Brown & Brown(US:BRO)2019-10-30 05:45Financial Data and Key Metrics Changes - For Q3 2019, the company reported revenue of $618.7 million, representing a 16.5% increase year-over-year, with organic revenue growth of 3.4% [4][13] - The EBITDAC margin was 31.5%, down 200 basis points compared to 2018 [4] - Net income per share increased by 7.9% to $0.41 compared to Q3 2018 [4][14] - The effective tax rate for Q3 2019 was 23.9%, down from 25.5% in Q3 2018 [14] Business Line Data and Key Metrics Changes - The Retail segment achieved organic revenue growth of 2.9% in Q3, with total revenue growth of over 29% driven by acquisitions [9][18] - The National Programs segment experienced organic growth of 1.6%, which would have been over 7% without the prior year adjustment [10][20] - The Wholesale Brokerage segment reported organic revenue growth of 11% [11][21] - The Services segment saw a decrease in organic revenue of 70 basis points, impacted by lower claims in the Social Security advocacy business [12][22] Market Data and Key Metrics Changes - Premium rates continued to increase slightly, with specific lines such as commercial auto seeing increases of 5% to 10% [5][6] - E&S placements for CAT-prone properties experienced rate increases of 5% to 15% [6][7] - Property coverage in California is under pressure, with some carriers pulling back from traditional coverage [7][8] Company Strategy and Development Direction - The company remains optimistic about the economy, with a focus on disciplined capital and M&A approaches [26] - Technology is a key priority, with a new head of technology appointed to enhance digital strategy and customer engagement [8][26] - The acquisition pipeline is strong, with 18 deals closed in the first nine months of the year, totaling $86 million in annualized revenue [4][26] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the economy, noting potential impacts from international trade relations [26] - The expectation is for premium rates to continue to increase slightly into early next year, with strong competition for low loss accounts [26] - The company is monitoring economic indicators and remains prepared for potential adverse impacts from global events [30] Other Important Information - The company reported a cash conversion ratio of over 24%, which is about 1 percentage point higher than the previous year [24] - The company has increased its dividend for the 26th consecutive year, with a 6.25% increase approved by the Board of Directors [14] Q&A Session Summary Question: Insights on retail performance and future organic growth - Management noted that organic growth is expected to be slightly lower in the second half of the year due to revenue recognition standards, but year-to-date growth is at 4% compared to 2.8% last year [30] Question: Details on a recent retail acquisition and its impact on margins - The recent acquisition is expected to compress retail margins by 60 to 80 basis points in Q4, with approximately $20 million in revenue recognized in Q1 [31][32] Question: Outlook on contingent commissions for 2020 - Management indicated it is too early to provide guidance on contingent commissions for 2020, as adjustments will be made based on actual cash received [33][34] Question: Balance between organic revenue growth from rates versus new business - Historically, two-thirds to three-quarters of organic growth is driven by exposure units, with one-third to one-fourth from rate increases [36] Question: Challenges in the Social Security advocacy business - The decline in organic growth is due to the winding down of a claims adjudication process, with residual impacts expected in the upcoming quarters [39] Question: Update on M&A pricing environment - The M&A environment remains competitive, with increased interest from smaller brokers to partner with larger firms due to the need for investment in capabilities [42][43] Question: Impact of recent earthquakes on rates - There was momentum in earthquake coverage rates prior to the July earthquakes, with a recognition of potential risks leading to increased purchasing [54]