Brown & Brown, Inc. (BRO)

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Brown & Brown Insurance, Inc (BRO)

Q4 2011 Earnings Call

February 06, 2012 8:00 AM ET

Executives

Hyatt Brown – Chairman

Christopher Walker – President of Arrowhead & Regional Executive Vice President

Cory Walker – SVP, Treasurer and Chief Financial Officer

Scott Penny – Regional President & Chief Acquisitions Officer

Analysts

Ray Iardella – Macquarie Research Equities

Adam Klauber - William Blair & Company

Sarah Dewitt - Barclays Capital

Meyer Shields - Stifel Nicolaus

Yaron Kinar - Deutsche Bank

Matthew Heimermann – JPMorgan

Presentation

Operator

Good morning, and welcome to the Brown & Brown Fourth Quarter 2011 Earnings Release Conference 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 financial performances. 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 those risks and uncertainties that have been or will be 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.

With that said, I would now turn the call over to Mr. Powell Brown, our President and Chief Executive officer. Please go ahead, Sir.

Hyatt Brown

Well, you’re close. It’s Hyatt Brown and good morning, everyone. We have here in the room Cory Walker, our Chief Financial Officer. We have Scott Penny, our Regional President & Chief Acquisitions Officer; and Chris Walker, who is President of Arrowhead and Regional Executive Vice President of Brown & Brown.

We are actually calling you this morning from the New York Stock Exchange, where we will have the opportunity to ring the bell this morning at 9.30. And so we are going to have to have a hard cut off right around 9:00 so we can get up to the floor and to the rostrum.

At the outset I would like to say that we are sorry that Powell cannot be with us today. He is on a temporary leave of absence for health reasons as you know and we look forward to him returning and being back in the saddle in a reasonable period of time.

Having said that, I'll now turn over the call to Cory Walker.

Cory Walker

Thanks, Hyatt. Our net income for the fourth quarter of 2011 was $36.5 million and that was a strong improvement over last year's fourth quarter net income of $32.1 million. Our earnings per share for the fourth quarter was $0.25 and that was up 13.6% from the $0.22 we earned in the fourth quarter of last year.

Now, excluding that ridiculous line item, change in estimated acquisition earn out payable, which was a credit to income for both the quarter and the year-to-date income statement, the adjusted earnings per share for the fourth quarter of 2011 was $0.24 and that’s still up 9.1% from an adjusted $0.22 in last year's fourth quarter.

From a revenue standpoint, our commissions and fees for the quarter increased 5.4% or $12.3 million to $241.4 million and that's up from the $229.1 million from last year.

As always, we have these in our press release the internal growth table that shows the internal growth on core commissions and fees, which is excluding contingents as well as any small books of business sales, that kind of thing. And so on the fourth quarter of 2011, it shows that we received $4.8 million of profit-sharing contingent commission. That's $1.4 million less than the $6.4 million that we received last year in the fourth quarter. The difference was mainly due to the profit-sharing contingent commissions that were paid to FIU. FIU actually received more than what we had originally projected, but it was still down from last year, because if you remember in 2010, they'd actually received an additional profit sharing that was really kind of delayed from what normally would have been paid in 2009. Additionally, we did receive about $400,000 more contingency income in our Wholesale Brokerage division.

Now look at the internal growth schedule. We had a negative internal growth rate of only 0.6%. Our total core commissions and fees for the quarter increased 7.1% or $15.6 million of new total commissions and fees. However, within that net number was $17 million of acquired revenues, and that means we had $1.3 million less in commissions and fee revenues on a same-store sales basis and that's hence the 0.6% negative internal growth. As the internal growth schedule indicates, the vast majority of the negative growth was primarily from our retail division, and then Hyatt will talk about each of the business segments in a moment.

However, before we move on to other financial numbers, I need to tell you that in the Form 10-K that we'll file for this year, the internal growth schedule that we put in the 10-K, that is the only table where we have historically broken out the three separate groups within the Retail Division as well as the two separate groups within National Programs. All the other segment information in the 10-K is all based on just our true divisional segment reporting of just Retail, Wholesale programs and services and because of this semi kind of reporting conflict of the accounting profession perceives that could exist between that, on an ongoing basis, we are only going to report the internal growth on the pure segmental divisional basis.

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