Brown & Brown, Inc. (BRO)

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Brown & Brown (BRO)

Q2 2013 Earnings Call

July 16, 2013 8:30 am ET

Executives

J. Powell Brown - Chief Executive Officer, President and Director

Cory T. Walker - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Analysts

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Gregory Locraft - Morgan Stanley, Research Division

Adam Klauber - William Blair & Company L.L.C., Research Division

Ryan J. Byrnes - Janney Montgomery Scott LLC, Research Division

Brett Huff - Stephens Inc., Research Division

Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division

Elyse Greenspan - Wells Fargo Securities, LLC, Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

Presentation

Operator

Good day, good morning and welcome to the Brown & Brown, Inc. 2013 Second Quarter Earnings Call. Today's call is being recorded.

Please note that certain information discussed during this call, including answers given in response to your questions, may relate to future results and events or otherwise be forward-looking in nature and reflect our current views with respect to future events, including those related to the company's anticipated financial results for the first quarter of 2013. Such statements are intended to fall within the Safe Harbor provisions of the securities laws.

Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors, including the company's determination as it finalizes its financial results for the first quarter of 2013, that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects are contained in the company's filings with the Securities and Exchange Commission.

We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

With that said, I would now like to turn the call over to Mr. Powell Brown, President and Chief Executive Officer. You may begin, sir.

J. Powell Brown

Thank you, Kyle. Good morning, everybody. We had a 7.4% internal growth in Q2, and we're very pleased about that. All 4 divisions contributed to our $21.1 million of new growth dollars. Retail was up 2.3%, and Wholesale and National Programs and Services were up 10% or more.

So with that, I'd like to turn it to over to Cory for our financial update.

Cory T. Walker

Thanks, Powell. We did have another very good quarter. And like we've said previously, we like the steady and consistent growth that our internal growth reflected.

Our net income for the second quarter of 2013 of $52 million was up 22.4% over the second quarter of 2012. Correspondingly, our net income per share for the quarter was $0.36, and that is 24.1% over the $0.29 from the second quarter of 2012.

From a revenue standpoint, our commissions and fees for the quarter increased 11.8% to $324.2 million, and that's up from the $289.9 million from last year's second quarter. We did receive 7.9% -- $7.9 million of profit-sharing contingent commissions, which represents a net increase of approximately $6.8 million. That's from the $1 million we received last year in the second quarter.

Of the $6.8 million of net increase, $1 million came from our Wholesale Brokerage division and $5.8 million came from our Program division, of which $4.5 million was generated in our FIU program. And as long as the wind continues to be quiet and not blow, we should continue to see nice profit-sharing contingency from FIU.

Our best estimate on how much profit-sharing contingent revenues that we should receive in the second half of 2013 is between $13 million and $15 million, of which we think $10 million to $11 million may come in the third quarter and then possibly, $3 million to $4 million in the fourth quarter.

Additionally, we accrued $1.7 million of guaranteed supplemental commissions in the second quarter of 2013, and that is $560,000 less than the $2.3 million that we accrued in the second quarter of 2012. This reduction is, again, in line with the fact that several carriers that used to pay us GSCs in lieu of profit-sharing contingent commissions have switched back to their profit-sharing contingent commission contracts.

Now, looking at the internal growth schedule, as Powell mentioned, we had a consolidated internal growth rate of 7.4%. For the second quarter, our total core commissions and fees increased 10.4% or $29.6 million of net additional commissions and fees. However, within that net number, we had $8.5 million of acquired revenues. So that means that we had $21.1 million of additional commissions and fees from essentially the same-store sales basis. And as Powell mentioned, all 4 of our divisions had strong positive internal growth, and he'll talk about those a little bit later.

Our investment income was nearly flat with 2012, and our other income was up slightly of about $616,000, and that's due to a sale of certain books of businesses. Our pretax profit margin for the second quarter of 2013 was 26.5%, and that's compared to the 24.5% we had in the second quarter of 2012. So that's an increase of 200 basis points.

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