Insurance Brokers (MMC, AON, AJG, WTW, BRO)

[dealraker]

1 hour ago, longterminvestor said:

The model is not difficult - it just comes in the difficult to understand mystical wrapper called "insurance".  The street even puts brokers in buckets at times with risk bearing insures for comps - not even close to the same model.  Brokerage is financial services at the end of the day.  Everyone wants the 100X bagger, founder led/founder controlled, serial acquirer, strong ROIC, management in place, durable model, capital light "compounder" - look no further than Brown & Brown.  Business was born in 1939 in dusty Daytona Beach, FL by Adrian Brown and Cousin Cov.  10 years later, they had $6,597 in net income.  As a kid, Hyatt (son of Adrian and mastermind behind B&B) would hang out in the office and at an early age he understood personal relationships and salesmanship were key, “I would be sitting and listening and saying nothing, and the first 85% of the customer visit was about hunting, fishing, jokes and all that stuff . And then finally the last part was insurance.” Hyatt recalls. Hyatt graduates from University of Florida and immediately turns around and writes a policy for the college as his first "big account".  Annual revenue jumps of the business jumps from $42K to $60K.  Hyatt later buys the business for $75K and a note worth 10% interest.  The annual meetings were held in the office kitchen.  (Abbreviated version of origin story taken from the 2008 annual report). 

 

 Net income from 1949 to 2022 grew from $6,597 to $671.8M - a 10,183,316% increase.  $60K topline rev to $3.5B in 2022!  Along the way they took on some modest debt (lately they have taken on substantial debt at historically cheap rates to support the acquisitions).  4 parts to the business.  Retail, Wholesale, Programs, Services.  Retail leads the business with large portion of revenue  focusing on the "middle market" accounts where spend is $25K - $250K - they will get into larger accounts and love those but at that stage the bigger "alphabet houses" will be knocking on their door.  There is a time when an account can outgrow the capabilities a B&B can provide and the client needs more risk management rather than just transactional insurance.  Wholesale is the 2nd bucket of revenue, recently rebranded this as "Bridge Specialty" and this is the intermediary between the retail broker and the insurance company - lots of growth in this space with E&S action and changes in risk bearing market segment.  Programs is a niche - think lawyers, plumbers, A/C repair, school buses - something that is homogenous in nature and specialized in 1 arena - they are the experts in that niche and make the retail agent look really good.  Services at B&B is super small and has never scaled. 

 

I remember describing the business to a fund manager as an early investor - still had not discovered my own personal style of investing (I would stare at charts like I was reading tarot cards waiting for the chart to "speak to me" - hopefully I am not the only person who started like this - please tell me I was not alone!!) - and the fund manager just said "This is a 3rd generation family business, the 3rd generation is always the one who f*cks it up" - that thought was seared into my head and held me back from buying more.  My father also held me back from buying more reminding me that owning a large stake in the business you work for is an issue because of the Enron risk (should not have listened to him - different business model entirely).  I owned the stock in my PA for a while, not knowing what I had and stupidly sold it - proceeds were rolled into my personal investment in my own insurance agency - so I traded 1 public broker for my own privately held broker - however looking back I could have scratched together the cash another way if I would have tightened my belt - was newly married, buying a house, and pregnant wife so I felt I needed all the cash on hand possible.  These are just great lessons of investing and still serve as a good lessons today.  

 

Regarding B&B, the question is now about runway - how big can the business get?  Time will tell. 

 

I am looking forward to the future for some new IPO's on horizon with AssuredPartners, Acrisure, and some others that may/not be looking for some liquidity in the public market.  I will be doing a deeper dive into BRP's financials and share my findings.  stay tuned.  

Can't wait for the BRP discussion.  I've owned all the brokers since 1994 but AJG is 10 times larger than any of the others in size with BRO second.  I bought some BRP in the high teens on a downturn and recently addd in the $22-23 range.  But I'm simply using Wells Fargo's analysis.

[dealraker]

1 hour ago, longterminvestor said:

The model is not difficult - it just comes in the difficult to understand mystical wrapper called "insurance".  The street even puts brokers in buckets at times with risk bearing insures for comps - not even close to the same model.  Brokerage is financial services at the end of the day.  Everyone wants the 100X bagger, founder led/founder controlled, serial acquirer, strong ROIC, management in place, durable model, capital light "compounder" - look no further than Brown & Brown.  Business was born in 1939 in dusty Daytona Beach, FL by Adrian Brown and Cousin Cov.  10 years later, they had $6,597 in net income.  As a kid, Hyatt (son of Adrian and mastermind behind B&B) would hang out in the office and at an early age he understood personal relationships and salesmanship were key, “I would be sitting and listening and saying nothing, and the first 85% of the customer visit was about hunting, fishing, jokes and all that stuff . And then finally the last part was insurance.” Hyatt recalls. Hyatt graduates from University of Florida and immediately turns around and writes a policy for the college as his first "big account".  Annual revenue jumps of the business jumps from $42K to $60K.  Hyatt later buys the business for $75K and a note worth 10% interest.  The annual meetings were held in the office kitchen.  (Abbreviated version of origin story taken from the 2008 annual report). 

 

 Net income from 1949 to 2022 grew from $6,597 to $671.8M - a 10,183,316% increase.  $60K topline rev to $3.5B in 2022!  Along the way they took on some modest debt (lately they have taken on substantial debt at historically cheap rates to support the acquisitions).  4 parts to the business.  Retail, Wholesale, Programs, Services.  Retail leads the business with large portion of revenue  focusing on the "middle market" accounts where spend is $25K - $250K - they will get into larger accounts and love those but at that stage the bigger "alphabet houses" will be knocking on their door.  There is a time when an account can outgrow the capabilities a B&B can provide and the client needs more risk management rather than just transactional insurance.  Wholesale is the 2nd bucket of revenue, recently rebranded this as "Bridge Specialty" and this is the intermediary between the retail broker and the insurance company - lots of growth in this space with E&S action and changes in risk bearing market segment.  Programs is a niche - think lawyers, plumbers, A/C repair, school buses - something that is homogenous in nature and specialized in 1 arena - they are the experts in that niche and make the retail agent look really good.  Services at B&B is super small and has never scaled. 

 

I remember describing the business to a fund manager as an early investor - still had not discovered my own personal style of investing (I would stare at charts like I was reading tarot cards waiting for the chart to "speak to me" - hopefully I am not the only person who started like this - please tell me I was not alone!!) - and the fund manager just said "This is a 3rd generation family business, the 3rd generation is always the one who f*cks it up" - that thought was seared into my head and held me back from buying more.  My father also held me back from buying more reminding me that owning a large stake in the business you work for is an issue because of the Enron risk (should not have listened to him - different business model entirely).  I owned the stock in my PA for a while, not knowing what I had and stupidly sold it - proceeds were rolled into my personal investment in my own insurance agency - so I traded 1 public broker for my own privately held broker - however looking back I could have scratched together the cash another way if I would have tightened my belt - was newly married, buying a house, and pregnant wife so I felt I needed all the cash on hand possible.  These are just great lessons of investing and still serve as a good lessons today.  

 

Regarding B&B, the question is now about runway - how big can the business get?  Time will tell. 

 

I am looking forward to the future for some new IPO's on horizon with AssuredPartners, Acrisure, and some others that may/not be looking for some liquidity in the public market.  I will be doing a deeper dive into BRP's financials and share my findings.  stay tuned.  

BRP as per Wells:

 

Insurance Brokers
BRP Group, Inc. (BRP)
BRP: Bringing Down the Curtain on Earnings Season; Q2 EPS & Conference Call Round-Up
Our Call
BRP reported Q2 operating EPS of $0.27, in line with our estimate and consensus of 
$0.27 and the low end of their $0.27-0.29 guide. Organic was close to us and above their 
mid-teens guide. Adjusted EBITDA of $61.6m was above the $55-60m guide.
The stock from here: BRP shares should trade flat tomorrow as the full-year guidance 
raise on organic and revenue is offset by BRP keeping their EBITDA guide the same. We 
were surprised they did not raise the EBITDA guide as they did point to tailwinds in the 
back half on the call as they fully lap the influx of hiring last year in the next quarter, so 
they are most likely being conservative and giving themselves some flexibility.
Estimates and price target changes:Our 2023 EPS estimate goes up to $1.25 (from 
$1.18) to reflect higher organic and lower interest expense while 2024 and 2025 
estimates are unchanged at $1.85 and $2.55, respectively, as slightly higher EBITDA is 
offset by lower partnership revenue. Our price target is unchanged at $29 on an equalweighted blended multiple analysis based on our 2024 estimates (see Exhibit 3).
The good: BRP raised their full-year guidance for organic growth to the high-teens 
(from the mid-teens) primarily due to the outperformance YTD, and they said they are 
assuming mid-teens organic in the back half. They also raised their full-year revenue 
number to $1.18-$1.20B (from $1.17 to $1.19B previously). Insurance Advisory 
saw organic of 15%, accelerating from the 14% in Q1 and above our 10.5% estimate. 
Mainstreet also saw a sequential acceleration with organic of 20% vs 17% in Q1.
The bad: The EBITDA margin in the quarter was 20.7%, falling below our 21.1% and the 
street's 21.2%. BRP raised all FY guidance items except EBITDA, keeping it unchanged 
at $255-$265M. With the newly revised revenue number, that would imply EBITDA 
margin of 21.8% at the midpoint (improving from 20.0% in 2022) vs 22.1% previously. 
Underwriting Capacity & Technology Solutions saw 43% organic, below 82% in Q1 with 
+45% in MGA of the Future, but a 2% decline in business away from the MGA.
The ugly: Interest expense was $28M in the quarter, above our $27M estimate and above 
the $26.6M in the first quarter. They are still expecting their FY net interest expense to be 
around $105M - $110M assuming no change in current rates. They did pay down $15M 
of their revolver in the quarter after paying down $20M in the Q1 as they work towards 
delevering towards the top-end of their 3.5-4.5x target by year-end.
Equity Analyst(s)
Elyse Greenspan, CFA
Equity Analyst | Wells Fargo Securities, LLC
Hristian Getsov
Associate Equity Analyst | Wells Fargo Securities, LLC
Matthew Byrnes, CFA
Associate Equity Analyst | Wells Fargo Securities, LLC
Wes Carmichael, CFA
Equity Analyst | Wells Fargo Securities, LLC
Rating Overweight
Ticker BRP
Price Target/Prior: $29.00/NC
Upside/(Downside) to Target 18.5%
Price (08/09/2023) $24.47
52 Week Range $19.26 - 33.34
Shares Outstanding 116,801,494
Market Cap (MM) $2,858
Enterprise Value (MM) $3,843
Average Daily Volume 258,119
Average Daily Value (MM) $6
Dividend (NTM) $0.00
Dividend Yield 0.0%
Net Debt (MM) - last reported $985
ROIC - Current year est. 0%
3 Yr EPS CAGR from current 
year (unless otherwise noted)
35%
$ 2022A 2023E 2023E 2024E 2024E
EPS Curr. Prior Curr. Prior
Q1 (Mar) 0.50 A 0.42 A NC 0.60 E 0.62E
Q2 (Jun) 0.23 A 0.27 A NC 0.45 E 0.43E
Q3 (Sep) 0.18 A 0.32 E 0.27E 0.43 E 0.42E
Q4 (Dec) 0.12 A 0.27 E 0.24E 0.38 E NC
FY 1.03 A 1.25 E 1.18E 1.85 E NC
P/E 23.8x 19.6x 13.2x
ROIC - Current year est.: Represents return on equity (ROE)

[dwy000]

On 8/29/2023 at 6:28 PM, dealraker said:

Yes but evidently the pay down of debt is relatively rapid for BRP so they say.  I too bought WTW several times recently to add to what I have had.

Want to hear the thoughts on BRP too.  I'm concerned that they have a ton of contingent earn out payments this year that should use up most excess cash flow and push back meaningful debt repayment.  Once those are reduced however, it should free cash flow pretty nicely to reduce debt.  

 

Not a big fan of the very confusing cap structure whereby the A shares and B shares reflect the pre-IPO partnership structure.  The publicly traded holding company technically only owns 53% of the operating company (the A shares).  I guess it works but the share count keeps throwing me off.

[Seoshin]

Don't want to sound soliciting for a confirmation bias but what do you think of BRO today @longterminvestor? Tbh I was enamored by its great history and also that its a holding of Chris Mayer, author of the 100 baggers. I'm wary if they can replicate the playbook in the UK as much as they did in the US.

[dealraker]

I remember very well...it was 1994 and we'd done the AJG deal.  I had all my family, my first cousins and brother-in-law come down to my lakehouse where I did an elaborate presentation on Poe and Brown, now Brown and Brown.  I can visualize so well the barely controlled euphoria I was delivering to them all as to Hyatt's conference call when he said "Look, we can do 15% for so long that you can't fathom the outcome of it all."   The lumber co had sold all but one location and funds were rip-roaring ready to go somewhere and I spoke my mind!

 

SOLD!  Wasn't long after my brother-in-law says, "Charlie, I just need an investment as we sold X and I have $800,000 to invest."  I swear to you-know-who that ole dealraker said, "Steve, it is all going in to Brown and Brown."  And so it was, the good ole days!

 

 

Edited September 9, 2023 by dealraker

[longterminvestor]

You found Poe & Brown in 1994?  Thats the kind of business, runway, and management I am searching for - it was magic in a bottle for sure.  

[dealraker]

19 hours ago, longterminvestor said:

You found Poe & Brown in 1994?  Thats the kind of business, runway, and management I am searching for - it was magic in a bottle for sure.  

So longterminvestor here's story for amusemement, nothing more and nothing less.  So we grab hold of Brown in the mid 1990's and given all of us are in this locally very well-known investment club...well, we decide to present the idea to the club.  This is about 1997 or so (my dates may be wrong but i have no access to the history now), so yea we've already gotten some serious outcome to our very large BRO holding.

 

The club grabs it, we buy a 10% of the club postion.  Not long till the stock has double.  But.......one of the most outspoken members of the club had not been present when we bought the stock and the guy absolutely hated with a passion insurance stocks in general.  Of course he had no concept that BRO was not an underwriter.

 

This guy was interesting, he ran a relatively small but enormously profitable snack food business and the guy literally owned every stock (outside of insurance) we ever discussed in the club.  When he died his estate included huge double digit millions in donations to various public entities, so yes he had done tremendously well investing and holding.

 

But anyway he arrives at the club meeting one night and does this dominant targeted negative out-spewing of why owning BRO was one god-awful thing and that we should sell it and buy Cisco.  Precisely what the club voted to do!

 

A few years later, the date again unknown to me now (remember I'm 69 so wait till you are 69 and try to remember specific cycles/times/dates....because you probably won't unless you are Buffett's level of memory/facts), I presented to the club that we had almost doubled our money in Cisco (Cisco went from our split-adjusted $6 to $82, but we sold later at $12) while we would have made 10x in BRO.

 

The club of course yawned.  Why?  Well we'd gone through an era where we had bought tech "cheap" and had 35% annual for 10 years until the club's portfolio crashed 80% plus in a few months.  Thus we had gravited from "if it ain't 25% annual growth we aren't interested" to "low pe value investing straight out of the Ben Graham handbook".  There we remain now some 20 years later.

 

LOL.  I just watch now, I despise their investing model as does nearly a third of us all from the same grandfather.  But the young guys rule the roost.  However, we have had more deaths (the club began in 1954) and some have had to leave for other age related reasons, and we have some even younger guys who are blasting ahead in their careers who want some more action rather than BMY at 10x earnings or whatnot.

 

Life is great....and cycles come and go while some of us are quite happy with BRO!   

 

 

Edited September 10, 2023 by dealraker

[Spekulatius]

I read the Cc transcript of WTW presentation for the KBW conference and I get a bad feeling about this stock. Quite frankly the CEO Hess sounds like bullsh$tter. Right, Right? You tell us…

https://app.tikr.com/stock/transcript?cid=36623&tid=317560689&e=1854199080&ts=2904877&ref=o94y6y

 

I have a feeling there are good reasons why this stock trades where it does, partly structural and partly due to management.

[dealraker]

Yes, Hess runs a far above average business to being average.  Interest rates on the pension business wiped out 75% of the forecasted margin, TRANZACT is quite the upfront cash guzzler, Transformation Program a dud, but margin expansion always coming at some point in the future or so the man says.  This is a fabulous business if and when it is run right.  

[bizaro86]

I thought the recent VIC post on WTW (in free with login mode) https://valueinvestorsclub.com/idea/WILLIS_TOWERS_WATSON_PLC/8662645288

 

Was interesting. I could summarize the thesis as: this is a good business trading at a low price. Probably something good will happen, and if it doesn't organic/inflationary growth probably keeps you whole.

 

I bought a starter. I have no relevant experience with insurance brokers, and following one seemed like a good way to learn.

[Spekulatius]

On 9/11/2023 at 8:15 PM, Spekulatius said:

I read the Cc transcript of WTW presentation for the KBW conference and I get a bad feeling about this stock. Quite frankly the CEO Hess sounds like bullsh$tter. Right, Right? You tell us…

https://app.tikr.com/stock/transcript?cid=36623&tid=317560689&e=1854199080&ts=2904877&ref=o94y6y

 

I have a feeling there are good reasons why this stock trades where it does, partly structural and partly due to management.

the VIC comments are indeed insightful, as they noted the lack of FCF. FCF has been lower than operating income and usually that's not the case with insurance brokers. Based on what I read at in CC transcript and the comments, I made a bet with myself that the proxy won't have FCF as a metric for executive comp and that is correct:

 

So management runs WTW not for cash returns but accrual earnings. Not a fan at all. Then I hear (or read) the CEO (Hess) talking his BS and my spider sense goes off. My spider sense is often wrong though.

 

I could be wrong here as well, but sold  my shares because if things go wrong here, I will have no conviction to average up.

Edited September 13, 2023 by Spekulatius

[dealraker]

1 hour ago, Spekulatius said:

the VIC comments are indeed insightful, as they noted the lack of FCF. FCF has been lower than operating income and usually that's not the case with insurance brokers. Based on what I read at in CC transcript and the comments, I made a bet with myself that the proxy won't have FCF as a metric for executive comp and that is correc:

 

So management runs WTW not for cash returns but accrual earnings. Not a fan at all. Then I hear (or read) the CEO (Hess) talking his BS and my spider sense goes off. My spider sense is often wrong though.

 

I could be wrong here as well, but sold  my shares because if things go wrong here, I will have no conviction to average up.

It is as it has always been for WTW.  Willis was so-so as to performance, they acquired broker Hilb, Rogal, Hamilton which itself was a so-so, then Towers was at times pretty so-so.  So it is as it will be - as Wells analysts say, "The same ole Willis."  

[dealraker]

Wells on AJG...not much left currently.  I post these because over the years the Wells people have nailed it as to brokers, a near pefect record of accuracy.  And that's for a long-long time.

 

Insurance Brokers
Arthur J. Gallagher & Co. (AJG)
AJG: Consistent Organic and Margin View; Takes from Investor Update
Our Call
AJG hosted its quarterly investor update and largely confirmed all guided items from 
Q2, although with a slightly higher FX hit ($0.06 for 23, vs $0.04). AJG shares should be 
unchanged as the update was mostly in line with Q2 earnings.
Initial Thoughts
Positive, but consistent organic color: Brokerage organic should be in the upper half 
of the 8-9% range this year (with 9% in Q3 and 8% in Q4, but 9% when adjusting for 
last year's accounting adjustment). The Q3 9% includes a $2-4m negative contingent 
impact from HI fires. Gallagher expects 2024 to be like 2023 with organic of 7-9%. Risk 
Management organic is better and should be ~15-16% in Q3, 12% in Q4 (they lap new 
business wins) and 15% for FY. See Exhibit 1 for organic guidance by business.
Stable pricing: Renewal premium (which includes rate and exposure) is up 11% to-date 
in Q3, a touch below the 12% in Q2, but above the 8-10% throughout 2022 and early 
2023. The modest 1% sequential slowdown reflects mix (Q2 had a high level of property 
business) as most major geographies are showing consistent renewal premium increases. 
Further, Gallagher is not seeing any meaningful impact of economic slowdown in their 
data with both policy endorsements and audits showing Y/Y growth.
Margin discussion unchanged: Brokerage margin guidance is unchanged and should 
expand by 30-40 basis points for FY 2023 including Buck and 70-90 basis points 
excluding Buck, with 40 basis points of expansion in Q3 and a bit above 50 basis points 
in Q4. Risk Management margins should be about 20% in Q3 and Q4 (prior guide was 
19.5%) and around 19.5% for the full year.
Offshoring should help investment spend: Gallagher could see $25-50 million of annual 
savings (40 basis points benefit to Brokerage margin at the mid-point) from offshoring 
that it could invest back into the organization. We believe this should help Gallagher 
be able to consistently see organic growth that is towards the high-end of the peer 
group and shows in the 7-9% Brokerage organic guide for 2024, which compares to the 
company printing +5-6% Brokerage organic in 2018 and 2019 pre Covid.
Strong M&A pipeline: Gallagher has term sheets for 55 deals with $700 million of annual 
revenue, unchanged from Q2 earnings. Gallagher has $450 million of cash on hand at the 
end of August and expects to have $3 billion to spend on M&A this year and a little more 
in 2024. Further, Gallagher alluded to PE interest potentially waning a bit, especially as 
interest rates rise.
Other: Gallagher has less than a dozen client placements with Vesttoo and does not 
expect it to be an issue for the company.
Equity Analyst(s)
Elyse Greenspan, CFA
Equity Analyst | Wells Fargo Securities, LLC
Matthew Byrnes, CFA
Associate Equity Analyst | Wells Fargo Securities, LLC
Wes Carmichael, CFA
Equity Analyst | Wells Fargo Securities, LLC
Hristian Getsov
Associate Equity Analyst | Wells Fargo Securities, LLC
Arthur J. Gallagher & Co. (AJG)
Overweight
Price: $229.00/Price Target: $237.00
Market Cap: $49,350 MM
Note: Pricing as of 09/13/2023

Highlights Of Guidance
Organic Growth - Brokerage Should Approach 9% in 2023; Range of 7-9% For 2024
AJG's outlook for Brokerage organic growth largely unchanged from its prior view: In its Brokerage
segment, AJG continues to expect organic growth to be 9% in the Q3, 8% in the Q4 (9% excluding the 
ASC 606 adjustment that boosted organic last Q4) and towards the upper end of its 8-9% guidance 
range for the full year. Gallagher's organic growth excludes fiduciary investment income (MMC and 
WTW are the two brokers that include fiduciary investment income within organic revenue growth). 
The company also anticipates that market conditions in 2024 will be similar to what is being seen in 
2023, and provided 7-9% organic growth in 2024 as a good starting point.
Looking at Q3 Brokerage organic growth by line: In Exhibit 1 below we show Q3 organic growth 
expectations by business with Gallagher looking for 9% in U.S. Retail, low double-digits in International 
Retail, 8% in Wholesale (which will be impacted by $2-4 million lower contingents due to the Hawaii 
wildfires), in the low-teens in London Specialty and Reinsurance, and 7% in Employee Benefits (which 
is an improvement from 2% in Q2, or 5% when adjusting for a three-point headwind from a larger life 
product transaction last Q2).
2024 Brokerage vision: When thinking about 2024 Brokerage organic growth Gallagher referenced 
7-9% as a good starting point (this was also the company's outlook to start 2023) with no business 
expected to perform materially different from this year. A couple of exceptions were M&A/transaction 
oriented business (as they said they could see some strength in IPOs from the low levels this year), 
D&O is starting to bottom, and medical inflation could potentially impact workers' compensation.
Risk Management organic a bit better: In Risk Management the organic outlook was more optimistic. 
AJG expects Q3 organic of 15-16% in the Q3 (up from 14% on its Q2 call), 12% in the Q4 (up from 
10% on its Q2 call), and around 15% for FY 2023 (up from around 13% on its Q2 call).
Exhibit 1 - Organic Growth by Quarter and Year
Segment 2020 Q1 Q2 Q3 Q4 2021 Q1 Q2 Q3 Q4 2022 Q1 Q2 Q3E Q4E 2023E 2024E
U.S. Retail 5% 8% 10% 13% 11% 11% 9% 8% 7.0% 13% around 9%
International Retail - - 6% 10% low-double digits
U.K 7%+ 9%+ 9%+ 12% 14% 8% 15% 17% more than 7% 11%
Australia & New Zealand 3% 6%+ 8%+ Nearly 10% 11%+ 9% 12% 10% 10%+
Canada 13% Nearly 10% 13%+ 12%+ 14%+ 13% 9% 6% 6%
U.K. Specialty 17% 19%
Ghallagher Re 12% 11%
Wholesale 6% 12% 16% 15% 10% 8% 9% Above 9% nearly 8% 10% ~8%
Benefits 2% 4% 5% 7% 7%+ ~9% ~3% 3% nearly 7% about 2% around 7%
Total Brokerage 3% 6% 7% 9% 11% 8% 9.6% 10.8% 7.8% 11.0% ~9.7% 9.1% 9.7% 9.0% 8.0% Pushing 9% Initial of 7-9%
 Adjusted 13.0% Close to 9%
Risk Management -3% 1% 20% 16.5% 13% 12% 15.2% 10% 12.2% 15.6% 13.6% 14.3% 18.1% 15-16% around 12% Around 15%
*Benefits business benefited from a one-off large life insurance funding product sale in Q3 2020. Excluding this, Q3 2021 organic would have been ~10%
low-teens 
combined
Source: Company reports and Wells Fargo Securities, LLC
Margin View Unchanged, A Touch Higher In Risk Management
Consistent margin view as well: Brokerage margin guidance is unchanged and should expand by 
30-40 basis points for FY 2023 including Buck and 70-90 basis points excluding Buck with 40 basis 
points of expansion in Q3 and a bit above 50 basis points in Q4. Risk Management margins should be 
about 20% in Q3 and Q4 (prior guide was 19.5%) and around 19.5% for the full year.
Other Guided Items - Slightly Larger FX Hit And Some Modest Corporate Adjustments
FX changes: The biggest change within the CFO commentary and financial discussion is the larger FX
hit the company is now looking for, with FX expected to negatively impact 2023 EPS by $0.06 (from 
$0.04 previously) with a negative $0.01 in Q3 (from very little impact) and a positive $0.01 in Q4 
(from a positive $0.02).

[gfp]

Brown & Brown Investor Day yesterday -

https://investor.bbinsurance.com/events/event-details/brown-brown-inc-2023-investor-day

[Spekulatius]

On 9/12/2023 at 1:35 PM, dealraker said:

It is as it has always been for WTW.  Willis was so-so as to performance, they acquired broker Hilb, Rogal, Hamilton which itself was a so-so, then Towers was at times pretty so-so.  So it is as it will be - as Wells analysts say, "The same ole Willis."  

I did not sell WTW because it is underperforming. That was clear to me from the get go. I’m sold it because it was a different business than I thought it was when I bought it. Specifically, I did not quite grasp that some of WTW business (Transact) are much less FCF generative than the  brokerage business. I also think that Management is working towards KPI’s that are not likely to generate that much shareholder value. My lightbulb went off when I read the latest VIC comments, specifically regarding the Transact business, the last CC transcript and the summary listed by @dealraker from Wells Fargo.

 

It is one thing to buy a business that is temporarily underperforming and think can be fixed, but another where the business is really a different one than you think it is. 

Edited February 29 by Spekulatius

[dwy000]

On 9/15/2023 at 6:28 AM, gfp said:

Brown & Brown Investor Day yesterday -

https://investor.bbinsurance.com/events/event-details/brown-brown-inc-2023-investor-day

Slide 15 is the best one in the deck. It underpins just how strong the entire industry is across the board.  BRO is slightly better, but just having a position in the peer group puts you WAY ahead of the market. 

[dealraker]

2 hours ago, Spekulatius said:

I einst sell WTW because it is underperforming. That was clear to me from the get go. I’m sold it because it was a different business than I thought it was when I bought it. Specifically, I did not quite grasp that some of WTW business (Transact) are much less FCF generative than the  brokerage business. I also think that Management is working towards KPI’s that are not likely to generate that much shareholder value. My lightbulb went off when I read the latest VIC comments, specifically regarding the Transact business, the last CC transcript and the summary listed by @dealraker from Wells Fargo.

 

It is one thing to buy a business that is temporarily underperforming and think can be fixed, but another where the business is really a different one than you think it is. 

Yep.

[jouni1]

On 9/8/2023 at 7:44 PM, dealraker said:

Can't wait for the BRP discussion.  I've owned all the brokers since 1994 but AJG is 10 times larger than any of the others in size with BRO second.  I bought some BRP in the high teens on a downturn and recently addd in the $22-23 range.  But I'm simply using Wells Fargo's analysis.

Same. BRP looks really interesting to me. The debt situation adds enough hair on it to keep the valuation in check. With good execution BRP looks like it could be a great long term hold.

[dealraker]

Wells on BRO.  Again I'll repeat that I post a brokerage view, in this case Wells, because for a long time (decades) I have found Wells coverage of the ins brokers to be almost perfect...no kidding!  This is opposed to Morningstar for instance, they under-rate the brokers at times by as much as 40% and it absolutely never changes, they simply do not get it!  Personally I do not need these reports, but I do enjoy reading them.  I have my very strong beliefs about this bunch, since 1994.

 

Insurance Brokers
Brown & Brown, Inc. (BRO)
BRO: No Forward Guidance Provided; Investor Day Takes
Our Call
BRO hosted an investor day (presentation) where the company dived into its business 
segments, talent, technology, and highlighted its culture. BRO shares were little changed 
out of the investor day as the company did not offer any financial guidance.
Initial Thoughts
No financial guidance: Little in the way of financial guidance was provided (BRO does 
not typically provide guidance). BRO flagged that their margins should fall in the 31-35% 
range, and it does not feel very strongly about switching to cash EPS (BRO and MMC are 
the two brokers that do not report cash EPS). Instead BRO geared investors to focusing 
on cash flow conversion and they are expecting ~$1 billion of operating cash flow, which 
they expect to continue to grow from here.
Economic thoughts: BRO did not want to provide a forward view on the economy but 
pointed to a mixed picture. Some of their clients are full steam ahead and others want 
to hold tight on equipment spend given uncertainty about the economy. BRO did not 
provide an organic growth outlook, but did say that growth within its international 
business is about in-line with its other segment. Lastly, BRO thinks they have the 
management team in place that could double the size of the company.
Bullish on E&S, should benefit Nat Programs and Wholesale: BRO sees a lot of E&S 
business coming from California, coastal Carolinas and Florida, which they do not see 
changing. They have the ability to be selective with property given the influx of business 
flow (and also said they are not over-exposed to property in their wholesale book). With 
casualty, they do not see public entity lines going back to the admitted market, but could 
see other casualty lines returning but at a slower pace.

Leverage and other. BRO expects their gross leverage to be in a 2.7-2.9x range by the 
end of 2023. Their leverage target is 0-2.5x on a net basis and 0-3x on a gross basis. They 
have $500 million of debt that comes due next year that they could choose to payoff 
in full, in part or reissue depending on where rates are. For deals, BRO likes to pay with 
cash and not with stock. BRO also highlighted the level of employee ownership (with 
employees owning 21% of the company).
Equity Analyst(s)
Elyse Greenspan, CFA
Equity Analyst | Wells Fargo Securities, LLC
Hristian Getsov
Associate Equity Analyst | Wells Fargo Securities, LLC
Matthew Byrnes, CFA
Associate Equity Analyst | Wells Fargo Securities, LLC
Wes Carmichael, CFA
Equity Analyst | Wells Fargo Securities, LLC
Brown & Brown, Inc. (BRO)
Equal Weight
Price: $73.30/Price Target: $70.00
Market Cap: $20,789 MM
Note: Pricing as of 09/14/2023

BRO pointed to slight margin improvement in FY 2023 and has seen good organic growth to start the year (driven by strength in its 
National Programs business). For its multiple to expand, we believe there would need to be: (1) steady organic growth that consistently 
beats its peers, (2) core margin improvement for the company, and (3) the completion of the integration of its three new larger deals 
(which is expected to take 18-24 months). We rate BRO's shares Equal Weight.
Target Price Valuation for BRO: $70.00 from NC
Our price target of $70 is based on a 21x multiple of our adjusted cash EPS estimate (which excludes intangibles) or around 24x our
projected 2024E EPS estimate. The 24x time multiple is between its 10-Year average and peak multiples, which we believe is fair given the 
good organic growth and margin environment.
Risks to Our Price Target and Rating for BRO
Risks include tough economic conditions, which would pressure organic growth, a slowdown and leveling off of the P&C rating 
improvement, and the completion and successful integration of its recent large international acquisitions. Risks to the upside include 
organic growth and its margins coming in better than expected, as well as completing the integration of its large deals quicker than they 

[longterminvestor]

BRP - T. Baldwin's words "BRP Alchemy, where one plus one ultimately enables something more than two" - lets dive in.  

 

- The C-Suite is OBSESSED with Adjusted EBITDA.  Almost odd how they are amazed with themselves on how good their numbers are.  You will catch them saying EBITDA a ton without the "adjusted" coming first which shows they are almost forgetting their numbers are filled with adjustments.  The use of metrics and formulas is almost like management knows investors screen the stock based on certain metrics and they do whatever they can to hit those metrics.  I am not saying the numbers are false, they are just adjusted like CRAZY.  

- To grow this fast, debt is the only way.  $1.331B of floating debt comes due in 2027.  Management got terms in kindest credit market in a generation.  Props to them for seizing the moment (better to be lucky than good), lets see how that plays out when they have to replace that debt.  

-Regarding the moment in time, its almost as if Baldwin saw this confluence of insurance brokerage becoming a fad and capitalized on cheap debt, huge investor interest in brokers, and pounced on the opportunity to do a public offering.  100% credit goes to him for seeing that opportunity, really well done, however it all inures to him and his cohorts benefit, not shareholders.  

-Everything in the C-Suite just looks cozy.  They even have a client as an investor in the operating LLC (The Villages - retirement community in central FL).  The owners of that co are all decedents of the original developers of the Villages (moms, brothers, daughters, ect).  Just weird to me.  Its all disclosed, just seems, well, cozy.  

- Dual class stock.  Buying a share of Class A BRP gets you a piece of the PubCo that has the operating LLC inside where the C-Suite holds all the marbles.  Class B Shares are what the Baldwins own, not you.  The structure is set up so Mr. Lowry Baldwin has ultimate say on the business and shareholders do not.  All the managers have signed an agreement to vote with L. Baldwin.  

- Tax Receivable Agreement (TRA).  Didn't know much about these however the structure exists for Up-C IPO's.  Other businesses with this structure are Shake Shack, Interactive Brokers, Goosehead Insurance and Rocket Mortgage.  The TRA gives any tax savings the business enjoys back to the founders at a split of 85%. In fact, there is a financial incentive for management to continue losing money because the future net operating loss carryforwards increase the payment into the TRA.  Did not do the math (mostly cause I would fail miserably at calculations) however its gotta be in the $100's of millions in future payments to founders through the TRA structure.    

- Any founder whose business is in a sector that trades on above the line EBITDA multiples with reckless abandon for net income LOVES the TRA because with adjustments, the future payments are not apart of the models analyst build.  When market trades the business on EBITDA (and in case of BRP, its "Adjusted EBITDA - never forget that), the TRA will not be accounted for and yet its a huge drag on profitability.  

- Wake up, BRP loses money on a GAAP basis.  Insurance Broker business model is SO GOOD that investor community ignores the fact that BRP has not made money on GAAP basis since inception.  This stems from the acquisitions and meteoric revenue growth.  Just find it difficult to put out to shareholder community words like "Continuing track record of exceptional operation and financial execution" when the financials are FILLED WITH ADJUSTMENTS.  Here's another one, "Investing to drive efficiencies and sustainable long-term profitable growth with a disciplined, return-focused capital allocation strategy".  That's just not accurate.  There has been no financial return in the business, all the money is going out, maybe in the return is in stock returns but not the operating business itself.  

-Acquisitions have not slowed, they have stopped.  Management knows they have to get balance sheet ready for what's coming.  I view that as a positive but if there is some big announcement on acquisition, look at the debt.  And with regards to acquisitions, BRP historically has OVERPAID for the business's they bought.  They are not disciplined with their poker chips, they just put them all on red and spin the wheel.  

-Interest Rate Cap Purchases.  All the debt is floating so they buy hedges at an expense to cap the interest rate hike risk.  This is just a scary thought again because these costs are not included in the "Adjusted EBITDA" numbers management touts from the roof tops however they are real expenses to the business.  

-Downplaying the rate environment (hard market) as a function the organic growth.  Cringeworthy to hear coming out of the CEO's mouth because if you are a broker in the US, a huge part of organic growth is coming from the increases in rate.  CEO just dodges questions because he wants investors to believe the organic is coming from the business, not from rate.  T. Baldwin quote from Investor Day Nov 2022, "if you look at the 28 percent organic growth, we delivered in the third quarter of this year, only 2.7 percent of that came from a combined tailwind of rate and exposure".  In this hard market, I find that almost impossible to believe.  Side note, to have the figure down to a fraction of a decimal is weird, it not an easy task to carve out the numbers on organic/exposure basis/rate with millions of policies and the way data is entered into systems - they could be doing something incredible there with tech and tracking - if so good for them and it is incredible - I do not have any insight - I am gonna ask around tho - just find that number difficult to understand how its calculated.  Meaning if there is so much noise that goes into agency management systems, it would take an entire team of people just focused on that problem every quarter to get that number accurate to a percentage decimal point - and then you have audits, endorsements, and return premiums - its just not a number I am comfortable seeing disclosed in that manner.  My point is management is drinking too much of their own Koolaide and need to wake up.  

-Investor Day slides mix in premium with revenue to almost make things look bigger than they are.  Never forget the words of total shark broker who told me, "We can not spend premium, we can only spend revenue" meaning don't talk about the big $100K premium you just bound, talk about the $10K in revenue that will go to payroll, rent and expenses - small time agencies talk about premium - pros talk rev.  

-Organic Growth is staggeringly high and management is adamant this will continue.  Lets see.   Will be tough to sift through the slide decks of the future with a huge amount of footnotes, *, and symbols next to organic growth numbers.  The way revenue is earned allows management to play with that, as long as its disclosed seems to be BRP's north star.

-Medicare unit is not a great business.  I believe its a top line money grab to boost revenue because management needs growth for metrics.  Medicare revenue is not worth the same as a middle market revenue yet there is no discount in the business for the Medicare rev.  Little deeper dive, one $100,000 revenue account ($1M premium) that has been on books for 5 yrs is worth a TON more than $100,000 in Medicare revenue.

-Early acquisitions were not 100% buy outs, they bought only portions of the business.  Not a fan of this in an "elevator asset" business where the largest asset being purchased can walk out the door.  Very different when buying a pipeline or manufacturing business where the assets are static and yeah, you need people to run the assets, but there's a bunch of invested capital that can not leave the business.  This is not true in brokerage, that is just bad capital allocation to me for the long haul however if you are trying to make a quick buck - sure does seem smart.  

- Dilution: 60,093,228 Class A shares outstanding as of June 30, 2023 vs 33,098,356 Class A Shares outstanding as of Sept 30, 2020.  OUCH!

-Founder Lowry Baldwin has a history of starting, selling, leaving and doing it again.  That is not the kind of founder I want to partner with when one sells the business, walks in the next day to tell their new found owner who wrote a huge check and say "when my non-compete is over, I am outa here".  Totally fine to do, live up to contractual obligations he did, however that takes a certain kind of person that I am not a fan of when there are other Chairmen/Chairwomen who want to paint a masterpiece and build forever.  

 

For those believers, here is some of the good:

- MGA of the Future is definitely the best business they own, followed by Middle Market, and then Personal Lines.  MGA of the Future is probably the gem inside this business. 

- The growth is mind numbing, it took Brown & Brown 70 years to get to $1B in revenue, BRP did it in 11years.

- Goosehead vs BRP personal Lines.  I believe the BRP personal lines business is larger in revenue that the entire Goosehead business.  So if you think Goosehead is properly priced (I do not), then BRP's personal lines business is undervalued inside BRP.  

 

Closing:

Just seems like founding family is running this business for the benefit of themselves and not shareholders.  Ultimately, Insurance Brokerage is such a GREAT business it is idiot proof.  Baldwins are not idiots, actually quite the contrary - they have gotten rich being smarter than everyone else and their timing is incredible.  Hats off to them!  If you were an early seller of your business to BRP and got units in the LLC, you did extremely well (and participated in the TRA) however shareholders from IPO on are just way behind the curve in terms of alignment. 

 

Here are their words taken from 10K (Holders being the Pre-IPO Members are "Holders): "Furthermore, Holders’ interests may not be fully aligned with yours, which could lead to actions that are not in your best interests. Because the Holders hold a majority of their economic interests in our business through BRP rather than through BRP Group, they may have conflicting interests with holders of shares of our Class A common stock."

[jouni1]

Wow that's a bit more hair than I was expecting. Maybe it's in the too hard pile then. Companies like this where the management's and shareholders' interests are not lined could go either way.

 

Thanks for all your hard work in this thread @longterminvestor, I've learned a ton about these businesses.

[dealraker]

18 hours ago, longterminvestor said:

BRP - T. Baldwin's words "BRP Alchemy, where one plus one ultimately enables something more than two" - lets dive in.  

 

- The C-Suite is OBSESSED with Adjusted EBITDA.  Almost odd how they are amazed with themselves on how good their numbers are.  You will catch them saying EBITDA a ton without the "adjusted" coming first which shows they are almost forgetting their numbers are filled with adjustments.  The use of metrics and formulas is almost like management knows investors screen the stock based on certain metrics and they do whatever they can to hit those metrics.  I am not saying the numbers are false, they are just adjusted like CRAZY.  

- To grow this fast, debt is the only way.  $1.331B of floating debt comes due in 2027.  Management got terms in kindest credit market in a generation.  Props to them for seizing the moment (better to be lucky than good), lets see how that plays out when they have to replace that debt.  

-Regarding the moment in time, its almost as if Baldwin saw this confluence of insurance brokerage becoming a fad and capitalized on cheap debt, huge investor interest in brokers, and pounced on the opportunity to do a public offering.  100% credit goes to him for seeing that opportunity, really well done, however it all inures to him and his cohorts benefit, not shareholders.  

-Everything in the C-Suite just looks cozy.  They even have a client as an investor in the operating LLC (The Villages - retirement community in central FL).  The owners of that co are all decedents of the original developers of the Villages (moms, brothers, daughters, ect).  Just weird to me.  Its all disclosed, just seems, well, cozy.  

- Dual class stock.  Buying a share of Class A BRP gets you a piece of the PubCo that has the operating LLC inside where the C-Suite holds all the marbles.  Class B Shares are what the Baldwins own, not you.  The structure is set up so Mr. Lowry Baldwin has ultimate say on the business and shareholders do not.  All the managers have signed an agreement to vote with L. Baldwin.  

- Tax Receivable Agreement (TRA).  Didn't know much about these however the structure exists for Up-C IPO's.  Other businesses with this structure are Shake Shack, Interactive Brokers, Goosehead Insurance and Rocket Mortgage.  The TRA gives any tax savings the business enjoys back to the founders at a split of 85%. In fact, there is a financial incentive for management to continue losing money because the future net operating loss carryforwards increase the payment into the TRA.  Did not do the math (mostly cause I would fail miserably at calculations) however its gotta be in the $100's of millions in future payments to founders through the TRA structure.    

- Any founder whose business is in a sector that trades on above the line EBITDA multiples with reckless abandon for net income LOVES the TRA because with adjustments, the future payments are not apart of the models analyst build.  When market trades the business on EBITDA (and in case of BRP, its "Adjusted EBITDA - never forget that), the TRA will not be accounted for and yet its a huge drag on profitability.  

- Wake up, BRP loses money on a GAAP basis.  Insurance Broker business model is SO GOOD that investor community ignores the fact that BRP has not made money on GAAP basis since inception.  This stems from the acquisitions and meteoric revenue growth.  Just find it difficult to put out to shareholder community words like "Continuing track record of exceptional operation and financial execution" when the financials are FILLED WITH ADJUSTMENTS.  Here's another one, "Investing to drive efficiencies and sustainable long-term profitable growth with a disciplined, return-focused capital allocation strategy".  That's just not accurate.  There has been no financial return in the business, all the money is going out, maybe in the return is in stock returns but not the operating business itself.  

-Acquisitions have not slowed, they have stopped.  Management knows they have to get balance sheet ready for what's coming.  I view that as a positive but if there is some big announcement on acquisition, look at the debt.  And with regards to acquisitions, BRP historically has OVERPAID for the business's they bought.  They are not disciplined with their poker chips, they just put them all on red and spin the wheel.  

-Interest Rate Cap Purchases.  All the debt is floating so they buy hedges at an expense to cap the interest rate hike risk.  This is just a scary thought again because these costs are not included in the "Adjusted EBITDA" numbers management touts from the roof tops however they are real expenses to the business.  

-Downplaying the rate environment (hard market) as a function the organic growth.  Cringeworthy to hear coming out of the CEO's mouth because if you are a broker in the US, a huge part of organic growth is coming from the increases in rate.  CEO just dodges questions because he wants investors to believe the organic is coming from the business, not from rate.  T. Baldwin quote from Investor Day Nov 2022, "if you look at the 28 percent organic growth, we delivered in the third quarter of this year, only 2.7 percent of that came from a combined tailwind of rate and exposure".  In this hard market, I find that almost impossible to believe.  Side note, to have the figure down to a fraction of a decimal is weird, it not an easy task to carve out the numbers on organic/exposure basis/rate with millions of policies and the way data is entered into systems - they could be doing something incredible there with tech and tracking - if so good for them and it is incredible - I do not have any insight - I am gonna ask around tho - just find that number difficult to understand how its calculated.  Meaning if there is so much noise that goes into agency management systems, it would take an entire team of people just focused on that problem every quarter to get that number accurate to a percentage decimal point - and then you have audits, endorsements, and return premiums - its just not a number I am comfortable seeing disclosed in that manner.  My point is management is drinking too much of their own Koolaide and need to wake up.  

-Investor Day slides mix in premium with revenue to almost make things look bigger than they are.  Never forget the words of total shark broker who told me, "We can not spend premium, we can only spend revenue" meaning don't talk about the big $100K premium you just bound, talk about the $10K in revenue that will go to payroll, rent and expenses - small time agencies talk about premium - pros talk rev.  

-Organic Growth is staggeringly high and management is adamant this will continue.  Lets see.   Will be tough to sift through the slide decks of the future with a huge amount of footnotes, *, and symbols next to organic growth numbers.  The way revenue is earned allows management to play with that, as long as its disclosed seems to be BRP's north star.

-Medicare unit is not a great business.  I believe its a top line money grab to boost revenue because management needs growth for metrics.  Medicare revenue is not worth the same as a middle market revenue yet there is no discount in the business for the Medicare rev.  Little deeper dive, one $100,000 revenue account ($1M premium) that has been on books for 5 yrs is worth a TON more than $100,000 in Medicare revenue.

-Early acquisitions were not 100% buy outs, they bought only portions of the business.  Not a fan of this in an "elevator asset" business where the largest asset being purchased can walk out the door.  Very different when buying a pipeline or manufacturing business where the assets are static and yeah, you need people to run the assets, but there's a bunch of invested capital that can not leave the business.  This is not true in brokerage, that is just bad capital allocation to me for the long haul however if you are trying to make a quick buck - sure does seem smart.  

- Dilution: 60,093,228 Class A shares outstanding as of June 30, 2023 vs 33,098,356 Class A Shares outstanding as of Sept 30, 2020.  OUCH!

-Founder Lowry Baldwin has a history of starting, selling, leaving and doing it again.  That is not the kind of founder I want to partner with when one sells the business, walks in the next day to tell their new found owner who wrote a huge check and say "when my non-compete is over, I am outa here".  Totally fine to do, live up to contractual obligations he did, however that takes a certain kind of person that I am not a fan of when there are other Chairmen/Chairwomen who want to paint a masterpiece and build forever.  

 

For those believers, here is some of the good:

- MGA of the Future is definitely the best business they own, followed by Middle Market, and then Personal Lines.  MGA of the Future is probably the gem inside this business. 

- The growth is mind numbing, it took Brown & Brown 70 years to get to $1B in revenue, BRP did it in 11years.

- Goosehead vs BRP personal Lines.  I believe the BRP personal lines business is larger in revenue that the entire Goosehead business.  So if you think Goosehead is properly priced (I do not), then BRP's personal lines business is undervalued inside BRP.  

 

Closing:

Just seems like founding family is running this business for the benefit of themselves and not shareholders.  Ultimately, Insurance Brokerage is such a GREAT business it is idiot proof.  Baldwins are not idiots, actually quite the contrary - they have gotten rich being smarter than everyone else and their timing is incredible.  Hats off to them!  If you were an early seller of your business to BRP and got units in the LLC, you did extremely well (and participated in the TRA) however shareholders from IPO on are just way behind the curve in terms of alignment. 

 

Here are their words taken from 10K (Holders being the Pre-IPO Members are "Holders): "Furthermore, Holders’ interests may not be fully aligned with yours, which could lead to actions that are not in your best interests. Because the Holders hold a majority of their economic interests in our business through BRP rather than through BRP Group, they may have conflicting interests with holders of shares of our Class A common stock."

I will do the very rare sell-it-all today.  Small profit somehow and/but want nothing to do with this.  Thanks longterminvestor for doing this work.  

[Spekulatius]

@longterminvestor thank you for your incredible work. I was looking at BRP too and went into the too hard pile. I simply could not understand the financial statements and it is obvious that there is not much FCF, but the exact reasons (other than debt service costs) were not clear to me.

 

I have no a much clearer picture of what exactly is going on there without having to do any work.

[longterminvestor]

Did not mention in write up, recent (early-mid September) insider sales are not good to see as well - maybe that's my bias creep.  I don't think this is a short or wish ill will on them, just not a business I can partner with.  Fanciful structures are more and more prevalent in todays world, I guess as long as its disclosed right?  

[dealraker]

At some point longterminvestor the Goosehead thing might stimulate your interest as to its extremes I think.