Brown & Brown(US:BRO)2019-07-23 16:18Financial Data and Key Metrics Changes - The company reported revenue of $575.2 million for Q2 2019, representing a growth of 21.6% year-over-year, with organic revenue growth of 3.9% [8][21] - EBITDAC margin was 29.3%, an increase of 20 basis points compared to Q2 2018 [9] - Net income per share grew by 26.9% to $0.33 compared to the same quarter in 2018 [9][22] - The effective tax rate decreased to 25.1% from 26.8% in Q2 2018 [22] Business Line Data and Key Metrics Changes - Retail segment achieved organic growth of 5.6% in Q2, driven by new business activity and rate increases [14][29] - National Programs segment grew organically by 2%, with strong performance in Earthquake programs [17][31] - Wholesale Brokerage segment reported organic revenue growth of 7%, primarily due to new business and rate improvements [18][32] - Services segment experienced a decline in organic revenue of 4.1%, attributed to lower claims in the Social Security Advocacy business [19][33] Market Data and Key Metrics Changes - The overall market remains competitive, with upward movement in premium rates for several lines, including automobile and general liability [11][12] - Workers' Compensation rates are consistently down across most regions, while commercial auto rates have increased by 7% to 10% [11][12] - The company noted that risk-bearers are becoming more selective in underwriting certain lines and geographies [12] Company Strategy and Development Direction - The company remains focused on M&A activity, having completed four acquisitions in Q2, bringing the total to 12 for the year with estimated annualized revenues of $50 million [13][36] - Investment in technology and innovation is a key priority, aimed at improving customer experience and operational efficiency [13][38] - The company maintains a disciplined approach to capital deployment in M&A, despite competition from private equity firms [37] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economy, noting that businesses continue to invest and hire more employees [36] - Premium rates are expected to continue increasing slightly, although competition remains strong for accounts with low losses [36] - The company anticipates continued organic growth in the low to mid-single digits in a steady-state economy [42] Other Important Information - The company reported a cash conversion ratio slightly below last year, with expectations of a decline in free cash flow conversion for the year [71][72] - The company is investing in a new campus in Daytona Beach, with CapEx expected to be around $30 million to $35 million this year [74] Q&A Session Summary Question: Retail growth in Q2 - Management indicated that the 5.6% growth in retail was strong and not materially impacted by revenue recognition adjustments [40][41] Question: Margin improvement excluding supplemental commissions - Management clarified that despite a one-time supplemental commission, margins improved significantly, with a net benefit from legal costs [45][46] Question: Market overview and underwriting criteria - Management noted tightening underwriting criteria across various lines, particularly in property and liability [50][51] Question: Impact of earthquake brokerage business - Management stated that while there was pressure on rates, the recent earthquake events did not significantly impact their business [54] Question: Future expectations for Social Security Advocacy - Management expects continued headwinds from the Social Security Advocacy business, with a larger impact anticipated in Q3 [78] Question: Revenue recognition impact - Management confirmed that a one-time adjustment from the previous year would not recur, affecting comparability [81][82]