UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-13619

BROWN & BROWN, INC.

(Exact name of Registrant as specified in its charter)

Florida		59-0864469
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
220 South Ridgewood Avenue, Daytona Beach, FL		32114
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (386) 252-9601

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.10 Par Value	BRO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒     No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒     No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ☐     No   ☒

The number of shares of the Registrant’s common stock, $0.10 par value, outstanding as of July 28, 2020 was 282,813,879.

BROWN & BROWN, INC.

INDEX

		PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019	5
	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	6
	Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2020 and 2019	7
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46
SIGNATURE		47

2

Disclosure Regarding Forward-Looking Statements

Brown & Brown, Inc., together with its subsidiaries (collectively, “we,” “Brown & Brown” or the “Company”), makes “forward-looking statements” within the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995, as amended, throughout this report and in the documents we incorporate by reference into this report , including those relating to the potential effects of the COVID-19 pandemic (“COVID-19”) on the Company’s business, operations, financial performance and prospects. You can identify these statements by forward-looking words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and “continue” or similar words. We have based these statements on our current expectations about potential future events. Although we believe the expectations expressed in the forward-looking statements included in this Quarterly Report on Form 10-Q and the reports, statements, information and announcements incorporated by reference into this report are based upon reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written, made by us or on our behalf. Further, statements about the effects of COVID-19 on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of COVID-19, actions taken by governmental authorities in response to the COVID-19, and the direct and indirect impact of the COVID-19 on our customers, insurance carriers, third parties and us. Many of these factors have previously been identified in filings or statements made by us or on our behalf. Important factors which could cause our actual results to differ materially from the forward-looking statements in this report include but are not limited to the following items, in addition to those matters described in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

• COVID-19 and the resulting governmental and societal responses, the severity and duration of COVID-19, and the resulting impact on the U.S. economy, the global economy, and the Company’s business, liquidity, customers, insurance carriers and third parties;

• The inability to retain or hire qualified employees, as well as the loss of any of our executive officers or other key employees;

• Acquisition-related risks that could negatively affect the success of our growth strategy, including the possibility that we may not be able successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our operations, and expand into new markets;

• A cybersecurity attack or any other interruption in information technology and/or data security and/or outsourcing relationships;

• The requirement for additional resources and time to adequately respond to dynamics resulting from rapid technological change;

• Changes in data privacy and protection laws and regulations or any failure to comply with such laws and regulations;

• The loss of or significant change to any of our insurance company relationships, which could result in additional expense, loss of market share or material decrease in our profit-sharing contingent commissions, guaranteed supplemental commissions or incentive commissions;

• Adverse economic conditions, natural disasters, or regulatory changes in states where we have a high concentration of our business;

• The inability to maintain our culture or a change in management, management philosophy or our business strategy;

• Risks facing us in our Services Segment, including our third-party claims administration operations, that are distinct from those we face in our insurance intermediary operations;

• Our failure to comply with any covenants contained in our debt agreements;

• The possibility that covenants in our debt agreements could prevent us from engaging in certain potentially beneficial activities;

• Changes in estimates, judgments or assumptions used in the preparation of our financial statements;

• Improper disclosure of confidential information;

• The limitations of our system of disclosure and internal controls and procedures in preventing errors or fraud, or in informing management of all material information in a timely manner;

• The potential adverse effect of certain actual or potential claims, regulatory actions or proceedings on our businesses, results of operations, financial condition or liquidity;

• Changes in the U.S.-based credit markets that might adversely affect our business, results of operations and financial condition;

• The significant control certain existing shareholders have over the Company;

3

• Risks related to our international operations, which may require more time and expense than our domestic options to achieve or maintain profitability;

• Risks associated with the current interest rate environment and to the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income;

• Disintermediation within the insurance industry, including increased competition from insurance companies, technology companies and the financial services industry, as well as the shift away from traditional insurance markets;

• Changes in current U.S. or global economic conditions;

• Effects related to pandemics, epidemics, or outbreaks of infectious diseases;

• Conditions that result in reduced insurer capacity;

• Quarterly and annual variations in our commissions that result from the timing of policy renewals and the net effect of new and lost business production;

• The possibility that one of the financial institutions we use fails or is taken over by the U.S. Federal Deposit Insurance Corporation (FDIC);

• Uncertainty in our business practices and compensation arrangements due to potential changes in regulations;

• Regulatory changes that could reduce our profitability or growth by increasing compliance costs, technology compliance, restricting the products or services we may sell, the markets we may enter, the methods by which we may sell our products and services, or the prices we may charge for our services and the form of compensation we may accept from our customers, carriers and third-parties;

• Intangible asset risk, including the possibility that our goodwill may become impaired in the future;

• A decrease in demand for liability insurance as a result of tort reform litigation;

• Changes in our credit ratings;

• Volatility in our stock price; and

• Other risks and uncertainties as may be detailed from time to time in our public announcements and Securities and Exchange Commission (“SEC”) filings.

Assumptions as to any of the foregoing and all statements are not based upon historical fact, but rather reflect our current expectations concerning future results and events. Forward-looking statements that we make or that are made by others on our behalf are based upon a knowledge of our business and the environment in which we operate, but because of the factors listed above, among others, actual results may differ from those in the forward-looking statements. Consequently, these cautionary statements qualify all of the forward-looking statements we make herein. We cannot assure you that the results or developments anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business or our operations in the way we expect. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We assume no obligation to update any of the forward-looking statements.

4

PART I — FINANCIAL INFORMATION

ITEM 1 — Financial Statements (Unaudited)

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	For the three months ended June 30,						For the six months ended June 30,
(in thousands, except per share data)	2020			2019			2020			2019
REVENUES
Commissions and fees	$	598,157		$	572,932		$	1,294,660		$	1,190,395
Investment income		333			1,525			1,495			2,606
Other income, net		316			762			1,147			1,498
Total revenues		598,806			575,219			1,297,302			1,194,499
EXPENSES
Employee compensation and benefits		346,515			309,610			696,139			642,447
Other operating expenses		75,568			98,050			182,700			186,833
(Gain)/loss on disposal		(31	)		(1,016	)		(291	)		(511	)
Amortization		26,741			25,954			53,132			52,146
Depreciation		6,168			5,666			12,189			11,701
Interest		13,809			16,293			29,100			31,491
Change in estimated acquisition earn-out payables		635			(2,860	)		(10,322	)		(1,650	)
Total expenses		469,405			451,697			962,647			922,457
Income before income taxes		129,401			123,522			334,655			272,042
Income taxes		32,617			30,929			85,471			65,553
Net income	$	96,784		$	92,593		$	249,184		$	206,489
Net income per share:
Basic	$	0.34		$	0.33		$	0.88		$	0.73
Diluted	$	0.34		$	0.33		$	0.88		$	0.73
Dividends declared per share	$	0.085		$	0.080		$	0.170		$	0.160

See accompanying Notes to Condensed Consolidated Financial Statements.

5

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except per share data)	June 30, 2020			December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	623,240		$	542,174
Restricted cash and investments		438,964			420,801
Short-term investments		18,111			12,325
Premiums, commissions and fees receivable		1,080,896			942,834
Reinsurance recoverable		45,210			58,505
Prepaid reinsurance premiums		356,820			366,021
Other current assets		141,736			152,142
Total current assets		2,704,977			2,494,802
Fixed assets, net		174,376			148,627
Operating lease assets		190,322			184,288
Goodwill		4,023,298			3,746,094
Amortizable intangible assets, net		965,364			916,768
Investments		21,592			27,378
Other assets		121,129			104,864
Total assets	$	8,201,058		$	7,622,821
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Premiums payable to insurance companies	$	1,205,604		$	1,014,317
Losses and loss adjustment reserve		45,210			58,505
Unearned premiums		356,820			366,021
Premium deposits and credits due customers		102,389			113,841
Accounts payable		195,793			99,960
Accrued expenses and other liabilities		289,960			337,717
Current portion of long-term debt		62,500			55,000
Total current liabilities		2,258,276			2,045,361
Long-term debt less unamortized discount and debt issuance costs		1,566,409			1,500,343
Operating lease liabilities		173,717			167,855
Deferred income taxes, net		323,558			328,277
Other liabilities		295,580			230,706
Shareholders’ Equity:
Common stock, par value $0.10 per share; authorized 560,000 shares; issued 299,151 shares and outstanding 283,658 shares at 2020, issued 297,106 shares and outstanding 281,655 shares at 2019 - in thousands.		29,915			29,711
Additional paid-in capital		749,285			716,049
Treasury stock, at cost at 15,493 shares at 2020, 15,451 shares at 2019, respectively - in thousands		(537,672	)		(536,243	)
Retained earnings		3,341,990			3,140,762
Total shareholders’ equity		3,583,518			3,350,279
Total liabilities and shareholders’ equity	$	8,201,058		$	7,622,821

See accompanying Notes to Condensed Consolidated Financial Statements.

6

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

	Common Stock
(in thousands, except per share data)	Shares			Par Value			Additional Paid-In Capital		Treasury Stock			Retained Earnings			Total
Balance at December 31, 2019		297,106		$	29,711		$	716,049	$	(536,243	)	$	3,140,762		$	3,350,279
Net income													152,400			152,400
Net unrealized holding (loss) gain on available-for-    sale securities								194				99				293
Common stock issued for employee stock benefit plans		1,828			182			2,018								2,200
Purchase of treasury stock										(1,429	)					(1,429	)
Cash dividends paid ($0.085 per share)													(23,902	)		(23,902	)
Balance at March 31, 2020		298,934		$	29,893		$	718,261	$	(537,672	)	$	3,269,359		$	3,479,841
Net income													96,784			96,784
Net unrealized holding (loss) gain on available-for-    sale securities								384					(69	)		315
Common stock issued for employee stock benefit plans		(73	)		(7	)		20,082								20,075
Common stock issued for agency acquisitions		274			27			9,973								10,000
Common stock issued to directors		16			2			585								587
Cash dividends paid ($0.085 per share)													(24,084	)		(24,084	)
Balance at June 30, 2020		299,151		$	29,915		$	749,285	$	(537,672	)	$	3,341,990		$	3,583,518
Balance at December 31, 2018		293,380		$	29,338		$	615,180	$	(477,572	)	$	2,833,622		$	3,000,568
Net income													113,896			113,896
Net unrealized holding (loss) gain on available-for-    sale securities								106								106
Common stock issued for employee stock benefit plans		2,465			246			5,963								6,209
Cash dividends paid ($0.080 per share)													(22,348	)		(22,348	)
Balance at March 31, 2019		295,845		$	29,584		$	621,249	$	(477,572	)	$	2,925,170		$	3,098,431
Net income													92,593			92,593
Net unrealized holding (loss) gain on available-for-    sale securities								205					(24	)		181
Common stock issued for employee stock benefit plans		(54	)		(5	)		11,084								11,079
Purchase of treasury stock								20,000		(20,000	)					—
Common stock issued to directors		28			3			877								880
Cash dividends paid ($0.080 per share)													(22,533	)		(22,533	)
Balance at June 30, 2019		295,819		$	29,582		$	653,415	$	(497,572	)	$	2,995,206		$	3,180,631

See accompanying Notes to Condensed Consolidated Financial Statements.

7

BROWN & BROWN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  

	Six months ended June 30,
(in thousands)	2020			2019
Cash flows from operating activities:
Net income	$	249,184		$	206,489
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization		53,132			52,146
Depreciation		12,189			11,701
Non-cash stock-based compensation		30,087			24,128
Change in estimated acquisition earn-out payables		(10,322	)		(1,650	)
Deferred income taxes		(4,766	)		(5,342	)
Amortization of debt discount and disposal of deferred financing costs		1,066			988
Accretion (amortization) of discounts and premiums, investment		14			(12	)
Net gain/(loss) on sales of investments, fixed assets and customer accounts		86			(346	)
Payments on acquisition earn-outs in excess of original estimated payables		(576	)		(267	)
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures:
Premiums, commissions and fees receivable (increase) decrease		(130,110	)		(71,614	)
Reinsurance recoverables (increase) decrease		13,295			(11,939	)
Prepaid reinsurance premiums (increase) decrease		9,201			(5,674	)
Other assets (increase) decrease		(2,691	)		(22,122	)
Premiums payable to insurance companies increase (decrease)		177,685			116,472
Premium deposits and credits due customers increase (decrease)		(12,103	)		(12,003	)
Losses and loss adjustment reserve increase (decrease)		(13,295	)		12,123
Unearned premiums increase (decrease)		(9,201	)		5,674
Accounts payable increase (decrease)		101,124			23,773
Accrued expenses and other liabilities increase (decrease)		(47,742	)		(32,269	)
Other liabilities increase (decrease)		442			15,447
Net cash provided by operating activities		416,699			305,703
Cash flows from investing activities: