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Highlights from the BRO earnings release and analyst call

Brown & Brown, Inc. (BRO) reported full-year and fourth quarter results from 2020 in a press release issued the evening of January 25, 2021. Their call with the investment community the morning of January 26 answered questions and provided additional color.

BRO is the first of the public brokers to report earnings results from 4Q20. The company reported adjusted earnings of $0.32 per share, ahead of analyst consensus estimates of $0.29 per share. The following is a summary of reported results and comments made by company management during its conference call this morning.

  • BRO reported organic revenue growth of 4.7% in 4Q20 (revenue growth of 10.9% including acquisitions). The Retail segment grew 1.5% organically in the quarter which was down from 3Q20 organic growth in retail of 4.1% (timing issues drove about 1% of the weakening organic growth). The National Programs division and the Wholesale Brokerage grew at 14.1% and 5.8% organically, respectively during 1Q20. Services (third party administration and Social Security and Medicare services) was down 0.5% organically after being down 13.1% organically in 3Q.
  • The company noted it is seeing improving new business trends and strong customer retention somewhat offset by lower exposure units in its retail segment. Wholesale program growth was driven largely by rate increases that continue to be up in the double digits.
  • Regarding the rate environment, BRO noted 4Q was not much different than 3Q with most lines up 3-7% and excess & surplus (E&S) rates up 10-25% vs. prior year. The company commented that they feel the rate environment is likely to reach an inflection point in the first half of 2021 where the increases cannot be sustained and should be adequate to cover the losses incurred by carriers.
  • Management indicated the recovery is expected to be “choppy” particularly within Employee Benefits (EB) where employees currently on furlough remain on benefits plans. However, as employers bring back only some of those staff members, there may be a wave of terminations that would cause a reduction in exposure units.
  • The company provided minimal forward guidance but indicated that contingent income in 2021 was likely to be flat or down compared to 2020. Also, variable costs that were largely held back by the inability to travel and see clients face to face are likely to increase over the coming quarters and may weigh on the ability to expand margins, when compared to the margin expansion that was seen in 2020. Included in the results from the quarter were also adjustments made to expected earnout payments, which the company revised upwards, indicating an improving outlook.
  • BRO completed nine acquisitions in the 4th quarter with a total revenue run rate of $80M. In total, the company completed 25 acquisitions throughout the year for $197M of total revenue, including CoverHound, a digital distribution platform.

Overall, the company noted some continued uncertainties in the outlook regarding flattening of rate increases and potential future reduction in exposure units particularly on the EB side. However, upwards revisions in forecasted earnouts and continued organic growth across three of its four segments underpin improving confidence in the momentum heading into 2021.

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This earnings summary has been prepared by Marsh, Berry & Co., Inc. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information.

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