In the third quarter of 2023, Brown & Brown (NYSE:BRO), Inc. reported robust financial results, with revenues crossing the $1 billion mark, marking a 15.1% total growth and 9.6% organic growth compared to the same period last year. The company's adjusted EBITDAC margin expanded by 350 basis points to 34.7%, and adjusted earnings per share surged by 42% to $0.72.
Key takeaways from the earnings call:
- The company completed seven acquisitions in the quarter, including Kentro, an MGU and retail broker operator in the U.K., U.S., and Europe, contributing to estimated annual revenues of $14 million.
- The Board of Directors approved a 13% dividend increase, marking the 30th consecutive year of dividend hikes.
- Despite a challenging insurance marketplace, with rising property insurance rates and certain costs outpacing revenue growth, the company reported strong organic growth in its retail, program, and wholesale segments.
- Brown & Brown generated $704 million of cash flow from operations in the first nine months of 2023 and reduced its outstanding debt by approximately $100 million in Q3.
- The company expects its adjusted EBITDAC margins for the full year to increase by at least 100 basis points compared to 2022.
During the earnings call, the company reported a 13.4% organic growth, driven by higher profit-sharing contingent commissions and recent acquisitions. The services segment experienced a slight decline in adjusted EBITDAC margin due to one-time expenses and inflation but still delivered a 3.2% organic growth. The company also achieved its target gross debt-to-EBITDA ratio, reducing outstanding debt by $100 million in Q3.
Despite the expectation of inflation and interest rate impacts on customers and consumers, the company anticipates rate increases to remain consistent through the year's end. The company expressed its commitment to managing insurance spend and maintaining relationships with carrier partners. The outlook for exposure units and construction revenues remains positive.
Brown & Brown reported strong customer growth in both its Wholesale and Retail segments. However, it faced challenges related to talent costs and increased travel and entertainment expenses. Stock compensation was also noted as a headwind for the business. Despite these challenges, the company reported strong organic growth, adjusted EBITDAC margin expansion, and adjusted earnings per share growth for the first nine months of the year.
Andrew Watts, during the earnings call, attributed the growth in the services segment to expanded and new customer relationships. While the transactions in the services business are one-time, the relationships are recurring, and the company aims to focus on these for sustainable growth. The company has reached its target debt leverage of 0x to 3x and may increase leverage for larger acquisitions in the future, but plans to maintain a conservative balance sheet. The call concluded with Powell Brown expressing satisfaction with the quarter and looking forward to Q4.
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