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Brown & Brown Insurance (NYSE:BRO)

May 08, 2013 9:00 am ET


J. Hyatt Brown - Chairman

Cory T. Walker - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

J. Powell Brown - Chief Executive Officer, President and Director

J. Hyatt Brown

Good morning. I'd like to welcome everyone to 2013 Annual Shareholders' Meeting of Brown & Brown. It's a pleasure to be here on such a brilliant, sunny day and the partner or the managing partner for our auditors, Deloitte & Touche, told me that this is the most beautiful setting for an annual meeting of any annual meetings he's ever been to, and I agree with him because it's beautiful at Daytona Beach, and thank you for those comments.

I'd like to start out by introducing our directors. First of all, I'm Hyatt Brown, I'm Chairman of Brown & Brown and I'd like for each director to stand and remain standing, and then if you'll hold your applause, we'll give them around of applause when we've introduced everyone.

Sam Bell, who is a shareholder of the law firm of Pennington, Moore, Wilkinson, Bell & Dunbar; Hugh Brown, Founder and former CEO of BAMSI, an insuring and technical services company; Powell Brown, who is President and CEO of Brown & Brown; Bradley Currey, former Chairman and CEO of Rock-Tenn Company; Ted Hoepner, former Vice Chairman, SunTrust Bank Holding Company; Timothy R. Main, Senior Managing Director, Evercore Partners, New York; Palmer Proctor, President of Fidelity Bank, who joined our Board in October 2012; Toni Jennings, former Lieutenant Governor and also chairman of Jack, Jennings & Son, a commercial construction firm based in Orlando and Jennings & Jennings, architectural millwork firm based in Orlando; and Wendell Reilly, Chairman of Berman Capital Advisors, Managing Partner, Grapevine Partners, LLC, a private equity investment firm focused on media and communications based in Atlanta; Chilton Varner, partner of the law firm of King & Spalding; John Riedman who has been -- is retiring and has been serving on our Board with great distinction for 12 years; and a new nominee, James S. Hunt, Jim Hunt, who is the former Executive Vice President and Chief Financial Officer of Walt Disney Parks and Resorts worldwide . So let's give them a round of applause.

I'd like to thank our directors. We do have a very, very interested and capable Board of Directors, and they are very interested in the best interest of our shareholders, and it's been a pleasure to work with you all this year and looking forward to many years in the future.

I'd now like to introduce our officers who are subject to Section 16. First of all, Hyatt Brown, I'm Chairman of the Board; Powell Brown, President and Chief Executive Officer; Linda Downs, Chief Operating Officer and Regional President. If anyone is here -- most of our people are on the road today. If there's anyone here, as I introduce you -- because I see a couple in the audience. If you wouldn't mind standing. Roy Bridges, Regional President; Charlie Lydecker, Regional President; Scott Penny, Regional President and Chief Acquisitions Officer; Tony Strianese, Regional President; Sam Boone, Regional Executive Vice President; Ken Masters, Regional Executive Vice President; Chris Walker, Regional Executive Vice President; Cory T. Walker, Senior Vice President and Chief Financial Officer and Treasurer; Robert W. Lloyd, Vice President and General Counsel; Laurel Grammig, Vice President and Secretary, Chief Compliance and Regulatory Officer; and Rich Freebourn, Vice President. Now these are the officers who are subject to 16, and let's give them a round of applause.

I'd also like to introduce the officers not subject to Section 16. Kathy Colangelo, who is a Regional Vice President, Nick Dereszynski, Regional Vice President; Tony Grippa, Regional Vice President; Tommy Huval, Regional Vice President; Rich Knudson, Regional Vice President; and David Lotz, Vice President. So it's a pleasure to -- let's give those people a round of applause.

It's a pleasure to work with all of the people that have been introduced and are not here. As you know, we're a decentralized organization and our senior executives are on the road all the time, touching people, finding out how we can do a better -- even better job for our various customers and clients.

I'd also like to recognize the representatives of Deloitte & Touche. First, we have Peter Pruitt, who is the Managing Director of Florida and Puerto Rico. And if you'll rise please, and just wait -- hold your applause for the auditors; John Gordon, [ph] a partner, Deloitte & Touche; and Phil Micks [ph], Senior Manager. Let's give them a round of applause.

I'd also like to recognize the presence in the audience of Joan Greenfield, who is with American Stock Transfer -- and where you Joan? Right here. And she's the lady who's responsible for making sure all of our votes are correctly counted.

And then there are a couple of other people I'd like to recognize. First of all, my wife, Cici, is missing her first annual meeting ever, and the reason is, is one of our dear friends passed away and the funeral is this morning. So Cici is not here. But I would like to recognize Sherri Lloyd, who is Bob Lloyd's wife. And I would also like to recognize Brianna [ph] Walker, who is Cory Walker's daughter. Why don't you all stand up everybody, please?

Madame Secretary, would you please present the proof of due calling of the meeting?

Unknown Executive

Yes, I have the mailing affidavit that certifies that on April 15, all of the proxy materials were mailed to our shareholders as of March 1, 2013, which was the record date. And I also have the certified list of all shareholders as of March 1 that has been certified as true and correct by American Stock Transfer.

J. Hyatt Brown

Do we have a quorum?

Unknown Executive

Yes. The number of shares of stock outstanding and entitled to vote on the record date was 143,961,189, and of this amount, 131,431,266 shares representing approximately 91.3% of the total number of shares outstanding are represented at this meeting, and that constitutes a quorum.

J. Hyatt Brown

And so we're now -- the meeting is now lawfully convened, and we'll entertain a motion from the floor to waive the reading of the minutes. Is there a motion? Is there a second? Without objection show us an option. I will entertain a motion -- the Chair will entertain a motion for the appointment of 2 individuals to act as inspectors of voting. Is there a motion?

Unknown Attendee

I move that Charles [indiscernible] and Jennifer Hayes be appointed to inspector of voting.

J. Hyatt Brown

Is there a second? Without objection show us an option. Okay. The inspectors have previously filed their oaths of office. So inspector, we will now to turn vote on the nominations for the Board of Directors as set forth in the proxy statement. Now is there anyone in the audience who would like to vote here and now? Apparently, there are none. So Madame Secretary?

Unknown Executive

All right. Each of the 12 nominees for the Board of Directors has received at least 115,836,135 votes positioned in each case for election. Additionally, the approval of the ratification of Deloitte & Touche as the company's independent registered public accountant for the fiscal year ending December 31, 2013, has received 129,308,124 votes positioned for approval. And finally, the approval on an advisory basis of the compensation of the named executive officers has received 115,003,009 votes positioned for approval.

J. Hyatt Brown

Thank you very much. And you've heard the votes. Are there any questions about the votes from the audience? If not, this does conclude the scheduled business. And I announce the Chairman of the meeting. And now I'd like to call upon Cory Walker, Chief Financial Officer, to present the numbers. Cory, you're on.

Cory T. Walker

Thank you, Hyatt. Well, 2012 was a very good year and was an important year, because it was a transition year from a period of time where we had a great economic downturn to where the middle markets became more stable. Got it? Here you go.

That's the slide of our revenues, and we finished the year at $1.2 billion, and that's up from $1.13 billion in 2011. So with our company, if you can analyze where the revenues came from, it does you a great deal of how the company did. And we had $1.13 billion in 2011, and we grew that by $186.5 million. That's 18.4% growth of total revenue. So let's look at what the $186 million was made up of.

First of all, we had $171.4 million of acquisitions. Now that's one of the largest acquisitions -- single largest acquisition we made this year, in 2012, was Arrowhead, and Arrowhead made up about $116 million of that $171 million. In addition to that, we grew internally the same-stores compared to the same-stores from last year, of $24.9 million. That was a 2.6% internal growth rate. That was the first time in 6 years we've gotten back to the positive growth and that's what the major transition was during that year. We had other income and investment income of about $3.4 million. We did have a little bitless of profit-sharing contingencies because the premiums have come down for our cares and our loss ratio has gone up, so we had about $2.5 million less of contingencies. And then finally, there was about $10.7 million that we sold. And all that told $186 million change.

So this is a slide of our internal versus external growth, and you can see from 2007 to 2011, we had negative internal growth and that was one of the great recession hits this -- in 2007. It's primarily because of recession coming in business. But this was the recession, and we gradually fought back. Our team members went through -- our outstanding team really fought well in terms of gradually getting that back. Now we are tied to the middle market economy. And so in 2012, the economy for our clients and their exposure units, sales and payrolls, started to stabilize. They have been going down every year and they finally stabilized, and that's what helped us grow internally by the $2.6 million -- or 2.6%.

So let's look at how we take net revenue growth and what does it do to our total operating profit. And our operating profit actually shrunk from $33.3 million down to $32.2 million. Now this is pretax -- this is our pretax income plus interest, plus our amortization, plus this line item called change in acquisition earn-out, and so that's a fairly pure number. On the surface, you'd think, "Well, why did the margins go down?" And the most important aspect of the operating profit -- this is our core operating profit excluding the contingencies, it actually grew. We grew from $290 million to $337 million. So we grew $47.4 million. And every one of our 4 business divisions had growth of $14 million, $18 million, $4 million and $10 million.

Now the margins in 2 of these divisions, National Programs and Services, actually compressed. Now they compressed not because of the operating efficiency. It's because Arrowhead, which was $116 million of $171 million, $80 million of that fell into the National Programs, and then $30 million fell into the Services. Arrowhead has a 40% operating profit margin. When we acquired them, that's what we believe they had and they actually did deliver that. And Powell will talk a little more about Arrowhead in a little bit. But because they were so large relative to the National Programs, their margins were slightly lower than what our historical margins are, so the margins compressed. And that was the case in both National Programs and Services.

Now the other 2 divisions, you can see, on Retail, which is the largest division we have, our core of operating profit margin actually increased. That's 31.1% to 31.6%, and that was with a 1.5% internal growth rate. So that's the key that a lot of the Wall Street firms look at, is can we expand our margins when we have positive internal growth? And with the talented people that we have in our 180-plus offices, they're doing a wonderful job and they are growing the margins in retail.

The same thing is true with wholesale brokerage. They went from 27.2% to 28.1%, and that was with a 1.6% -- a 6.1% internal growth rate. So Tony Strianese and the wholesale division has done a wonderful job of growing their operations.

Now the 32.2%, you say, "Well, how good is that?" and one of the main comparisons we have is our other publicly-held peers. And you can see that we're at 32.2%. If you take the aggregate of the peers, they're only at 16%. That's half. Half of what ours is. And that just gives you an indication of the talented people that we have in our branches, in our products and the leaders that are leading each of our 6,200 teammates.

Because of that margin increase and the growth in our revenues, our stock price in the beginning of 2012 was $22.73 and it's grown nicely, a couple of days ago, to $31.61. That's a 39.1% increase. So when you deliver revenues and you deliver operating profits, I think the stock price goes up. So it's done well this year.

Now really -- what really counts is how can you take that revenue growth and the operating profit growth and turn it into cash? Because it's cash that we need to enable us to grow our operations, either internally and externally, by buying other acquisitions. So if you take our net income in 2012 of $184 million, we've got amortization expense, which is a non-cash item, so you add that back, as well as depreciation, as well as the non-cash stock grant compensation of $15 million and this change in acquisition earn-out which was an expense, we actually had earnings of about $280 million of cash that came in the door. With that cash, we turned around and we paid dividends of $49.5 million. We bought some additional fixed assets of $24 million and we made some debt payments of $1.2 million. At the end of the day, we ended up with $205 million of cash in our pockets. And so that means that every -- for every dollar of revenue that we sold, we put $0.171 in our pocket. So today at the end of March, we have $0.5 billion of cash in our balance sheet, $527 million. Now roughly half of that belongs to our clients that are in trust accounts, and the other half is your cash for the company, is owned by Brown & Brown. So we've got $250 million of our own cash right now.

If you look at the last 5 years, how is our free cash flow? We got $154 million. We kind of stabilized it right here. Now remember, during -- this is a time period where the recession was hitting, and are -- we had negative internal growth. During that 5-year period, we lost $187 million of revenue that just evaporated. 2/3 of it, we believe, just because our clients' exposure units, like sales and payrolls, declined. Okay? And so we did -- our teammates did a great job of maintaining fairly nice free cash flow during that period of time. 2011 had grew and there's the $205 million growth, so it's almost 15% growth in just our cash, free cash flow for the year.

So again, as a comparison, what does that really mean relative to our other publicly-held peers? Here's our 17.1%. If you aggregate under the same methodology, the peers are 3.7%. Now think about it, they have -- our peers have to go out and sell over $4 of revenues simply to put the same amount of money to the bottom line that we used to grow our business. So that just means that we can grow our business much faster than any of our publicly-held peers. And again, that is because of the high-quality teammates that we have in our branches.

So that was the 2012 year. Essentially, 2013 in the first quarter is a continuation of what we've seen as a positive result of 2012. We started last year, 2012 first quarter, of $302 million of revenues. We grew it to $335 million. So that's basically a 10.7% increase. Now out of that increase, we had $27.3 million of net new business, so we had an internal growth rate of 10.2%. A very, very nice growth rate. In acquisitions, we had about $11.5 million of revenues that came in through the general ledger, primarily from acquisitions that came in latter half of 2012. Profit-sharing increased just a change about $400,000. We sold a little bit of business. And investment income compared to the same quarter last year was down 4.7.

So looking at the total operating profit margin, this is including contingencies, you can see that Retail continues to grow their margins of 34.1 to 35 now National Programs shrank a little bit from 40 to 32. That's primarily because, as Powell will talk a little bit about special programs that Arrowhead had that had low margins because it was businesses basically given to it and it will gradually get the -- their margins will gradually move up to the norm. But that's the only reason why that went down. The total operating profit dollars increased. In wholesale, again, Tony Strianese and the wholesale group, they continue to squeeze out a little bit better margins, and then Services went from 22.4 to 43. That's primarily because we have an operation called Colonial Claims that is -- that adjusts primarily for claims. And so during the first quarter, they were -- there was almost $17 million of revenue from Colonial Claims primarily because of the Sandy super storm that happened at the end of 2012, that they've adjusted, and so that was the main reason why that margins went up significantly.

So the last slide here is to show the continuing growth of our dividends that we pay. For the 2012 year, we paid out a total of $0.345 per share. So we're right now in the third quarter. The Board approved an increase to $0.09 per share, which we're currently paying right now. And it's very important to us to see a continuing growth of dividends every year. So that's 19 years of dividend growth that we're very proud of.

So with that, I think things look very good for 2013. We're very positive and very appreciative of all the hard work that all of our teammates do. So with that, I'll turn it over to Powell.

J. Powell Brown

Thank you, Corey. In years past -- can you hear me okay? Better? Better? We've talked a lot about our operations and what we do at Brown & Brown, and I thought I'd take a little different tact today to talk a little bit about some of the things that made those results happen and areas where you would find interesting as it relates to our company this past year.

Okay. Corey said that we grew our business organically for the first time in 2012 over the past, actually, 6 years, 2.6%. But what makes up that 2.6%? And why do we feel really good about now and the future? Well, first part is all 4 of our divisions grew organically. That's really important. And so Retail, which is $648 million part of $1.2 billion grew at 1.5%. I have said publicly in investor conferences, and you would want to know as a shareholder, that our business, in aggregate, is a low- to mid-single digit organic-growth business in a steady state economy. We are not in a steady state economy right now, but that's what I've been asked. When asked, that's the response and that's the message and will continue to be the message. Having said that, some parts of the market are able to grow -- or of our business, are able to grow more quickly than others in different parts of the cycle. So when you look at this, you'd say, "Well, National Programs was only up 0.8% and there's a couple of reasons for that. Number one, there was some changes at Proctor. There was some things in our existing programs that were down a little bit and yet we acquired this business called Arrowhead General Agency. That is not included in these numbers because Arrowhead, in the first year of an acquisition, we don't count that, the first 12 months of organic growth. Had we put Arrowhead in there, the organic growth would have been 3.4% in National Programs.

Wholesale brokerage. What is exactly wholesale brokerage and why is that growing the most in terms of dollars? Well, it's a combination of several things. One, the marketplace, with the changes that have occurred not only with Sandy, but other storms and events that have occurred, not only in coastal areas but inland, in Oklahoma and Arkansas, with tornadoes and other natural disasters around the country, has put more pressure on standard markets. And so those standard markets are evaluating, should they offer property insurance? And some of them are deciding not to offer property insurance or increase the rates substantially in those given affected areas. So that, in turn, creates an opportunity for the wholesale division who can do business with Brown & Brown retailers and does most of their business with independent retailers around the country. So that's a function of, one, changes in the market; two, great leadership and great brokers in there that are going out scraping it off the wall. And we had a very good first quarter, as you'll see as well, but that is the piece that's growing the most quickly over several quarters as opposed to Services, which we're going to talk about as well, which is where Colonial Claims is. And it's more focused around event-driven as opposed to over the period of time. Now in Services with 8.6, that is a reflection of, believe it or not, the claims that came in, in November and December as a result of Super Storm Sandy.

So this past year, one of the things that I wanted to recognize is, for the first time in our company, we've decided to consolidate or have retail all report ultimately under one leader. That is Charlie Lydecker. Who is made the President of our Retail division. So ultimately, all $648 million, either directly or indirectly, roll-up under Charlie. And so Charlie's charge, which he's excellent at doing is, one, helping retain every client that we currently have; two, sell lots of new business; and three, recruit and retain and reward high-quality teammates. And so he's very good at that, and so we're happy that he's in charge of that division now and we hope that, that -- and we know that the organic growth there will improve as the economy picks up a little bit and as we continue to recruit and retain and renew and expand and sell more new business. So we're very pleased with the internal growth across the platform for last year. By the way, in 2011, it was negative 2.6%as a reference point.

The second thing is acquisitions. And when asked about acquisitions, do you budget for acquisitions? The answer is, no, we don't budget for acquisitions. Do you give guidance for acquisitions? The answer is no, we don't give guidance for acquisitions. How many acquisitions are you going to do this year? And the answer is, we don't know. So we like to use the analogy that the acquisition business is all about cultural fit. You can have -- it doesn't matter on geography, it doesn't matter on what that pro forma looks like, unless there's a cultural fit. You can have a great pro forma or the margins look wonderful and the numbers look great, and they couldn't work culturally with us. We don't want to do that. The best day to know that is before you do a transaction, not after you do a transaction. So we have a long vetting process. And so last year, we did $150 million of revenue that we acquired. And I wanted to show everybody kind of a historical reference point. If you look at 2009, that is kind of an aberration at $26.2 million. The entire industry did the fewest number of acquisitions in, I think recorded history, that year. But when people asked, what do you look like on an annual basis in terms of acquired revenue, I usually say that we average between $50 million and $150 million of revenue. It depends. It's like fishing. We are always fishing. Some days, the fish are biting, some days the fish aren't biting. Now someone in the audience might say, "Well, you made this big acquisition in 2012 with Arrowhead. That was announced at $107 million of revenue. So really, did you only do $107 million minus $49 million?" I wouldn't say that. And I'm going to show you why I wouldn't say that, because if there were 2 more Arrowheads out there today, which there aren't, we would buy both of them. And so the investment already has worked out very well for all parties involved. Most importantly, Chris Walker and his leadership team bring an amazing level of talent and help us build out our platform. We are one of the largest, if not the largest, program administrator, in the United States. There's one other large national broker that I believe would be as large, they may be larger than we are, but we're right there. And so we're very pleased with that. Now somebody then in turn would say, "Well, what about acquisitions this year, 2013?" And the answer, if you listened to the earnings call in the first quarter, is we haven't done one yet. And so people say, "Oh, that's a problem. There's something wrong. Are you feeling all right? Is the company good?" Everything's good. And so what you want to know is there was a mad rush for the door at the end of 2012. The number of transactions in the industry was the highest at the end of 2012 than any other year recorded and coincidentally, the numbers done in the fourth quarter, specifically in December and December 31 were the most that it's ever been done in the fourth quarter of any recorded year as well for tax reasons, for all kinds of reasons. And so what I have said is I believe that there's a hangover. And if you talk to anybody else in the industry that does acquisitions, the flow of acquisitions and the number of announced acquisition in the first quarter of the year has been very low. And so once again, we're always talking to people and we're always looking for cultural fit and when we find the right cultural fit, we will, in turn, ask them and hopefully, make a deal that we can suit them up and join our team.

So back to Arrowhead. You say, "Well, how is that deal done?" Okay. This is important. We announced the transaction at $107 million of revenue, and it grew in 2012 $14.1 million. Now in that $14.1 million, that includes $4.4 million of what we call the automobile aftermarket. So I'm going to talk specifically to that first.

In October of last year, October 1 to be exact, we announced a transaction or an understanding or an agreement with Zurich, which is one of our largest trading partners. They would give us a program. Give. Not purchase. Give. That program is called the automobile aftermarket program and they have 70 salespeople that were going out directly in regions of the country soliciting things that fit into the category of automobile aftermarket, which is what -- when you drive your new car off the lot, anything that occurs to that car at that point forward constitutes automobile aftermarket. Oil change, tire, tuneup, washing -- go to the carwash. Any of that stuff all fits into the automobile aftermarket program. So we have stated that, that's going to be roughly $20 million to $25 million of revenue in the first year. And as Cory alluded to, in that program, we have an arrangement -- this business is based, by the way, in Kansas City. We have 100 teammates in a building there in Kansas City. And we have agreed that in the first 24 months that it will operate in roughly a 10% margin for some agreements that we have with Zurich to do certain things, which are all good, and then we expect and know that the margin on that business will move up into the more normal range of the businesses that we have in our National Programs division. So we're very excited and there's a gentleman, Adam Johnson, that runs that business who is a very fine leader. We're very pleased that he and his team are on board with us.

So all of a sudden you take the $121 million and you talk about -- let's talk about the rest of the automobile aftermarket that's going to roll in this year. That's $16 million on the low side because you take the $4.4 million and $16 million, that'd be $20 million. It's the $20 million to $25 million. We don't know. For the sake of this discussion, I was conservative. In terms of -- also, there's this Everest program. And we announced that, which at the earnings call, on May 1 we are starting to receive revenue from a carrier that is helping us with nonstandard automobile. Non-standard automobile would be not typically somebody that's buying their automobile with their homeowners and their cars. It's usually stand-alone. It could be in states where they have pip problems; California, Michigan, Texas, Louisiana and some in Florida, and we had a carrier that wanted to get off of the existing program. And Everest was going to pick that program up and had a large portion of business like this written in Atlanta, and so they gave that to us. So if anybody's wondering, which is I wondered when we got into this, do people give businesses away like this? The short answer is I've never seen it before. And I've been asked in investor meetings, "Do we need to expect this to occur on a recurring and constant basis?" And I said absolutely not, unless we know that we're going to have one every quarter, the answer is it's distinct and it's unusual, but we have gotten 2. And so we're very pleased that with these 2 great partners, that they gave this business to us. But at the end of the day, we're looking at $141 million in roughly at the end of this year. Now I want to say that every acquisition does not turn out like this acquisition. I don't want to -- and once again, sometimes it's better to be lucky than good. But I can tell you this. They got a lot of great teammates on that team, which are all of our team, and they are -- they have something special here, and it's all about the people and the platform. So we may not ever get another program given to us, but I can tell you those 2 are really good and they're expandable. So I thought you might find that interesting.

The next thing I wanted to mention is we talked a little bit about retail and wholesale earlier. And I would be remiss if I didn't talk about programs and services. We have one of the leaders of services here, Sam Boone, who you met earlier and he has oversight for a bunch of the services and a bunch of our public entity business. The other 2 leaders who are not able to here with us, which would be Ken Masters and Chris Walker. But I did want to point out to everyone, if you haven't had an opportunity to look at our Annual Report in detail, in the middle in the foldout, there is a discussion about all of the programs and services that we do. Most of these, obviously, are not under the Brown & Brown label or brand. They have their own brand. And so we have programs from wedding protectors to earthquakes to lawyers and dentists to force place coverage on financial institutions. We have services business that are run by Sam or report to Sam from large-work comp TPAs, the Medicare set-aside companies to those security disability advocacy, and finally, specialty claims, blood claims adjusting, which we'll talk about in a moment. Now you might say, "Well, you made this large investment and you bought $150 million of revenue." and Corey alluded to the fact that we have $250 million of cash on the balance sheet and sometimes the people of Wall Street say things like, "Why don't you go borrow more money? Why don't you lever up the balance sheet?" That's my favorite one. They used to say that a lot before the slowdown in the economy. They don't say that too much anymore. And so, this is an overview of our debt structure, and I'd like to just briefly touch on this because I think it's important. Basically we have -- I'm going to go across the bar chart first. We have -- coming up in 2014, we have $100 million of privately placed bonds with a group of private insurance companies. Then you have prudential, which is one of those in that group that gave us another 25, and 25 that come due in '15 and '16. And we -- in '17, we have bank debt that we took on for the Arrowhead acquisition of $100 million with JPMorgan and $100 million with SunTrust, and we have another $100 million with approved. Okay. So we have, on this particular slide, it actually shows $304 million of cash, which is the actual number of the $500 million, but Cory was rounding. And so our total debt, it's $450 million and our shareholders' equity is $1.8 billion. So our total capitalization is $2.6. billion. Weighted average of maturity, meaning the length of those bonds is roughly 3.4 years. And our floating to fix debt is 44 to 56 floating to fix. Our cost of debt, 3.5%. Pretty inexpensive and we think it could go down more than that, and our leverage ratio is just over 1x our EBITDA. So what does that really mean? What does that really mean? What it really means is this. That we have the latitude, with our balance sheet, to look at all types of investments. And we, as the senior leadership team, takes this responsibility as an awesome responsibility, not only for the 6,538 teammates at Brown & Brown, but for every shareholder out there of which we are all shareholders as well. And so I would tell you that in light of the things that we all hear in the big cities like New York and Chicago, and then you have the high finance and all that other stuff, I do want you to know that as a little old insurance agency here in Dayton Beach, Florida, we're just selling more insurance and we're trying to do the right thing but I can tell you our balance sheet is admired far and wide. And we don't beat our chests about that, but I'm saying it gives us a lot of opportunity when and if the right opportunities present themselves to us.

That said, I wanted to talk a little bit about the first quarter as well, and you heard about the 10.2% internal growth, which is a spectacular number and so going across, retail was at 0.8%. And somebody might say, "Well, why is that down from the 1.5% in the entire year of '12?" And the answer is in our budget, it seems to be incrementally improving each quarter, quarter-over-quarter, and we are seeing improvements economically in pockets maybe today that we might not have seen in the first quarter. But the answer is -- what we've said to Wall Street and what I would say to you is that we operate in a band, and that bad either goes up slightly or down slightly. And we've been in the downward band for a period of time. So internal growth was doing this. And then as we started going up, we're operating in this type of band. And so the answer is that would be the bottom of the band relative to -- and then as you saw, it was 5.6% in the fourth quarter of which would be more the top of the band. So we're kind of -- we're moving up which is good. National Programs is 12.3%. Remember, in that 12.3%, we have growth in existing businesses, we have the automobile aftermarket because, it was given to us that count as organic growth and we also -- which is not in this number yet, but remember, we have the $7 million annualized. That's in 12 months, it will come on as organic growth. Wholesale brokerage, again had very strong number, 8.8%. They're selling a ton of business. And then you look at that big number, 62% organic growth. Corey referred to at Colonial Claims. Last year, in the first quarter we did roughly $1 million of revenue, and this year we did $17.2 million. So we were net up $16.2 million of revenue. And you say "Well, why is that and what is that business really doing?" And the answer is very simple. Insurance companies can write on behalf of FEMA, write your own flood policy. So they would get a small servicing fee. So any insurance company you know or could name, could do it. That doesn't mean they do, do it. That means they could do with. Some carriers have very large businesses in the write your own flood business, and when there is a claim they have to have somebody go out and adjust those claims, and many times, they don't have the adjustors, didn't know the nuances of flood adjusting, so they outsource it. In our case with all of the claims that occurred, we believe that our firm, Colonial Claims, and the team there, Doug Branham and everyone adjusted somewhere in the neighborhood of 25% of all of the flood claims in Sandy. 25%. And so the answer -- and we've been asked, "Does that just go away?" And Wall Street, which I always -- I like to poke fun and we participate in, they can poke fun at me. But they always say, "Well, that's not recurring, so that doesn't count." It means it's not going to come back. The answer is, the money that we make on that goes into our bank account and we can spend it. And so although we may not have another Sandy and we don't wish that on anybody, that was something that we provided a great service to a number of individuals who were affected by the storm, and we were paid appropriately and actually enables us to reinvest that money in other opportunities -- in acquisition opportunities around the country. So I just -- I wanted to mention, it would not be like that in Q2. Having said that, some at Wall Street say, "Well it's going to go to 0." And the answer is it could, but any time that you hear about a river overflowing or raining really hard anywhere in the country and the Missouri River is going to overflow, the Mississippi or whatever, homes are usually affected. And when homes are affected, residential homes, we can be one of the solutions.

So the final thing I wanted to talk about on our company, which is one of the great things, I think, that makes us very unique is not only our ownership, but give you a little bit of a view into part of our ownership. Our company is 29% owned by teammates that either in this room today or somewhere else working for Brown & Brown in the United States or 27 teammates in London. That is a very unusually high insider ownership for a publicly-traded company. Not exclusive. I'm not saying that there are lots of other companies that have higher ownership, but it's a very small number relative to all the public companies out there. So when we talk to people, when we talk to people about an acquisition, that's one of the first things that really gets their attention. It's our culture and part of it is driven by, we all are committed to this company and have everything kind of up on the path line.

The second part is the long-term institutional shareholders. Those long-term institutional shareholders, I would define, as value investors. These individual investors, for the most part, are not worried about quarter-to-quarter fluctuations in the stock price. They're interested in long-term value creation or growth in the stock over 3, 5 and 10 years. If they had a daily or a weekly or a monthly trading pattern, they typically are not a good shareholder for Brown & Brown. That's a different kind of shareholder group. So in that group, if you went to one of their offices, they would be, for the most part, many of them would look like a very conservative law office. It would not have huge trading screens everywhere and it wouldn't be super high-tech, but the people that you meet with ask very thoughtful, very penetrating questions. They understand the people side of the business. And if you ask them, "What is the single most important thing that you make a decision upon in investing your money?" The answer is, the management team. Can we trust them? And if we can't -- if we get a weird, funny, squirly feeling from the leadership team, we won't put any money there.

This other thing that you find is many of these shareholders have very large amounts of money that they manage and they invest in a very small number of clients. So one of our shareholders, who will go without name, has $17 billion under management and they own 30 stocks. They've owned Brown & Brown for a very long time. They really know our company. It's been a good investment for them as it has for all of us who have been shareholders for a very long time. And so, you'd say, "Well, what does that group really look like?" I thought I would end by showing you who our top 5 investors are. By the way, these are not in order of ownership, it's just these are the top 5. The Vanguard Group, BlackRock Fund Citadel Advisors, Principal Global and Generation. [ph] They own 17% of the business in terms of the outstanding stock. And you might say that, "Well, what are those?" Well, I would tell you that Vanguard and BlackRock, for the most part, are index funds. They're not actively managed. There are parts of that, that are actively managed, but not all of it. If you get into the Citadel, they are a private equity or a -- is that what you call them, really? It's a private investment pool. And inside of it, they have a long only-investment group that specializes in insurance. So they're in Chicago, New York, San Francisco. Principal, basically, is a large -- they have some index -- I believe, indexed and actively managed. And Generation is a private fund, $6 billion of revenue in London. And so in the second side, in terms of ownership, they own 11% of our company. Marshfield Associates, T. Rowe Price, SSGA and State Street Investors, Ruane, Cunniff & Goldfarb and Finlay Partners. So Marshfield's D.C.; T. Rowe Price is Baltimore; State Street, Boston; Ruane, Cunniff, New York; and Finlay is London. And so you see that we have kind of a broad diversity of ownership in our geographically, and interestingly enough, 2 of those are in London. And so I go to London twice a year -- I'm sorry, once a year, typically, and I try to meet with the investment community. And there's been a significant level of interest over the last 3 or 4 years. And it's not just these 2 firms, there are other firms that we meet with. And, so I think I'll be going in the fall. I was there last fall in October.

And so this is kind of just the potpourri of thoughts that I was going to share with you about our company, and I really wanted to open it up to questions. Anything you might have on something that I've said, or more specifically, something that I haven't said. Anybody? Wow. Either I answered all your questions or my presentation has put you to sleep.

Having said that, I'd like to end by saying a couple of things. Number one, thank you very much for coming to the Annual Shareholders' Meeting, and more importantly, your support as a shareholder. We, inside of Brown & Brown, take the responsibility as senior leaders, very seriously and we have had a lot of fun this last year. We've looked in the mirror a lot and said, "How can we do this better?" And I think we've got a lot of neat things going in our company. So I thank you for your ownership and I know that you're happy that since we met last year on April 25, our stock is up 18.1%. And in Cory's slide, we're up 39.1 since January of '12. I would tell you that's all a reflection of growing our business organically. And we've always said that when we grew organically, the stock price would go up. So that's a good thing. It makes everybody feel good. And so as a shareholder, I know and hope that you feel good.

I would end on 3 things to tell you. And when I go on the road and meet in offices, I always try to meet in groups like this with all of our teammates. And I open it up to questions and we talk about anything that they want to talk about. So we typically cover the state of the insurance market, we cover the state of the financial market in terms of that, that relates to our stock, we might get asked about something on a personal level like our children playing soccer or lacrosse, or something. And so, at the end of each one of those meetings or get-togethers, I say 3 things that I would share with you.

Number one, I tell all of our teammates, I thank them as I thank you as a shareholder for everything they have done and will do and have done for our team because we really appreciate it. And we think we got the best team going. And in order for us to get to our next goal of $2 billion, we will have to hire or acquire 4,000 new teammates. In one of those meetings, I had an individual, a gentlemen who raised his hand up and he said, "I think you ought to send a press release out on that." I said, "What do you I'm going to -- Brown & Brown is going to hire 4,000 people to get this billion -- $2 billion?" And he said, "I don't know how you're going to do it, but I think you ought to do it." We have not done that yet. I used it just in context because that's what's going to take to get to $2 billion.

The second thing is I don't go through the debt capitalization like I did with you. But I talked to everybody about our balance sheet and I talked to them about the importance of a strong balance sheet and how that has kept us in good stead through this difficult time. And now, as it starts to trend up, that people look at us and say, "You know, that was kind of smart." And the answer is, we've just done it that way. We were being criticized before. They said, "You're not very smart. You guys have to lever up and do all those other stuff." And we've always viewed it as we want to generate as much free cash as we possibly can to reinvest in the business so we can reward the teammates that have done the right thing for our clients and grow our business and then get new ones.

Final thing is this, and I would share this and broaden it to the shareholder base as well. I say to all of our teammates and I would say to all of you, that we all have a wonderful opportunity at Brown & Brown. And as a shareholder, you've seen the stock move up and we're working really hard to continue to move that stock price up. But with that opportunity at Brown & Brown, there comes an obligation, and that obligation is the ability to help us find more of the right people. And so that is the thing that differentiates us at the end of the day. We are very good insurance professionals. We have very unusual mousetraps in terms of products and services that we can sell. But at the end of the day, the thing that differentiates us is our people. And to get the next 4,000 people, everybody, not only in this room, but across the country, can have an impact on how we shape the future of the teams individually and locally.

So I'd end the meeting by saying this. If anyone in this room or anybody out there in web land knows somebody that could work at Brown & Brown, we want to know about it. And it doesn't matter if we don't have an office in that part of the country yet, we want to know where they are, too because we might be coming to a town near you soon.

So I say that and I would even go one step further which is, we grow our business in lots of different ways, but the best way we grow our business is through introductions, not referrals. Referrals are professionals refer professionals, friends introduce friends. And so to the extent that we can ever be introduced to somebody that you think that we can help with their insurance, we want to do that.

So it's been a pleasure to be with you all this morning, and I wish you a great year, and we look forward to seeing you again soon. Thank you.

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