100.5 million was recorded as accounts payable and $5.5$149.4 million was recorded as other non-current liabilities.
34
Income Taxes
The effective tax rate on income from operations for the three months ended September 30, 20172022 and 20162021 was 39.0%26.1% and 38.8%,25.5% respectively. The effective tax rate on income from operations for the nine months ended September 30, 20172022 and 20162021 was 38.2%22.8% and 39.2%22.0%, respectively. The decrease for the nine months ended September 30, 2017 is related to the adoption in the first quarter of 2017, of FASB Accounting Standards Update 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”), which amends guidance issued in Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation, that requires upon vesting of stock based compensation, any tax implications be treated as a discrete credit to the income tax expense in the quarter of vesting.
35
RESULTS OF OPERATIONS — SEGMENT INFORMATION
As discussed in Note 1012 to the Condensed Consolidated Financial Statements, we operate four reportable segments: Retail, National Programs, Wholesale Brokerage, and Services. On a segmented basis, changes in amortization, depreciation and interest expenses generally result from activity associated with acquisitions. Likewise, other incomerevenues in each segment reflects net gains primarily from legal settlements and miscellaneous income. As such, in evaluating the operational efficiency of a segment, management focuses uponon the organic revenueOrganic Revenue growth rate of core commissions and fees revenue, the ratio of total employee compensation and benefits to total revenues, and the ratio of other operating expenses to total revenues.
The reconciliation of commissions and fees included in the Condensed Consolidated StatementStatements of Income to organic revenue for the three months ended September 30, 2017, and 2016, is as follows:
For the three months ended September 30, | |||||||
(in thousands) | 2017 | 2016 | |||||
Commissions and fees | $ | 474,609 | $ | 461,652 | |||
Less profit-sharing contingent commissions | 3,542 | 8,247 | |||||
Less guaranteed supplemental commissions | 2,493 | 2,941 | |||||
Core commissions and fees | 468,574 | 450,464 | |||||
Less acquisition revenues | 4,337 | — | |||||
Less divested business | — | 1,359 | |||||
Organic Revenue | $ | 464,237 | $ | 449,105 |
2017 | Retail(1) | National Programs | Wholesale Brokerage | Services | Total | ||||||||||||||||||||||||||||||||||
(in thousands, except percentages) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
Commissions and Fees | $ | 234,414 | $ | 228,468 | $ | 127,271 | $ | 123,523 | $ | 71,505 | $ | 70,132 | $ | 41,419 | $ | 39,529 | $ | 474,609 | $ | 461,652 | |||||||||||||||||||
Total Change | $ | 5,946 | $ | 3,748 | $ | 1,373 | $ | 1,890 | $ | 12,957 | |||||||||||||||||||||||||||||
Total Growth % | 2.6 | % | 3.0 | % | 2.0 | % | 4.8 | % | 2.8 | % | |||||||||||||||||||||||||||||
Contingent Commissions | 1,444 | 2,229 | 1,748 | 2,498 | 350 | 3,520 | — | — | 3,542 | 8,247 | |||||||||||||||||||||||||||||
GSCs | 2,164 | 2,516 | 5 | 14 | 324 | 411 | — | — | 2,493 | 2,941 | |||||||||||||||||||||||||||||
Core Commissions and Fees | $ | 230,806 | $ | 223,723 | $ | 125,518 | $ | 121,011 | $ | 70,831 | $ | 66,201 | $ | 41,419 | $ | 39,529 | $ | 468,574 | $ | 450,464 | |||||||||||||||||||
Acquisition Revenues | 2,726 | — | 1,043 | — | 568 | — | — | — | 4,337 | — | |||||||||||||||||||||||||||||
Divested Business | — | 1,306 | — | 53 | — | — | — | — | — | 1,359 | |||||||||||||||||||||||||||||
Organic Revenue(2) | $ | 228,080 | $ | 222,417 | $ | 124,475 | $ | 120,958 | $ | 70,263 | $ | 66,201 | $ | 41,419 | $ | 39,529 | $ | 464,237 | $ | 449,105 | |||||||||||||||||||
Organic Revenue Growth(2) | $ | 5,663 | $ | 3,517 | $ | 4,062 | $ | 1,890 | $ | 15,132 | |||||||||||||||||||||||||||||
Organic Revenue Growth %(2) | 2.5 | % | 2.9 | % | 6.1 | % | 4.8 | % | 3.4 | % |
2022 |
| Retail (1) |
|
| National Programs |
|
| Wholesale Brokerage |
|
| Services |
|
| Total |
| |||||||||||||||||||||||||
(in millions, except percentages) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||
Commissions and fees |
| $ | 526.9 |
|
| $ | 422.8 |
|
| $ | 231.1 |
|
| $ | 190.9 |
|
| $ | 126.1 |
|
| $ | 112.3 |
|
| $ | 41.1 |
|
| $ | 43.7 |
|
| $ | 925.2 |
|
| $ | 769.7 |
|
Total change |
| $ | 104.1 |
|
|
|
|
| $ | 40.2 |
|
|
|
|
| $ | 13.8 |
|
|
|
|
|
| (2.6 | ) |
|
|
|
| $ | 155.5 |
|
|
|
| |||||
Total growth % |
|
| 24.6 | % |
|
|
|
|
| 21.1 | % |
|
|
|
|
| 12.3 | % |
|
|
|
|
| (5.9 | )% |
|
|
|
|
| 20.2 | % |
|
|
| |||||
Profit-sharing contingent |
|
| (10.9 | ) |
|
| (8.7 | ) |
|
| 6.2 |
|
|
| (6.5 | ) |
|
| (3.1 | ) |
|
| (2.4 | ) |
|
| — |
|
|
| — |
|
|
| (7.8 | ) |
|
| (17.6 | ) |
Core commissions and fees |
| $ | 516.0 |
|
| $ | 414.1 |
|
| $ | 237.3 |
|
| $ | 184.4 |
|
| $ | 123.0 |
|
| $ | 109.9 |
|
| $ | 41.1 |
|
| $ | 43.7 |
|
| $ | 917.4 |
|
| $ | 752.1 |
|
Acquisitions |
|
| (82.7 | ) |
|
| — |
|
|
| (27.4 | ) |
|
| — |
|
|
| (8.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (118.3 | ) |
|
| — |
|
Dispositions |
|
| — |
|
|
| (0.7 | ) |
|
| — |
|
|
| (0.9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.6 | ) |
|
| — |
|
|
| (2.2 | ) |
Foreign currency translation |
|
| — |
|
|
| (1.0 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.2 | ) |
Organic Revenue (2) |
| $ | 433.3 |
|
| $ | 412.4 |
|
| $ | 209.9 |
|
| $ | 183.3 |
|
| $ | 114.8 |
|
| $ | 109.9 |
|
| $ | 41.1 |
|
| $ | 43.1 |
|
| $ | 799.1 |
|
| $ | 748.7 |
|
Organic Revenue growth (2) |
| $ | 20.9 |
|
|
|
|
| $ | 26.6 |
|
|
|
|
| $ | 4.9 |
|
|
|
|
| $ | (2.0 | ) |
|
|
|
| $ | 50.4 |
|
|
|
| |||||
Organic Revenue growth rate (2) |
|
| 5.1 | % |
|
|
|
|
| 14.5 | % |
|
|
|
|
| 4.5 | % |
|
|
|
|
| (4.6 | )% |
|
|
|
|
| 6.7 | % |
|
|
|
(1) The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of this 10-Q of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
The reconciliation of commissions and fees included in the Condensed Consolidated StatementStatements of Income to organic revenue for the three months ended September 30, 2016, and 2015, is as follows:
For the three months ended September 30, | |||||||
(in thousands) | 2016 | 2015 | |||||
Commissions and fees | $ | 461,652 | $ | 431,863 | |||
Less profit-sharing contingent commissions | 8,247 | 12,068 | |||||
Less guaranteed supplemental commissions | 2,941 | 2,520 | |||||
Core commissions and fees | 450,464 | 417,275 | |||||
Less acquisition revenues | 17,307 | — | |||||
Less divested business | — | 2,060 | |||||
Organic Revenue | $ | 433,157 | $ | 415,215 |
2016 | Retail(1) | National Programs | Wholesale Brokerage | Services | Total | ||||||||||||||||||||||||||||||||||
(in thousands, except percentages) | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||
Commissions and Fees | $ | 228,468 | $ | 215,630 | $ | 123,523 | $ | 116,919 | $ | 70,132 | $ | 61,332 | $ | 39,529 | $ | 37,982 | $ | 461,652 | $ | 431,863 | |||||||||||||||||||
Total Change | $ | 12,838 | $ | 6,604 | $ | 8,800 | $ | 1,547 | $ | 29,789 | |||||||||||||||||||||||||||||
Total Growth % | 6.0 | % | 5.6 | % | 14.3 | % | 4.1 | % | 6.9 | % | |||||||||||||||||||||||||||||
Contingent Commissions | 2,229 | 1,810 | 2,498 | 3,188 | 3,520 | 7,070 | — | — | 8,247 | 12,068 | |||||||||||||||||||||||||||||
GSCs | 2,516 | 2,061 | 14 | 10 | 411 | 449 | — | — | 2,941 | 2,520 | |||||||||||||||||||||||||||||
Core Commissions and Fees | $ | 223,723 | $ | 211,759 | $ | 121,011 | $ | 113,721 | $ | 66,201 | $ | 53,813 | $ | 39,529 | $ | 37,982 | $ | 450,464 | $ | 417,275 | |||||||||||||||||||
Acquisition Revenues | 6,248 | — | — | — | 8,764 | — | 2,295 | — | 17,307 | — | |||||||||||||||||||||||||||||
Divested Business | — | 158 | — | 585 | — | — | — | 1,317 | — | 2,060 | |||||||||||||||||||||||||||||
Organic Revenue(2) | $ | 217,475 | $ | 211,601 | $ | 121,011 | $ | 113,136 | $ | 57,437 | $ | 53,813 | $ | 37,234 | $ | 36,665 | $ | 433,157 | $ | 415,215 | |||||||||||||||||||
Organic Revenue Growth(2) | $ | 5,874 | $ | 7,875 | $ | 3,624 | $ | 569 | $ | 17,942 | |||||||||||||||||||||||||||||
Organic Revenue Growth %(2) | 2.8 | % | 7.0 | % | 6.7 | % | 1.6 | % | 4.3 | % |
2021 |
| Retail (1) |
|
| National Programs |
|
| Wholesale Brokerage |
|
| Services |
|
| Total |
| |||||||||||||||||||||||||
(in millions, except percentages) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||
Commissions and fees |
| $ | 422.8 |
|
| $ | 359.0 |
|
| $ | 190.9 |
|
| $ | 167.8 |
|
| $ | 112.3 |
|
| $ | 101.1 |
|
| $ | 43.7 |
|
| $ | 43.5 |
|
| $ | 769.7 |
|
| $ | 671.4 |
|
Total change |
| $ | 63.8 |
|
|
|
|
| $ | 23.1 |
|
|
|
|
| $ | 11.2 |
|
|
|
|
| $ | 0.2 |
|
|
|
|
| $ | 98.3 |
|
|
|
| |||||
Total growth % |
|
| 17.8 | % |
|
|
|
|
| 13.8 | % |
|
|
|
|
| 11.1 | % |
|
|
|
|
| 0.5 | % |
|
|
|
|
| 14.6 | % |
|
|
| |||||
Profit-sharing contingent |
|
| (8.7 | ) |
|
| (6.4 | ) |
|
| (6.5 | ) |
|
| (5.5 | ) |
|
| (2.4 | ) |
|
| (1.9 | ) |
|
| — |
|
|
| — |
|
|
| (17.6 | ) |
|
| (13.8 | ) |
Core commissions and fees |
|
| 414.1 |
|
|
| 352.6 |
|
|
| 184.4 |
|
|
| 162.3 |
|
|
| 109.9 |
|
|
| 99.2 |
|
|
| 43.7 |
|
|
| 43.5 |
|
|
| 752.1 |
|
|
| 657.6 |
|
Acquisition revenues |
| $ | (32.7 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (5.9 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (38.6 | ) |
| $ | — |
|
Divested business |
|
| — |
|
|
| (1.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.0 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
Organic Revenue (2) |
| $ | 381.4 |
|
| $ | 351.6 |
|
| $ | 184.4 |
|
| $ | 162.6 |
|
| $ | 104.0 |
|
| $ | 99.2 |
|
| $ | 43.7 |
|
| $ | 43.5 |
|
| $ | 713.5 |
|
| $ | 656.9 |
|
Organic Revenue growth (2) |
| $ | 29.8 |
|
|
|
|
| $ | 21.8 |
|
|
|
|
| $ | 4.8 |
|
|
|
|
| $ | 0.2 |
|
|
|
|
| $ | 56.6 |
|
|
|
| |||||
Organic Revenue growth rate (2) |
|
| 8.5 | % |
|
|
|
|
| 13.4 | % |
|
|
|
|
| 4.8 | % |
|
|
|
|
| 0.5 | % |
|
|
|
|
| 8.6 | % |
|
|
|
(1) The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
36
The reconciliation of commissions and fees included in the Condensed Consolidated StatementStatements of Income to organic revenue for the nine months ended September 30, 2017, and 2016, is as follows:
For the nine months ended September 30, | |||||||
(in thousands) | 2017 | 2016 | |||||
Commissions and fees | $ | 1,383,899 | $ | 1,329,649 | |||
Less profit-sharing contingent commissions | 45,409 | 46,586 | |||||
Less guaranteed supplemental commissions | 8,149 | 8,893 | |||||
Core commissions and fees | 1,330,341 | 1,274,170 | |||||
Less acquisition revenues | 22,936 | — | |||||
Less divested business | — | 2,246 | |||||
Organic Revenue | $ | 1,307,405 | $ | 1,271,924 |
2017 | Retail(1) | National Programs | Wholesale Brokerage | Services | Total | ||||||||||||||||||||||||||||||||||
(in thousands, except percentages) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
Commissions and Fees | $ | 711,532 | $ | 694,402 | $ | 341,910 | $ | 332,872 | $ | 208,284 | $ | 184,673 | $ | 122,173 | $ | 117,702 | $ | 1,383,899 | $ | 1,329,649 | |||||||||||||||||||
Total Change | $ | 17,130 | $ | 9,038 | $ | 23,611 | $ | 4,471 | $ | 54,250 | |||||||||||||||||||||||||||||
Total Growth % | 2.5 | % | 2.7 | % | 12.8 | % | 3.8 | % | 4.1 | % | |||||||||||||||||||||||||||||
Contingent Commissions | 22,380 | 24,365 | 16,038 | 12,152 | 6,991 | 10,069 | — | — | 45,409 | 46,586 | |||||||||||||||||||||||||||||
GSCs | 7,109 | 7,488 | 8 | 24 | 1,032 | 1,381 | — | — | 8,149 | 8,893 | |||||||||||||||||||||||||||||
Core Commissions and Fees | $ | 682,043 | $ | 662,549 | $ | 325,864 | $ | 320,696 | $ | 200,261 | $ | 173,223 | $ | 122,173 | $ | 117,702 | $ | 1,330,341 | $ | 1,274,170 | |||||||||||||||||||
Acquisition Revenues | 5,100 | — | 1,201 | — | 15,785 | — | 850 | — | 22,936 | — | |||||||||||||||||||||||||||||
Divested Business | — | 2,147 | — | 302 | — | — | — | (203 | ) | — | 2,246 | ||||||||||||||||||||||||||||
Organic Revenue(2) | $ | 676,943 | $ | 660,402 | $ | 324,663 | $ | 320,394 | $ | 184,476 | $ | 173,223 | $ | 121,323 | $ | 117,905 | $ | 1,307,405 | $ | 1,271,924 | |||||||||||||||||||
Organic Revenue Growth(2) | $ | 16,541 | $ | 4,269 | $ | 11,253 | $ | 3,418 | $ | 35,481 | |||||||||||||||||||||||||||||
Organic Revenue Growth %(2) | 2.5 | % | 1.3 | % | 6.5 | % | 2.9 | % | 2.8 | % |
2022 |
| Retail (1) |
|
| National Programs |
|
| Wholesale Brokerage |
|
| Services |
|
| Total |
| |||||||||||||||||||||||||
(in millions, except percentages) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||
Commissions and fees |
| $ | 1,579.7 |
|
| $ | 1,345.0 |
|
| $ | 618.6 |
|
| $ | 521.6 |
|
| $ | 341.2 |
|
| $ | 307.4 |
|
| $ | 128.8 |
|
| $ | 135.6 |
|
| $ | 2,668.3 |
|
| $ | 2,309.6 |
|
Total change |
| $ | 234.7 |
|
|
|
|
| $ | 97.0 |
|
|
|
|
| $ | 33.8 |
|
|
|
|
| $ | (6.8 | ) |
|
|
|
| $ | 358.7 |
|
|
|
| |||||
Total growth % |
|
| 17.4 | % |
|
|
|
|
| 18.6 | % |
|
|
|
|
| 11.0 | % |
|
|
|
|
| (5.0 | )% |
|
|
|
|
| 15.5 | % |
|
|
| |||||
Profit-sharing contingent |
|
| (38.3 | ) |
|
| (32.8 | ) |
|
| (12.0 | ) |
|
| (23.9 | ) |
|
| (8.2 | ) |
|
| (6.5 | ) |
|
| — |
|
|
| — |
|
|
| (58.5 | ) |
|
| (63.2 | ) |
Core commissions and fees |
|
| 1,541.4 |
|
|
| 1,312.2 |
|
|
| 606.6 |
|
|
| 497.7 |
|
|
| 333.0 |
|
|
| 300.9 |
|
|
| 128.8 |
|
|
| 135.6 |
|
|
| 2,609.8 |
|
|
| 2,246.4 |
|
Acquisitions |
| $ | (133.8 | ) |
| $ | — |
|
| $ | (45.1 | ) |
| $ | — |
|
| $ | (9.6 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (188.5 | ) |
| $ | — |
|
Dispositions |
|
| — |
|
|
| (1.9 | ) |
|
| — |
|
|
| (3.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.8 | ) |
|
| — |
|
|
| (6.7 | ) |
Foreign currency translation |
|
| — |
|
|
| (2.7 | ) |
|
| — |
|
|
| (0.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3.0 | ) |
Organic Revenue (2) |
| $ | 1,407.6 |
|
| $ | 1,307.6 |
|
| $ | 561.5 |
|
| $ | 494.4 |
|
| $ | 323.4 |
|
| $ | 300.9 |
|
| $ | 128.8 |
|
| $ | 133.8 |
|
| $ | 2,421.3 |
|
| $ | 2,236.7 |
|
Organic Revenue growth (2) |
| $ | 100.0 |
|
|
|
|
| $ | 67.1 |
|
|
|
|
| $ | 22.5 |
|
|
|
|
| $ | (5.0 | ) |
|
|
|
| $ | 184.6 |
|
|
|
| |||||
Organic Revenue growth % (2) |
|
| 7.6 | % |
|
|
|
|
| 13.6 | % |
|
|
|
|
| 7.5 | % |
|
|
|
|
| (3.7 | )% |
|
|
|
|
| 8.3 | % |
|
|
|
(1) The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
The reconciliation of commissions and fees included in the Condensed Consolidated StatementStatements of Income to organic revenue for the nine months ended September 30, 2016, and 2015, is as follows:
For the nine months ended September 30, | |||||||
(in thousands) | 2016 | 2015 | |||||
Commissions and fees | $ | 1,329,649 | $ | 1,252,888 | |||
Less profit-sharing contingent commissions | 46,586 | 45,596 | |||||
Less guaranteed supplemental commissions | 8,893 | 8,112 | |||||
Core commissions and fees | 1,274,170 | 1,199,180 | |||||
Less acquisition revenues | 47,475 | — | |||||
Less divested business | — | 5,854 | |||||
Organic Revenue | $ | 1,226,695 | $ | 1,193,326 |
2016 | Retail(1) | National Programs | Wholesale Brokerage | Services | Total | ||||||||||||||||||||||||||||||||||
(in thousands, except percentages) | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||
Commissions and Fees | $ | 694,402 | $ | 653,992 | $ | 332,872 | $ | 319,377 | $ | 184,673 | $ | 168,374 | $ | 117,702 | $ | 111,145 | $ | 1,329,649 | $ | 1,252,888 | |||||||||||||||||||
Total Change | $ | 40,410 | $ | 13,495 | $ | 16,299 | $ | 6,557 | $ | 76,761 | |||||||||||||||||||||||||||||
Total Growth % | 6.2 | % | 4.2 | % | 9.7 | % | 5.9 | % | 6.1 | % | |||||||||||||||||||||||||||||
Contingent Commissions | 24,365 | 21,653 | 12,152 | 10,734 | 10,069 | 13,209 | — | — | 46,586 | 45,596 | |||||||||||||||||||||||||||||
GSCs | 7,488 | 6,699 | 24 | 15 | 1,381 | 1,398 | — | — | 8,893 | 8,112 | |||||||||||||||||||||||||||||
Core Commissions and Fees | $ | 662,549 | $ | 625,640 | $ | 320,696 | $ | 308,628 | $ | 173,223 | $ | 153,767 | $ | 117,702 | $ | 111,145 | $ | 1,274,170 | $ | 1,199,180 | |||||||||||||||||||
Acquisition Revenues | 27,080 | — | 1,680 | — | 12,147 | — | 6,568 | — | 47,475 | — | |||||||||||||||||||||||||||||
Divested Business | — | 1,283 | — | 1,255 | — | — | — | 3,316 | — | 5,854 | |||||||||||||||||||||||||||||
Organic Revenue(2) | $ | 635,469 | $ | 624,357 | $ | 319,016 | $ | 307,373 | $ | 161,076 | $ | 153,767 | $ | 111,134 | $ | 107,829 | $ | 1,226,695 | $ | 1,193,326 | |||||||||||||||||||
Organic Revenue Growth(2) | $ | 11,112 | $ | 11,643 | $ | 7,309 | $ | 3,305 | $ | 33,369 | |||||||||||||||||||||||||||||
Organic Revenue Growth %(2) | 1.8 | % | 3.8 | % | 4.8 | % | 3.1 | % | 2.8 | % |
2021 |
| Retail (1) |
|
| National Programs |
|
| Wholesale Brokerage |
|
| Services |
|
| Total |
| |||||||||||||||||||||||||
(in millions, except percentages) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||
Commissions and fees |
| $ | 1,345.0 |
|
| $ | 1,117.3 |
|
| $ | 521.6 |
|
| $ | 450.5 |
|
| $ | 307.4 |
|
| $ | 267.4 |
|
| $ | 135.6 |
|
| $ | 130.9 |
|
| $ | 2,309.6 |
|
| $ | 1,966.1 |
|
Total change |
| $ | 227.7 |
|
|
|
|
| $ | 71.1 |
|
|
|
|
| $ | 40.0 |
|
|
|
|
| $ | 4.7 |
|
|
|
|
| $ | 343.5 |
|
|
|
| |||||
Total growth % |
|
| 20.4 | % |
|
|
|
|
| 15.8 | % |
|
|
|
|
| 15.0 | % |
|
|
|
|
| 3.6 | % |
|
|
|
|
| 17.5 | % |
|
|
| |||||
Profit-sharing contingent |
|
| (32.8 | ) |
|
| (29.4 | ) |
|
| (23.9 | ) |
|
| (20.5 | ) |
|
| (6.5 | ) |
|
| (6.5 | ) |
|
| — |
|
|
| — |
|
|
| (63.2 | ) |
|
| (56.4 | ) |
Core commissions and fees |
| $ | 1,312.2 |
|
| $ | 1,087.9 |
|
| $ | 497.7 |
|
| $ | 430.0 |
|
| $ | 300.9 |
|
| $ | 260.9 |
|
| $ | 135.6 |
|
| $ | 130.9 |
|
| $ | 2,246.4 |
|
| $ | 1,909.7 |
|
Acquisition revenues |
|
| (102.9 | ) |
|
| — |
|
|
| (8.1 | ) |
|
| — |
|
|
| (20.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (131.2 | ) |
|
| — |
|
Divested business |
|
| — |
|
|
| (3.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3.1 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.0 |
|
Organic Revenue (2) |
| $ | 1,209.3 |
|
| $ | 1,084.8 |
|
|
| 489.6 |
|
| $ | 431.0 |
|
| $ | 280.7 |
|
| $ | 260.9 |
|
| $ | 135.6 |
|
| $ | 130.9 |
|
| $ | 2,115.2 |
|
| $ | 1,907.6 |
|
Organic Revenue growth (2) |
| $ | 124.5 |
|
|
|
|
| $ | 58.6 |
|
|
|
|
| $ | 19.8 |
|
|
|
|
| $ | 4.7 |
|
|
|
|
| $ | 207.6 |
|
|
|
| |||||
Organic Revenue growth % (2) |
|
| 11.5 | % |
|
|
|
|
| 13.6 | % |
|
|
|
|
| 7.6 | % |
|
|
|
|
| 3.6 | % |
|
|
|
|
| 10.9 | % |
|
|
|
(1) The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.
(2) A non-GAAP financial measure.
37
The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, and EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months ended September 30, 2022, including by segment, is as follows:
(in millions) |
| Retail |
|
| National |
|
| Wholesale |
|
| Services |
|
| Other |
|
| Total |
| ||||||
Total Revenues |
| $ | 528.2 |
|
| $ | 231.4 |
|
| $ | 126.3 |
|
| $ | 41.1 |
|
| $ | 0.6 |
|
| $ | 927.6 |
|
Total Revenues - Adjusted(2) |
|
| 528.2 |
|
|
| 231.4 |
|
|
| 126.3 |
|
|
| 41.1 |
|
|
| 0.6 |
|
|
| 927.6 |
|
Income before income taxes |
|
| 112.2 |
|
|
| 69.7 |
|
|
| 35.4 |
|
|
| 4.7 |
|
|
| (4.0 | ) |
|
| 218.0 |
|
Income Before Income Taxes Margin(1) |
|
| 21.2 | % |
|
| 30.1 | % |
|
| 28.0 | % |
|
| 11.4 | % |
| NMF |
|
|
| 23.5 | % | |
Amortization |
|
| 28.2 |
|
|
| 11.4 |
|
|
| 2.6 |
|
|
| 1.3 |
|
|
| — |
|
|
| 43.5 |
|
Depreciation |
|
| 3.9 |
|
|
| 4.6 |
|
|
| 0.7 |
|
|
| 0.4 |
|
|
| 1.7 |
|
|
| 11.3 |
|
Interest |
|
| 22.8 |
|
|
| 10.2 |
|
|
| 3.2 |
|
|
| 0.5 |
|
|
| 4.8 |
|
|
| 41.5 |
|
Change in estimated acquisition |
|
| (18.6 | ) |
|
| (10.8 | ) |
|
| 2.8 |
|
|
| — |
|
|
| — |
|
|
| (26.6 | ) |
EBITDAC(2) |
|
| 148.5 |
|
|
| 85.1 |
|
|
| 44.7 |
|
|
| 6.9 |
|
|
| 2.5 |
|
|
| 287.7 |
|
EBITDAC Margin(2) |
|
| 28.1 | % |
|
| 36.8 | % |
|
| 35.4 | % |
|
| 16.8 | % |
| NMF |
|
|
| 31.0 | % | |
(Gain)/loss on disposal |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Acquisition/Integration Costs |
|
| 1.2 |
|
|
| 0.1 |
|
|
| 0.8 |
|
|
| — |
|
|
| — |
|
|
| 2.1 |
|
EBITDAC - Adjusted(2) |
| $ | 149.7 |
|
| $ | 85.2 |
|
| $ | 45.5 |
|
| $ | 6.9 |
|
| $ | 2.5 |
|
| $ | 289.8 |
|
EBITDAC Margin - Adjusted(2) |
|
| 28.3 | % |
|
| 36.8 | % |
|
| 36.0 | % |
|
| 16.8 | % |
| NMF |
|
|
| 31.2 | % |
(1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months ended September 30, 2021, including by segment, is as follows:
(in millions) |
| Retail |
|
| National |
|
| Wholesale Brokerage |
|
| Services |
|
| Other |
|
| Total |
| ||||||
Total Revenues |
| $ | 423.4 |
|
| $ | 191.1 |
|
| $ | 112.5 |
|
| $ | 43.7 |
|
| $ | (0.4 | ) |
| $ | 770.3 |
|
Foreign Currency Translation |
|
| (1.1 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.3 | ) |
Total Revenues - Adjusted(2) |
|
| 422.3 |
|
|
| 190.9 |
|
|
| 112.5 |
|
|
| 43.7 |
|
|
| (0.4 | ) |
|
| 769.0 |
|
Income before income taxes |
|
| 71.6 |
|
|
| 72.4 |
|
|
| 29.4 |
|
|
| 7.1 |
|
|
| 16.0 |
|
|
| 196.5 |
|
Income Before Income Taxes Margin(1) |
|
| 16.9 | % |
|
| 37.9 | % |
|
| 26.1 | % |
|
| 16.2 | % |
| NMF |
|
|
| 25.5 | % | |
Amortization |
|
| 19.1 |
|
|
| 6.8 |
|
|
| 2.3 |
|
|
| 1.3 |
|
|
| — |
|
|
| 29.5 |
|
Depreciation |
|
| 2.8 |
|
|
| 3.0 |
|
|
| 0.6 |
|
|
| 0.3 |
|
|
| 2.5 |
|
|
| 9.2 |
|
Interest |
|
| 22.4 |
|
|
| 2.2 |
|
|
| 3.9 |
|
|
| 0.7 |
|
|
| (13.0 | ) |
|
| 16.2 |
|
Change in estimated acquisition |
|
| 17.3 |
|
|
| — |
|
|
| 5.8 |
|
|
| — |
|
|
| — |
|
|
| 23.1 |
|
EBITDAC(2) |
|
| 133.2 |
|
|
| 84.4 |
|
|
| 42.0 |
|
|
| 9.4 |
|
|
| 5.5 |
|
|
| 274.5 |
|
EBITDAC Margin(2) |
|
| 31.5 | % |
|
| 44.2 | % |
|
| 37.3 | % |
|
| 21.5 | % |
| NMF |
|
|
| 35.6 | % | |
(Gain)/loss on disposal |
|
| (0.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.3 | ) |
Acquisition/Integration Costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign Currency Translation |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
EBITDAC - Adjusted(2) |
| $ | 132.8 |
|
| $ | 84.3 |
|
| $ | 42.0 |
|
| $ | 9.4 |
|
| $ | 5.5 |
|
| $ | 274.0 |
|
EBITDAC Margin - Adjusted(2) |
|
| 31.4 | % |
|
| 44.2 | % |
|
| 37.3 | % |
|
| 21.5 | % |
| NMF |
|
|
| 35.6 | % |
(1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the nine months ended September 30, 2022, including by segment, is as follows:
38
(in millions) |
| Retail |
|
| National |
|
| Wholesale Brokerage |
|
| Services |
|
| Other |
|
| Total |
| ||||||
Total Revenues |
| $ | 1,582.3 |
|
| $ | 619.3 |
|
| $ | 341.6 |
|
| $ | 128.8 |
|
| $ | — |
|
| $ | 2,672.0 |
|
Total Revenues - Adjusted(2) |
|
| 1,582.3 |
|
|
| 619.3 |
|
|
| 341.6 |
|
|
| 128.8 |
|
|
| — |
|
|
| 2,672.0 |
|
Income before income taxes |
|
| 378.8 |
|
|
| 187.9 |
|
|
| 94.8 |
|
|
| 18.0 |
|
|
| 2.3 |
|
|
| 681.8 |
|
Income Before Income Taxes Margin(1) |
|
| 23.9 | % |
|
| 30.3 | % |
|
| 27.8 | % |
|
| 14.0 | % |
| NMF |
|
|
| 25.5 | % | |
Amortization |
|
| 69.8 |
|
|
| 27.9 |
|
|
| 6.7 |
|
|
| 3.9 |
|
|
| (0.1 | ) |
|
| 108.2 |
|
Depreciation |
|
| 9.1 |
|
|
| 10.9 |
|
|
| 2.0 |
|
|
| 1.2 |
|
|
| 5.1 |
|
|
| 28.3 |
|
Interest |
|
| 69.9 |
|
|
| 22.8 |
|
|
| 10.0 |
|
|
| 1.6 |
|
|
| (8.5 | ) |
|
| 95.8 |
|
Change in estimated acquisition |
|
| (21.8 | ) |
|
| (10.6 | ) |
|
| (0.7 | ) |
|
| — |
|
|
| — |
|
|
| (33.1 | ) |
EBITDAC(2) |
|
| 505.8 |
|
|
| 238.9 |
|
|
| 112.8 |
|
|
| 24.7 |
|
|
| (1.2 | ) |
|
| 881.0 |
|
EBITDAC Margin(2) |
|
| 32.0 | % |
|
| 38.6 | % |
|
| 33.0 | % |
|
| 19.2 | % |
| NMF |
|
|
| 33.0 | % | |
(Gain)/loss on disposal |
|
| (1.1 | ) |
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| (0.9 | ) |
Acquisition/Integration Costs |
|
| 4.3 |
|
|
| 0.4 |
|
|
| 1.5 |
|
|
| — |
|
|
| 1.4 |
|
|
| 7.6 |
|
EBITDAC - Adjusted(2) |
| $ | 509.0 |
|
| $ | 239.3 |
|
| $ | 114.5 |
|
| $ | 24.7 |
|
| $ | 0.2 |
|
| $ | 887.7 |
|
EBITDAC Margin - Adjusted(2) |
|
| 32.2 | % |
|
| 38.6 | % |
|
| 33.5 | % |
|
| 19.2 | % |
| NMF |
|
|
| 33.2 | % |
(1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
The reconciliation of Total Revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the nine months ended September 30, 2021, including by segment, is as follows:
(in millions) |
| Retail |
|
| National |
|
| Wholesale Brokerage |
|
| Services |
|
| Other |
|
| Total |
| ||||||
Total Revenues |
| $ | 1,347.4 |
|
| $ | 522.3 |
|
| $ | 307.9 |
|
| $ | 135.6 |
|
| $ | (0.3 | ) |
| $ | 2,312.9 |
|
Foreign Currency Translation |
|
| (2.8 | ) |
|
| (0.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3.1 | ) |
Total Revenues - Adjusted(2) |
|
| 1,344.6 |
|
|
| 522.0 |
|
|
| 307.9 |
|
|
| 135.6 |
|
|
| (0.3 | ) |
|
| 2,309.8 |
|
Income before income taxes |
|
| 293.4 |
|
|
| 180.2 |
|
|
| 74.5 |
|
|
| 24.0 |
|
|
| 49.9 |
|
|
| 622.0 |
|
Income Before Income Taxes Margin(1) |
|
| 21.8 | % |
|
| 34.5 | % |
|
| 24.2 | % |
|
| 17.7 | % |
| NMF |
|
|
| 26.9 | % | |
Amortization |
|
| 56.9 |
|
|
| 20.6 |
|
|
| 7.1 |
|
|
| 4.0 |
|
|
| — |
|
|
| 88.6 |
|
Depreciation |
|
| 8.3 |
|
|
| 7.5 |
|
|
| 2.0 |
|
|
| 1.1 |
|
|
| 6.5 |
|
|
| 25.4 |
|
Interest |
|
| 67.6 |
|
|
| 9.2 |
|
|
| 12.2 |
|
|
| 2.2 |
|
|
| (42.4 | ) |
|
| 48.8 |
|
Change in estimated acquisition |
|
| 20.8 |
|
|
| (8.2 | ) |
|
| 8.0 |
|
|
| — |
|
|
| — |
|
|
| 20.6 |
|
EBITDAC(2) |
|
| 447.0 |
|
|
| 209.3 |
|
|
| 103.8 |
|
|
| 31.3 |
|
|
| 14.0 |
|
|
| 805.4 |
|
EBITDAC Margin(2) |
|
| 33.2 | % |
|
| 40.1 | % |
|
| 33.7 | % |
|
| 23.1 | % |
| NMF |
|
|
| 34.8 | % | |
(Gain)/loss on disposal |
|
| (4.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4.3 | ) |
Acquisition/Integration Costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign Currency Translation |
|
| (0.7 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.8 | ) |
EBITDAC - Adjusted(2) |
| $ | 442.0 |
|
| $ | 209.2 |
|
| $ | 103.8 |
|
| $ | 31.3 |
|
| $ | 14.0 |
|
| $ | 800.3 |
|
EBITDAC Margin - Adjusted(2) |
|
| 32.9 | % |
|
| 40.1 | % |
|
| 33.7 | % |
|
| 23.1 | % |
| NMF |
|
|
| 34.6 | % |
(1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
Retail Segment
The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers.customers, and non-insurance risk-mitigating products through our F&I businesses. Approximately 88%76.4% of the Retail Segment’ssegment’s commissions and fees revenue is commission based. Because most of our other operating expenses are not correlated to changes in commissions on insurance premiums, a significant portion of any fluctuation in the commissions we receive, net of related producer compensation, will result in a similar fluctuation in our income before income taxes, unless we make incremental investments or modifications to the costs in the organization.
39
Financial information relating to our Retail Segment for the three and nine months ended September 30, 20172022 and 20162021 is as follows:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||
(in thousands, except percentages) | 2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||
REVENUES | |||||||||||||||||||||
Core commissions and fees | $ | 230,777 | $ | 223,641 | 3.2 | % | $ | 682,310 | $ | 662,963 | 2.9 | % | |||||||||
Profit-sharing contingent commissions | 1,444 | 2,229 | (35.2 | )% | 22,380 | 24,365 | (8.1 | )% | |||||||||||||
Guaranteed supplemental commissions | 2,164 | 2,516 | (14.0 | )% | 7,109 | 7,488 | (5.1 | )% | |||||||||||||
Investment income | 3 | 5 | (40.0 | )% | 6 | 33 | (81.8 | )% | |||||||||||||
Other income, net | 95 | 254 | (62.6 | )% | 934 | 544 | 71.7 | % | |||||||||||||
Total revenues | 234,483 | 228,645 | 2.6 | % | 712,739 | 695,393 | 2.5 | % | |||||||||||||
EXPENSES | |||||||||||||||||||||
Employee compensation and benefits | 128,228 | 123,175 | 4.1 | % | 385,291 | 369,109 | 4.4 | % | |||||||||||||
Other operating expenses | 35,593 | 35,953 | (1.0 | )% | 110,645 | 111,377 | (0.7 | )% | |||||||||||||
Loss/(gain) on disposal | (1,898 | ) | (277 | ) | NMF | (2,144 | ) | (3,131 | ) | (31.5 | )% | ||||||||||
Amortization | 10,540 | 10,861 | (3.0 | )% | 31,704 | 32,743 | (3.2 | )% | |||||||||||||
Depreciation | 1,262 | 1,508 | (16.3 | )% | 3,975 | 4,761 | (16.5 | )% | |||||||||||||
Interest | 7,216 | 9,026 | (20.1 | )% | 23,918 | 29,415 | (18.7 | )% | |||||||||||||
Change in estimated acquisition earn-out payables | (1,408 | ) | 3,505 | (140.2 | )% | 7,567 | 6,623 | 14.3 | % | ||||||||||||
Total expenses | 179,533 | 183,751 | (2.3 | )% | 560,956 | 550,897 | 1.8 | % | |||||||||||||
Income before income taxes | $ | 54,950 | $ | 44,894 | 22.4 | % | $ | 151,783 | $ | 144,496 | 5.0 | % | |||||||||
Organic revenue growth rate (1) | 2.5 | % | 2.8 | % | 2.5 | % | 1.8 | % | |||||||||||||
Employee compensation and benefits relative to total revenues | 54.7 | % | 53.9 | % | 54.1 | % | 53.1 | % | |||||||||||||
Other operating expenses relative to total revenues | 15.2 | % | 15.7 | % | 15.5 | % | 16.0 | % | |||||||||||||
Capital expenditures | $ | 844 | $ | 1,443 | $ | 3,384 | $ | 4,664 | |||||||||||||
Total assets at September 30 | $ | 4,246,422 | $ | 3,652,977 |
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||
(in millions, except percentages) |
| 2022 |
|
| 2021 |
| �� | % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Core commissions and fees |
| $ | 516.2 |
|
| $ | 414.4 |
|
|
| 24.6 | % |
| $ | 1,542.4 |
|
| $ | 1,313.4 |
|
|
| 17.4 | % |
Profit-sharing contingent commissions |
|
| 10.9 |
|
|
| 8.7 |
|
|
| 25.3 | % |
|
| 38.3 |
|
|
| 32.8 |
|
|
| 16.8 | % |
Investment income |
|
| — |
|
|
| 0.2 |
|
|
| — | % |
|
| — |
|
|
| 0.3 |
|
|
| — | % |
Other income, net |
|
| 1.1 |
|
|
| 0.1 |
|
| NMF |
|
|
| 1.6 |
|
|
| 0.9 |
|
|
| 77.8 | % | |
Total revenues |
|
| 528.2 |
|
|
| 423.4 |
|
|
| 24.8 | % |
|
| 1,582.3 |
|
|
| 1,347.4 |
|
|
| 17.4 | % |
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Employee compensation and benefits |
|
| 285.6 |
|
|
| 225.9 |
|
|
| 26.4 | % |
|
| 821.6 |
|
|
| 710.9 |
|
|
| 15.6 | % |
Other operating expenses |
|
| 94.1 |
|
|
| 64.6 |
|
|
| 45.7 | % |
|
| 256.0 |
|
|
| 193.8 |
|
|
| 32.1 | % |
(Gain)/loss on disposal |
|
| — |
|
|
| (0.3 | ) |
| NMF |
|
|
| (1.1 | ) |
|
| (4.3 | ) |
|
| (74.4 | )% | |
Amortization |
|
| 28.2 |
|
|
| 19.1 |
|
|
| 47.6 | % |
|
| 69.8 |
|
|
| 56.9 |
|
|
| 22.7 | % |
Depreciation |
|
| 3.9 |
|
|
| 2.8 |
|
|
| 39.3 | % |
|
| 9.1 |
|
|
| 8.3 |
|
|
| 9.6 | % |
Interest |
|
| 22.8 |
|
|
| 22.4 |
|
|
| 1.8 | % |
|
| 69.9 |
|
|
| 67.6 |
|
|
| 3.4 | % |
Change in estimated acquisition |
|
| (18.6 | ) |
|
| 17.3 |
|
| NMF |
|
|
| (21.8 | ) |
|
| 20.8 |
|
| NMF |
| ||
Total expenses |
|
| 416.0 |
|
|
| 351.8 |
|
|
| 18.2 | % |
|
| 1,203.5 |
|
|
| 1,054.0 |
|
|
| 14.2 | % |
Income before income taxes |
| $ | 112.2 |
|
| $ | 71.6 |
|
|
| 56.7 | % |
| $ | 378.8 |
|
| $ | 293.4 |
|
|
| 29.1 | % |
Income Before Income Taxes |
|
| 21.2 | % |
|
| 16.9 | % |
|
|
|
|
| 23.9 | % |
|
| 21.8 | % |
|
|
| ||
EBITDAC - Adjusted (2) |
| $ | 149.7 |
|
| $ | 132.8 |
|
|
| 12.7 | % |
| $ | 509.0 |
|
| $ | 442.0 |
|
|
| 15.2 | % |
EBITDAC Margin - Adjusted (2) |
|
| 28.3 | % |
|
| 31.4 | % |
|
|
|
|
| 32.2 | % |
|
| 32.9 | % |
|
|
| ||
Organic Revenue growth rate (2) |
|
| 5.1 | % |
|
| 8.5 | % |
|
|
|
|
| 7.6 | % |
|
| 11.5 | % |
|
|
| ||
Employee compensation and benefits |
|
| 54.1 | % |
|
| 53.4 | % |
|
|
|
|
| 51.9 | % |
|
| 52.8 | % |
|
|
| ||
Other operating expenses relative |
|
| 17.8 | % |
|
| 15.3 | % |
|
|
|
|
| 16.2 | % |
|
| 14.4 | % |
|
|
| ||
Capital expenditures |
| $ | 4.7 |
|
| $ | 2.1 |
|
|
| 123.8 | % |
| $ | 8.4 |
|
| $ | 5.8 |
|
|
| 44.8 | % |
Total assets at September 30, |
|
|
|
|
|
|
|
|
|
| $ | 7,128.1 |
|
| $ | 7,385.8 |
|
|
| (3.5 | %) |
(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
The Retail Segment’s total revenue duringrevenues for the three months ended September 30, 20172022 increased 2.6%24.8%, or $5.8$104.8 million, overas compared to the same period in 2016,2021, to $234.5$528.2 million. The $7.1$101.8 million increase in core commissions and fees revenue was driven by: (i) $5.7 million related to net new and renewal business; (ii) approximately $2.7$82.7 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016;2021; (ii) an increase of $20.9 million related to net new and renewal business; (iii) an offsetting decrease from the impact of $1.3foreign currency translation of $1.0 million; and (iv) an offsetting decrease of $0.7 million related to commissions and fees revenuerecorded in 2021 from business divested in 2016 and 2017.businesses since divested. Profit-sharing contingent commissions and GSCs for the third quarter of 2017 decreased 24.0%2022 increased 25.3%, or $1.1$2.2 million, fromas compared to the same period in 2016,2021, to $3.6$10.9 million. This increase was primarily the result of recent acquisitions and to a lesser extent qualifying for certain profit-sharing contingent commissions in 2022 that we did not qualify for in the prior year. The Retail Segment’s growth rate for total commissions and fees was 2.6%increased by 24.6%, and the organic revenueOrganic Revenue growth rate was 2.5%5.1% for the third quarter of 2017.2022. The organic revenueOrganic Revenue growth rate was driven by increasednet new business and higher retentionwritten during the preceding twelve months.
Income before income taxes for the three months ended September 30, 20172022 increased 22.4%56.7%, or $10.1$40.6 million, overas compared to the same period in 2016,2021, to $55.0$112.2 million. The primary factors affectingdriving this increase were: (i) the profit associated with the net increase in revenue as described above; (ii) a decrease to the change in estimated acquisition earn-out payables; (iii) an increase in the benefit of gains on disposals associated with book sales within certain businesses and (iv) a decrease in intercompany interest charges of $1.8 million;payables, partially offset by (v)(iii) amortization and depreciation expenses growing faster than total compensationrevenues.
EBITDAC - Adjusted for the three months ended September 30, 2022 increased 12.7%, or $16.9 million, as compared to the same period in 2021, to $149.7 million. EBITDAC Margin - Adjusted for the three months ended September 30, 2022 decreased to 28.3% from 31.4% in
40
the same period in 2021. The decrease in EBITDAC Margin - Adjusted was driven by: (i) increased variable operating expenses, which increased by $5.1 million or 4.1%, due primarily to salary inflation, additional teammates to support revenue growthare largely travel and meeting related; (ii) the incremental investment in the Retail Segment's performance incentive plan introduced in 2017seasonality of profit associated with recent acquisitions and (vi) an incremental investment in technology.
The Retail Segment’s total revenue duringrevenues for the nine months ended September 30, 20172022 increased 2.5%17.4%, or $17.3$234.9 million, overas compared to the same period in 2016,2021, to $712.7$1,582.3 million. The $19.3$229.0 million increase in core commissions and fees revenue was driven by: (i) $16.3 million related to net new and renewal business; (ii) approximately $5.1$133.8 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016;2021; (ii) an increase of $101.4 million related to net new and renewal business; (iii) an offsetting decrease from the impact of $2.1foreign currency translation of $2.7 million; and (iv) an offsetting decrease of $1.9 million related to commissions and fees revenuerecorded in 2021 from business divested in 2016 and 2017.businesses since divested. Profit-sharing contingent commissions for the nine months of 2022 increased 16.8%, or $5.5 million, as compared to the same period in 2021, to $38.3 million. The Retail Segment’s total commissions and GSCsfees increased by 17.4%, and the Organic Revenue growth rate was 7.6% for the first nine months of 2017 decreased 7.4%, or $2.4 million, from the same period in 2016, to $29.5 million.2022. The Retail Segment’s growth rate for total commissions and fees was 2.5% and the organic revenue growth rate 2.5% for the first nine months of 2017. The organic revenueOrganic Revenue growth rate was driven by revenue from net new and renewal business written during the preceding twelve12 months some exposure unitand growth and modeston renewals of existing customers. Renewal business was impacted by rate increases in most lines of business with continued increases in commercial auto rates, whichP&C, employee benefits, professional and excess liability, and condo partially offset by continued premium rate reductions in workers’ compensation. This growth was partially offset by continued reductionsa decline in property insurance premium rates, particularlyrevenue within our F&I businesses due to the slowdown in catastrophe-prone areas.
Income before income taxes for the nine months ended September 30, 20172022 increased 5.0%29.1%, or $7.3$85.4 million, overas compared to the same period in 2016,2021, to $151.8$378.8 million. The primary factors affectingdriving this increase werewere: (i) the profit associated with the net increase in revenue as described above; (ii) a $1.0 million increase in the benefitdrivers of gains on disposals associated with book sales within certain businessesEBITDAC described below; (iii) amortization and (iii)depreciation growing faster than total revenues; and (iv) a decrease in intercompany interest charges of $5.5 million; partially offset by (iv) total compensation, which increased by $16.2 million or 4.4%, due primarily to salary inflation and the incremental investment in the Retail Segment's performance incentive plan introduced in 2017; (v) an incremental investment in technology and (vi) a change in estimated acquisition earn-out payables thatpayables.
EBITDAC - Adjusted for the nine months ended September 30, 2022 increased $1.015.2%, or $67.0 million, as compared to $7.6the same period in 2021, to $509.0 million.
41
National Programs Segment
The National Programs Segment manages over 5040 programs supported by approximately 40100 well-capitalized carrier partners. In most cases, the insurance carriers that support thethese programs have delegated underwriting and, in many instances, claims-handling authority to our programs operations. These programs are generally distributed through a nationwide network of independent agents and Brown & Brown retail agents, and offer targeted products and services designed for specific industries, trade groups, professions, public entities and market niches. This segment also operates our write-your-own flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”) as well as two Captives. WNFIC’s underwriting business consists of policies written under and fully ceded to the National Flood Insurance Program (“NFIP”). The Captives provide additional underwriting capacity and participate in underwriting results, one on a quota share basis, currently focused on property insurance for earthquake and wind exposed properties for policies placed by certain of our MGA businesses, and the other through excess of loss reinsurance layers associated with placements made by another of our MGA businesses focused on personal property primarily in the southeastern United States.
The National Programs Segment operations can be grouped into five broad categories: Professional Programs, Arrowhead InsurancePersonal Lines Programs, Commercial Programs, Public Entity-Related Programs and Specialty Programs. Approximately 75.2% of the National Flood Program. The National Programs Segment’s commissions and fees revenue is primarily commission based.
Financial information relating to our National Programs Segment for the three and nine months ended September 30, 20172022 and 20162021 is as follows:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||
(in thousands, except percentages) | 2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||
REVENUES | |||||||||||||||||||||
Core commissions and fees | $ | 125,518 | $ | 121,011 | 3.7 | % | $ | 325,864 | $ | 320,696 | 1.6 | % | |||||||||
Profit-sharing contingent commissions | 1,748 | 2,498 | (30.0 | )% | 16,038 | 12,152 | 32.0 | % | |||||||||||||
Guaranteed supplemental commissions | 5 | 14 | (64.3 | )% | 8 | 24 | (66.7 | )% | |||||||||||||
Investment income | 124 | 96 | 29.2 | % | 279 | 583 | (52.1 | )% | |||||||||||||
Other income, net | 323 | 13 | NMF | 387 | 67 | NMF | |||||||||||||||
Total revenues | 127,718 | 123,632 | 3.3 | % | 342,576 | 333,522 | 2.7 | % | |||||||||||||
EXPENSES | |||||||||||||||||||||
Employee compensation and benefits | 50,764 | 47,796 | 6.2 | % | 148,592 | 141,204 | 5.2 | % | |||||||||||||
Other operating expenses | 28,058 | 23,756 | 18.1 | % | 72,147 | 62,009 | 16.3 | % | |||||||||||||
Loss/(gain) on disposal | (4 | ) | — | — | % | 96 | — | — | % | ||||||||||||
Amortization | 6,913 | 6,921 | (0.1 | )% | 20,664 | 21,011 | (1.7 | )% | |||||||||||||
Depreciation | 1,412 | 1,945 | (27.4 | )% | 4,975 | 5,881 | (15.4 | )% | |||||||||||||
Interest | 8,304 | 10,844 | (23.4 | )% | 27,257 | 34,895 | (21.9 | )% | |||||||||||||
Change in estimated acquisition earn-out payables | 68 | 51 | 33.3 | % | 718 | 155 | NMF | ||||||||||||||
Total expenses | 95,515 | 91,313 | 4.6 | % | 274,449 | 265,155 | 3.5 | % | |||||||||||||
Income before income taxes | $ | 32,203 | $ | 32,319 | (0.4 | )% | $ | 68,127 | $ | 68,367 | (0.4 | )% | |||||||||
Organic revenue growth rate (1) | 2.9 | % | 7.0 | % | 1.3 | % | 3.8 | % | |||||||||||||
Employee compensation and benefits relative to total revenues | 39.7 | % | 38.7 | % | 43.4 | % | 42.3 | % | |||||||||||||
Other operating expenses relative to total revenues | 22.0 | % | 19.2 | % | 21.1 | % | 18.6 | % | |||||||||||||
Capital expenditures | $ | 1,357 | $ | 2,153 | $ | 3,885 | $ | 5,399 | |||||||||||||
Total assets at September 30 | $ | 5,026,918 | $ | 2,933,568 |
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||
(in millions, except percentages) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Core commissions and fees |
| $ | 237.3 |
|
| $ | 184.4 |
|
|
| 28.7 | % |
| $ | 606.6 |
|
| $ | 497.8 |
|
|
| 21.9 | % |
Profit-sharing contingent commissions |
|
| (6.2 | ) |
|
| 6.5 |
|
|
| (195.4 | )% |
|
| 12.0 |
|
|
| 23.9 |
|
|
| (49.8 | )% |
Investment income |
|
| 0.3 |
|
|
| 0.1 |
|
|
| 200.0 | % |
|
| 0.6 |
|
|
| 0.4 |
|
|
| 50.0 | % |
Other income, net |
|
| — |
|
|
| 0.1 |
|
|
| — | % |
|
| 0.1 |
|
|
| 0.2 |
|
|
| — | % |
Total revenues |
|
| 231.4 |
|
|
| 191.1 |
|
|
| 21.1 | % |
|
| 619.3 |
|
|
| 522.3 |
|
|
| 18.6 | % |
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Employee compensation and benefits |
|
| 82.9 |
|
|
| 74.1 |
|
|
| 11.9 | % |
|
| 234.8 |
|
|
| 218.1 |
|
|
| 7.7 | % |
Other operating expenses |
|
| 63.4 |
|
|
| 32.6 |
|
|
| 94.5 | % |
|
| 145.6 |
|
|
| 94.9 |
|
|
| 53.4 | % |
(Gain)/loss on disposal |
|
| — |
|
|
| — |
|
|
| — | % |
|
| — |
|
|
| — |
|
|
| — | % |
Amortization |
|
| 11.4 |
|
|
| 6.8 |
|
|
| 67.6 | % |
|
| 27.9 |
|
|
| 20.6 |
|
|
| 35.4 | % |
Depreciation |
|
| 4.6 |
|
|
| 3.0 |
|
|
| 53.3 | % |
|
| 10.9 |
|
|
| 7.5 |
|
|
| 45.3 | % |
Interest |
|
| 10.2 |
|
|
| 2.2 |
|
| NMF |
|
|
| 22.8 |
|
|
| 9.2 |
|
|
| 147.8 | % | |
Change in estimated acquisition |
|
| (10.8 | ) |
|
| — |
|
| NMF |
|
|
| (10.6 | ) |
|
| (8.2 | ) |
|
| 29.3 | % | |
Total expenses |
|
| 161.7 |
|
|
| 118.7 |
|
|
| 36.2 | % |
|
| 431.4 |
|
|
| 342.1 |
|
|
| 26.1 | % |
Income before income taxes |
| $ | 69.7 |
|
| $ | 72.4 |
|
|
| (3.7 | )% |
| $ | 187.9 |
|
| $ | 180.2 |
|
|
| 4.3 | % |
Income Before Income Taxes |
|
| 30.1 | % |
|
| 37.9 | % |
|
|
|
|
| 30.3 | % |
|
| 34.5 | % |
|
|
| ||
EBITDAC - Adjusted (2) |
| $ | 85.2 |
|
| $ | 84.3 |
|
|
| 1.1 | % |
| $ | 239.3 |
|
| $ | 209.2 |
|
|
| 14.4 | % |
EBITDAC Margin - Adjusted (2) |
|
| 36.8 | % |
|
| 44.2 | % |
|
|
|
|
| 38.6 | % |
|
| 40.1 | % |
|
|
| ||
Organic Revenue growth rate (2) |
|
| 14.5 | % |
|
| 13.4 | % |
|
|
|
|
| 13.6 | % |
|
| 13.6 | % |
|
|
| ||
Employee compensation and benefits |
|
| 35.8 | % |
|
| 38.8 | % |
|
|
|
|
| 37.9 | % |
|
| 41.8 | % |
|
|
| ||
Other operating expenses relative |
|
| 27.4 | % |
|
| 17.1 | % |
|
|
|
|
| 23.5 | % |
|
| 18.2 | % |
|
|
| ||
Capital expenditures |
| $ | 3.3 |
|
| $ | 4.7 |
|
|
| (29.8 | %) |
| $ | 14.2 |
|
| $ | 11.3 |
|
|
| 25.7 | % |
Total assets at September 30, |
|
|
|
|
|
|
|
|
|
| $ | 4,476.3 |
|
| $ | 3,789.4 |
|
|
| 18.1 | % |
(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
The National Programs Segment’s total revenue for the three months ended September 30, 20172022 increased 3.3%21.1%, or $4.1$40.3 million, fromas compared to the same period in 2016,2021, to $127.7$231.4 million. The $4.5$52.9 million net increase in core commissions and fees revenue was driven by: (i) $3.5approximately $26.6 million related toof net new and renewal business; (ii) approximately $1.0$27.4 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016.2021; (iii) an offsetting decrease from the impact of foreign currency translation of $0.2 million; and (iv) an offsetting decrease of $0.9 million related to commissions and fees revenue from business divested in the preceding twelve months. Profit-sharing contingent
42
commissions and GSCs were $1.8 million for the third quarter of 2017, which was a decrease of $0.82022 decreased approximately $12.7 million fromor 195.4% as compared to the third quarter of 2016 reflecting the actual loss experience from our carrier partners.
The National Programs Segment’s growth rate for total commissions and fees was 3.0%increase by 28.7%, and the organic revenueOrganic Revenue growth rate was 2.9%14.5% for the three months ended September 30, 2017.2022. The organic revenueOrganic Revenue growth was driven primarily by an increase in lender-placed coverage, good new business and retention, exposure unit expansion and rate was mainly due to strong growth in our lender placed coverage, core commercial and residential earthquake programs, as well as our all-risk program that continues to build momentum. The growth from these and other programs was materially offset by continued downward rate pressureincreases for our coastal property programs and the impact related to a change in carrier risk appetite.
Income before income taxes for the three months ended September 30, 20172022 decreased 0.4%3.7%, or $0.1$2.7 million, as compared to the same period in 2021, to $69.7 million. Income before income taxes decreased due to the drivers of EBITDAC described below along with an increase in intercompany interest expense and amortization expense related to recent acquisitions, partially offset by a decrease in estimated acquisition earn-out payables associated with a business impacted by Hurricane Ian.
EBITDAC - Adjusted for the three months ended September 30, 2022 increased 1.1%, or $0.9 million, from the same period in 2016,2021, to $32.2$85.2 million. The decrease wasEBITDAC Margin - Adjusted for the three months ended September 30, 2022 decreased to 36.8% from 44.2% in the same period in 2021. EBITDAC - Adjusted increased slower than revenues due to lower profit-sharing contingent commissions and estimated losses in our Captives driven by the investment in our new core commercial program that began operating in July 2017 offset by a $2.5 million decrease in the intercompany interest expense charge for acquisitions.
The National Programs Segment'sSegment’s total revenue for the nine months ended September 30, 20172022 increased 2.7%18.6%, or $9.1$97.0 million, fromas compared to the same period in 2016,2021, to $342.6$619.3 million. The $5.2$108.8 million increase in core commissions and fees revenue was driven by: (i) $4.3approximately $67.2 million related toof net new and renewal business,business; (ii) approximately $1.2$45.0 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016,2021; (iii) an offsetting decrease from the impact of foreign currency translation of $0.3 million; and (iii) a(iv) an offsetting decrease of $0.3$3.0 million related to commissions and fees revenue from business divested in 2016 and 2017. Profit-sharing contingent commissions and GSCs were $16.0 million for the first nine months of 2017, which was an increase of $3.9 million from the same period in 2016 primarily driven by receipt of a new contingent commission we did not receive in the prior year.
The National Programs Segment’s growth rate for total commissions and fees was 2.7%increase by 21.9%, and the organic revenueOrganic Revenue growth rate was 1.3%13.6%, for the nine months ended September 30, 2017. This organic revenue2022. The Organic Revenue growth rate was mainly due to strong growthdriven primarily by an increase in our lender placed coverage, core commercialgood new business and residential earthquake programs, as well as our all-risk program that continue to build momentum. The growth from theseretention, exposure unit expansion and other programs was substantially offset by continued downward rate pressureincreases for our coastal property programs and the impact related to carrier risk appetite at certainmany programs.
Income before income taxes for the nine months ended September 30, 2017 decreased 0.4%2022 increased 4.3%, or $0.2$7.7 million, from the same period in 2016,2021, to $68.1$187.9 million. The decrease was driven byIncome before income taxes increased due to the investment in our core commercial program, $5.8 million in prior year credits related to premium taxes and a $7.4 million increase in employee compensation and benefits.drivers of EBITDAC described below. This decrease was partially offset by a $7.6 million decreasean increase in the intercompany interest expense charge for acquisitions along with additional profitand increased amortization expense associated with recent acquisitions.
EBITDAC - Adjusted for the overall growthnine months ended September 30, 2022 increased 14.4%, or $30.1 million, as compared to the same period in revenue.
43
Wholesale Brokerage Segment
The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, including Brown & Brown retail agents. Like the Retail and National Programs Segments,Approximately 83.3% of the Wholesale Brokerage Segment’s revenues are primarilycommissions and fees revenue is commission based.
Financial information relating to our Wholesale Brokerage Segment for the three and nine months ended September 30, 20172022 and 20162021 is as follows:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||
(in thousands, except percentages) | 2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||
REVENUES | |||||||||||||||||||||
Core commissions and fees | $ | 70,831 | $ | 66,201 | 7.0 | % | $ | 200,261 | $ | 173,223 | 15.6 | % | |||||||||
Profit-sharing contingent commissions | 350 | 3,520 | (90.1 | )% | 6,991 | 10,069 | (30.6 | )% | |||||||||||||
Guaranteed supplemental commissions | 324 | 411 | (21.2 | )% | 1,032 | 1,381 | (25.3 | )% | |||||||||||||
Investment income | — | — | — | % | — | 4 | (100.0 | )% | |||||||||||||
Other income, net | 69 | 60 | 15.0 | % | 528 | 216 | 144.4 | % | |||||||||||||
Total revenues | 71,574 | 70,192 | 2.0 | % | 208,812 | 184,893 | 12.9 | % | |||||||||||||
EXPENSES | |||||||||||||||||||||
Employee compensation and benefits | 34,678 | 33,187 | 4.5 | % | 104,098 | 90,099 | 15.5 | % | |||||||||||||
Other operating expenses | 10,814 | 11,175 | (3.2 | )% | 33,259 | 31,141 | 6.8 | % | |||||||||||||
Loss/(gain) on disposal | — | — | — | % | — | — | — | % | |||||||||||||
Amortization | 2,845 | 2,882 | (1.3 | )% | 8,621 | 7,915 | 8.9 | % | |||||||||||||
Depreciation | 471 | 503 | (6.4 | )% | 1,438 | 1,487 | (3.3 | )% | |||||||||||||
Interest | 1,515 | 1,540 | (1.6 | )% | 4,803 | 2,472 | 94.3 | % | |||||||||||||
Change in estimated acquisition earn-out payables | 32 | 43 | (25.6 | )% | 24 | 68 | (64.7 | )% | |||||||||||||
Total expenses | 50,355 | 49,330 | 2.1 | % | 152,243 | 133,182 | 14.3 | % | |||||||||||||
Income before income taxes | $ | 21,219 | $ | 20,862 | 1.7 | % | $ | 56,569 | $ | 51,711 | 9.4 | % | |||||||||
Organic revenue growth rate (1) | 6.1 | % | 6.7 | % | 6.5 | % | 4.8 | % | |||||||||||||
Employee compensation and benefits relative to total revenues | 48.5 | % | 47.3 | % | 49.9 | % | 48.7 | % | |||||||||||||
Other operating expenses relative to total revenues | 15.1 | % | 15.9 | % | 15.9 | % | 16.8 | % | |||||||||||||
Capital expenditures | $ | 214 | $ | 11 | $ | 1,606 | $ | 925 | |||||||||||||
Total assets at September 30 | $ | 1,258,783 | $ | 1,053,516 |
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||
(in millions, except percentages) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Core commissions and fees |
| $ | 123.0 |
|
| $ | 110.0 |
|
|
| 11.8 | % |
| $ | 333.0 |
|
| $ | 301.0 |
|
|
| 10.6 | % |
Profit-sharing contingent commissions |
|
| 3.1 |
|
|
| 2.4 |
|
|
| 29.2 | % |
|
| 8.2 |
|
|
| 6.5 |
|
|
| 26.2 | % |
Investment income |
|
| 0.1 |
|
|
| — |
|
|
| — | % |
|
| 0.2 |
|
|
| 0.1 |
|
|
| 100.0 | % |
Other income, net |
|
| 0.1 |
|
|
| 0.1 |
|
|
| — | % |
|
| 0.2 |
|
|
| 0.3 |
|
|
| (33.3 | )% |
Total revenues |
|
| 126.3 |
|
|
| 112.5 |
|
|
| 12.3 | % |
|
| 341.6 |
|
|
| 307.9 |
|
|
| 10.9 | % |
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Employee compensation and benefits |
|
| 63.0 |
|
|
| 55.3 |
|
|
| 13.9 | % |
|
| 177.2 |
|
|
| 160.0 |
|
|
| 10.8 | % |
Other operating expenses |
|
| 18.6 |
|
|
| 15.2 |
|
|
| 22.4 | % |
|
| 51.4 |
|
|
| 44.1 |
|
|
| 16.6 | % |
(Gain)/loss on disposal |
|
| — |
|
|
| — |
|
|
| — | % |
|
| 0.2 |
|
|
| — |
|
|
| — | % |
Amortization |
|
| 2.6 |
|
|
| 2.3 |
|
|
| 13.0 | % |
|
| 6.7 |
|
|
| 7.1 |
|
|
| (5.6 | )% |
Depreciation |
|
| 0.7 |
|
|
| 0.6 |
|
|
| 16.7 | % |
|
| 2.0 |
|
|
| 2.0 |
|
|
| — | % |
Interest |
|
| 3.2 |
|
|
| 3.9 |
|
|
| (17.9 | )% |
|
| 10.0 |
|
|
| 12.2 |
|
|
| (18.0 | )% |
Change in estimated acquisition |
|
| 2.8 |
|
|
| 5.8 |
|
|
| (51.7 | )% |
|
| (0.7 | ) |
|
| 8.0 |
|
|
| (108.8 | )% |
Total expenses |
|
| 90.9 |
|
|
| 83.1 |
|
|
| 9.4 | % |
|
| 246.8 |
|
|
| 233.4 |
|
|
| 5.7 | % |
Income before income taxes |
| $ | 35.4 |
|
| $ | 29.4 |
|
|
| 20.4 | % |
| $ | 94.8 |
|
| $ | 74.5 |
|
|
| 27.2 | % |
Income Before Income Taxes |
|
| 28.0 | % |
|
| 26.1 | % |
|
|
|
|
| 27.8 | % |
|
| 24.2 | % |
|
|
| ||
EBITDAC - Adjusted (2) |
| $ | 45.5 |
|
| $ | 42.0 |
|
|
| 8.3 | % |
| $ | 114.5 |
|
| $ | 103.8 |
|
|
| 10.3 | % |
EBITDAC Margin - Adjusted (2) |
|
| 36.0 | % |
|
| 37.3 | % |
|
|
|
|
| 33.5 | % |
|
| 33.7 | % |
|
|
| ||
Organic Revenue growth rate (2) |
|
| 4.5 | % |
|
| 4.8 | % |
|
|
|
|
| 7.5 | % |
|
| 7.6 | % |
|
|
| ||
Employee compensation and benefits |
|
| 49.9 | % |
|
| 49.2 | % |
|
|
|
|
| 51.9 | % |
|
| 52.0 | % |
|
|
| ||
Other operating expenses relative to |
|
| 14.7 | % |
|
| 13.5 | % |
|
|
|
|
| 15.0 | % |
|
| 14.3 | % |
|
|
| ||
Capital expenditures |
| $ | 0.7 |
|
| $ | 0.2 |
|
| NMF |
|
| $ | 1.5 |
|
| $ | 1.3 |
|
|
| 15.4 | % | |
Total assets at September 30, |
|
|
|
|
|
|
|
|
|
| $ | 1,366.5 |
|
| $ | 1,918.2 |
|
|
| (28.8 | %) |
(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
The Wholesale Brokerage Segment’s total revenues for the three months ended September 30, 20172022 increased 2.0%12.3%, or $1.4$13.8 million, fromas compared to the same period in 2016,2021, to $71.6$126.3 million. The $4.6$13.0 million net increase in core commissions and fees revenue was driven primarily by: (i) $0.5$4.9 million related to net new and renewal business; and (ii) $8.2 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016; and (ii) $4.1 million related to net new and renewal business.2021. Profit-sharing contingent commissions and GSCs for the third quarter of 2017 decreased $3.32022 increased $0.7 million compared to the third quarter of 2016, to $0.7 million as a result of decreased carrier profitability.2021. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 2.0%11.8%, and the organic revenueOrganic Revenue growth rate was 6.1%4.5% for the third quarter of 2017.2022. The organic revenueOrganic Revenue growth rate was driven by net new business, good retention as well as rate increases for open brokerage. However, the Organic Revenue growth was impacted by the performance of a business sold in the fourth quarter of 2022 and renewalcontinued headwinds in our personal lines business and modest increasescaused by reduced carrier appetite to write coverage in exposure units.
Income before income taxes for the three months ended September 30, 20172022 increased 1.7%20.4%, or $0.4$6.0 million, overas compared to the same period in 2016,2021, to $21.2 million, primarily$35.4 million. The increase was due to: (i) the net increasedrivers of EBITDAC - Adjusted described below; (ii) decrease in revenuethe change in estimated acquisition earn-out payables; and (iii) lower intercompany interest expense; partially offset by (iv) acquisition/integration costs.
44
EBITDAC - Adjusted for the three months ended September 30, 2022 increased 8.3%, or $3.5 million, as described above, offset partially by (ii) an increase in employee compensation and benefits of $1.5 million, of which $0.4 million was relatedcompared to acquisitions that had no comparable compensation and benefits in the same period in 2021, to $45.5 million. EBITDAC Margin - Adjusted for the three months ended September 30, 2022 decreased to 36.0% from 37.3%, as compared to the same period in 2021. EBITDAC Margin - Adjusted decreased due to: (i) the seasonality of 2016, with the remainder relatedrecent acquisitions; and (ii) increased variable operating expenses as compared to additional teammates to support increased transaction volumes.
The Wholesale Brokerage Segment’s total revenues for the nine months ended September 30, 20172022 increased 12.9%10.9%, or $23.9$33.7 million, fromas compared to the same period in 2016,2021, to $208.8$341.6 million. The $27.0$32.0 million net increase in core commissions and fees revenue was driven primarily by: (i) $15.8$22.5 million related to thenet new and renewal business; and (ii) $9.6 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016; and (ii) $11.2 million related to net new and renewal business.2021. Profit-sharing contingent commissions and GSCs for the first nine months of 2017 decreased $3.42022 increased approximately $1.7 million compared to the same period of 2016, to $8.0 million. This decrease in contingent commissions was driven by an increase in loss ratios with certain carriers, and offset partially by contingent commissions received from acquisitions that had no comparable contingent revenue during the same period of 2016.2021. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 12.8%10.6%, and the organic revenueOrganic Revenue growth rate was 6.5%7.5% for the first nine months of 2017, and2022. The Organic Revenue growth rate was driven by net new business, good retention as well as rate increases for most lines of coverage. However, the Organic Revenue growth was impacted by the performance of a business sold in the fourth quarter of 2022 and renewaldeclines in our personal lines business and modest increasescaused by reduced carrier appetite to write coverage in exposure units, partially offset by a continued significant contraction in insurance premium rates for catastrophe-prone properties.
Income before income taxes for the nine months ended September 30, 20172022 increased 9.4%27.2%, or $4.9$20.3 million, overas compared to the same period in 2016,2021, to $56.6 million, primarily due to:$94.8 million. (i) the net increasedrivers of EBITDAC - Adjusted described below; (ii) decrease in revenuethe change in estimated acquisition earn-out payables; and (iii) lower intercompany interest expense; partially offset by (iv) acquisition/integration costs.
EBITDAC - Adjusted for the nine months ended September 30, 2022 increased 10.3%, or $10.7 million, as described above, offset by; (ii) an increasecompared to the same period in employee compensation and benefits of $14.0 million, of which $9.5 million was related2021, to acquisitions that had no comparable compensation and benefits$114.5 million. EBITDAC Margin - Adjusted for the nine months ended September 30, 2022 decreased to 33.5% from 33.7% in the same period of 2016 with the remainder related to additional teammates to supportin 2021. EBITDAC Margin - Adjusted decreased due to: (i) higher broker compensation; (ii) increased transaction volumes; (iii) a $2.1 million increase in othervariable operating expenses, which are primarily travel and meeting related; and (iii) the seasonality of which $2.8 million was related to acquisitions that had no comparable expensesrecent acquisitions; partially offset by (iv) higher profit-sharing contingent commissions; and (v) leveraging our expense base in the same period of 2016, while existing other operating expenses decreased $0.7 million; and (iv) an increase of $2.3 million in intercompany interest expense related to acquisitions completed in the previous twelve months.
Services Segment
The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas. The Services Segment also provides Medicare Set-aside account services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services.
Unlike the other segments, nearly all of the Services Segment’s revenue is generated from fees, which are not significantly affected by fluctuations in general insurance premiums.
45
Financial information relating to our Services Segment for the three and nine months ended September 30, 20172022 and 20162021 is as follows:
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||||||||
(in thousands, except percentages) | 2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||
REVENUES | |||||||||||||||||||||
Core commissions and fees | $ | 41,419 | $ | 39,529 | 4.8 | % | $ | 122,173 | $ | 117,702 | 3.8 | % | |||||||||
Profit-sharing contingent commissions | — | — | — | % | — | — | — | % | |||||||||||||
Guaranteed supplemental commissions | — | — | — | % | — | — | — | % | |||||||||||||
Investment income | 72 | 57 | 26.3 | % | 224 | 204 | 9.8 | % | |||||||||||||
Other income, net | — | — | — | % | — | — | — | % | |||||||||||||
Total revenues | 41,491 | 39,586 | 4.8 | % | 122,397 | 117,906 | 3.8 | % | |||||||||||||
EXPENSES | |||||||||||||||||||||
Employee compensation and benefits | 19,993 | 20,151 | (0.8 | )% | 59,606 | 58,658 | 1.6 | % | |||||||||||||
Other operating expenses | 11,173 | 10,583 | 5.6 | % | 32,870 | 32,722 | 0.5 | % | |||||||||||||
Loss/(gain) on disposal | — | — | — | % | 55 | — | — | % | |||||||||||||
Amortization | 1,137 | 1,140 | (0.3 | )% | 3,412 | 3,345 | 2.0 | % | |||||||||||||
Depreciation | 402 | 473 | (15.0 | )% | 1,191 | 1,432 | (16.8 | )% | |||||||||||||
Interest | 876 | 1,257 | (30.3 | )% | 2,783 | 3,820 | (27.1 | )% | |||||||||||||
Change in estimated acquisition earn-out payables | — | 11 | (100.0 | )% | — | — | — | % | |||||||||||||
Total expenses | 33,581 | 33,615 | (0.1 | )% | 99,917 | 99,977 | (0.1 | )% | |||||||||||||
Income before income taxes | $ | 7,910 | $ | 5,971 | 32.5 | % | $ | 22,480 | $ | 17,929 | 25.4 | % | |||||||||
Organic revenue growth rate (1) | 4.8 | % | 1.6 | % | 2.9 | % | 3.1 | % | |||||||||||||
Employee compensation and benefits relative to total revenues | 48.2 | % | 50.9 | % | 48.7 | % | 49.7 | % | |||||||||||||
Other operating expenses relative to total revenues | 26.9 | % | 26.7 | % | 26.9 | % | 27.8 | % | |||||||||||||
Capital expenditures | $ | 364 | $ | 80 | $ | 856 | $ | 561 | |||||||||||||
Total assets at September 30 | $ | 432,331 | $ | 342,360 |
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||
(in millions, except percentages) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Core commissions and fees |
| $ | 41.1 |
|
| $ | 43.7 |
|
|
| (5.9 | %) |
| $ | 128.8 |
|
| $ | 135.6 |
|
|
| (5.0 | %) |
Profit-sharing contingent commissions |
|
| — |
|
|
| — |
|
|
| — | % |
|
| — |
|
|
| — |
|
|
| — | % |
Investment income |
|
| — |
|
|
| — |
|
|
| — | % |
|
| — |
|
|
| — |
|
|
| — | % |
Other income, net |
|
| — |
|
|
| — |
|
|
| — | % |
|
| — |
|
|
| — |
|
|
| — | % |
Total revenues |
|
| 41.1 |
|
|
| 43.7 |
|
|
| (5.9 | %) |
|
| 128.8 |
|
|
| 135.6 |
|
|
| (5.0 | %) |
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Employee compensation and benefits |
|
| 22.5 |
|
|
| 22.2 |
|
|
| 1.4 | % |
|
| 67.2 |
|
|
| 67.0 |
|
|
| 0.3 | % |
Other operating expenses |
|
| 11.7 |
|
|
| 12.1 |
|
|
| (3.3 | )% |
|
| 36.9 |
|
|
| 37.3 |
|
|
| (1.1 | %) |
(Gain)/loss on disposal |
|
| — |
|
|
| — |
|
|
| — | % |
|
| — |
|
|
| — |
|
|
| — | % |
Amortization |
|
| 1.3 |
|
|
| 1.3 |
|
|
| — | % |
|
| 3.9 |
|
|
| 4.0 |
|
|
| (2.5 | )% |
Depreciation |
|
| 0.4 |
|
|
| 0.3 |
|
|
| 33.3 | % |
|
| 1.2 |
|
|
| 1.1 |
|
|
| 9.1 | % |
Interest |
|
| 0.5 |
|
|
| 0.7 |
|
|
| (28.6 | )% |
|
| 1.6 |
|
|
| 2.2 |
|
|
| (27.3 | )% |
Change in estimated acquisition earn-out payables |
|
| — |
|
|
| — |
|
|
| — | % |
|
| — |
|
|
| — |
|
|
| — | % |
Total expenses |
|
| 36.4 |
|
|
| 36.6 |
|
|
| (0.5 | )% |
|
| 110.8 |
|
|
| 111.6 |
|
|
| (0.7 | )% |
Income before income taxes |
| $ | 4.7 |
|
| $ | 7.1 |
|
|
| (33.8 | %) |
| $ | 18.0 |
|
| $ | 24.0 |
|
|
| (25.0 | )% |
Income Before Income Taxes Margin (1) |
|
| 11.4 | % |
|
| 16.2 | % |
|
|
|
|
| 14.0 | % |
|
| 17.7 | % |
|
|
| ||
EBITDAC - Adjusted (2) |
| $ | 6.9 |
|
| $ | 9.4 |
|
|
| (26.6 | %) |
| $ | 24.7 |
|
| $ | 31.3 |
|
|
| (21.1 | )% |
EBITDAC Margin - Adjusted (2) |
|
| 16.8 | % |
|
| 21.5 | % |
|
|
|
|
| 19.2 | % |
|
| 23.1 | % |
|
|
| ||
Organic Revenue growth rate (2) |
|
| (4.6 | %) |
|
| 0.5 | % |
|
|
|
|
| (3.7 | %) |
|
| 3.6 | % |
|
|
| ||
Employee compensation and benefits relative to total |
|
| 54.7 | % |
|
| 50.8 | % |
|
|
|
|
| 52.2 | % |
|
| 49.4 | % |
|
|
| ||
Other operating expenses relative to total revenues |
|
| 28.5 | % |
|
| 27.7 | % |
|
|
|
|
| 28.6 | % |
|
| 27.5 | % |
|
|
| ||
Capital expenditures |
| $ | 0.3 |
|
| $ | 0.9 |
|
|
| (66.7 | )% |
| $ | 0.8 |
|
| $ | 1.4 |
|
|
| (42.9 | )% |
Total assets at September 30, |
|
|
|
|
|
|
|
|
|
| $ | 289.1 |
|
| $ | 449.5 |
|
|
| (35.7 | )% |
(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.
(2) A non-GAAP financial measure.
NMF = Not a meaningful figure
The Services Segment’s total revenues for the three months ended September 30, 2017 increased 4.8%2022 decreased 5.9%, or $1.9$2.6 million, overas compared to the same period in 2016,2021, to $41.5$41.1 million. The $1.9 million increase in core commissions and fees revenue was related to net new business. The Services Segment’s growth rate for total commissions and fees was 4.8% and the organic revenue growth rate was 4.8%Organic Revenue declined 4.6% for the third quarter of 2017. The organic revenue growth rate was primarily due to new business and increased premiums for workers’ compensation and managed-care claims.
Income before income taxes for the three months ended September 30, 2017 increased 32.5%2022 decreased 33.8%, or $1.9$2.4 million, overas compared to the same period in 2016,2021, to $7.9 million$4.7 million. Income before income taxes decreased due to a combinationthe drivers of organic revenue growthEBITDAC - Adjusted described below.
EBITDAC - Adjusted for the three months ended September 30, 2022 decreased 26.6%, or $2.5 million, from higher margin businessesthe same period in 2021, to $6.9 million. EBITDAC Margin - Adjusted for the three months ended September 30, 2022 decreased to 16.8% from 21.5% in the same period in 2021. The decrease in EBITDAC and continued expense management.
The Services Segment’s total revenues for the nine months ended September 30, 2017 increased 3.8%2022 decreased 5.0%, or $4.5$6.8 million overfrom the same period in 2016,2021, to $122.4$128.8 million. The $4.5 million increase in core commissions and fees revenue was driven by: (i) $3.4 million related to net new and renewal business; (ii) approximately $0.9 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2016; and (iii) $0.2 million related to commissions and fees revenue from net transferred/divested business in 2016 and 2017. The Services Segment’s growth rate for total commissions and fees wasand Organic Revenue growth declined 3.8% and the organic revenue growth rate was 2.9% for the first nine months of 2017. This organic revenue growth rate2022. The decrease in Organic Revenue was drivencaused primarily from growthby: (i) higher COVID-19 travel restricted claims in our Social Security disability advocacy businesses, as well as new businessthe prior year; and increased premiums for workers’ compensation and managed-care claims.
Income before income taxes for the nine months ended September 30, 2017 increased 25.4%2022 decreased $6.0 million, or 25.0%, or $4.6 million, overfrom the same period in 2016,2021, to $22.5 million$18.0 million. Income before income taxes decreased due to a combinationthe drivers of organic revenue growthEBITDAC described below.
EBITDAC - Adjusted for the nine months ended September 30, 2022 decreased 21.1%, or $6.6 million, from higher margin businessesthe same period in 2021, to $24.7 million. EBITDAC Margin - Adjusted for the nine months ended September 30, 2022 decreased to 19.2% from 23.1% in the same period in 2021. The decrease in EBITDAC and continued expense management.
46
Other
As discussed in Note 1012 of the Notes to Condensed Consolidated Financial Statements, the “Other” column in the Segment Information table includes any incomerevenue and expenses not allocated to reportable segments, and corporate-related items, including the inter-companyintercompany interest expense charges to reporting segments.
LIQUIDITY AND CAPITAL RESOURCES
The Company seeks to maintain a conservative balance sheet and strong liquidity profile. Our capital requirements to operate as an insurance intermediary are low and we have been able to grow and invest in our business principally through cash that has been generated from operations. If necessary, we alsoWe have availablethe ability to utilize our revolving credit facility,Revolving Credit Facility, which providesas of September 30, 2022 provided up to $800.0$650.0 million in available cash, and wecash. We believe that we have access to additional funds, if needed, through the capital markets or private placements to obtain further debt financing under the current market conditions. The Company believes that its existing cash, cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available under the Amended and RestatedRevolving Credit Agreement (as defined below),Facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next twelve12 months.
The Revolving Credit Facility contains an expansion option for up to an additional $500.0 million of borrowing capacity, subject to the approval of participating lenders. In addition, under the Term Loan Credit Agreement, the unsecured term loan in the initial amount of $300.0 million may be increased by up to $150.0 million, subject to the approval of participating lenders. On March 31, 2022, the Company entered into a Loan Agreement (the “Loan Agreement") which provided term loan capacity of $800.0 million. Additionally, the Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment under the existing Loan Agreement or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. Including the expansion options under all existing credit agreements, the Company has access to up to $1.7 billion of incremental borrowing capacity as of September 30, 2022.
Contractual Cash Obligations
As of September 30, 2017,2022, our contractual cash obligations were as follows:
|
| Payments Due by Period |
| |||||||||||||||||
(in millions) |
| Total |
|
| Less than |
|
| 1-3 |
|
| 4-5 |
|
| After |
| |||||
Long-term debt |
| $ | 4,142.5 |
|
| $ | 67.5 |
|
| $ | 1,125.0 |
|
| $ | 700.0 |
|
| $ | 2,250.0 |
|
Other liabilities (1) |
|
| 152.5 |
|
|
| 24.9 |
|
|
| 12.2 |
|
|
| 11.2 |
|
|
| 104.2 |
|
Operating leases (2) |
|
| 272.1 |
|
|
| 57.4 |
|
|
| 94.8 |
|
|
| 59.9 |
|
|
| 60.0 |
|
Interest obligations |
|
| 1,592.3 |
|
|
| 169.8 |
|
|
| 288.6 |
|
|
| 214.7 |
|
|
| 919.2 |
|
Unrecognized tax benefits |
|
| 3.1 |
|
|
| — |
|
|
| 3.1 |
|
|
| — |
|
|
| — |
|
Maximum future acquisition contingency payments (3) |
|
| 550.3 |
|
|
| 166.8 |
|
|
| 375.7 |
|
|
| 7.8 |
|
|
| — |
|
Total contractual cash obligations (4) |
| $ | 6,712.8 |
|
| $ | 486.4 |
|
| $ | 1,899.4 |
|
| $ | 993.6 |
|
| $ | 3,333.4 |
|
Payments Due by Period | |||||||||||||||||||
(in thousands) | Total | Less Than 1 Year | 1-3 Years | 4-5 Years | After 5 Years | ||||||||||||||
Long-term debt | $ | 990,000 | $ | 120,000 | $ | 65,000 | $ | 305,000 | $ | 500,000 | |||||||||
Other liabilities(1) | 47,137 | 2,828 | 6,732 | 2,030 | 35,547 | ||||||||||||||
Operating leases | 200,261 | 42,352 | 71,297 | 47,872 | 38,740 | ||||||||||||||
Interest obligations | 191,673 | 35,255 | 60,255 | 55,038 | 41,125 | ||||||||||||||
Unrecognized tax benefits | 1,293 | — | 1,293 | — | — | ||||||||||||||
Maximum future acquisition contingency payments(2) | 81,505 | 49,879 | 31,626 | — | — | ||||||||||||||
Total contractual cash obligations | $ | 1,511,869 | $ | 250,314 | $ | 236,203 | $ | 409,940 | $ | 615,412 |
47
Debt
Total debt at September 30, 20172022 was $980.7$4,107.9 million net of unamortized discount and debt issuance costs, which was a decreasean increase of $93.1$2,085.0 million compared to December 31, 2016.2021. The decrease includesincrease includes: (i) the repaymentissuance of $91.7$1,200.0 million in aggregate principal includingamount of Senior Notes on March 17, 2022, exclusive of debt issuance costs and discounts applied to the repaymentprincipal; (ii) the drawdown of $350.0 million of the $0.5revolving credit facility in conjunction with the acquisition payment for Orchid on March 31, 2022; (iii) the aggregate drawdown of $800.0 million under the Loan Agreement in a short-term note payable related toconnection with the 2016 acquisitionfunding of Social Security Advocates for the Disabled, LLC,acquisitions of GRP and BdB which occurred on various dates on or before the final draw on April 28, 2022; and (iv) net of the amortization of discounted debt related to our 4.200%various unsecured Senior Notes, due 2024 and debt issuance cost amortization of $1.4 million. The Company also$2.8 million; offset by decreases due to: (i) the scheduled principal amortization balances related to our various existing floating-rate debt term notes in total of $44.4 million; (ii) added $2.8discounted debt balances related to the issuance of $600.0 million in aggregate principal amount of the Company’s 4.200% Senior Notes due 2032 (the “2032 Notes”) and $600.0 million in aggregate principal amount of the Company’s 4.950% Senior Notes due 2052 (the “2052 Notes,” and together with the 2032 Notes, the “Notes”) of $10.4 million; (iii) debt issuance costs related to the Notes and the Loan Agreement of $13.0 million; and (iv) through September 30, 2022 the Company repaying $200.0 million of debt related to the outstanding amount drawn under the revolving credit facility under the Second Amended and Restated Credit Agreement.
During the nine months ended September 30, 2022, the Company repaid $9.4 million of principal related to the Second Amended and Restated Credit Agreement (as defined below) thatterm loan through the quarterly scheduled amortized principal payments. The Second Amended and Restated Credit Agreement term loan had an outstanding balance of $237.5 million as of September 30, 2022. The Company's next scheduled amortized principal payment is due December 31, 2022 and is equal to $3.1 million.
During the nine months ended September 30, 2022, the Company repaid $22.5 million of principal related to the Term Loan Credit Agreement through quarterly scheduled amortized principal payments. The Term Loan Credit Agreement had an outstanding balance of $217.5 million as of September 30, 2022. The Company’s next scheduled amortized principal payment is due December 31, 2022 and is equal to $7.5 million.
During the nine months ended September 30, 2022, the Company repaid $12.5 million of principal related to the Term Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) through quarterly scheduled amortized principal payments. The Term A-2 Loans had an outstanding balance of $487.5 million as of September 30, 2022. The Company’s next scheduled amortized principal payment is due December 31, 2022 and is equal to $6.3 million.
On March 17, 2022, the Company completed the issuance of $600.0 million aggregate principal amount of the Company’s 4.200% Senior Notes due 2032 and $600.0 million aggregate principal amount of the Company’s 4.950% Senior Notes due 2052 (and together with the 2032 Notes, the “Notes”). The net proceeds to the Company from the issuance of the Notes, after deducting underwriting discounts and estimated offering expenses, were approximately $1,178.2 million. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 stable outlook. The 2032 Notes bear interest at the rate of 4.200% per year and will mature on March 17, 2032. The 2052 Notes bear interest at the rate of 4.950% per year and will mature on March 17, 2052. Interest on the Notes will be payable semi-annually in arrears. The Notes are senior unsecured obligations of the Company and will rank equal in right of payment to all of the Company’s existing and future senior unsecured indebtedness. The Company may redeem the Notes in whole or in part at any time and from time to time, at the “make whole” redemption prices specified in the Prospectus Supplement for the Notes being redeemed, plus accrued and unpaid interest thereon to, but excluding the redemption date. The Company used the net proceeds from the offering of the Notes, together with borrowings under its revolving credit facility, cash on hand and other borrowings, to fund the cash consideration and other amounts payable under the GRP Acquisition Agreement and to pay fees and expenses associated with the foregoing. As of September 30, 2022, there was executed in June 2017.
On June 28, 2017,March 31, 2022, the Company entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”)the Loan Agreement with the lenders named therein, BMO Harris Bank N.A., as administrative agent, Fifth Third Bank, National Association, PNC Bank, National Association, U.S. Bank National Association and Wells Fargo Bank, National Association, as co-syndication agents and BMO Capital Markets Corp., BofA Securities, Inc., JPMorgan Chase Bank, N.A. and Truist Securities, Inc., as administrative agentjoint bookrunners and certain other banks as co-syndication agentsjoint lead arrangers. The Loan Agreement evidences commitments for (i) unsecured delayed draw term loans in an aggregate amount of up to $300.0 million (the “Term A-1 Loan Commitment”) and co-documentation agents. The Amended(ii) unsecured delayed draw term loans in an amount of up to $500.0 million (the “Term A-2 Commitment” and, Restated Credit Agreement amended and restatedtogether with the credit agreement dated April 17, 2014, among such parties (the “Original Credit Agreement”Term A-1 Loan Commitments, the “Term Loan Commitments”). The AmendedCompany may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. The Company may borrow term loans (the “Term Loans”) under either of the Term Loan Commitments during the period from the Effective Date (the "Effective Date") until the date which is the first anniversary thereof. Once borrowed, Term Loans issued under the Term A-1 Loan Commitment (“Term A-1 Loans”) are due and Restated Credit Agreement extendspayable on the applicabledate that is the third anniversary of the Effective Date unless such maturity date is extended as provided under the Loan Agreement. Once borrowed, Term Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) are repayable in installments until the fifth anniversary the Effective Date with any remaining outstanding amounts due and payable on such fifth anniversary of the existingEffective Date unless such maturity date is extended as provided under the Loan Agreement. While outstanding, the undrawn Term Loan Commitments accrue a commitment fee of 0.15% beginning on the earlier of the initial funding of Term Loans under the Loan Agreement and the date that is 120 days from the Effective Date. Once drawn, Term A-1 Loans will bear interest at the annual rate of Adjusted Term SOFR plus 1.125% or Base Rate plus 0.125% (subject to a
48
pricing grid for changes in the Company’s credit rating and/or leverage) and Term A-2 Loans will bear interest at the annual rate of Adjusted Term SOFR plus 1.25% or Base Rate plus 0.25% (subject to a pricing grid for changes in the Company’s credit rating and/or leverage). The Loan Agreement includes various covenants (including financial covenants), limitations and events of default customary for similar facilities for similarly rated borrowers. As of September 30, 2022 the outstanding balance on the Loan Agreement was $787.5 million.
On March 31, 2022 the Company accessed $350.0 million of available proceeds on the revolving credit facility (the “Facility”) of $800.0 million to June 28, 2022 and re-evidences unsecured term loans at $400.0 million while also extendingunder the applicable maturity date to June 28, 2022. The term loan principal amortization schedule was reset with payments due quarterly. At the time of the execution of the Amended and Restated Credit Agreement, $67.5 million of principal from the original unsecured term loans was repaid using operating cash balances, and the Company added an additional $2.8 million in debt issuance costs related to the facility to the Consolidated Balance Sheet. The Company also expensed to the Consolidated Statements of Income $0.2 million of debt issuance costs related to the Original Credit Agreement due to certain lenders exiting prior to the modified agreement, while also carrying forward $1.6 million on the Consolidated Balance Sheet the unamortized portion of the Original Credit Agreement debt issuance costs which will amortize over the term of theSecond Amended and Restated Credit Agreement. On September 30, 2017, a scheduled principal payment of $5.0 million was satisfied perThe proceeds were used in conjunction with the termsfunding of the Amended and Restated Credit Agreement.Orchid acquisition along with funds from cash on hand. As of September 30, 2017, there2022 the outstanding loan balance was an outstanding debt balance issued under the terms of the Amended and Restated Credit Agreement of $390.0 million with no borrowings outstanding against the
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates and equity prices. We are exposed to market risk through our investments, revolving credit line, term loan agreements and international operations.
Our invested assets are held primarily as cash and cash equivalents, restricted cash, available-for-sale marketable debt securities, non-marketable debt securities, certificates of deposit, U.S. treasuryTreasury securities, and professionally managed shortshort-term duration fixed income funds. These investments are subject to interest rate risk. The fair valuesvalue of our invested assets at September 30, 20172022 and December 31, 2016,2021 approximated their respective carrying values due to their short-term duration and therefore, such market risk is not considered to be material.
We do not actively invest or trade in equity securities. In addition, we generally dispose of any significant equity securities received in conjunction with an acquisition shortly after the acquisition date.
As of September 30, 2017,2022, we had $390.0$787.5 million outstanding under the Loan Agreement tied to the Secured Overnight Financing Rate (“SOFR”) and $605.0 million of borrowings outstanding under our term loan which bearscertain credit agreements tied to the overnight London Interbank Offered Rate (“LIBOR”). These aforementioned notes bear interest on a floating basis tied to the London Interbank Offered Rate (LIBOR) and are therefore subject to changes in the associated interest expense. The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on our Condensed Consolidated Financial Statements.
When the Company entered into the Second Amended and Restated Credit on October 27, 2021, it included provisions regarding transition from LIBOR to SOFR in preparation of the LIBOR cessation. On March 31, 2022, the Company entered into the Loan Agreement which bears interest tied to the annual rate for the adjusted Secured Overnight Financing Rate ("Adjusted Term SOFR"). In the coming periods, the Company will assess any other current agreements with benchmark rates tied to LIBOR with an expectation that the Company will be prepared for a termination of LIBOR benchmarks prior to June 30, 2023 when typical rate settings will no longer be available.
The majority of our international operations do not have material activity transacted in currencies other than their functional currency which would expose the Company to transactional currency rate risk. The primary exposure to operational exchange rate risk primarily in our U.K-basedU.K.-based wholesale brokerage business thatwhich has a cost base principally denominated in British pounds and a revenue base in several other currencies, but principally in U.S. dollars.dollars, which is deemed the functional currency for this business. We are subject to translational exchange rate risk having businesses operating outside of the U.S. in the following functional currencies, Canadian dollar, British pounds and euros. Based upon our foreign currency rate exposure as of September 30, 2017,2022, an immediate 10% hypothetical change of foreign currency exchange rates
would not have a material effect on our Condensed Consolidated Financial Statements.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation (the “Evaluation”) required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”) as of September 30, 2017.2022. Based upon the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our senior management, including our CEO and CFO, to allow timely decisions regarding required disclosures.
Changes in Internal Controls
There has not been any change in our internal control over financial reporting identified in connection with the Evaluation that occurred during the quarter ended September 30, 2017,2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Internal Control Over Financial Reporting
Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
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objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
CEO and CFO Certifications
Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are supplied in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item 4 of Part I of this Quarterly Report on Form 10-Q contains the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
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PART II
ITEM 1. Legal Proceedings
In Item 3 of Part I of the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2016,2021, certain information concerning litigation claims arising in the ordinary course of business was disclosed. Such information was current as of the date of filing. During the Company’s fiscal quarter ended September 30, 2017,2022, no new legal proceedings, or material developments with respect to existing legal proceedings, occurred which require disclosure in this Quarterly Report on Form 10-Q.
ITEM 1A. Risk Factors
There were no material changes in the risk factors previously disclosed in Item 1A, “Risk Factors” included inof the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
In connection with certain business combinations, the Company issued 252,802 shares of the Company's common stock on July 1, 2022 to the owners of the businesses acquired. The issuance was made in reliance upon the following exemptions or exclusions from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"): Section 4(a)(2) of the Securities Act, Regulation D promulgated under the Securities Act, and Regulation S promulgated under the Securities Act.
Issuer Purchases of Equity Securities
The following table provides information about our repurchase of shares of our common stock during the three months ended September 30, 2017:
|
| Total number |
|
| Average price |
|
| Total number of |
|
| Maximum value |
| ||||
July 1, 2022 to July 31, 2022 |
|
| 2,533 |
|
| $ | 59.51 |
|
|
| — |
|
| $ | 249.6 |
|
August 1, 2022 to August 31, 2022 |
|
| 2,457 |
|
|
| 66.54 |
|
|
| — |
|
|
| 249.6 |
|
September 1, 2022 to September 30, 2022 |
|
| 719 |
|
|
| 58.92 |
|
|
| — |
|
|
| 249.6 |
|
Total |
|
| 5,709 |
|
| $ | 62.46 |
|
|
| — |
|
| $ | 249.6 |
|
Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Value that May Yet be Purchased Under the Plans or Programs(2) | ||||||||||
July 1, 2017 to July 31, 2017 | 93,810 | $ | 42.96 | 86,845 | $ | 352,453,029 | |||||||
August 1, 2017 to August 31, 2017 | 983,002 | 43.92 | 967,888 | 302,453,029 | |||||||||
September 1, 2017 to September 30, 2017 | 44,210 | 46.27 | — | 302,453,029 | |||||||||
Total | 1,121,022 | $ | 43.93 | 1,054,733 | $ | 302,453,029 |
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ITEM 6. Exhibits
The following exhibits are filed as a part of this Report:
3.1 | ||
Articles of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.1 | to Form 8-K filed on March 29, 2018),Articles of Amendment to Articles of Incorporation (adopted April 24, 2003) (incorporated by reference to Exhibit 3a to Form 10-Q for the quarter ended March 31, | |
3.2 | ||
10.1* | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer of the Registrant. | |
31.2 | ||
32.1 | ||
32.2 | ||
101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in inline XBRL, | |
104 | Cover Page Interactive Data File (formatted in inline XBRL | |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BROWN & BROWN, INC. | ||||
/s/ R. Andrew Watts | ||||
Date: November 3, | R. Andrew Watts | |||
Executive Vice President, Chief Financial Officer and Treasurer | ||||
(duly authorized officer, principal financial officer and principal accounting officer) |
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