Brown & Brown (BRO) Powell Brown on Q4 2015 Results - Earnings Call Transcript

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Brown & Brown Insurance (NYSE:BRO)

Q4 2015 Earnings Conference Call

January 26, 2016 08:00 AM ET

Executives

Powell Brown - President and CEO

Andy Watts - CFO

Analysts

Kai Pan - Morgan Stanley

Elyse Greenspan - Wells Fargo

Quint McMillan - KBW

Ryan Byrnes - Janney Capital

Jeff Schmitt - William Blair

Operator

Please standby, we're about to begin. Good morning and welcome to the Brown & Brown Inc. 2015 Fourth Quarter Earnings Call. Today's call is being recorded.

Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call, and including answers given in response to your questions may relate to future results and events, or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the fourth quarter of 2015, and are intended to fall within the Safe Harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated, or desired, or referenced in any forward-looking statements made as a result of a number of factors.

Such factors include the company's determination as it finalizes its financial results for the fourth quarter of 2015 that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission.

Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

With that said, I would now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Powell Brown

Thank you, Kyle. Good morning everybody and thanks for joining us for our fourth quarter earnings call. I’d like to start on slide 4; we delivered 404.7 million of revenue for the quarter, growing 3% in total and 2.5% organically. Each of our four divisions delivered organic growth again this quarter and our retail division saw continued improvement.

We delivered $0.41 per share for the quarter and $0.38 on an adjusted basis, which is an increase of 5.6% over the prior year on that adjusted basis, due to materiality of the acting re-disposable in Q4 of ’14, along with adjustment for non-cash stock based compensation last year and this quarter, we will primarily focus on a discussion of adjusted earnings as believe this provides a more meaningful comparison of the results of our operations to the prior year.

Andy will walk you through more detail on the financial slides later in this discussion. In the fourth quarter of ’15 we acquired four agencies with annual revenues of approximately $17 million. Our total for 2015 was 54 million of annual acquired revenue.

We continue to look for organizations that fit culturally and make sense financially, while the acquisition market place continues to be very active and prices remain high. For the full year, we delivered 1.661 billion of revenue growing 5.4% and 2.6% organically with growth realized across all divisions.

As part of our capital allocation plan, we invested in new team mates, made a number of acquisitions and bought back our stock which reduced our weighted average share count by 1.9% versus the full year in 2014.

Our earnings per share for the year were $1.70 and $1.67 on an adjusted basis through the items noted previously. Andy will describe the underlying performance in more detail later.

I’m now on slide 5, with 2015 in the books and another year without a major hurricane hitting the US, there’s a lot of excess capital out there. Rates for admitted markets generally flat to down 5%. The only exception is for commercial auto that’s flat to up 5%, but that depends on loss experienced on the account.

We continue to see excess and surplus line rates down 5% to 15% with cat property being down the most. Also we didn’t recognize any real impact on premium rates because of the sad 25 basis points increase in the fourth quarter. Generally speaking where it’s very similar to what we saw in Q3.

In summary, we view the fourth quarter as a good quarter and as we realized continued improvement in all of our divisions and we’re seeing initial improvements from the retail realignment. We are optimistic about how the company is positioned for increasing organic and profitable growth.

Now let me turn it over to Andy, who will discuss our financial performance in more detail.

Andy Watts

Thank you Powell and good morning everyone. Let’s first discuss our financial results and key metrics for the quarter and then we’ll recap our full year results. On slide 6, this shows our GAAP reported results for the fourth quarter, which as Powell mentioned earlier, reflects certain large items primarily the $47.4 million pretax loss on the sale of Axiom Re in the fourth quarter of last year, and credits related to non-cash stock based compensation in the fourth quarter of last year and this year, which I’ll explain these in more detail later.

During the quarter, we continued buying our shares and entered in to a $75 million accelerated share repurchase program, which was completed in January of this year, with a final settlement of just under 400,000 shares.

As a result of our share buyback programs, which totaled 175 million over the past 12 months, we reduced our outstanding share count in the fourth quarter by 2.2% versus the prior year. As of today, we have $375 million of authorization for share buybacks under the $400 million approval received from the Board of Directors in July of 2015.

We will continue to evaluate share repurchases, along with other options for deploying to drive shareholder returns including the dividend increase we announced last quarter, which represents the 22nd consecutive year of dividend increases.

Moving over to slide 7, this presents our adjusted numbers after removing the impact of the Axiom Re loss last year of 47.4 million and the non-cash stock based compensation credit that were reported in the fourth quarter of last year for a total of $5.9 million and $8.1 million in the fourth quarter of this year.

The $8.1 million credit for non-cash stock based compensation was a result of forfeitures for certain grants where performance conditions were not fully achieved. Removing these adjustments, we believe provides for a better comparison of underlying performance.

For the quarter, we delivered 3% revenue growth and grew organically in all four divisions with a total organic growth rate of 2.5%. Our adjusted pretax income increased year-over-year by 5.4%. This larger rate of growth as compared to revenue was primarily driven by reduction in amortization and depreciation expense due to assets being fully depreciated.

Interest expense is down slightly year-over-year as we paid down about $45 million of debt during the last 12 months. Our adjusted EBITDAC for the fourth quarter was a $125 million compared to 121.6 million last year, an increase of 2.8%.

Our adjusted EBITDAC margin was steady compared to the prior year despite lower contingency commissions of $2.5 million. Adjusted net income increased by 1.1%, which is slightly lower than that of pretax income, which is driven by our 39% effective tax rate this quarter or in the fourth quarter of 2015 versus 36.4% in the fourth quarter of last year.

Please note that the Q4 2014 tax rate was impacted by the loss recorded on the disposal of Axiom Re last year, and the 2015 effective rate has been impact primarily by the new unitary tax final requirements in New York State which we have discussed during previous calls.

Our full year affective tax rate for 2015 was 39.6% which is just below the range we had previously given, and was impacted by income [estimate] based on the fourth quarter performance. We expect our effective tax rate for 2016 to be in the range of 39.5% to 39.7%, and are continuing to seek opportunities to manage our effective and cash tax rate.

Our adjusted earnings per share increased to $0.38 or 5.6% compared to the fourth quarter of 2014.

Moving on to slide 8, I’d like to highlight the key components of our revenue performance for the quarter. In the quarter our contingencies and guaranteed supplemental commissions are down about 2.5 million as compared to the fourth quarter of last year. This decrease was primarily in our National Programs division.

Other revenues are down by 2.2 million, due to gains realized on divestitures in 2014. As a reminder, we started recording in the fourth quarter of 2014 the net gains and losses on divestitures in the expense section of our income statement.

For the fourth quarter of 2015, we recorded an expense of $700,000. From a year-on-year comparative, we had a net decrease of $2.9 million related to gains on divestitures. For the fourth quarter, we recognized an $11.7 million increase in revenue associated with acquisitions completed over the 12 months and a $4.6 million decrease in revenues from disposed businesses over the last 12 months.

Our organic revenue growth for the quarter was 2.5%. The drivers of this growth by division will be discussed next.

Our as reported EBITDAC margin increased to 32.9% from 20.4% in 2014. In order to arrive at comparative numbers, we’ve removed the loss on the sale of Axiom Re and the credits for non-cash stock based compensation, which results in flat margins year-over-year for the quarter. We know everyone’s going to ask about non-cash stock based compensation outlook; we’ll come back to this later in the presentation as we talk about certain other items.

On to slide 9 and moving from the total review of our company, we’ll discuss each of our divisions in more detail. Let’s start by looking at retail; over the last three months, our retail division has delivered 7.8% revenue growth, the organic revenue growth for the quarter is 1.9%, which shows a continued trend of improvement.

Retails year-over-year EBITDAC margin increased by 460 basis points. However, when adjusted for the Q4 2015 SIP credit described earlier along with losses recorded on the sale of two offices reported in the fourth quarter of 2014, our adjusted EBITDAC margins increased by 60 basis points.

Here are a few of the items driving retail results for the quarter: internal growth was fuelled by increases in new business which was higher than last years’ performance and an improvement in net retained business.

As we have noted throughout the year, there’ve been changes in the State of Washington’s regulation regarding bonafide associations that resulted in several of our association health plans terminating as they were determined to be non-qualified.

The changes continue to impact our revenue growth for the fourth quarter with the revenue loss impacting overall retail organic growth by about 20 basis points for the quarter and 40 basis points for the full year. As a reminder, the total annual impact was approximately $3.5 million. Since we’re not on a comparable basis, we do not expect this type of downward pressure in 2016.

For the quarter, our employee benefits business grew nicely, with our large employee benefits business performing better on an organic basis, due to a combination of new business, rate increases and some payroll expansion. Conversely, our small group businesses declined slightly.

We define small employee benefits as employers with less than 100 employees. For this segment we are continue to see companies be very focused on managing their costs and trying to understand the implementation complexities of ACA, specifically how they manage costs via exchanges and/or private plan.

Shifting to property rates, coastal or cat property renewal rates are continuing to decline 15% to 25%. We’ve been two years of renewals at these ranges and don’t expect this trend to materially change in 2016. Non-GAAP property renewal rates continue downward for admitted markets and are generally flat to down 5%.

The 60 basis points margin on an adjusted basis can be attributed to the incremental improvement in organic growth along with continued disciplined expense management. For clarity, we do expect that margins can moderate between quarters based upon on investments or variable costs so please do not project or expect these type increases every quarter.

Moving over to slide 10, our National Program divisions’ total revenues decreased by 6% related to the divestiture of ICG in the fourth quarter of last year and Acumen Re in the first quarter of 2015.

For the quarter, our organic revenues increased by 2.4% and adjusted EBITDAC margins increased by 20 basis points. For the quarter, we realized solid growth in our lender place coverage business, as we continue to benefit from the addition of new customers.

While there’s a lot of positive news across many of our programs, we do have a few programs facing material premium rate declines, including our Florida coastal property programs and California earthquake programs. And during the fourth quarter, we announced the launching of a new All-Risk program and we’ll be writing business effective February 1.

On to slide 11, our wholesale division had another really good quarter reporting organic growth of 6.2%. The differential between organic revenue and total revenues related to the sale of Axiom Re that we completed in the fourth quarter of last year.

The binding authority and brokerage businesses both contributed to the positive results for the fourth quarter and we continue to see growth across most business lines. This continued growth was achieved even while facing major downward pressure on coastal property rates in the range of 15% to 25%.

After removing the loss on the sale of Axiom Re last year, the wholesale division delivered EBITDAC margin improvement of 460 basis points. The primary drivers of this improvement are revenue expansion, continued expense management and increase in continued commissions and a favorable year-over-year change in foreign currency movement.

We would not expect to see this type of quarterly margin improvement for the business, as it does fluctuate on a quarterly basis.

Moving on to slide 12, which is a services division, we delivered organic growth of 1.2% for the quarter. This growth is driven primarily by our social security advocacy claims processing business that continues to add new clients.

For the fourth quarter our adjusted EBITDAC margin declined 180 basis points. This was driven by lower referrals in our Medicare Set-aside business and a lower volume of property claims. During the quarter we disposed of our colonial claims business, due to the low activity on claims in 2015, there is minimal revenue and margin impact for the quarter or the year.

On to slide 13, we wanted to provide an adjusted view of our full year results in order to help you with your models for 2016. Our GAAP earnings are presented in our press release and the reconciliations are included later in this deck.

From a revenue perspective, we grew by $84.8 million or 5.4% and organically we grew 2.6%. From an EBITDAC perspective, when we adjust for the Axiom Re loss and the credits for non-cash stock based compensation, our margins decreased by 40 basis points. This was primarily driven by continuing commissions being down about $6 million versus the prior years, which had an impact on our margins of about 25 basis points and net gains on disposals were $4.4 million, lower than the prior year, which impacted margins by about 15 basis points.

On an underlying basis, margins were flat, even while we made incremental investments and revenue producing teammates in the second half of 2014 and had a full year effect of these investments in 2015. We believe it is our disciplined approach to managing cost that it ensures, we maintain industry leading margins.

Finally, our earnings per share increased to $1.67, a 2.5% increase which was primarily impacted by the year-on-year incremental interest expense of $9.8 million or an equivalent of about $0.04.

On the next page, which is slide 14, we’ve included a full year analysis of our revenue and EBITDAC margins to help you with comparability to the prior year. A couple of quick comments regarding the outlook or 2016, this year we’re expecting to implement a new long term stock incentive program that will issue equity grants on an annual basis rather than our historical approach of issuing larger grant pools every 2.5 years.

The new plan will continue to be performance based and will rest over a five year period rather than some of our plan that rest over a 7 to 10 year period. Taking the new plan in to account, and the performance of the equity grants we discussed earlier, we estimate our non-cash stock based compensation should be in the range of $23 million to $26 million in 2016.

For simplicity and standardization reporting, in 2016, we’ll be combining non-cash stock based compensation with employee compensation and benefits. Interest for the fourth quarter should give you a good indication of our run rate and which annualizes a good proxy for 2016.

Everyone will ask and know we don’t have an estimate or guidance for contingencies, and lastly our effective tax rate for 2016 should be in the range of 39.5 to 39.7.

Okay, that wraps up the financial piece. Let’s switch gears and talk about technology. We committed to share more about our technology strategy and related investment. As we mentioned previously, we’ve hired a new CIO, Carl Owen about one year ago and he and his team have been working with the business to refine our technology strategy. We are pleased to say these plans are substantially complete when we can discuss the approach, investment and expected returns.

So moving on to slide 15, we’ve developed a strategy aligns our technology - with our key business goals of driving organic growth, improving customer retention, reducing operating cost and enabling better business intelligence. It’s through this strategy we’re focusing our investments in three areas; standardization, optimization and innovation.

This approach allows us to continue our efforts to standardize our technology environment while focusing on optimizing our business systems and delivering innovative solutions that help our team mates continue to grow our business and improve the customer experience.

Over the past few years, we’ve been standardizing our platforms within each of our retail, wholesale and national programs divisions, as well as standardizing many of our business systems such as implementing a company-wide human resource information system, and learning management system and the payroll system over the past two years.

We will continue this type of effort across all of our infrastructure platforms including such things as a consolidation of datacenters and implementation of common collaboration platforms. The next primary focus will be to optimize and upgrade our internal business systems such as our agency management systems for our retail division and our financial and management reporting system.

In 2016, we’ll be implementing a new company-wide financial management reporting system that will give us additional insight, analytics and efficiency. For our retail division, we will be upgrading our systems to improve workflow, efficiency, analytics and the customer experience. We anticipate this program will take two to three years.

Finally, we’ll continue to investigate innovative solutions that allow us to better improve our customer experience through mobility solutions and provide better insights of our business with the use of data and analytics.

From a financial investment standpoint, we believe this net phase of optimization will cost about $30 million to $40 million in total over the next two to three years and will have a payback in four to six years from the commencement of the programs.

During this investment phase, we expect our margins to be impacted 35 to 60 basis points, depending upon the speed with which we ramp up the programs. For 2016, the margin impact should be in the range of 40 to 50 basis points versus our 2015 adjusted EBITDAC margins.

We believe this disciplined and coordinated approach towards technology investments will improve our margin slightly once the projects are completed, enabling us to operate within our long term EBITDAC range of 33% or 35% and also enhance our foundation for ongoing organic growth and scale.

With that let me turn it back over to Powell for closing comments.

Powell Brown

Thank you very much Andy, great report. In closing, we remain optimistic about 2016 and the outlook for our businesses. I’m pleased with the improvements we’ve made in ’15 and we’d like to thank all of our team mates for their efforts throughout the year.

We do expect rates in ’16 to remain under pressure and are watching the economy very closely for signs of further expansion or contraction. From an M&A perspective there’s a lot of activity out there. We’ve seen a number of announcements in 2015, maybe the most active year of acquisitions ever.

We can tell you that prices remain high, some at levels that don’t make sense to us. However, we continue to look for partners that fit culturally and make sense financially. Lastly, our disciplined capital deployment strategy across internal investments, acquisitions and return to shareholders remains a top priority to help us drive long term shareholder value.

With that Kyle, I’d like to turn it back over to you to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll take our first question from Kai Pan with Morgan Stanley.

Kai Pan - Morgan Stanley

First question on the technology investment, the question is just on the high level to see why do you do it and then the second question, why now?

Powell Brown

We’ve been working on technology all along as we’ve mentioned in our comments. We think that at this stage where we are as an organization and as we continue to grow, we need to refresh a few of those around our financial management system as well as in the retail space. Just as any company goes through overtime you just need to do normal upgrades and refreshes on those. So that’s kind of what’s driving that at this time.

Kai Pan - Morgan Stanley

So the timing of that normally you would say probably making the investment when the organic growth is stronger than you have the leeway not to impact your margin and at the same time be able to read that in a system. I just wonder, given we’re now facing some pricing pressure, so why would not wait and to sort of maybe when the environment get a bit better and then we sell [impending] margin to improve it. So why you take the opportunity right now?

Andy Watts

Kia, we take a long term view on our business and so we’re not trying to manage quarter-by-quarter on this. We think this is the right thing to do for our organization and therefore if we need to take a short term margin impact, we think that’s okay to make sure that we are ready for the next levels as we continue to grow.

Kai Pan - Morgan Stanley

Okay, that’s great. And then a little bit math behind that number. It’s like $30 million to $40 million potential investments over like two or three years. So if you run the math say three years, so each year $10 million, about $1.8 billion revenue. That’s probably around 60 basis points. So I just wonder each year. So I just wonder you are entering margin impact like 35 to 60 basis points. Is that including any offsetting factors?

Andy Watts

What do you mean by offsetting factors Kia?

Kai Pan - Morgan Stanley

It means like a potential saving for someone else, because if you just run the math like if you do $10 million investments in each year in next three years, $1.8 billion revenue, that itself is about 56 or close to 60 basis points. So I just don’t know if the margin impact you’ve given there, is that --.

Andy Watts

Yeah, so that’s why we’ve given the ranges of 35 to 60 on it Kia, and then we gave tighter ranges on 2016. As the program do commence along through implementation, we will be able to start to realize some of the benefits and that’s really what got to our comment as, when we get to the end of the programs, our benefits or our margins will then increase back up to where they were before and increase slightly. So we will be seeking some on the backend. You won’t get all of that on day one because there’s just as within these there’s a little bit of bubble cost that you’ve to go through.

Kai Pan - Morgan Stanley

And then can you tell us it seems you already made some progress here to date, making some changes. How much investment you’ve already made in the standardization phase?

Andy Watts

We’ll come back to you on that one Kia. We haven’t quoted that exactly.

Kai Pan - Morgan Stanley

Now lets’ squeeze this, if I may as I might switch topic to the organic growth. Powell, one of your peers like recently said that because of pricing pressure the organic growth probably will be low single digits. I don’t know from your perspective why it seems so far. What gives you the confidence that we can maintain or even improving upon the organic growth you’re having like 2% or 3%, you are achieving in 2015.

Powell Brown

Well let’s backup and say that as you know, we don’t give organic growth guidance, and I would restate what we’ve said all along which is, we believe that our business is a low to mid-single digit organic growth business over a long period of time particularly in a steady state economy.

I’ve also said that same comment about our retail business, and so once gain as you know, our business is a proxy for the middle market economy. That’s really important. So some others, their businesses may or may not reflect the middle market economy as much as ours do. So once again we are going to continue to grow our business organically and make acquisitions where they make sense, but we don’t give organic growth guidance.

Kai Pan - Morgan Stanley

But just think about sort of like qualitatively, how do you compare the environment going forward, compared that with 2015 because you mentioned the pricing side would continue under some pressure and on exposure side that’s where you’re seeing improvements, but nothing dramatic. Are we seeing in the similar environment going in to 2016 as we were in 2015?

Powell Brown

Remember, we think that exposure units have the biggest impact on our business versus rates, however if rates fall precipitously then that’s a different story, and right now the only place we’re seeing that is in catastrophic property.

So I think the rate environment was similar in Q3 of ’15 and Q4 of ’15, and so based upon what we’re seeing right now, the area that will continue to have the greatest amount of pressure on it will be catastrophic property because we haven’t had a storm in a long time and people have short memories.

That said, you’d see the carriers are continuing to try to look at getting rate where it makes sense particularly on automobile and personal lines, workers compensation in certain areas of the country as well. But I think based on, it’s a long way to the answer of saying, I think it’s’ more the same based upon what we can see right now.

Kai Pan - Morgan Stanley

And then lastly if I may, can you tell us what’s your potential exposure to investment related to the energy sector?

Powell Brown

Yes. The answer is, our energy exposure is very minimal. We do some business in our retail segments in the Gulf Coast, down in Louisiana and down in the Texas. We do a little bit in wholesale and we do some sustainable energy in some of our larger account segment. But as a general statement compared to the size of the company it’s minimal.

Operator

We’ll take our next question from Elyse Greenspan with Wells Fargo.

Elyse Greenspan - Wells Fargo

I wanted to shift back to the technology and the investments that you guys mentioned. Just as we’re thinking about margins for next year, this year you guys had also pointed to hiring that you were making in terms of adding on to your employee count and that was a little bit of a headwind on margins. So when we think about our miles going forward as we factor in the spend that you guys are making on the technology side. Do you also expect to see some hits as you see some additional expenses as your employee count goes up?

Powell Brown

Well Elyse this is Powell. We allocate money internally to higher people that are not already in our budget, we’ve talked about that before in our corporate assistance plan. And we anticipate obviously continuing to make those investments this year and year’s going forward.

I think that Andy articulated what he thought the margin impact was going to be for technology specifically in 2016, and so based upon as we see it right now, we are thinking around a normal amount of investment in people and capabilities this year.

But if in fact the right opportunities come along, then we’ll consider those just like anything else. Remember we look at the hiring of people as our teammates are the single most important thing in our company, and so we ended the year right around 8,000 teammates, I don’t have the exact number with me, but right around under 8,000 teammates. And in order to get to the next level and the next level, we’re going to have to acquire, hire, train, retain, reward more high quality teammates. So that’s critical.

Andy Watts

And Elyse I’d probably add to that, unless we make kind of, let’s call it step investment at certain stages as we talked about in the second quarter of ’14 earnings call, that was kind of one where we had brought on some investment in certain areas. Those are where you might see impact on margins.

But our comments earlier in the call, that’s why we highlighted the 40 basis points down for the year, and then what’s kind of the two main components of that. So we’re basically flat on underlying margins and that was where we’ve just continued investment in our business.

Elyse Greenspan - Wells Fargo

And then as we think about ’16, I know you highlighted the hit just from technology about the 40 basis points to 50 basis points. When you look at your underlying book, kind of excluding the technology spend, how you see the margin just ex that 40 basis points to 50 basis points hit.

Powell Brown

We think we ex that we think that it continues to be in the range that we’ve given the guidance.

Andy Watts

And probably on the lower end of the range.

Elyse Greenspan - Wells Fargo

And then in terms of outlook for capital management, you guys completed the ASR [assist] in January. Just as you think about capital going forward, I know the strategy usually has been to put in new ASR program after the prior one is complete. Can you just kind of talk about the time frame thoughts around putting a new program and capital management outlook for 2016.

Powell Brown

Elyse, as you remember, we don’t have a stated plan where it says every quarter we’re buying back X amount. We continue to evaluate that versus other options that we have at present or in the near to intermediate future. So you are correct that we finished the ASR and will continue to evaluate all of our opportunities, one of which may be share repurchases, but we have not made that determination yet.

As you know we got a $375 million authorization from the Board in the waiting, so we do have that flexibility. But we will continue to evaluate that versus our other options as well.

Elyse Greenspan - Wells Fargo

And then lastly, I know you mentioned, it’s too early to have an outlook on contingents. Can you, anything in terms of directionally without giving a phone number if you think 2016 might be a higher or lower than ’15 or can you just at least an outlook for the Q1.

Powell Brown

Coming back to our earlier Elyse, your estimate would be just as good as our estimate on this one. Remember the thing that’s difficult is the industry could be trending one way and our business because of the performance in the individual office could be trending the other way, and conversely it could be going the opposite direction for the companies and we could be going the opposite direction as well. So it’s’ not that easy to say. I’m sorry to say that, I know that frustrates you, but that’s the truth.

And if there’s ever any big items I think similar to how we telegraph what we thought the fourth quarter would be, we’d share those if we have that insight, but we don’t have any additional insight at this stage Elyse.

Operator

We’ll take our next question from Quint McMillan with KBW.

Quint McMillan - KBW

I just had a question following up on Elyse’s capital management question. More just a philosophical question about how you guys are thinking about return on invested capital here. And if you could sort of help us to understand what the multiples that you’re sort of seeing in M&A land are versus I know that you don’t probably have a specific ROIC target for your own stock repurchase, but how we might be able to think about the different on the ROIC basis if you’re repurchasing your own stock at what it looked like attractive levels versus M&A at maybe whatever multiple 8, 9, 10 times.

Powell Brown

Okay, so let’s start with the M&A market place. Depending on the size of the business and growth and profitability profile, you’re going to see 8, 9, 10, 11, 12 depending on what - and remember I believe that pro forma is a pro forma on the trailing 12 or the projected 12 not the pro forma of the pro forma of 2018. So, our number are a multiple of operating profit or EBITDA might be different than somebody else’s and so they run their models, we run our models.

So, obviously when we look at an acquisition, we look at the talent that comes with it, the capabilities, how that helps us service not only our existing clients if that can expand that capability or bring new capabilities to do something that we don’t already do.

We obviously look at how we view our share repurchase compared to the multiples that are being paid in the acquisition space. We also think about it in financial terms which we don’t disclose, meaning we run our own internal analysis on all that.

But at the end of the day, when we look at it and say what are the opportunities in each of the three areas and where do we want to invest that, and last year as an example we did both. So if you think about the capital management last year, we paid $68 million of dividends, we paid CapEx of about 18.

Andy Watts

Buybacks of a 175.

Powell Brown

175 and then the remaining on acquisitions. So we felt like last year that was the best allocation of the cash generated by the organization. That does not mean that’s what exactly we’re going to do this year. It means based upon the opportunities that we have, we’ll make those decisions at that time.

Quint McMillan - KBW

And then you just spoke about the CapEx number. It looks like the CapEx range has been sort of between 10 and maybe a little bit below 20 over the past several years and the technology investment strategy spending that you’re going to be doing won’t be kind of lumped into that. Is the CapEx spend begin to go up meaningfully from where you were in line with what they are spending would be or do you think about this holistically that the CapEx might be more flattish and you’ve just diverted your dollars from one CapEx spend to another.

Powell Brown

No, I don’t want you to think about that. I think that it’s important to look at this as an incremental spend, meaning it’s on top. If you look at our CapEx spend over an extended period of time, I would say $12 million to $20 million a year barring some large purchase or something. But that’s basically what it’s been overtime.

I think you need to think about it in that $10 million s or $12 million or 13 million range additionally a year for the next three years. So Andy is giving you an indication of $30 million $40 million of total spend, and that would be incremental.

Andy Watts

And we’re going to step back and let’s talk about philosophy just for a second, because I think this will help you guys is, the way that we are thinking about technology and the implementation of it is, our goal is to be able to basically take it off the shelf as much as possible, configure it to our organization, we’ll customize it where it absolutely has to, because that’s what we believe will provide us with the best long term cost of ownership.

But by doing that, it also means that we need to evaluate what we’re going to buy software or service or in the cloud versus traditional. So one of the things we just don’t know exactly right now is the geography, how much will be expensed versus CapEx inside of there. But the range that I gave you is pretty good one for right now.

Quint McMillan - KBW

And Andy just a numbers question just so I make sure I understand what you guys had just mentioned. The non-stock based comp of your guidance for 23 to 25 million in ’16, you said you’re going to stop reporting and it’s just kind of go in to the comp and benefits line. Is that correct or did I mishear that?

Andy Watts

No, you got it correct.

Quint McMillan - KBW

Okay, so we’ll lump that altogether and you won’t be reporting that number going forward?

Andy Watts

Correct, and it’s consistent with all the other brokers that are out there.

Quint McMillan - KBW

Yeah, I agree. And if I can take one last one and I apologies, in terms of what you guys have on the All-Risk program, I know you probably don’t want to speak about specific clients, but is there any sort of qualitative guidance you could give us in terms of maybe what benefit that could have for organic within the programs division or anything that you might want to talk about there.

Powell Brown

I’m not going to speculate on that Quint, but what I would tell you is, as you know, an All-Risk program is going to be writing property in cat prone areas, places like Florida, Texas, California. And so to that earlier comment that Andy made in his remarks, its already a pretty competitive space. So it’s too early to say, we’re starting that this quarter writing new business. So it’s too early to say.

We look at it as a de novo program out of Arrowhead and we are very excited about our teammates and the capabilities and the capacity that we have lined up, but obviously we have to execute on it, so no speculation on growth impact.

Operator

We’ll take our next question from Ryan Byrnes with Janney Capital.

Ryan Byrnes - Janney Capital

Just to follow-up on the non-cash comp. I may have missed it, but did you guys know what the $8.1 million event was this quarter?

Powell Brown

It was a single event, it was a combination of offices or individuals not meeting certain performance requirements.

Ryan Byrnes - Janney Capital

And that’s across the segments or any segment in particular?

Powell Brown

It cuts across all, that’s correct.

Ryan Byrnes - Janney Capital

I was intrigued by the footnote there that you guys sold colonial claims. That has been a pretty good margin business obviously following Sandy. Just trying to get to understand your rationale for selling that business, it doesn’t seem like it had much revenue or negative expense impact when it wasn’t on full cylinders, but just want to get your thoughts there.

Powell Brown

First of all, it is a good business. It’s lumpy and at the end of the day the investment community doesn’t like lumpy income streams. So think highly of the organization, continue to have a relationship with them, and all of that. But at the end of the day, we were not given credit when it went up, but we were penalized when it went down.

So we decided that it would be best with somebody else, lets’ not measure it that way and we’ll redeploy that money in something that would be more consistent with a consistent revenue stream that we can talk about on the call, and not have to call out every quarter if we miss or not miss, that’s kind of the story.

Operator

[Operator Instructions] We’ll take our next question from Jeff Schmitt with William Blair.

Jeff Schmitt - William Blair

I apologies if I missed it, but could you touch on the level of cat activity you saw at rate this year and how that compares to historical levels?

Powell Brown

Yeah, we did not touch on it. The answer is it was very low relative to historical levels. It’s a good question, as you know that we looked at a 10 year model and that was roughly around $7 million or $7.5 million of revenue on average. So it was very low, and so that would be another where we were impacted. We didn’t call that out directly, but that is another area that was impacted because of the light storm season.

Jeff Schmitt - William Blair

And then on the workers comp, did you mention sort of the level of rate decreases you’ve seen in California in particular?

Powell Brown

No we didn’t mention that, but remember what we said in Q3 and what I would say now about worker’s compensation is, we didn’t talk about rate impact, we talked more about certain carriers changing their risk appetite. So let me make it simpler, that means, that there are certain places in the state i.e. the Los Angeles where they think the risk profile is different than if you’re outside of Los Angeles.

So it’s not too much the rate, it was the change in appetite which impacted our ability either write new business or more importantly renew the business that we already have in that area.

Operator

We have no further questions in the queue at this time. I would now like to turn the conference back over to Powell Brown for any additional or closing remarks.

Powell Brown

Thank you Kyle and I wish everybody a wonderful day and look forward to talking to you again after the first quarter. Have a nice day and thank you.

Operator

This does conclude today’s conference call. Thank you all for your participation. You may now disconnect.

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