Operator:

Good morning, and welcome to the Brown & Brown Inc. Second 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 second quarter, 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 second quarter 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. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbinsurance.com by clicking on the Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Andy Watts:

Thank you, Powell. Good morning, everyone. We're over on Slide 7. I'll review our financial results in additional detail. When we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. We delivered total revenues of $1,178 million, growing 12.5% as compared to the second quarter in the prior year. Income before income taxes increased by 20% and EBITDAC grew by 17.3%. Our EBITDAC margin was 35.7%, expanding by an impressive 150 basis points over the second quarter of 2023. The effective tax rate for the quarter was consistent with the prior year and diluted net income per share increased by 17.7% to $0.93. Our weighted-average shares outstanding increased slightly as compared to the last year, as we continue to prioritize paying down our floating rate debt. Lastly, our dividends per share paid increased by 13% as compared to the second quarter of last year. Overall, it was a very strong quarter. We're moving over to Slide 8. The retail segment grew total revenues 9.3% with organic growth of 7.3%. The difference between total revenues and organic revenue was driven by acquisition activity over the past year, with a partial offset due to lower contingent commissions of approximately $7 million in the second quarter of this year. EBITDAC grew slightly slower than total revenues, due to lower contingent commissions and to a lesser extent, higher non-cash stock-based compensation. Excluding the impact of lower contingent commissions, the margins expanded nicely due to the leveraging of our expense base. We're on Slide 9. Programs had another strong quarter with total revenues increasing 15.8%, organic growth of 15.4%. Organic growth was positively impacted by approximately $5 million due to the finalization of a non-recurring growth bonus for one of our programs. The incremental growth in total revenues in excess of organic was driven primarily by increased contingent commissions, which resulted from our strong underwriting performance and a quiet hurricane season in 2023. For the quarter, we also recognized approximately $3 million related to the finalization of a contingent commission calculation for 2023. Our EBITDAC margin expanded by 220 basis points to 49.6%, driven by higher contingents and the leveraging of our expense base as well as the sale of certain claims processing businesses in the fourth quarter of 2023. We're over on Slide 10. Our wholesale brokerage segment delivered another great quarter with total revenues increasing 14.4% and organic growth of 11%. The incremental expansion in total revenues in excess of organic was driven by acquisitions completed over the last 12 months. Our EBITDAC margin increased by 240 basis points to 33.3%, primarily due to certain non-recurring costs in the prior year and leveraging our expense base. We've got a few other comments regarding our capital structure, cash generation, and outlook. In the second quarter, we issued $600 million of 10 year senior notes in preparation for the $500 million of notes that will mature in September of this year. We had excellent execution and the market responded well to our credit profile, and longer-term bias towards lower leverage. These new senior notes have a coupon rate of 5.65%. The remaining proceeds of $100 million were used to pay down a portion of an outstanding floating-rate term loan. Additionally, we paid down over $260 million of floating rate debt in the quarter. For the first six months of this year, we had strong cash generation of over $370 million, even when taking into consideration the previously mentioned timing of paying federal taxes in the first quarter of this year related to 2023. Lastly, regarding margins for the full year, we had previously provided guidance indicating that we expected margins to be up slightly for the full year. With our strong financial performance for the first half of the year, we are now expecting 50 to 100 basis of adjusted EBITDAC margin improvement for 2024. This guidance is dependent on the outcome of storm season and as a result, this range may adjust up or down. With that, let me turn it back over to Powell for closing comments.

Operator:

[Operator Instructions] Our first question comes from the line of Mark Hughes with Truist Securities. Your line is now open.

Powell Brown:

Good morning.

Powell Brown:

So good morning, Mark. And unfortunately, the answer is no. We don't do that, but I will give you a color around what you're talking about, and I appreciate your goal to get us to open up on that. But the way we look at it is this. Property in Q2 was under pressure, particularly as we got towards the 7/1 date. And so pretty much, I'm not going to say all, but most accounts were seeing rate decreases except if you had really bad losses and even poor construction, we're getting some rate decreases. But - so if you've got a lot of losses, it might be flat or it might be up a little bit. So what I would tell you is this. This, what we're seeing today, is not surprising to us. We thought or at least I can say I thought, and I think Andy and I agree on this, we thought this was going to happen last year. And so there was - last year was again another tough rate year for customers. And so the rates in property are some of the highest they've been and forever. And so people like the return payoffs or the projected return payoffs. So they're coming in. And so depending on what the storm season does, that will dictate on what continues to happen in pricing in Q3 and beyond.

Mark Hughes:

Understood. And, Powell, you said casualty pricing you expect to continue to move higher. Is there anything you're seeing in the marketplace? There have been some reserve issues, anything that suggests real meaningful distress across the industry and therefore a change in underwriting approach or is this more of a continuation of the prior trend gradual move higher?

Mark Hughes:

Very good. Thank you.

Andy Watts:

Thanks, Mark.

Michael Zaremski:

Hi, great. Good morning.

Michael Zaremski:

I guess three quarters double-digit last six, it's pretty impressive, but it kind of does make a trend. So I guess just along the lines of the marketplace discussion we've had so far. If there's upwards pressure on levels of casualty, which are material, I would assume, within your portfolio and then you gave us good color on property might decel if depending on CAT season. But is there anything else you want to call out that's kind of just unusual in the very near-term that's really driving your excellent organic versus kind of the marketplace? And then you also mentioned that there's more shopping, so maybe more new business wins, which might not be sustainable. Anything else you want to call out that we should be thinking about the back of our heads about that just might not be sustainable in the near-term?

Michael Zaremski:

Okay. Just obviously clearly great results, just seeing if I can get any other color. Now I guess lastly, I'm looking at the transcript. I think you said you're seeing more rate decline in open brokerage versus binding authority within the wholesale segment, if I understood that correctly. And if I am right, any further color there that's worth sharing?

Andy Watts:

And then, Mike, keep in perspective that generally the second quarter is one of the heavier ones for property.

Michael Zaremski:

Okay. Thank you very much.

Powell Brown:

CAT property. Let me clarify CAT property.

Elyse Greenspan:

Hi, thanks. Good morning. My first question is on the guidance, the 50 to 100 basis points of margin expansion. Does where you fall within that range just depend on if the wind blows or not and whether you see losses under your captive?

Elyse Greenspan:

Okay. But then I guess, right, so the 50 to 100 basis points, I mean, you guys were at 130 for the first half of the year. So that does imply contraction in the back half. Is it - another way of asking this, is it just captive losses as well as some conservatism around contingents that kind of - and then I know you had that one-off, right, some of that - you do get the - you had one-off revenue, right, within the captive from the reinsurance last year. I'm just trying to understand the moving pieces and what that implies for the margin in the back half of the year.

Elyse Greenspan:

Okay, thanks. And then on programs, you guys have seen pretty consistent strong double-digit growth in that business. And I know you called off - you called out one growth initiative that modestly benefited the segment in the quarter. But as we think going forward, I know you guys don't like to guide on a segment level. So I'm not going to ask for a specific number, but how do you think about just overall just growth prospects of that business organically going forward?

Elyse Greenspan:

Yes. No, I mean, yes, I was pointing out the double-digit. That's helpful. That's helpful, Powell. Thanks for the color.

Powell Brown:

Thank you, Elyse.

Operator:

Our next question comes from the line of Yaron Kinar with Jefferies. Your line is now open.

Powell Brown:

Correct.

Yaron Kinar:

Okay. And then, Powell, I am curious, I want to circle back to your comment about pricing pressure in casualty being kind of the worst in your career. I was just - I guess that caught me off-guard a little bit and not that I don't recognize that there is pricing pressure mounting in casualty, but just looking back to, say, the 2018 through '20 years or even going back a bit further to maybe the early 2000s, late 1990s, you're seeing the current environment as even worse than that from a pricing perspective.

Yaron Kinar:

Got it. No, that's a helpful clarification. If I could sneak one in - one last one in. In programs, are the programs that are leading the growth in the segment, are those the same or pretty consistent largely or have you seen a shift in where the growth - the leaders of growth are coming from?

Yaron Kinar:

Great. Thank you very much.

Andy Watts:

Thank you.

Rob Cox:

Hi, thanks. Hi. So I think maybe last year you guys had highlighted taking or just giving up some commission on the property business to kind of offset some of the rapid price increases your clients were seeing maybe particularly in the Southeast. So I'm curious, did that sort of flip back the other way this year with Brown maybe seeing a larger commission percentage and improved retention now that we're on the other side of those large increases?

Andy Watts:

Yes, Rob, in this market, I guess, with your comment, don't take it like we're out of the woods and like we're in a completely different level of the cycle. I mean, rates have been going up for five or six years. This is kind of the first part of the year when you start to see some declines, but you're not seeing 25s or 40s or anything like that. And it's not like we've been doing this for a few years. So customers right now are saying, in many cases, excellent, I can either get some more limits or great, I'll take it to my P&L just because they've taken so much pain over the last few years that, so we're very early in a cycle, which we'll see what happens with storm season.

Powell Brown:

I think we just continue to see loss activity. I'm not even talking just solely about casualty, but we see loss activity impacting profit-sharing and contingencies. So I think that it is a kind of a universal kind of across-the-board phenomenon, it's not one line of business.

Rob Cox:

Okay. Thank you.

Andy Watts:

Thank you.

Sidney Schultz:

Yes. Hi, good morning. This is Sid on for Greg. Just staying with the contingent commissions, I understand it's a smaller number, but just looking at the retail segment, they were down by over 50% year-over-year. So can you just remind us if there was some sort of one-time benefit to last year's number or anything that could bleed in the third or fourth quarter from that decline?

Sidney Schultz:

Okay. And then just as a follow-up on the investment income line item, should we just think of that as being interest rate dependent moving forward? And is there any seasonality we should consider there moving forward?

Sidney Schultz:

All right. Thank you.

Operator:

Our next question comes from the line of Grace Carter with Bank of America. Your line is now open.

Powell Brown:

Good morning.

Andy Watts:

Good morning, Grace. I guess from what we can see right now, we don't see a significant bleed over. Obviously, anything is possible at this stage, but feel like it's probably more isolated in retail at this stage.

Powell Brown:

So good morning, Grace. And we don't give technically organic growth guidance. And, yes, you are correct in the range that we have stated and we are not modifying over a long period of time our statements. I think that we continue to execute our plan really well right now. That's number one. Number two, from a standpoint of organic growth, the growth that we are seeing here domestically in our businesses is very similar the growth that we're seeing in our international businesses. So we're pleased with that as well. So what I would say is this. We're not changing our statements on those commentaries. I think that we're executing really well right now. We feel really good about our business. I will acknowledge that we get a little lift on some of that rate pressure, which was, let's say, property for a period of time. But I think that the future relative to organic growth is positive, very positive.

Operator:

Thank you. Our next question comes from the line of Meyer Shields with Keefe, Bruyette & Woods. Your line is now open.

Powell Brown:

Yes, sure. Good morning, Meyer. This is how I would - let me sort of take you back slightly farther than that, let's go back 10 years. And in 10 years ago, we would - generally speaking, we were in a - we were a small and middle-market insurance broker and we still have a lot of that business. But today and we consciously, some of that consciously, some of it, it's better to be lucky than good, we have bought and built capabilities that enable us to be very successful in the upper-middle market and large accounts area. But let's just say upper-middle market for a moment, and specifically in employee benefit. So 10 years ago, were we going after a 5,000 and 10,000 life group? The answer is very limited. Today, we're going after those groups all the time. And so - and that is not just exclusive employee benefits. It could be on casualty, it could be a big property schedule, it could be D&O, it could be cyber, it could be surety, it could be any of these things. So - and then if you want to go back to your time frame, specifically, in the last five years, we have further enhanced and embellished those capabilities, but we're working better together as an organization. So you put increased capabilities with better collaboration, knowing that our teammates are the most important thing at Brown & Brown to be able to deliver that custom - those custom solutions for our customers, it's pretty powerful. And we're having a lot of fun, we're working hard, but we're having a lot of fun too.

Powell Brown:

I don't think it's manifesting itself now as opposed to a year ago. I think it was embedded in a year ago, which I think Andy was just acknowledging that it's not just casualty. And again, the more unusual verdicts that you see out there that get headlines that is - it is terrible, but it highlights some of that as it rolls through into the carrier's results, but it's not - that was going on last year and it was going on four years ago. So don't - let's not - let's be clear on that.

Powell Brown:

Thank you.

Mike Ward:

Thanks. Good morning. I was just wondering, following-up on some of the other questions, are you able to quantify at all the - just how much premium in programs is actually exposed to casualty or social inflation and how the underwriting margins have been trending?

Mike Ward:

Okay. And then on - maybe just on the captives. I was hoping you could refresh off on some of the economics with some of the changes with the quota-share captive recently. We were just - we were looking at the Q, I think you sold a stake in 1Q and then the written and earned premium spiked in 2Q. So just kind of curious if you have an outlook for that in the back half in terms of premiums and commissions or fee tailwinds.

Mike Ward:

Got it. Understood. Maybe can I squeeze just a backward looking non-guidance one, just give you opportunity to talk about the U.K. for a sec. I think you've said you - that has a similar growth profile as the U.S., but it looks like revenue accelerated in U.K. Just curious if you have been seeing any difference in the organic growth between the two.

Mike Ward:

Thank you so much, Powell.

Operator:

Thank you. Our last question is from the line of Scott Heleniak with RBC Capital Markets. Your line is now open.

Powell Brown:

Well, remember, just as a clarification, Scott, we don't give specific line guidance. So I have to - I want to be careful on how I say this. So I am very pleased with our property and casualty and our employee benefits capabilities at all sizes and shapes, both domestically and overseas. So let's start with that. Number two, my comment earlier was directed at our capabilities to go upmarket and the amount of new business that we are writing. I don't want to give you the impression that new business is more limited towards just employee benefits because it's not. We're writing those same size accounts in property and casualty every day as well. But what I'm saying is, our capabilities there have probably grown more because we were further ahead in property-casualty before we started, if that makes sense. And so we're - we - if you had asked me seven, eight years ago, you have a friend that has a manufacturing operation and it's got 12,000 employees, we may or may not have had all the capabilities to do that. Today, we are very, very capable, whether it's 200 employees, 2,000 employees, 20,000 employees or more. And so it's a great expanded capability and the people, a lot of the people that we are hiring like the way our system is built. So they might be leaving a firm where they've done large accounts, but it's more on a - this is how we do it. We sell one solution and you're coming to a business where it's a customized solution based on any and every customer. So we're excited about that opportunity, but it's not limited to, it is in addition to what we're already doing in P&C, because we got the same thing going on in P&C.

Powell Brown:

Yes. So first of all, we are seeing a lot of flow into the business. So not that we didn't before, but there's just a lot of activity, okay, that's the first thing. The second thing is the question you asked is absolutely the right question. And, yes, in limited instances, we are seeing that. And so what I mean by that is when the standard market comes back in, many times they are not riding the full limit of wind, they're writing a sub-limit, but it could be a big number. So for example, you could have a hotel, I'll make this up, in Texas, where it was - it's a superior construction, the whole deal and it's $500 million or $600 million of value and it used to be in the E&S market and a standard market could conceivably come in and write that ground-up, but would provide a $100 million wind limit. That would be an example of when you start - and that is not happening all over the place and is only happening when the construction is really good. So far more accounts are moving out of the E&S market - I'm sorry, out of standard into E&S than from E&S back to standard. But there are instances that I'm aware of that we saw this quarter that would be very similar to that maybe in different geographies, but the same concept. And so I think that there will be carriers that will be very strategic in the use of their CAT capacity. But remember, if you put up $100 million on a building, even if it's fire resistive, that's still hitting against your CAT. So it's a lot different than it was framed, but I'm just saying, it's still - that's a big number to come out of. So they may have written the account three years ago or two years ago, and it went into E&S and it's come back. That's how I see it.

Powell Brown:

Yes, absolutely.

Powell Brown:

Yes. Thank you very much, Shannon. Thank you all for joining us today. We're very pleased, as I said, about how we did for the quarter and the prospects going forward. Obviously, we watch very closely because there's a lot of really warm water in the Atlantic and the Gulf. So in the event a storm gets in there, it will probably supercharge it. But we don't know how that will play out until we talk to you again. But as it relates to, and kind of summarizing what Andy and I sort of said today, we feel really good about the business. We feel really good about the prospects and the opportunities we're talking to in the M&A space. We think that the market is changing as we've outlined today. I don't think the property market is going to crater in terms of pricing, but we could have continued downward pressure if there are no storms. And if there are storms, we could have all kinds of scenarios. We could have flattening, we could have upward pressure, we could have any of this stuff. So thank you all very much and we look forward to talking to you next quarter. Good day.

Operator:

Good morning, and welcome to Brown & Brown Inc.'s First Quarter Earnings Conference 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 in response to your questions, may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect their current views and with respect to future events, including those relating to the Company's anticipated financial results for the first quarter 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 first quarter and 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 in the Securities and Exchange Commission. Additional discussions 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 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 results or otherwise. In addition, these certain non-GAAP financial measures used in this conference call, a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures can be found in the Company's earnings press release or in the investor presentation for this call on the Company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I would now like to turn the call over to Powell Brown, President and Chief Executive Officer. You may begin, sir.

Andy Watts:

Great. Thank you, Powell. Good morning, everybody. We're over on Slide number 7. I'll review our financial results in additional detail. When we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis, which now reflect the previously announced exclusion of intangible asset amortization. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. We delivered total revenues of $1,258 million, growing 12.7% as compared to the first quarter in the prior year. Income before income taxes increased by 19.4% and EBITDAC grew by 17.1%. Our EBITDAC margin was 37%, expanding by an impressive 130 basis points over the first quarter of 2023. The effective tax rate for the quarter was down slightly from the prior year, with diluted net income per share increasing 18.8% from last year to $1.14. Our weighted average shares outstanding increased a little over 1% as we continue to prioritize paying down debt on a full year basis as this has a higher contribution to earnings per share, cash flow and shareholder value. Lastly, our dividends per share paid increased by 13% as compared to the first quarter of last year. Overall, it was a very strong quarter. We're on Slide number 8. The Retail segment grew total revenues by 10% with organic growth of 7.2%. The difference between total revenues and organic revenue was driven by acquisition activity over the past year. EBITDAC grew slightly slower than total revenues due primarily to higher non-cash stock-based compensation costs as well as lower contingent commissions. We're on Slide number 9. Programs had another strong quarter with total revenues growing 16.9% and organic growth of 11.8%. The incremental growth in total revenues in excess of organic was driven primarily by increased contingent commissions due to our strong underwriting performance and a quiet hurricane season in 2023. The growth in contingent commissions included approximately $7 million related to finalizing prior year estimates that we do not expect to recur in the first quarter of next year. Our EBITDAC margin expanded by 580 basis points to 42.3%, driven by the leveraging of our expense base, higher contingents and the sale of certain claims processing businesses in the fourth quarter of 2023. We're over on Slide number 10. Our Wholesale Brokerage segment delivered another great quarter with total revenue growth of 15.4% and organic growth of 10.8%. The incremental growth in total revenues in excess of organic was driven by higher contingent commissions and acquisitions completed over the last 12 months. Our EBITDAC margin increased by 150 basis points to 32.4% due to leveraging our expense base and higher contingent commissions. A few comments regarding cash generation and capital allocation. From a cash flow perspective, our first quarter is normally the lowest of the year. In addition, for this year, our cash flow from operations was impacted by paying two-quarters of federal income taxes for 2023 that were permitted to be deferred as part of Hurricane Idalia tax relief and the payment of income taxes associated with -- on the sale of certain businesses in the fourth quarter of last year. We're continuing to expect another strong year of cash generation and a conversion ratio of cash flow from operations to revenues in the range of 22% to 24%. Lastly, we ended the quarter with approximately $580 million of operating cash and are in a strong capital position. With that, let me turn it back over to Powell for closing comments.

Operator:

[Operator Instructions] Our first question comes from the line of Robert Cox with Goldman Sachs. Your line is now open.

Andy Watts:

Rob, it's Andy here. I think as we've talked about in the past, margins can move around in the segments by individual quarters. I think, overall, we're extremely pleased with the performance for the first quarter. There will probably be ups and downs of orders. And as an example, I know we've talked about in the past third quarter, we normally will budget for storms and a half. You never know how exactly that's going to turn out. So that kind of moves things back around. And then at least for this year, on the sale of some of those services businesses is, yes, year-over-year, we'll see an increase in the margin from that disposal.

Powell Brown:

So, Rob, what I would say is this, we -- I actually thought that we would be at this place a little sooner in the cycle than today. So, I thought we might have been here a year ago or somewhere between a year ago and today. So, what are you seeing, and let me describe that and then I'll answer your question, number one, remember, most buyers of insurance have what I call pricing fatigue? So, if you have gotten a price increase on your condo or your properties or whatever for the past four or five years, you're just over it. That's the first thing. The second thing is sometimes even though you do the very best you can as the broker, sometimes the client shoots the messenger because they're just so frustrated with the marketplace. Having said that, what you're finding today is people that wrote a $10 million primary are giving you $20 million or $25 million now, and that's bumping out several of those buffer layers. So, you're going to have downward pressure on the overall program. So, you have several scenarios that could occur. One, yes, you could buy more limits although my instinct would be because of the pricing fatigue, they would probably not buy more limits right now. Number two, they might be able to get slightly better terms and conditions, which would be good. And three, in the event that we don't have another storm this year sometime, that pricing pressure, downward, will continue. That said, and we've always said in E&S, in our wholesale business and in our Retail business, we actually write a lot of business when the market is going up and when the market is going down. Usually, you don't see as much in that market, the E&S market when the rates are flat, which they're relatively never flat. That's the answer, excuse me.

Gregory Peters:

So, I would like to -- Powell, in your comments, you talked about different rate movements and then you mentioned this two-thirds to one-third ratio. I guess I'm trying to reconcile the downward pressure moderating upward pressure in some of the lines of business. Can you give us a perspective on like how much of your total business is excess and surplus lines? How much is property? How much is excess casualty, just so we can sort of gauge moving pieces?

Andy Watts:

Greg, just on this, I mean, I know we've talked about it, we started last year going through a few different times. And then, we've been over on other calls. I think the reason why we mentioned a lot about diversification in the business is while we do write a lot of CAT property, we write a lot of non-CAT property. We write a lot of other lines. We're across multiple industries, geographies. So, we don't have this major concentration in any area, which we think is a really good thing for our business because if one thing could be up, something else could be down. It puts a nice balance across the organization.

Andy Watts:

Sure. Yes, no problem. What we had called out as you said about $7 million of the contingent commissions that we recorded in the first quarter were related to finalizing the estimates that we recorded last year. So, we would not expect to see that in Q1 of next year. So just keep that in mind for modeling purposes next year.

Michael Zaremski:

Back to the contingents, and we could take this offline, if you think it's warranted. But if we take out the $7 million, contingents were still much better than I feel like you've kind of directionally guided to, although the guide, I believe is for a full year. So, I'm just trying to get at is there -- was there -- is there a seasonality or a pull forward on your -- in 1Q that we should be cognizant of when we think about the next three quarters of the year? Or is there kind of a change in your view now, ex the $7 million of your view on contingents for the year?

Michael Zaremski:

Okay. That's helpful. Lastly, switching gears to cash flow as a percentage of revenues, loud and clear about the 22% to 24% guide still near term. I believe in the past -- not too distant past, you talked about a higher figure closer to 25% being normal. Can you walk us through quickly what -- why lower today and whether they're -- and I guess we can figure out whether it could go back to a higher level over time, depending on the -- what's keeping it down today?

Operator:

[Operator Instructions] Our next question comes from the line of Mark Hughes with Truist Securities. Your line is now open.

Powell Brown:

Once again, we don't usually break out, as you know, the specifics on P&C and benefits, but I would tell you, we're very pleased with the way our benefits business is growing organically and the capabilities that we've built over the last 10 years there. We're able, Mark, to compete on basically any size account here domestically. It could have 100,000 lives. It could have 100 lives. And so, we're very pleased with how that business is performing.

Andy Watts:

Yes. I think the short answer to that is yes, we continue to still see accounts coming in to the E&S marketplace. That's number one. Number two, I would say that to my earlier comments, any time the rates are going up or going down, there is opportunity to write a lot of new business. Having said that, there also is sort of a reset in the market. So, I'm going to use my term is sort of -- I'm not going to say chaos, but it's a little bit chaotic in terms of who will do what and how do you get to additional limits or some markets will put out more limits. And so, you've had a lot of very strong results in some carriers domestically and overseas. And those carriers or marketplaces will want to play in the CAT property market. So, I would say that it creates a lot of opportunity for us, but don't lose sight of the fact that I made the comment when you have five years of increasing rates, sometimes we, as the messenger gets shot in the process. Now that works both ways. We pick up a lot business that way, but we also are subject to lose business that way because the buyer is just tired.

Elyse Greenspan:

My first question, you guys have continued to post pretty strong organic growth within the program segment. I know you guys pointed out, I think -- Powell, you that you guys lapped some one-off revenue last Q1. So, can you just dive into a little bit more detail on what's driving the really strong growth there? And should we expect to persist throughout the rest of the year? And I guess, I'm looking more kind of away just from some of the revenue -- from the captive just in the programs, the traditional programs ex the captive business?

Elyse Greenspan:

Yes. And then my second question is on margin. You guys have said your guidance last quarter, Andy, I think, was slightly up for the full year, obviously started off pretty strong. And it sounds like you're not changing the guidance for contingents, right, because to a prior question, there was no forward. So, does it now feel like margins should come in better than expected for the full year? And how should we think about -- I know there are some headwinds from captives in the back half as we think about losses. But is there anything else you could point out if we just think about, I guess, there's some tailwinds relative to the original margin guide for the full year?

Operator:

[Operator Instructions] Our next question comes from the line of Jing Li with KBW. Your line is now open.

Andy Watts:

Yes. Jing is probably the easiest way to give that if you go back to the 8-K that we put out in early March, you can kind of see the impact of the businesses, and the businesses that we sold rolled into National Programs, that will give you a pretty easy way to calculate that.

Powell Brown:

Sure. And I would tell you that, as you know, we don't think one quarter makes a trend. We were very pleased with the organic growth in our Retail business and the amount of new business that we are winning on a net new basis. I'll also tell you that we write business in Q1 and not all the revenue comes in, in Q1, as you know. So, it comes in over subsequent quarters. So having said that, please don't think one quarter, whether it's up slightly, down slightly, create the trend. We're trying to improve the business over the long term. That's one year, three years, five years, 10 years. And if you look at the performance of our retail business in the last, let's say, three years, we're extremely pleased with not only the organic growth, but the margin profile. So, we're very bullish on Retail as we have been. And so, thank you for the question, but I would say that we're very pleased and don't take a little up or a little down too far out of context.

Brian Meredith:

Powell, I'm just curious, there's some data out this quarter that showed -- stamping that showed E&S kind of premium slowing in some of the major states. I'm wondering if that's what you're experiencing seeing that maybe the standard markets are getting a little more of a risk appetite here and the E&S kind of growth rates that we've been seeing are slowing? Or maybe we're just misinterpreting that?

Brian Meredith:

Got you. And then specifically on Florida, are you seeing any additional capacity coming at this point because of the legislative changes? I think we're hearing a little bit about that.

Operator:

[Operator Instructions] Our next question comes from the line of Grace Carter with Bank of America.

Andy Watts:

I think as we mentioned in our comments or prepared remarks, really driven off of both of those factors that are out there. We think we deliver some of the best underwriting results for our carrier partners in the industry. And so, I think that's reflective of the contingent commissions that we're able to participate in. And then with the lower storm claim -- or the lower storm activity last year, that is providing for at least incremental also this year again, we'll kind of see what happens as we get through the storm. And then you've got some which is just based upon the growth in the business. The one thing to keep in mind is Programs is very different than if you look at Retail. And the Retail generally kind of trends right along with the growth in commissions and fees. You can see ups and downs within Programs that you wouldn't get the same correlation in some of the other divisions just because we may qualify for a program -- or qualify for contingent commissions for one program one year and another not inside of there. So, you may see a little bit more volatility over there. Okay.

Powell Brown:

So, Grace, this is Powell. I would say that we think that it will continue to be a very competitive environment from M&A. Having said that, there are certain firms that are more short term in nature that are highly leveraged that would be more sensitive that to interest rates. And we may see one or some of them not be as active for a period of time because of their debt load. Having said that, there seems to be plenty of other shorter-term firms that are based on leverage that seem to be active as well. So, I don't want you to get the impression that the higher interest rate environment is going to dramatically change the level of competition. That might change the names of the participants, but not the number or how competitive it is. We haven't seen that.

Operator:

[Operator Instructions] Our next question comes from the line of Scott Heleniak with RBC Capital Markets. Your line is now open.

Powell Brown:

Sure. Scott, I want you to, again, don't draw too many conclusions from one quarter or even six months. Acquisitions are not linear as you know, and when and why people sell is different. And we are always talking to people to want to be at the table when and if, but it's usually when they decide to sell. And so, we believe it's all about cultural fit and obviously, it has to make sense financially for both parties. But usually, in these competitions when we are talking to someone, it becomes very obvious in the process that there may be on cultural fit, whether that's us or not, maybe it may not be us that fit with that seller. And then many times, that is who they do a transaction with, not exclusively, but many times. And so, when I say that, I would tell you that you'll laugh when I say this, but our pipeline is good. It will be good next quarter. It will probably be good next year or two, and I'm not trying to be funny, but we got plenty of opportunities. It's just a question of do they fit culturally and do they make sense financially. And we're not rushing to do something. The one thing that you may know about us is in the investment community, there are three things that they say about Brown & Brown this with certainty. Number one, we pay with cash. It's hard to argue with greenbacks. Number two, when we give someone a term sheet that is not a license to renegotiate after due diligence like some others. So, we do what we say and say what we do. And three is when we make a decision, we get a up and go. So those, we believe, are three redeeming factors, but we talk to people, and we are trying to make sure that they understand what day two is going to look like, not the process of courtship. And so, we feel really good about the things that we got going on. We got people talking to people all the time. And I think that there will continue to be an enormous amount of consolidation in our industry in the next three to seven years. And we are going to be right here able to look at and/or participate in a lot of it.

Powell Brown:

Sure. So, Scott, I would say that it is performing in a very similar fashion to our businesses domestically. So, we're very pleased with the performance of our businesses overseas. And that's not just Europe. I mean, Canada, we got a lot of cool stuff going. But we are very pleased and -- but I would say as a broad statement, I think that its performance is very similar to what we say.

Michael Ward:

Maybe just taking a step back on programs. There's been a lot of discussion around this. I just -- can you -- are you able to help us understand the breakout in the strength just between rate versus exposure versus new business?

Powell Brown:

Let me mention one other thing, Mike, just as a broad statement, I know you know this. But remember, we're underwriting on behalf of our carry partners. So, we have this enormous responsibility to try to the best of our ability to write good risks. And so, we take that responsibility very seriously. And having said that, the growth that we have enjoyed, albeit quite good is I have to -- you've got to understand, we are doing our jobs of risk selection. So, what I'm trying to say is that is not we write everything that moves. And I know you know that, but I think it's important for everybody to hear that. There is a lot of business that just doesn't fit and that's okay. And so, we would rather show disciplined underwriting on both ends of that spectrum. So, some people -- and by the way, we've grown very nicely. But the answer is if we didn't do it the way we've done it, it could have grown a lot more, but the results longer term for our carrier partners would not have been as good. So very important distinction.

Michael Ward:

Got it. Really helpful. Maybe just thinking back to your comments, Powell, around casualty and liability pricing ticking up. Just sort of curious your views like if you think we're kind of in the earlier innings of something a continued sort of upward trend or if it seems a little bit more short term?

Michael Ward:

Really helpful. Maybe if I could sneak one specific one just on dealer services. Just curious what you guys are seeing in terms of like inventory levels out there and activity in that segment.

Operator:

At this time, I'm currently showing no further questions. I would like to hand the conference back over to Mr. Powell Brown for closing comments.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.

Operator:

Good morning and welcome to the Brown & Brown, Incorporated 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 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 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. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in the Investor Presentation for this call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Andrew Watts:

Right. Thank you, Powell. Good morning, everyone. I'm going to review our consolidated financial results on an adjusted basis, which exclude the change in estimated earn-out payables, one-time acquisition integration costs associated with GRP, BdB, and Orchid, gains and losses on business divestitures, the non-recurring costs recorded in the first quarter of this year and the impact of foreign currency translation. The reconciliations of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts can be found either in the appendix of this presentation or in the press release we issued yesterday. In conjunction with the sale of the Services businesses mentioned earlier, we recorded a gain on disposal of approximately $135 million in the fourth quarter, which equates to approximately $0.35 of as-reported earnings per share. On an adjusted basis, total revenues were over $1 billion for the quarter, growing 13.1%, as compared to the fourth quarter in the prior year. Income before income taxes increased by 15% and EBITDAC grew by 11.7%. EBITDAC margin was 31%, a slight decrease as compared to the fourth quarter of 2022 due to the previously mentioned one-time change in a reinsurance policy. The adjusted effective tax rate for the quarter was 23.9%, a decrease from the fourth quarter of last year, primarily driven by the change in market value for our company-owned life insurance. Our adjusted diluted net income per share increased by 16% from last year of $0.58. Lastly, our dividends paid increased by 13% as compared to the fourth quarter of 2022. Overall, it was an excellent quarter. We're on slide number 10. The Retail segment grew adjusted total revenues by almost 12% with organic growth of 8.2%. The difference between total revenues and organic revenue was driven by acquisition activity over the past year. EBITDAC grew slightly faster than revenues, and our EBITDAC margin expanded to 27%. This expansion was driven by leveraging our expense base but was partially offset by the impact of higher non-cash stock-based compensation. We're over on slide number 11. National Programs had another outstanding quarter with adjusted total revenues growing 18.7% and organic growth of 5.4%. The incremental growth in total revenues in excess of organic was driven by acquisition activity completed over the last 12 months, increased profit-sharing contingent commissions, and higher interest income. The growth in contingent commissions was primarily driven by lower storm claim activity in 2023, as compared to the prior year and favorable loss development related to 2022. Let's talk about the change in re-insurance for one of our captives. This change allows us to reduce our P&L exposure from a maximum of $25 million, down to approximately $15 million to $20 million. In addition, we anticipate that this change to drive incremental organic growth of $15 million to $20 million in 2024 as compared to 2023. Overall, the captives have been a huge success for our company as they've driven incremental organic growth, aligned us even better with our carrier partners, and delivered great returns on our invested capital. Adjusted EBITDAC grew slightly slower than revenues, and our EBITDAC margin was 43.4%. The decrease in the EBITDAC margin was due to the one-time reinsurance change along with lower flood claim revenues and incentives. These items more than offset higher contingent commissions and leveraging our expense base. For the full year, we had strong margin expansion in Programs. We're over on slide number 12. Our Wholesale segment delivered another strong quarter with adjusted total revenue growth of 14.7% and organic growth of 14.5%. Our EBITDAC margin decreased by 60 basis points to 27.3% due to lower contingent commissions, as well as the impact of higher non-cash stock-based compensation. We're over on slide number 13. For the quarter the decline in adjusted total revenues in the Services segment was primarily associated with the sale of certain businesses that we mentioned earlier. Organic revenue declined by approximately 6%, driven mainly by continued external factors impacting our advocacy businesses. Adjusted EBITDAC margin for the quarter was primarily driven by the decline in organic revenue as well as certain one-time items. We'll talk more about future reporting for the Services segment in a few moments. We're over on slide number 14. This slide presents our results for both years on an adjusted basis. Our income before income taxes grew 24.3% and net income per share was $2.81, growing by 23.2% as compared to total revenue growth of 18.7%. EBITDAC margin remained strong at 33.9%, an increase of 120 basis points over the prior year. Overall, we are very pleased with the results for 2023. Few comments regarding cash generation and capital allocation. From a cash perspective, we hit another major milestone, generating over $1 billion of cash flow from operations, growing 14.5% over the prior year. Our full-year ratio of cash flow from operations as a percentage of total revenues remained strong at approximately 24%. Few other comments regarding outlook for 2024 and some enhancements to our reporting. For contingent commissions, we anticipate them to be relatively flat-to-down year-over-year but this will ultimately be driven by loss experience. For Programs, we would expect for them to be down as the higher-level contingent commissions were driven by lower CAT event losses in 2023 and favorable loss development related to 2022. Keep in mind, this outlook is excluding the impact of future acquisitions. As it pertains to taxes, we expect our effective tax rate to be relatively consistent with 2023 and should be in the range of 24% to 25%. For adjusted EBITDAC margins in 2024, we anticipate them to be up slightly. Finally, in conjunction with our earnings release for the first quarter of 2024, we'll be making a few changes to our reporting. First, with the expansion of our global MGA and MGU platforms, we will refer to the National Programs segment as Programs. Second, in conjunction with the divestiture of certain businesses within our Services segment late in the fourth quarter of 2023, we will not report the remaining businesses as a standalone segment, moving from four to three segments. Those being Retail, Programs, and Wholesale Brokerage. Almost all of the remaining revenue and profit in the Services segment will now be reported in the Retail segment. For the prior periods, we'll move to sold businesses into Programs and the remaining businesses into Retail. Third, we will be modifying the definition of our non-GAAP adjusted measures to exclude the impact of non-cash intangible asset amortization. With this adjustment, we will be on a more consistent presentation with the majority of other public brokers. And lastly, for simplicity, we'll only be excluding the impact of changes in foreign exchange on the calculation of organic growth. For all other non-GAAP metrics, we may identify the impact of FX when it's meaningful to do so, but we will not restate the prior year to be on a constant-currency basis. With that, let me turn it back over to Powell for closing comments.

Operator:

Thank you. [Operator Instructions] Our first question comes from Michael Zaremski with BMO. Your line is now open.

Powell Brown:

Okay, Jack. I think you've got a bunch of things inside there. Your first part of the question broke up a little bit, but I think you said is, with the divestiture of the businesses, would we expect the margins to go up? Was that your question?

Jack Kindregan:

I'm not asking about divestitures. I'm just asking if any intra-segment business mix shifts changes.

Jack Kindregan:

I'm sorry. That's correct. Just any intra-segment business mix shift changes.

Jack Kindregan:

Got it. Okay, thank you. And then second question is on Brown's exposure to different flavors of personal lines insurance. We appreciate the personal lines comes in different textures across the three main segments. The question are, are Brown's personal lines exposed business is having a positive impact on organic growth levels as compared to the non-personal exposures which comprise most of Brown's revenues?

Jack Kindregan:

Thank you.

Operator:

Please standby for the next question. The next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Andrew Watts:

Well, you got to remember -- so there's two pieces to it, Elyse, is it does limit our P&L exposure. So we said in 2023, it was about $25 million. So going into '24, it'll be somewhere between $15 million and $20 million, but -- and then it will also drive an incremental organic growth of $15 million to $20 million. So you got to put both of those pieces together, okay.

Powell Brown:

So, Elyse, good morning, and thank you for the question. We, one, are very pleased with the businesses that have joined in England since the middle of 2022. And the businesses are performing at or above our expectations. And we have also said that just -- as we don't give guidance, but I would tell you that they perform in a very similar way to our domestic retail business. So we're very pleased and continue to do acquisitions there. So, Mike Bruce, who's the Head of our European Operations, and his team have continued to do small and medium acquisitions over there. And we're very pleased with the capabilities and the people that have joined. So, very pleased.

Andrew Watts:

I think, yeah, if you go back, good catch on the third quarter. As we've talked about, we normally model in kind of 1.5 storms. You never know when -- what it's going to actually look like and I guess higher likelihood of it being in the third quarter. But that's probably a reasonable approach. So if you do that, you would expect for the margins to be down a little bit in the third quarter, and then just keep in mind the -- making the lap into the fourth quarter on the $19 million. But otherwise, those are kind of the bigger items. We did call out some adjustments to the contingents in second quarter on part of the lost development during the year. So those kind of be the -- I think, the big ones to keep in mind. Otherwise, no major changes in the seasonality of the margins.

Andrew Watts:

Thank you. I appreciate it.

Operator:

Please standby for the next question. The next question comes from Gregory Peters with Raymond James. Your line is open.

Powell Brown:

So I know this -- you're not going to -- good morning, Greg. You're not going to like this answer exactly, but it obviously depends on the magnitude of the storm and how that impacts admitted markets versus non -- the non-admitted markets is different. But admitted markets, the Program business versus Wholesale business versus Retail business. And the answer is, it's very hard to estimate. So we can't run a model or we don't run, I shouldn't say that, we don't run a model where you put a big storm into Florida or into Texas or Louisiana and then it spits out the other side. The answer is we did have a great year in terms of profit sharing this last year. But as Andy said, we understand that it may have been an -- I'm not going to say an over-performance, but a very high performance.

Gregory Peters:

Okay, that makes sense, I guess. I want to go back to bigger question on organic. And I know, Powell, part of your answer is going to be that you don't tell us or forecast out what organic is going to be for '24. But inside organic, the organic result for your company for '23, there's clearly been a benefit from the rate increase -- rate increases that have happened in the market. You called that out in your comments. The Wholesale market, I think in your commentary and the slide deck, you called out cap pricing, and it seems like that might moderate. So if I add up all the different variables, if rate increases are going to be moderating in '24 versus '23, wouldn't that naturally bleed over to a lower growth rate for organic across your footprint? Any comments on that would be helpful.

Andrew Watts:

Hey, Greg, I also add to that. I think it's important to think about what happens in the marketplace through the lens of the buyer, of the insurance, right? And rate, while that's an important factor, that's not the only factor that drives the buyer, right? Quite often they're focused on the absolute dollar, right? Because you got to think about through their lens, they're managing a cost in their P&L. And so there's a lot of factors that they're going to take into consideration. We've talked about this over the past few years, right? So if rates are going up, right, they're probably adjusting their limits, they're adjusting deductibles. And same thing can happen if rates soften a little bit. Well, that may allow them to maybe increase some of their limits or back and forth. But think about it through the lens of premium, not just rate online. I know a lot of people are writing about this right now, but much -- in some aspects it's much more simple and much more complex than that.

Powell Brown:

All right.

Mark Hughes:

Yeah, thanks. Good morning,

Mark Hughes:

Andy, you say you're going to adjust the numbers for the non-cash intangible amortization to be more in line with peers. If you had done that in 2023, how much would that have impacted adjusted earnings?

Mark Hughes:

$0.45. Okay. And then the Benefits business. How did that perform in the quarter? Any kind of early feel on Q1? I know that's a more important driver for organic in the first quarter.

Mark Hughes:

Okay. Thank you.

Operator:

Please standby for the next question. The next question comes from Rob Cox with Goldman Sachs. Your line is open.

Andrew Watts:

It's pretty close on it, Rob. So that's why when we said that -- while we were down 40 basis points for the quarter, you can kind of run the math through. So isolating that, our margins would have been up quite well for the quarter, which we're very, very pleased about.

Robert Cox:

Yeah, that's great. Thank you. Maybe just as a follow-up. Saw E&S casualty pricing accelerated in the quarter, and we've heard a lot of commentary around potential reserve issues and casualty. So wondering if you could provide any color on what's driving that pricing acceleration and if you think that could continue in 2024.

Robert Cox:

Got it. That's helpful. And if I could follow up with one more, just on the employee benefit space, how are you thinking about the growth environment between pricing and employment growth? And if you could remind us what percentage of the business is commission based at Brown & Brown?

Andrew Watts:

About 35%.

Operator:

Please standby for our next question. The next question comes from Meyer Shields with KBW. Your line is open.

Andrew Watts:

Yeah. It's -- so again, on the company-owned life insurance, this have an impact on our numbers based upon how the market moves either up or down. So when you see the market going up, right, it will impact the S&R and the offset is down in other operating expense. The impact on margins is basically almost zero. So for the quarter itself, it was a drag on the S&R as a percentage of revenue of about 150 basis points and last year it was about 60 basis points. So we kind of look at those both ways internally kind of puts our S&R substantially flat year-over-year, ex-COLI, so. And again, those are going to move around. That's not something that we're able to forecast because it all depends upon how the market moves and then it's the comparison to how the market moved the year before.

Andrew Watts:

Correct. And, yes, we'd expect that in '24.

Andrew Watts:

And we would not expect any sort of reversion though in '25, just in case you're wondering, Meyer.

Powell Brown:

I want to make sure I heard that correctly. Meyer, can you repeat the question? Because there was a word or two that cracked up in there.

Powell Brown:

Okay, so let's back up and say there's an enormous amount of business that's CAT exposed, that was already in the E&S market. They're constantly and consistently in the traditional admitted market. Carriers by name that you may follow or know, are evaluating their CAT property exposure and are making decisions whereby should they renew that on an admitted basis or does that in turn get picked up by another admitted market or does it go into the E&S market? So what I would tell you is that there's lots of business that flows in and out, I shouldn't say lots. There is a good amount of business that goes into the E&S market in '23, and I think there will continue to be a flow of business out of the admitted market into the E&S market in '24. Is it an equal amount? I don't know, but I think more importantly, inside the wholesale space, there's an enormous amount, an enormous number of opportunities for us to write business that still and has been in the past in the E&S space. So there's more than enough business for us to write in the existing space without one account coming over in the -- from the admitted market. I think that's going to continue because in my career and yours as well, you've seen more of a shift in E&S market, and I think admitted carriers will continue to evaluate their position in particular CAT-prone areas.

Andrew Watts:

Hey, Meyer, on that, it's also probably always helpful is to bifurcate that between the commercial and the personal lines, because there's different kind of profile and activity underneath of there. Back to our comments, in the four states that we talked about is, we are seeing more personal lines into the E&S space, and we would expect to see that in 2024 until those markets calm down. And then it may seem some of the other carriers come back in, but that doesn't appear to be anything in the near term.

Powell Brown:

Thank you.

Michael Ward:

Thanks, guys. Good morning. You mentioned the remaining portion of Services was moving to Retail. I was just curious if you anticipate holding on to those businesses or if there's any alternative plans.

Michael Ward:

Great. And then maybe on the, in the slide deck, the macro commentary kind of seemed a little bit less cautious to us. Just curious if you might agree with that. There's a lot influx, kind of with the Fed and rates and inflation, but just curious how your clients are feeling if there's, I guess, a little bit more positivity or uncertainty, vice versa.

Michael Ward:

Interesting. Thank you. Maybe one last one. Just on free cash flow. I think cash flow conversion for you guys was a little below 24% in '23. Just curious if we should expect that similar level into next year or this year, if there's any puts and takes there.

Michael Ward:

Great. Thank you, guys.

Operator:

Please standby for the next question. The next question comes from Grace Carter with Bank of America. Your line is open.

Operator:

Hey, it does appear that she did drop. One moment for our next question, please.

Operator:

Our next question comes from Scott Heleniak with RBC Capital Markets. Your line is open.

Powell Brown:

Well, let's back up for just a moment. I don't think that there's necessarily one customer type or one region, but I'm going to give you an example. But this is not only the capacity in this example. If you take a condo association in Florida, and for the last five years in a row, they've seen rate increases. They're exhausted and tired of it. And in some instances, the condo association will shoot the messenger, even though we are delivering the best product in the market. And so whether you apply that same philosophy to a manufacturer, a developer, an owner of nursing homes, a non-profit, whatever the case may be, I believe, Scott, sometimes people in the analyst community believe it's all about rate increases. And as Andy said earlier, it's -- it can be about rate, but really it's more about the absolute dollars that the insured has to pay. And so there is a lot of chafe when their exposure units are flat to down and their premium dollars are going up. That's the way I try to put it. And so there's not one class of business, I will tell you this, that our organization, if you make a broad statement, we can thrive in a market where the rates are going up, when the rates are sideways, and when rates are going down. Generally speaking, in Retail, it works in all of those. In Wholesale, it works up or down, generally flat is kind of a little weird, and it works in Programs. So that's kind of a very broad statement around your question on rates.

Andrew Watts:

Let's see. I don't know. We probably won't go that far out. But if we look at the captives as we generated $25 million plus last year, generated about $30 million in 2023, and then we've kind of given an idea of guidance of what we think it looks like for 2024. We're really, really pleased with the captives, with the growth we've delivered on the top line, as we mentioned, the alignment with our carriers and the returns that they provided for the capital that we've put into those. We're extremely, extremely pleased with them. So don't take that that means that we're going to do more of them, whatever. That's not the comment. But for the ones that we have, we're very, very pleased with the programs that they sit on top of. And again, they're sitting on programs that we think deliver some of the best underwriting results in the industry.

Andrew Watts:

Thank you.

Brian Meredith:

Hey, thank you. Powell, I think you may have answered this, but I just want to clarify here. This inflation -- how big of an impact is inflation on your organic revenue growth? So if I kind of look going forward, obviously the economic outlook is still decent right now, but inflation clearly moderating. Is that a headwind to organic growth when we think about it from an exposure perspective?

Brian Meredith:

Oh, interesting. Is there certain types of inflation that are better or worse for you all's business?

Brian Meredith:

That's really helpful. Thank you. And then my second question. I'm just curious, what are you seeing with respect to the standard markets, just appetite for some of the E&S type risks. I understand there is -- as you mentioned Texas and certain areas are still pretty challenging. But are you seeing any of the standard markets just kind of trying to encroach back into the Wholesale arenas?

Brian Meredith:

Thank you. That's really helpful.

Operator:

Please standby for the next question.

Operator:

Thank you. Our last question comes from Grace Carter with Bank of America. Your line is open.

Andrew Watts:

Morning, Grace. It's Andy here. No, we didn't give a -- an outlook on investment income. So we weren't going to try to hypothesize or predict what will happen to interest rates, at least for the -- all the governing banks and the markets that we operate in inside of. We figured you guys are pretty well positioned to come up with your own determination that's there, because some of it also is based upon just the amount of capital that flows through the organization and what we hold during the year. So those pieces can move up and down.

Andrew Watts:

Yeah. No, thank you.

Powell Brown:

Thanks, Michelle. We appreciate everybody's time this morning. I was surprised we didn't get one question. So I will ask the question and then I will answer it. You know at Brown & Brown, we're a very goal-oriented company. We set goals. We achieve those goals and then we set a new goal. 12 years ago, we were roughly $1 billion of revenue and we set a goal to get to $2 billion in revenue. And in seven years, we took it from $1 billion to $2 billion. Then we set a new goal which was bring $2 billion to $4 billion. And five years hence, we actually went from $2 billion to $4 billion. Now we're setting a new goal of $8 billion in revenue. Somebody would have asked, when are you going to get there? And the answer is, we don't have a timeframe. And the reason I say that is if we wanted to be $8 billion of revenue, we could go out and do that, but it would not be in the best interest of our shareholders, which in turn, 22% of the company is owned by teammates. So there is incredible alignment in our organization in terms of our long-term goals and objectives. As you heard in Andy's remarks and my remarks, we are very pleased with the performance of 2023 and we are equally excited about the prospects for '24. We also know that at some point the economy will slow down. All right. So we acknowledge that. But it seems that that probably will not happen in the near term is that the next six to 12 months. I think one of the things that's buoying that is the presidential election. But there's a lot more that goes into that. So you're not going to want to have changes if you can help it in the economy. It will be interesting to see what the Fed does with interest rates and how all that translates into the business environment. With that said, I'd like to say thank you again. We are pumped about our business and the future at Brown & Brown on our way to $8 billion, and we look forward to talking to you next time. Good day and good luck.

Operator:

Good morning, and welcome to Brown & Brown, Incorporated's Third Quarter Earnings Conference 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 third quarter 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 third quarter 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 are 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 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. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the company's investor presentation for the call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I would now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Andrew Watts:

Great. Thank you, Powell. Good morning, everyone. I'll review our consolidated financial results on an adjusted basis, which for the third quarter exclude the change in estimated earn-out payables, onetime acquisition and integration costs associated with GRP, BdB and Orchid. Gains and losses on business divestitures and the impact of foreign currency translation. We believe isolating these above items provides a better reflection of the performance of the business and enhance comparability. The reconciliations of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts can be found either in the appendix of this presentation or in the press release issued yesterday. We're over on Slide 7. On an adjusted basis, total revenues were nearly $1.1 billion for the quarter, growing 14.2% as compared to the third quarter of the prior year. Income before income taxes increased by 40.7% and EBITDAC grew by 27%. Our EBITDAC margin was 34.7%, increasing 350 basis points as compared to the third quarter of 2022. The margin increase was driven primarily by leveraging our cost base in connection with strong organic growth as well as higher contingent commissions, increased interest income and minimal claims costs for our captives. The higher growth in income before income taxes was driven by depreciation, amortization, and interest expense growing slower than total revenues. The effective tax rate for the quarter was 25.5%, which is in line with our expectations and compares to 26.1% in the third quarter of last year. Our adjusted diluted net income per share increased by 42% from last year to $0.71. Our weighted average share count increased approximately 1% as we are directing more of our capital towards reducing our debt. Lastly, our dividends paid increased nearly 12% as compared to the third quarter of 2022. Overall, the performance by our team for the quarter was outstanding. We're over on Slide 8. The retail segment grew almost 10%, driven primarily by strong organic growth of 8% and acquisitions completed in the last year. Adjusted EBITDAC grew slightly faster than revenues, and our adjusted EBITDAC margin expanded to 28.6%. This expansion was driven by leveraging our expense base along with strong organic revenue growth, but it was partially offset by the impact of higher non-cash stock-based compensation and slightly lower profit-sharing contingent commissions. We're over on Slide 9. National Programs had another outstanding quarter with adjusted total revenues growing 20.1% and organic growth of 12.1%. The incremental growth in excess of organic growth was driven almost entirely by an increase in our contingent commissions that were impacted negatively in the prior year related to Hurricane Ian. Our adjusted EBITDAC margin expanded over 11% due to the level of organic growth and leveraging our expense base, higher profit-sharing contingent commissions and lower claims cost in the current year within our captives due to a quieter storm season as compared to the third quarter of 2022. As it relates to organic growth for the fourth quarter of this year, please keep in mind that in the fourth quarter of 2022, we highlighted a nonrecurring incentive bonus of $7 million and also recorded $8 million of claims processing revenue associated with Hurricane Ian. Moving over to Slide 10. Our wholesale segment delivered another strong quarter with adjusted total revenue growth of 17.7% and organic growth of 13.4%. The incremental growth in excess of organic growth was driven by higher profit-sharing contingent commissions and acquisitions completed in the past 12 months. Our adjusted EBITDAC margin expanded 110 basis points to 37% due to a combination of leveraging our expense base with good organic growth and higher profit-sharing contingent commissions, but was partially offset by the impact of higher non-cash stock-based compensation. On Slide 11, the services segment delivered organic growth of 3.2%, with a slight decline in adjusted EBITDAC margin due to onetime expenses for certain businesses as well as the impact of inflation. Few other comments concerning cash generation, capital allocation, and outlook for the remainder of the year. From a cash perspective, we generated $704 million of cash flow from operations for the first nine months of this year and had another strong third quarter growing our year-to-date cash flow from operations by $104 million or 17%. Our year-to-date ratio of cash flow from operations as a percentage of total revenues remained strong year-over-year at approximately 22%. As we mentioned previously, post the acquisitions of GRP, BdB, and Orchid, we remain committed to de-levering. In the third quarter, we further reduced our outstanding debt by approximately $100 million. At the end of the third quarter, we are already within our stated target gross debt-to-EBITDA ratio of zero to 3x. Based on current interest rates, we would expect our investment income and interest expense in the fourth quarter to be similar to what we recognized in the third quarter. Regarding profitability, we had previously provided guidance that our full-year expectations for adjusted EBITDAC margins would be up slightly compared to 2022. Based on our strong financial performance for the first nine months as well as higher investment income and profit-sharing contingent commissions, we now expect our margins for the full-year will be up at least 100 basis points. In summary, we continue to be in a strong position and generate industry-leading cash conversion ratios, which enable us to invest in our company, de-lever and acquire businesses. With that, let me turn it back over to Powell for closing comments.

Operator:

Thank you. [Operator Instructions]. And our first question will come from the line of Michael Zaremski with BMO. Your line is now open.

Andrew Watts:

Yes. Good morning, Mike. As it relates to the third quarter, no, we didn't have any distinct kind of onetime items that we called out. Pertaining to the fourth quarter, the main items were the ones that we highlighted, which were the incentive bonus and the claims revenue associated with Ian. Still got fourth quarter yet to go. So we're still in storm season right now, so don't know actually how everything will play out. But those will be part of -- two of the bigger ones. And then, again, depending upon how storm season ultimately finalizes itself as well as we still got the back end of the year, remember on our captives that they also take a quarterly share on some of our West Coast earthquake programs. So that's the only kind of -- those are the unknowns that could pop up, but we feel good about kind of where we are heading in the fourth quarter.

Powell Brown:

Well, Mike, as you know, we don't give forward-looking organic growth guidance. And historically speaking, we've said that our business is two-thirds exposure units and one-third rate. In certain areas of the business, particularly in coastal communities, rates might have a slightly higher impact. But as it relates to the question specifically on exposure units, we have not seen anything that would indicate a slowdown in those exposure units in the near term yet, but we remain ever vigilant as we kind of watch. But as Andy and I both said, we do see people being more cautious in terms of their willingness to make large capital investments in the business. I think they're pausing on a lot of those. So from a standpoint of lift in exposure units there, we're not seeing that as much. As it relates to sales of product, or construction revenues or whatever, it seems to be continuing as usual.

Operator:

Thank you. One moment for our next question, please. Our next question comes from the line of Mark Hughes with Truist Securities. Your line is now open.

Powell Brown:

I would caution you about saying faster growth. I think the way I would look at it is there's capacity, but the capacity is at a price. And so as I said earlier, carriers are very careful about managing their cat capacity. We view it as a positive if we can maintain our capacity that we currently have. And in some instances, if somebody wants to modify their distribution to us, i.e., modify down, we believe that we can fill most of that with other carriers that want to participate in our facilities or Wholesale or in Retail. But I would caution you, Mark, on trying to draw parallel that we've got a whole bunch of new capacity that's going to bring a whole bunch of new growth with that. I don't want you to -- please do not misinterpret our statements that way. I would say that we feel good about the indications that we've been given from our carrier partners about maintaining what we have. And as it relates to stuff that they want to modify their participation on, we feel good about replacing that.

Powell Brown:

So Mark, I would tell you that inventory seems to be okay, still okay, but that's usually a nine to 12 month outlook. I can't comment beyond that, but there just seems to be a lot of activity. And so that's positive.

Powell Brown:

Thank you.

Andrew Watts:

Michael, we cannot hear you.

Andrew Watts:

Yes. Norma, just put him back in the queue, we'll come back around.

Powell Brown:

Gregory?

Robert Cox:

Can you guys hear me?

Powell Brown:

Yes, we can hear you.

Powell Brown:

Sure. We're just writing more net new business. I mean, I'm not trying to be funny, Rob, but we're executing really well. And we are maintaining our existing customer relationships, and we are picking up a lot of new customers. That's both on both sides, Wholesale and Retail.

Andrew Watts:

Hey, good morning, Rob. It's Andy here. I think the areas where we probably continue to be challenged. By the way, we've always been challenged in this space is around just the cost of talent. And that's not been just a COVID issue. If you need good talent, which we do and like everybody else, talent is expensive. We are seeing some moderation in the level of inflation and the increases in comparison to volumes from a year ago, but you still see some of those pressures that are out there, but we work our way through those. And then we've got through most of the T&E headwinds. It doesn't mean that hotels and airlines aren't expensive. They are, you've probably been out flying lately or staying somewhere. It's still pretty expensive. But it feels like we've got through most of those headwinds in comparison to where we were a year ago on that front. And then we mentioned in the commentary about stock compensation that that's a headwind year-over-year for the business, both in Retail as well as Wholesale. That's not a bad thing at all. So keep in mind that the way that those plans are structured is they're driven off of how well we perform on organic and earnings per share. So the costs that we're taking through the current year is also reflective of the strong performance that we've had over the last couple of years. So we think that's a really good indicator.

Andrew Watts:

Thank you.

Elyse Greenspan:

Hi, thanks. Good morning. My question was on Retail. I know you guys had called out dealer services, right? That was a headwind last -- second half of last year and the first part of this year. It seems given the strong results you guys saw this quarter that maybe that dissipated, is that correct? Or was there any impact of dealer services in the quarter?

Elyse Greenspan:

Thanks. And then on the margin update, right, you guys have seen a good amount of margin improvement, I think 170 basis points so far this year. Is the Q4 contraction, just a function of Andy, the one-off revenue you guys had last year within Programs, the $7 million and the $8 million that you called out for -- I know you don't typically guide on a one-quarter basis, but I'm just trying to understand if there's anything else in the Q4 that you're highlighting.

Elyse Greenspan:

Okay. And then one last one. You guys pointed to -- it seems like a still competitive M&A environment, but it sounds like financial sponsors, I think you guys said interested in maybe waiting a little bit. What are you guys seeing on the M&A side in terms of the pipeline and multiples on transactions as well?

Elyse Greenspan:

Thank you.

Andrew Watts:

Thank you.

Meyer Shields:

Great, thanks. Good morning. Am I coming through?

Meyer Shields:

Okay. Fantastic. So two really quick questions. First, in the National Programs slide, this is Slide 9. You mentioned higher profit sharing or let me say it differently, improved loss development on Hurricane Ian. Was there any favorable development on the exposure? Or is this just a much better quarter than last year because of last year's issues?

Meyer Shields:

Okay. But to the extent that you had a little bit of exposure, there's no change in sort of that, I'll call it, underwriting loss?

Meyer Shields:

Okay. Perfect. Second question, just trying to understand the process. One theme we've seen this year is a lot of catastrophe-close property move from the standard markets to E&S. When you look at that segment of the marketplace or that phenomenon, is that a one-year transition? Or should we expect to see that sort of directional move continue in 2024, maybe beyond?

Meyer Shields:

Okay, that's perfect. Thank you so much.

Operator:

Thank you. One moment for our next question please. Our next question comes from the line of Mark Hughes with Truist Securities. Your line is now open.

Powell Brown:

When you say this year, are you talking about in Q4 or?

Powell Brown:

Well, again, we're not giving -- we don't give growth guidance on lines of business, just like we don't give organic growth. But we're very pleased with the way our employee benefits line of business is growing, and we continue to invest in the capabilities and we are writing lots of new business across the platform.

Mark Hughes:

Thank you.

Operator:

Yes, thank you. One moment for our next question. Our next question comes from the line of C. Gregory Peters with Raymond James. Your line is now open. Mr. Peters, your line is now open. Are you muted?

Operator:

Not on my end, I'm checking. He's open. Mr. Peters, are you muted?

Operator:

Okay. I'll go to the next person.

Operator:

One moment for our next question comes from the line of Scott Heleniak with RBC Capital Markets. Your line is now open.

Andrew Watts:

Hi, good morning, it's Andy. That was really driven off of, we've expanded some customer relationships there as well as we've won some new relationships in that business, and that's what's driving the new claims. The way that we really think about the Services business is the actual transaction is onetime in nature, but the relationships are recurring in nature for us. And that's really what we try to focus on, and it's that business in general, that segment, you can't forecast by individual quarters, where you quite often have to look at averages just because of the way items kind of flow back and forth. But no, we were real pleased with the performance for the third quarter.

Powell Brown:

You shouldn't assume that now.

Scott Heleniak:

Okay, thanks.

Andrew Watts:

All right. We seem to have two new -- two folks are having some technical difficulties today. Norma, do we have anybody else in queue?

Andrew Watts:

Okay. We'll give Mike and Greg if they're in queue just a second. And if not, we'll go ahead and we'll call the call. We can always do a follow-up with them.

Powell Brown:

Thank you all very much. We're very pleased with the quarter and equally excited about going into Q4. Look forward to talking to everybody in January. Have a great day. Thank you.

Operator:

Good morning and welcome to the Brown & Brown Incorporated Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator Instructions] As a reminder, 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 second quarter and are intended to fall within the Safe Harbor provisions of the security laws. Actual results or events in the future are subject to a number of risk 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 second quarter 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. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Andy Watts:

Great. Thanks, Powell and good day, everybody. I'll review our consolidated financial results on an adjusted basis in more detail. As a reminder, our adjusted measures for the second quarter exclude the change in estimated earn-out payables, one-time acquisition and integration cost associated with GRP Orchid and BdB and gains and losses on business divestitures. We believe, isolating the above items provides a better reflection of the performance of the business and enhanced comparability. The reconciliations of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts can be found either in the appendix to the presentation or in the press release issued yesterday. On an adjusted basis, total revenues were over $1 billion for the second quarter, growing 24.7%, as compared to the second quarter of the prior year. Income before income taxes increased by 32.1% and EBITDAC grew by 30.5%. Our EBITDAC margin was 34.2%, increasing 150 basis points as compared to the second quarter of 2022. The effective tax rate for the quarter was 25%, which is in line with our expectations and compares 27% in second quarter of last year. The lower tax rate was impacted by the change in the market value of assets associated with our deferred compensation plan in the current year, as compared to the prior year. Our adjusted diluted net income per share increased by 33.3% from last year to $0.68. Due to the changes in market value, our deferred compensation plan negatively impacted the ratio of salaries and related expenses to revenue by approximately 250 basis points year-over-year. Keep in mind, there's an offsetting benefit within other operating expenses. Lastly, our weighted average share count remained relatively flat and dividends paid increased by nearly 12%, both as compared to the second quarter of 2022. Overall, the performance by our team for the quarter was outstanding. We're on Slide number 8. The Retail segment grew significantly, delivering adjusted total revenue growth of 25.5%, driven by acquisitions completed in the last year, higher profit sharing contingent commissions and organic growth of 6.3%. Adjusted EBITDAC grew slightly faster than revenues and our adjusted EBITDAC margin expanded to 28.4%. This expansion was primarily driven by increased profit share and contingent commissions, which were substantially offset by higher non-cash, stock-based compensation and to a lesser extent the hiring of incremental teammates to support our current and future growth. We're moving over Slide number 9. National Programs had another outstanding quarter with adjusted total revenue growing of 25.7% and organic growth of 23.3%. Through the combination of revenue growth and leveraging our expense base, our adjusted EBITDAC margin expanded 510 basis points. We're on slide number 10. Our Wholesale segment delivered an excellent quarter with adjusted total revenue growth of 23.8% and organic growth of 13.1%. Our adjusted EBITDAC margin contracted slightly due to some non-recurring cost in the second quarter that impacted by approximately 200 basis points. We are on Slide number 11. The Services segment’s organic revenue contracted by 1.8% for the quarter and the adjusted EBITDAC margin increased by 220 basis points. The primary driver of the margin decline was lower organic revenues and the impacts of inflation. I've got a few comments regarding cash generation and capital allocation. We generated approximately $390 million of cash flow from operations for the first six months of this year, growing over $40 million or 12%. Our ratio of cash flow from operations as a percentage of total revenues was approximately 18% for the first six months of this year, as compared to 20% in the first six months of last year. As we discussed last quarter, the lower year-to-date ratio has been impacted by higher interest expense and paying taxes in the first quarter of this year related to the fourth quarter of last year that we deferred as a result of Hurricane Ian relief. With that being said, the second quarter was very strong for cash generation and we ended the quarter with approximately $630 million of operating cash. As we mentioned previously, post the acquisitions of GRP, BdB and Orchid last year, we are committed to delivering to our more traditional levels. In the second quarter, we reduced our outstanding debt by making incremental payments of approximately $130 million. We’re in a strong capital position to continue to invest in our company, acquire great businesses and delever. With that, let me turn it back over to Powell for closing comments.

Operator:

[Operator Instructions] Our first question comes from Weston Bloomer with UBS. Your line is open.

Powell Brown :

Yeah. Hey, good morning, Weston. Still we had a little bit of colors and context around this is, we had mentioned this back during the Q1 as well as Q4 of last year that we did anticipate some headwinds for dealer services in the first quarter. And we did see that it was probably in the range of about 50 to 100 basis points in that range. If you recall, when we released earnings for third quarter of last year, we had talked about the fact that we were starting to see the headwinds on the Dealer Services business in late 2Q of last year. And we saw those through the third quarter and fourth quarter and kind of now continuing through the impact in kind of the back end of last year was about 1% by the course. So it kind of gives you an idea when you look at the organic and what the impact is. As we now head into the second half of the year and similar or consistent with the commentary we had in Q1 as we get on to a more comparable basis now in the second half of the year, we don't see the same level of headwinds for the Dealer Services business. We are very, very proud of those businesses. They performed really well, just go into a little bit of a cycle right now, but they are, they're great businesses and we made significant investments in there overtime to our capabilities.

Powell Brown :

Yeah, we don't disclose that level of granularity, Weston. But what we've talked about in the past is, we do play significantly more CAT property in the second quarter than we do in the third quarter. And the third quarter is probably potentially, almost a third less than what we see in the second quarter. That's pretty consistent with what we talked about last year. So it's why when - when we said that normally our organic is generally a little bit lower in the second half of the year versus the first half of the year because of the amount of CAT property, as well as employee benefits that we see in the first quarter.

Powell Brown :

Yeah. Weston, what I would say is, we continue to see downward pressure on public D&O. That's really where it's pronounced. In other places it's not nearly as pronounced. So, do we still see pressure? Yes, but will that continue for an extended period of time? Don't know? But that's the - that's the one place where we really see real softening in the market. And so, my instinct would tell me the near to intermediate term, we're going to continue to see that kind of pressure in that part of the space.

Weston Bloomer:

Great. Thank you. Appreciate the color.

Operator:

Please stand by for the next question. The next question comes from Michael Zaremski with BMO. Your line is now open.

Powell Brown :

Right. So, Michael, the way I would look at it is this, let's set the stage for what the market is right now. And what's happening is, insurers in many instances are getting back to us on a renewal business and even new business with very limited time or very close to the expiration date. So there's a lot of activity around analyzing limits and quotations and things like that before we give it to a customer. I've also - we've also said that you have this fatigue inside of the marketplace with buyers, which have had in - particularly CAT from property increases for five and six years in a row. So, what I would tell you is, do we think that capacity is going to be dramatically constrained in Q3? There is a - this is the hypothetical scenario. That depends if there's a storm. So if we don't have a hurricane hit Florida, that's a different answer than if we do have a hurricane hit Florida. So we can't answer that question right now. Number two, there is also the uncertainty that any broker not just Brown & Brown faces, which is, at what point does a buyer of insurance basically say, I can't take any more increase. So what might happen is, they may be buying a lower limit or self-insuring certain layers in their property placement, but they've gotten to a point where they can't take anymore increased cost. So, our growth would be driven more by new business at that point than just increased growth on the renewal building. So what I would tell you this, it's a challenging market. We're writing a lot of new business. I'm very pleased with how retail is performing and I would say that the question really hinges upon things that are a little bit outside of our control specifically weather. And so we don't think that something is going to happen and relative to the State of Florida or hopefully not any other coastal areas between now and in the hurricane season. But if we did have that scenario, you're going to have a much different discussion around a business flowing into state pools i.e., Florida with the citizens and other places. It’s because the market will have to sort itself out.

Powell Brown :

Okay. Mike, you got a bunch in there. Let's see if we can unpack some of those. Let's start first with contingents because there's kind of there maybe two pieces to this. Let's first take the retail and you'll see that it's up about $5 million year-over-year. That is primarily driven by acquisition activity. And most of that out of GRP as we've now kind of made the one year anniversary, we would expect to see that level of growth year-over-year and contingents should drop off quite a bit in the back end of the year. So that hopefully gives you a little color on the second quarter on retail. As it relates to National Programs, so there's a couple things going on. If you recall in the third quarter of last year, remember we called out about a $15 million adjustment in one of our programs associated with estimated claim costs or losses for Hurricane Ian. I don’t know if you recall at that stage, we had said, we did think we were at quarter eight contingents for the fourth quarter for that program. When we released fourth quarter earnings, we actually we did earned some contingents there, which is a good thing. And now, as we're getting through the year end we're seeing development on those claims. It is not as high as what was estimated at the time. So when you take the $5 million or so that we ticked up in the second quarter in National Programs, that split about in half related to adjustment to last year's amount. And then we are accruing about the other half for higher estimated commissions this year, okay? So we’d not anticipate that you would see $5 million increases in contingents in the third and fourth quarter for National Programs, okay. That was really primarily isolated to the second quarter. Now again, keep in mind, when we get to the third quarter, you are going to have comparability for the adjustment that we made last year, okay?

Powell Brown :

And Mike other question you ask is - is around kind of which ones that you earn on it. As a general rule, this is not hard and fast, but to just kind of give you a direction on it. Normally, you'll see that in the employee benefits business, we earn incentives to the industry does not just us normally incentives, and then kind of all other lines are contingents and then guaranteed supplemental commissions and it depends upon the individual lines that are inside there. But that's at least a reasonable rule of thumb to work by.

Powell Brown :

Yes. Thank you.

Gregory Peters:

Great. Good afternoon, Powell and Andy. I guess, spending a fair amount of time so far talking about what's going on in the property market and Powell on slide 5, you called out the personal lines business in Florida, Texas, and California being challenging. And maybe step back and give us some perspective because I think Brown & Brown is a much bigger organization just personal lines in Florida, Texas, and California. Can you give us some perspective and size up how that business fits inside the bigger Brown & Brown footprint?

Andy Watts :

In retail.

Gregory Peters:

Is that - so it's $130 million in retail for personal lines across the country and wholesale and programs what’s the mix? Or I guess, coming at it a different way, because you talked about, you're speculating about what, what may happen if there's an event or not an event in Florida or Texas, I am just trying to understand the magnitude as what's the impact, as I think about Brown & Brown. Maybe, you could use that as an entry to talk about the cactus I think those were an issue for you in the second half of last year related to Ian. Maybe you could give us an update on that.

Powell Brown :

Can I make a comment on that Andy, before you talk about the captives? I also want you to understand that we have personal lines business all over the country. So that could be in the Northeast, it could be in Long Island, it can be in Illinois, it can be in Colorado, it can be California, it could be in Florida. What I'm - what we're trying to say there, Greg, is to give you kind of some color around the dynamics in the marketplace, not so much to say that all of our personal lines is based on those two or three states. That's not what we're saying. What we're basically trying to say is, the impact of the state sponsored markets or the potential impact, when you see big admitted carriers, like State Farms and farmers and Allstate pulling out of a state like California, that creates a lot of challenges for people that are writing homeowners in getting homeowners. Do you want to talk about captives and like captive events?

Gregory Peters:

Thank you. I just close the loop on your captive commentary. Is there any change with the way the reinsurance structure way that's structured and what the loss profile that business looks for the remainder of the year?

Gregory Peters:

Got it. Thanks for the answers.

Operator:

Please stand by for the next question. The next question comes from Rob Cox with Goldman Sachs. Your line is open.

Powell Brown :

Yeah, Rob, it’s Powell. I would tell you this, it's interesting because when you go out in Florida or you're here in London or whatever restaurants are packed and people are spending money. And so, what we're saying and lots of economists are dropping the probability of a recession and the second half of the year, I would just tell you that a lot of the customers that I've talked to and I hear about are just they just are approaching it kind of cautiously. That doesn't mean that everything they're - said, we're going into a recession or anything. It's a little bit of a wait and see. So, do I have any data - real-time data in July that would tell me, no, I don't. But I don't think that's really, I think it's more of an instinct rather than something that they're seeing every day in their businesses. That's how we - that's how we interpret that.

Powell Brown :

I think it's a little bit of everything actually. Remember, if you have, there's a lot of property business that comes up in Q2 whether that's in our retail business, but also in our wholesale business and that doesn't necessarily mean it with Brown & Brown retailers. It could be with independent retailers. So there's just a lot of property. That's number one. Number two, I think that from a standpoint of submission, count it’s very good. So we're getting a lot of opportunities and in some of those opportunities we’re having some higher hit ratios I think and it's not something so pronounced, but it's just a little uptick I think in certain areas and by doing that and you put all that together with the increase in race and you get a 13% organic growth, which is a great quarter for wholesale.

Robert Cox:

Great. Thank you.

Operator:

Please stand by for the next question. The next question comes from Mark Hughes with Truist Securities. Your line is open.

Powell Brown :

I think it's sort of across the entire platform. But I don’t know you're reading too much into that. I mean, the point is that you can have an incremental uptick in your quoted and bound ratio and that has a positive impact. But you got rate in there. You have lots of new submissions. Remember, one of the things in terms of providing color on the marketplace, let's just use Andy made a comment about personal lines, if you're in a state where all of a sudden your admitted carrier non-renews you, you may be going one, to the state plan, Two, you may – the state plan, depending on what they hear and may not even provide enough coverage for your coverage A on your homeowners, and therefore you may be going into the E&S market. So, a lot of those things there is just unique dynamics because of the market being in sort of turmoil or disrupted, that creates more opportunity in E&S. Just plain and simple.

Andy Watts :

No, so the – good morning Mark. So the $6.5 million was the benefit year-over-year to organic from the captives in the second quarter. Okay?

Andy Watts :

When we get to the third - when we get to the third quarter, we’ll actually have a $5 million to $7 million headwind. And that's because we accelerated the recognition of the revenue on the premiums in connection with the projected claims cost in the third quarter of last year. You get – I have no idea what will happen if we have if any source storm in the third quarter. We're just telling you kind of what we know right now. And then it will be, there will be minimal organic benefit in the fourth quarter, because we're writing a specific amount of premium which is what we're going to write in the four quarter of this year, which is the same amount that we wrote in the fourth quarter of last year.

Andy Watts :

No, we're not just stage changing our overall outlook. We adjusted that at the end of the first quarter and said we would be up slightly for the whole year very pleased with the second quarter results and things can always move around. But we feel real good about the business and the outlook for the year and everything. But no, we're not going to have any major changes on that front right now. But feel very good about the business and potential for profitable growth.

Operator:

Please stand by for the next question. The next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Andy Watts :

So couple things on that front. Elyse is, one is no, we’d not be 100% margin. We do have running cost of the actual captive insiders there – There will be higher margin if there's no storms that are there. But what we said is, we retain $13 million on a per occurrence and up to a maximum of $25 million. We’re capped at $25 million on this year either through a combination of a wind event or a quake event that’s out there. So it gives you a at least, it gives you an idea of we’re on the higher end of our revenue range. You get an idea things really go completely sideways with the potential profit that we can still participate in on these captives. That's why we created them. That's why we're participating. Because we're on - we have put these over top of two very, very well performing programs for a long period of time. And as we mentioned before, the captives, while they don’t read for that name, the actual outcome is identical to a contingent. We're participating in the underwriting profit. So it's you'll see some - you'll see some volatility back and forth, but now they are working right as we designed.

Andy Watts :

That would be an absolutely, yes, we would have seen margin expansion in the quarter and if you to back out the incremental net investment income, because that might be your other question is, the answer is yes, we still expanded margins in the quarter. So we feel really good about the performance.

Powell Brown :

Can you repeat that please, Elyse?

Powell Brown :

Yeah. No. The answer, just so you know, is first of all, we were very pleased with both the commercial and the employee benefits. Remember, employee benefits has a unique dynamic relative to revenue recognition in Q1 and sometimes that also impact - it can impact into Q2. So I don't I don't look at it on a quarter-by-quarter basis, although I have, I think about it over an extended period of time. So it could be either Q1. I mean, I'm sorry the first half or on a yearly basis. And so, we're very pleased with how the commercial business and the employee benefits business is performing there. Yes.

Powell Brown :

Thank you.

Michael Ward:

Thanks guys. Good morning. Maybe just back on Florida, you mentioned, it's not getting any better. Just curious is that something that we just have to wait to get their wind season? Or there is more need to be done around interpreting the law or do carriers see the need, do they need to see more from lawmakers, I guess?

Michael Ward:

Super helpful. So, and so it sounds like you're very happy with GRP and your other European acquisitions from last year. Just wondering if you can sort of comment on how you see those impacting organic now that they'll be part of the calculation going forward.

Michael Ward:

Okay. Super helpful. And then, maybe just last one on interest income. You've already exceeded your guide for the full year. I'm just curious any comments on the back half. Thank you.

Michael Ward:

Okay.

Operator:

Please stand by for the next question. The next question comes from Yaron Kinar with Jefferies. Your line is open.

Powell Brown :

Well, wait a minute, I just want to make here, yeah so we might be talking about two things. Are we – we are very pleased with the performance and part of the performance that we're talking about is, remember they acquired over 20 different unique businesses, which we think are very good going forward. So let's - but on the core basis, I believe when we announced that that we talked about we believe that it would perform in line, they would perform in line, possibly better. But in line with the divisional performance and what I'm reiterating is, they are performing in line with the divisional performance more a little bit better but we're pleased with that.

Yaron Kinar :

I appreciate that. The clarification that’s helpful. Thank you.

Yaron Kinar :

And then on, Kentro, can you maybe talk about, is there any revenue seasonality you expect there or what margins expected to be relatively in line with the division in which passed in and how well it be out?

Yaron Kinar :

And do you have any idea of how kind of the revenues will be distributed in the retail and the programs business?

Yaron Kinar :

Thanks so much.

Operator:

Please stand by for the next question. The next question comes from Meyer Shields with Keefe, Bruyette & Woods. Your line is open.

Powell Brown :

I think it could be - it's a more broadly than just some of that. So, yes it is, it's competitive.

Powell Brown :

Well, first of all, we're very pleased that Bronek Masojada and Paul Krump has joined the Brown & Brown Board. They have both very deep industry expertise. They also have not only underwriting, but understanding about the exposures, not just in the United States but overseas and things like that. And I think that, I would want you to go consider them just like any other board member that joined Brown & Brown we think very highly of them. We are very pleased to have their industry expertise. But I don't want you to take something out of context. These are people that we have known and worked with and think very highly of and they've already added to our board in the first board meeting, which was last week. So, we're really, really with both of them joining the Board and look forward to many years of really great contributions from both of them.

Powell Brown :

Meyer, I'm not, we're not aware of that. Right now, I will tell you that the Insurance Commissioner and that in the State of Florida is underneath the CFO. I know that the CFO of the State of Florida and Insurance Commissioner and then ultimately into the governor's office, they are all thinking about ways to retain existing carriers and attract new carriers because they're very conscious of the exploding growth in citizens. And so, the answer to the question is, no, we're not aware of it. However, I can assure you that they're thinking about it in terms of ways not, not that question specifically, but ways to actually get carriers to stay and bring more carriers to the State of Florida to create a more competitive environment.

Powell Brown :

Absolutely.

Operator:

Now, I would like to turn the call back to Powell Brown for closing remarks.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

Good morning and welcome to the Brown & Brown Incorporated First 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 first quarter and are intended to fall within the safe harbor provisions of the security 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 first quarter 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. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Mr. Powell Brown, President and Chief Executive Officer. You may begin.

Andy Watts:

Great. Thanks Powell and good morning everyone. Since Powell discussed our GAAP results earlier in the presentation, I'll review our consolidated financial results on an adjusted basis. We're over on slide number 7. As a reminder our adjusted measures exclude the change in estimated earn-out payables, one-time acquisition costs associated with our acquisition of GRP, Orchid and BdB last year and gains or losses on business divestitures. This quarter it also excludes $11 million related to resolving a business matter which is considered one-time in nature. The charge relates to a pre-acquisition event from a business we bought over 10 years ago. We believe isolating the above items gives a better reflection of the performance of the business and provides enhanced comparability. The reconciliation of these amounts -- adjusted amounts to the most closely comparable GAAP amounts can be found in the appendix to this presentation. Total revenues were $1.1 billion for the first quarter, a new record for us growing 23.5% as compared to the prior year. Income before income taxes increased by 13.2% and EBITDAC grew by 23.2%. We had good leverage across the business even with a few moving parts this quarter that included some additional one-time costs that substantially offset the benefit of incremental investment income. In addition the margins for GRP, as we've mentioned before, are more evenly weighted throughout the year versus our seasonally higher margin in the first quarter for the company. This means, it negatively impacted the first quarter margin by approximately 40 basis points. As a result, GRP will benefit our margins in future quarters. Income before income taxes grew at a slower rate than total revenues, due to the incremental interest and amortization expense associated with acquisitions we completed last year. The effective tax rate came in at 20% which is in line with our expectations and compares to 16.8% in the first quarter of last year. The higher tax rate is due to a lower benefit from the vesting of incentive stock shares that traditionally occur in the first quarter of the year. Our diluted net income per share increased by, 7.7% from last year to $0.84. Due to the changes in the liabilities and assets associated with our deferred compensation plan, salaries and related expenses as a percentage of revenue were negatively impacted year-over-year by 150 basis points. There's an offsetting benefit within other operating expenses. Lastly, our weighted average share count increased slightly and dividends paid increased about 12% both as compared to the first quarter of last year. We're on Slide number 8. The Retail segment had an outstanding quarter delivering organic growth of 8.8%. The adjusted EBITDAC margin contracted slightly to 37% for the quarter. While the margin remained strong, it was impacted about 100 basis points by the level phasing of revenue and profit from GRP as compared to our higher Q1 margin in the United States, driven by our employee benefits business. We expect this will reverse and provide a positive impact to our margins in future quarters. We also realized some year-over-year headwinds associated with higher travel and related expenses, which we expect these headwinds to lessen as the year continues. We're over on Slide number 9. National Programs had another very strong quarter, with organic growth of 33.8% and adjusted EBITDAC margin expansion of 610 basis points. The margin improvement was driven by leveraging our expense base along with the strong organic growth. Keep in mind that, revenue for the quarter includes approximately $8 million of claims processing revenue associated with Hurricane Ian. In addition, our captive facilities that we started last year are expected to deliver $30 million to $35 million of revenue this year. We recognized approximately $10 million of revenue in the first quarter of this year as compared to approximately $1 million of revenue in the first quarter of last year. The positive impact to organic growth from these captives will diminish in each subsequent quarter and will be negligible by the fourth quarter as we will be on a more comparative basis. While we anticipate National Programs will have a good 2023, we do expect lower organic growth in the second half of this year as compared to the second half of last year. This is due to the fact that, the captives will be on a more comparative basis. We had a onetime non-recurring growth bonus of $7 million in the fourth quarter of last year, and we realized approximately $8 million of revenue associated with Hurricane Ian in the fourth quarter of last year. We're moving over to slide number 10. Our wholesale segment delivered another good quarter with organic growth of 7% and the adjusted EBITDAC margin contracted slightly. The driver of the margin decrease was higher salaries and related costs due to incremental hiring as well as salary inflation. We're on slide number 11. The Services segment grew by 1.6% organically for the quarter and the adjusted EBITDAC margin decreased by 390 basis points. The primary drivers of the margin decrease with the volume of claims revenues for certain businesses higher salary and related costs as well as some onetime expense items. A few comments regarding cash generation and capital allocation. We generated approximately $60 million of cash flow from operations in the first quarter of this year, which was impacted by higher interest and paying taxes for last year that were deferred as a result of Hurricane Ian relief. We are continuing to expect another strong year of cash generation and disciplined deployment. We ended the quarter with approximately $564 million of operating cash. We are planning further debt repayments during the year as we've done following larger deployments of capital. We are very proud of our industry-leading ratio of cash flow from operations to total revenues, and believe we are in a strong capital position to invest in the business and help drive further growth in the future. Lastly, we want to update our full year guidance regarding margins. Based on the good results for the first quarter and what we can see over the coming quarters, we are raising our outlook. And as a result our margin should be up slightly for the full year versus our previous guidance of flat. With that, let me turn it back over to Powell for closing comments.

Operator:

Thank you. [Operator Instructions] Your first question comes from the line of Weston Bloomer from UBS. Your line is open.

Andy Watts :

Yes. Good morning, Wes, Andy here. So we don't provide that level of granularity on outlook by the segments and everything, but just a couple of things maybe to take into consideration. Our comments earlier is we had about 100 basis points of headwinds for GRP in Retail for the quarter. That will reverse itself over the coming quarters and will be a benefit. And as we mentioned the cost around travel and entertainment some of the inflation side of it that will continue to lessen as the year comes along and we're on a more comparative basis. So hopefully that kind of gives you an idea of what it should look like.

Andy Watts :

Yes. We had some of it. We didn't call it out specifically, but I mean, we've got it in all -- I mean, we have in a number of our segments, because we're always investing in the business. So you can always have some up and downs by the quarters based upon time hiring and growth.

Andy Watts :

No, sir.

Andy Watts :

Thank you.

Elyse Greenspan :

Hi. Thanks. Good morning. My first question was also on the margin side. So, first of all, I just want to understand, I guess, the only thing you're calling out, I guess, from having a significant impact on margins in the quarter is that 40 basis points all from GRP. And then as we think about that reversing over the course of the year, does that get better in all other quarters? I just want to think about the seasonality of that. And then also would you expect in that updated guidance that your margins will expand in the other three quarters of the year?

Elyse Greenspan:

And then is the Q1 investment income, right, I think it's trending better than what you guys had provided last quarter. I think you had said $14 million to $17 million for the full year. Is the Q1 a good run rate level for investment income?

Elyse Greenspan:

Yeah, it’s great. And then last one, retail. You guys both highlighted it seems like a good environment there both on the core brokerage and the benefits business. I guess, good growth in both in the Q1. Anything one-off or anything you guys want to highlight as we think about just the go-forward organic growth of that segment?

Elyse Greenspan:

Thank you.

Operator:

Your next question is from the line of Gregory Peters from Raymond James. Please ask your question.

Powell Brown:

Sure. So first of all I'd like to clarify that in a business that's $2-plus billion of revenue, the impact of Florida today versus the impact of Florida 15 years ago is much different. So I think it's important to start there. The second thing that I would tell you is that from an economic standpoint, generally speaking in our -- with our customer base in Florida, they seem to be doing quite well. And what I mean by that is the construction is booming, people are growing. That does not mean that their margins are necessarily growing, because they -- different industries are having different levels of inflation and impact on cost into their P&Ls. But I would tell you that -- and if you go to dinner, it's packed. So it's still -- the economy is doing well in Florida. As it relates to Citizens, I'd like to talk about two scenarios, because this is -- there are some similarities and some differences for those of you that have been around since 2007. I'd like to talk about that. So here's basically the parallels. In 2007 and today. Citizens is deemed as the market of last resort, okay? So let's start there and we're going to start in retail and that's where the similarities end. So in 2007 if in fact -- and these are just examples. This is not -- it's a hypothetical example, so just bear with me. If the market was bearing an $0.85 rate on a condominium and Citizens being the market of last resort was quoting a dollar rate and the then Governor implemented wind mitigation credits, that took that rate from $1 in Citizens down to $0.50. So effectively the buyer was going from $0.85 to $0.50 per – in terms of insured values. That action in and of itself took us to negative organic growth in 2007, as an organization, much different concentration in Florida all that stuff. The final thing is Citizens was the market of last resort. They would write anything, anything, okay? So now fast forward to 2023 and Citizens has underwriting guidelines and there's not a rate cut. So if in fact, I'm just going to use the same scenario that we just had there. If they were at $0.85 and Citizens was $1 or $1.25, and the general market is at $1.75 or $1.50 then there are underwriting criteria, roof construction all kinds of things where Citizens is actually trying to qualify accounts. So remember, it's much different. It doesn't mean it's not complex. It is complex. So it takes a lot of time to get through a government entity to get the – but that's the difference now. In Retail, if you take an account that's from the E&S market and you bring it over into Citizens, the commission level would be, let's say flat to down slightly to up slightly. But let's just call it flattish but it has a lot more work. That said, in the wholesale segment, it has the potential to one an account can move. So you could go in the E&S market and they lose the entire account because it goes to Citizens with the retailer or you can have a scenario where Citizens quotes the wind-only and we quote an ex-wind quote. And remember, the example is it was $0.85 on – and its superior construction, the wind-only rate – I mean the ex-wind rate might be $0.07 or $0.10. So all of a sudden the premium has gone down substantially and we get paid commission on that much lower rate. So that's how it manifests itself Greg. And maybe a little more than you wanted but I think it's important for people to understand the difference today between 2007 because it's a big difference. And it's important you understand that.

Powell Brown:

I think now I want to make sure that you – when you say residential, are you talking about residential homes, or you talking about condos and apartments as well?

Powell Brown:

Okay. So the short answer is no, I don't think it's 20% presently. And what you find is there's a lot of activity in the residential, specifically condos and apartments in the first half of the year. So there's a lot of activity right now going on. And as I said, there are properties, not only where you live but up and down the West Coast and the East Coast, that are currently in the E&S market that have been submitted to Citizens but we don't know yet, if they're going to qualify. So how that ultimately plays out this year is yet to be determined.

Gregory Peters:

Got it. That's excellent detail. And I feel like we could probably have an hour-long conversation just on this topic alone. But I'm going to pivot, and my last question just will focus on inside your commentary around GRP, you commented about how they're making acquisitions, and I guess I haven't really seen any press releases come out from Brown. So, how are -- how is that coming through in the reported numbers, or where are we -- where do we see the acquisition activity inside GRP as is reported through Brown & Brown's consolidated statements?

Gregory Peters:

Got it. And then just on that point your approach to organic has been pretty -- well, you've set a benchmark on trying to not include acquisitions as part of organic. I assume you're taking the same conservative approach in applying it to how you count in GRP organic. Is that correct?

Andy Watts:

Yes.

Powell Brown:

Yes.

Operator:

Your next question comes from the line of Robert Cox from Goldman Sachs. Your line is now open.

Powell Brown:

Yes. So I think the way we look at it is we still have a positive outlook on exposure growth, not so much inside of existing clients but the growth in number of clients. So we do believe that our customer base on a net basis will actually expand in terms of adding new people to their plans but the biggest part of the growth will be new benefits plans where we're helping people manage their costs and the delivery of what they want to their employee base.

Powell Brown:

Yes. The short answer is did we see an acceleration in the decline? And yes we saw a little bit. That's correct. And remember I would -- and I don't have this right off the tip of my tongue but remember D&O rates were going up more quickly and sooner than this property trend. So, they had gotten to a level that the marketplace felt as though it was appropriate or high and then people started piling back in. Now, one, Robert could make the argument, I am not making this argument, but I'm pointing it out, that if someone on the risk-bearing side is trying to manage volatility in their earnings and doing that by looking closely at their CAT property portfolio, they have to redeploy that -- those assets and they're redeploying those assets in a place like professional liability. Thus, we're having price decreases or continued price decreases in professional liability. So some people have taken that position. I'm not necessarily trying to imply that. I'm just trying to give that to you so you can kind of chew on it.

Operator:

[Operator Instructions] Your next question is from the line of Yaron Kinar from Jefferies. Your line is now open.

Powell Brown:

So, do we think it's a headwind for 1Q, 2024? No, not really as we sit here today. That's the first part. But you're on it. If you go back to what we said, there was one particular business that had an impact in Q4 in terms of a headwind. And that business -- that individual business still actually was encouraging headwinds in Q1. But the other businesses performed really, really well. And as Andy has said before, remember we have a front-end loaded, from a 606 revenue recognition standpoint, in Q1, because of employee benefits, but that's a function of us writing a lot of new employee benefits business and all the other businesses performing that much better relative to -- and offsetting of that little bit of a headwind in that one particular business. So we feel good about -- I mean, I don't want to give you the impression that we only feel good about employee benefits. Please don't take that out of my -- our comments. We feel really good about our P&C and we feel really good about our personal lines businesses too in Retail. But I just mentioned it, because there were people on the call in Q4 that felt like the organic growth was a trend, which is not and we said that. But we just wanted to kind of clarify that. And we also clarified it, because we did talk about a business that had a significant impact on the revenues in Q4 and there's still a bit of a headwind there but we've overcome that.

Yaron Kinar:

Got it. Thanks. And then, my second question is with regards to the captive revenues. Is it fair to think of them as, kind of, full margin revenues, at least in kind of the first half of the year until we hit storm season barring an earthquake?

Powell Brown:

And that's wind and quake you're on, make sure -- I want to make sure you knew it. Yes. Okay. Thank you very much.

Operator:

Your next question is from the line of Michael Ward from Citigroup. Your line is open.

Andy Watts:

Yeah, I think we're just trying to estimate right now it will -- we're anticipating to move back and forth a little bit. The other thing is in the third quarter of last year when we recognized the claim cost on Ian's we also had some accelerated premiums during that time period. So it will move a little around a little bit by the quarter. That's how we took that into consideration. So you won't probably see it be exactly perfect by each of the quarters on an earned basis. It will be down a little bit in the third quarter.

Andy Watts:

Why don't we tackle the last one first. So what we have said publicly is on a gross basis 0 to 3. We're very comfortable with that range and 0 to 2.5 on a net basis. Michael, if you look back over time, we traditionally will move on the higher end of that range around acquisitions, and then we trend back down. And we normally kind of operate in kind of that middle part of the range in both net and gross, if you look at it over a longer period of time. And that's probably not unreasonable for our business. That will kind of continue to go down. One is, we repay debt normal maturities that are coming along on a quarterly basis and then as we just continue to grow the organization. If you look back we normally will delever about 0.25 to 0.5 turn per year is a pretty decent amount.

Michael Ward:

Thanks, guys.

Meyer Shields:

Thanks, and good morning. One, I guess small question. When we look at the international acquisitions do they have a different fiduciary investment income profile than the legacy domestic business? Is there more investment income associated with their placements than the direct build test we have in the US?

Meyer Shields:

Okay. But this -- like the year-over-year improvement that seems like you're saying it's just a function of interest rates as opposed to mix.

Meyer Shields:

Okay. And then I just wanted to confirm something. I think you mentioned this in your recent comments, but one of the LPI insurers has significant catastrophe losses in the quarter and you're saying that that -- there were no losses in the captive reinsurance component?

Powell Brown:

Yes, repeat the first part of that question. You were breaking up or I didn't hear it exactly.

Andy Watts:

No. No, there isn't. But keep in mind the captives that we have are not -- they're not linked with our lender-placed business. They're on large condominiums as well as on the quake side. So, wind and quake in there. And no, we did not have any storm-related claim cost in the first quarter.

Operator:

Your next question is from the line of Mark Hughes from Truist Companies. Your line is open.

Powell Brown:

No. I don't want to give you the impression that there's some like found new capacity. I wish we could say that. But I think the issue is this every carrier or market participant is evaluating how they want to deploy their capacity. As I said earlier carriers are looking for more protection against earnings volatility nothing new. They're looking for balance of risk to the extent possible where we have a very large group of programs that are not just CAT. So we're able to balance those with people and so that's a very positive and we've had really good results over a long period of time. So we feel like as I've said before that we are effectively an outsourced insurance company. We can do everything other than bear the risk. And as a result of that and the results that we have delivered if in fact someone is considering, expanding or repositioning, which is a better thing. I don't think of it as expanding but repositioning capacity then we typically like to think that we're going to be near the top of that list because they've seen our results and they've seen the growth that we've had in the past. So there's no found bucket of gold under the rainbow. It's not that kind of deal. But I do feel like there's some really good discussions around us being able to keep capacity, which is as equally as important. I view that as a win Mark not just cutting capacity, because a lot of people have had a lot of capacity cuts. And if we can keep our capacity that to wind and then we might get cut a little bit somewhere but we get a little new. And so on a net basis, we're about even or maybe up just slightly.

Powell Brown:

Yeah. What I would tell you Mark is, if we go around the system and you look in places, it's remarkable. I mean places that come to mind I'll give you an example Nashville, Tennessee, Atlanta. You get up in the Northeast in several areas, Boston. You get in Colorado. I mean, Phoenix. You get in all these places all around and you just got a lot going. And so if you think about it, the industry -- the one industry that we're in that has got a headwind as a higher level in a specialty lines business is auto dealers. We do some auto dealer work and auto dealer units are down. So think about it. Their pricing is coming back down to MSRP levels or below. There's an impact on used cars. And so that's a direct relation to our interest rate increases. So having said that at some point that's going to turn as well. So that's a slight headwind in our -- but if you think about other industries there's a lot of businesses that are looking for people. I think the restaurant business is tough particularly anything that is not defined as seated. It doesn't have to be fine dining but like a nicer restaurant, they're having a hard time in terms of getting people to work because if it's fast food, it's just tough.

Andy Watts:

No, we didn't break it out but we did mention it Mark in the commentary on services. And yeah we did pick up some claims from the winter storms, again nothing really, really material in there but a few.

Andy Watts:

Yeah. And just for clarity those sit in services, okay?

Operator:

Your next question is from the line of Elyse Greenspan from Wells Fargo. Your line is open.

Elyse Greenspan :

Hi. Sorry, I was on mute. Thanks for taking me back. I just had a follow-up question. So, just thinking through some of the stuff that came up earlier in the call in terms of just the captive and Ian revenue and the margin. So I know you said the captive isn't 100% margin. So if I assume Ian and the captive right, which I think was $18 million revenue is 75% margin and I adjust the overall margin for that, and I add back the 40 basis point headwind from GRP, I still get that you're about a 35.4% margin for the quarter. So will it still would have been down a little bit year-over-year right? And you did have the NII tailwind. What am I missing, I guess, in thinking about this math and then tying it back to your guide for margin improvement over the balance of the year?

Elyse Greenspan:

Okay. And then when thinking from here, I guess, the only, I guess, one-off items embedded within the updated full year guide is just right programs will be some stronger revenue from the captive right until we kind of annualize that later in the year. So that could help margins, I guess, in the second quarter and then also just the higher investment income. Are there any other like headwinds or tailwinds in that updated full year guide for the rest of the three quarters?

Elyse Greenspan :

Okay. And then one last one the $30 million to $35 million of captive revenue this year what was that last year in your full year…?

Elyse Greenspan :

Okay. Thank you.

Operator:

There are no further questions at this time. I'd turn the call over back to our speakers for closing remarks.

Operator:

This concludes today's conference call. Thank you all for participating. You may now disconnect.

Operator:

Good morning, and welcome to the Brown & Brown Incorporated Fourth Quarter Earnings Conference 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 the 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, 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, and its financial results differ from the current preliminary unaudited numbers set forth in the press release issued today -- yesterday. Other factors that the company may 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 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. In addition, there are non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in the investor presentation for the call on the company's website at www.bbinsurance.com by clicking on the Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President, and Chief Executive Officer. You may begin sir.

Andy Watts:

Great. Thank you Powell. Good morning, everybody. We're over on Slide number 8. Like previous quarters we'll discuss our GAAP results and then certain non-GAAP financial highlights. For the fourth quarter, we delivered 22.1% total revenue growth, organic revenue growth of 7.8%, and our EBITDAC margin increased by 220 basis points. Our net income grew 43% and diluted net income per share increased by 42% to $0.51. Both were impacted by the change in estimated acquisition earn-out payables, which was a credit of $5.8 million in 2022, and the charge of $19.8 million in the prior year. The effective tax rate decreased to 25.2% for the fourth quarter of this year as compared to 27.8% in the fourth quarter of last year, primarily driven by lower statutory rates for our international businesses and the impact of deductibility for acquisition earn-out payable adjustments. Our weighted average number of shares was substantially flat compared to the prior year, and our dividends per share for the quarter increased to $11.5 or 11.7% compared to the fourth quarter of 2021. We're over on Slide number 9. This slide presents our results on an adjusted basis, which excludes the impact of movements in foreign currencies on both revenues and expenses. The net gain or loss on disposals, the one-time acquisition integration costs associated with GRP, Orchid, and BdB, and the change in earn-out payables. We've included on Slides 18 through 26, reconciliations to the most comparable GAAP measures. On an adjusted basis, our EBITDAC margin grew by 290 basis points versus the prior year. EBITDAC increased by 34.9% and income before income taxes increased by 22.6%. This margin expansion was due to another solid quarter of revenue growth, increased contingent incentive commissions, and leveraging our expense base even while having a higher year-over-year variable operating cost. The incremental growth rate of adjusted EBITDAC as compared to adjusted income before income taxes was driven by a higher year-over-year interest cost of $29 million and higher amortization of $7 million with both largely driven by the GRP, Orchid, and BdB acquisitions. Our adjusted net income for the quarter increased by 26.9% and adjusted diluted net income per share was $0.50, increasing 28.2%. We're on Slide number 10. Our Retail segment delivered adjusted total revenue growth of 19.8% driven primarily by acquisition activity and organic revenue growth of 2.7% for the quarter. Adjusted EBITDAC grew 25.1%, with our adjusted EBITDAC margin increasing by 120 basis points for the quarter, primarily driven by lower year-over-year performance incentives, but was partially offset by higher variable operating cost. We're on Slide number 11. Our National Programs segment delivered adjusted total revenue growth of 34.1% driven by organic revenue growth of 21.9%, acquisition activity, and higher contingent commissions. Organic growth was positively impacted by approximately $7 million due to the finalization of a growth bonus for one of our programs, which we do not anticipate recurring in 2023. As it relates to flood claims processing revenues associated with Hurricane Ian, we still expect revenues in the range of $12 million to $15 million. In the fourth quarter, we recognized approximately $8 million. Our contingent commissions were higher due to premium growth and profitable underwriting in our CAT programs, as well as the loss development for Hurricane Ian being lower than originally expected. Adjusted EBITDAC grew by 53% over the prior year and our adjusted margin increased by 540 basis points to 44.1% primarily due to total revenue growth and leveraging our expense base as well as higher contingent commissions and the previously mentioned growth bonus. We're on Slide number 12. Our Wholesale Brokerage segment delivered adjusted total revenue growth of 17.1% driven by recent acquisitions, good organic revenue growth of 8.1%, and an increase in contingent commissions. Adjusted EBITDAC increased by 19.9%, with the associated margin growing by 70 basis points, which is primarily impacted by increased contingent commissions and good organic growth, but was partially offset by higher variable operating expenses. We're on Slide number 13. Adjusted total revenues and organic revenue growth in our Services segment were substantially in line with the prior year. For the quarter, adjusted EBITDAC increased $1.6 million or 23.9% driven by continued management of our expenses. We're on Slide number 14. This slide represents our GAAP results for both years. In 2022, we delivered revenues of over $3.5 billion growing 17.1%, and earnings per share of $2.37 growing 14.5%. EBITDAC increased by 14% to approximately $1.2 billion. For the year, our share count was substantially flat and our dividends paid during 2022 increased by 11.3%. We're on Slide number 15. This slide presents our results for both years on an adjusted basis. Our income before income taxes grew 6.6%, and net income per share was $2.28 growing by 6.5% as compared to total revenue growth of 17.3%. This difference was driven by higher interest and amortization associated with GRP, Orchid, and BdB. Our adjusted EBITDAC margin remained strong at 32.8% but declined slightly by 40 basis points from the prior year due to higher variable cost. Overall, we are very pleased with the results for 2022. We're on Slide number 16. It's part of evaluating the performance for the year and the fact that are captives are newer, we wanted to provide some additional color. We participate in two CAT property captives with the goals to increase capacity, drive additional organic growth, participate in strong underwriting results, like we do with contingent commissions, and deliver good returns on our invested capital. One captive participates on a quota-share basis for certain of our wind and quake programs, and the second participates on an excess of loss or reinsurance layer for a personal lines wind program. Overall, we are very pleased with the top and bottom-line performance, knowing that certain quarters can have volatility when they're CAT events. It's important to keep in mind that performance cannot be evaluated on one quarter but it's better viewed on a full-year basis. In 2022, we recognized approximately $25 million of incremental revenue with about $5 million driven by the acquisition of Orchid. For 2023, we anticipate revenues of approximately $30 million to $35 million. From a risk standpoint for both captives, we can have up to $13 million of exposure in any one occurrence and $25 million in the aggregate. As we always do, we've used a disciplined approach to balance upside potential and downside risk versus deployed capital and believe we have structured the programs well to deliver on our objectives. Few comments regarding liquidity and cash conversion. For 2022, we delivered cash flow from operations of $881 million. Our ratio of cash flow from operations as a percentage of total revenues was 24.7% as compared to 26.5% last year. This lower ratio is due to the payment of earn-outs as certain acquisitions have overperformed our original expectations, incremental interest expense, and paying higher incentive bonuses to our teammates for their outstanding performance in 2021. Overall we are in a strong cash generation and capital position, finishing the year with $650 million of available cash. We also repaid the remaining outstanding balance of $150 million on our revolver that was drawn in connection with our acquisition of GRP, BdB, and Orchid. We expect to continue to delever over the coming quarters as we have done in the past post larger deployments of capital. We finished the year in a strong liquidity position. With this capital, the cash we will generate in 2023 as well as capacity on our revolver we are well-positioned to fund continued investments in our company. We have a few comments regarding the outlook for 2023. First, for contingent commissions, we anticipate them to be relatively flat year-over-year, but this will be ultimately driven by loss experience. As it pertains to taxes, we expect our effective tax rate to be in the range of 24% to 25%, a slight increase compared to 2022 due to a higher estimated tax rate in the U.K., the lower year-over-year tax benefit from the vesting of stock grants and limitations on the deductibility of certain compensation benefits. We anticipate our interest expense will be in the range of $185 million to $195 million. Regarding interest income, we're seeing some nice improvement and are projecting income of approximately $14 million to $17 million subject to how the Fed changes interest rates. As it relates to amortization expense, we're projecting approximately $162 million to $166 million. This does not include amortization associated with acquisitions that we may complete during 2023. As it relates to margins, we do not see any major headwinds or tailwinds heading into 2023, that shouldn't materially impact our margins. With that, let me turn it back over to Powell for closing comments.

Operator:

[Operator Instructions] And our first question comes from Greg Peters with Raymond James. Your line is now open sir.

Powell Brown:

Okay. Let's start with the second part first. Let's talk about employee benefits. Employee benefits overall performed really well for the year and we're very pleased with those businesses. And as we said in our prepared remarks, that was actually really only in one or two businesses that had a setback. Having said that, I think that EV will continue to perform well in the system. We don't give organic guidance on that and we don't break out lines of business, but from an employee benefits standpoint, feel really good. As it relates to the CAT property pricing, the variable there, Greg, as you know is not as much our -- I mean, it is there are certain limitations on ability to present limits in some instances. But it's more of -- in my opinion, it's more of an affordability issue. And so, if you think about if you've been giving rate increases, let's just say to yourself on your own personal lines homeowners, if you've got an increase of let's say 10% a year for four or five years in a row and then all of a sudden we came on the fifth year and gave you a 25% increase, there is a -- the buyers are tiring of that. And so, having said that, availability of capacity in this market is unlike anything I've ever seen, I've only been in the insurance industry for 33 years now. So, there's a lot more to go, but I've not ever seen anything like this and we will continue to provide solutions to our customers. But sometimes the example I think we used last time and I would use it again is, if you have an entity, and they're paying $800,000 for their property and the renewal is a $1.8 million, and they say, what can we buy for $1 million, which can't buy anymore insurance, we can't afford it. So, we're seeing that more and more, Greg. So, the CAT pricing that is going to -- is it more of a wildcard. The other thing that we're seeing is in the CAT capacity and accessing it in some instances, there is commission pressure downward on some of those placements now. So, a lot of people just think, well, as the rate goes up X, then you're going to -- your commission goes up X if you're on commission as opposed to a fee and that is true sometimes, but in this case, they might cut your commission one or two points, and so we're seeing that as well. So that's a harder one to answer, Greg.

Andy Watts:

Sure. Well, I think what we're trying to say on that one, Greg, is we don't see any major headwinds or tailwinds going into the year. We do have like most everybody else unknowns around what will happen with inflation and T&E, but we'll work our way through those pieces. I don't see any major incremental investments that we're making in the business that we need to call out externally, we're always making investments in our business, but we do that each year through everything. We do anticipate that T&E will be up year-over-year, just not to the extent that what we saw '22 versus 2021 right now. So, and that was really why we gave guidance going into 2022 because that was a big variable, but right now, we're not seeing anything specifically that would impact the margins in 2023 versus 2022.

Powell Brown:

No.

Andy Watts:

All right. Thanks, Greg.

Robert Cox:

Hi, thanks for taking my question. Just with respect to Retail, you called out a couple of headwinds. I was wondering, specifically on group benefits if the toughest comp was created by a true-up of exposure expectations in the prior year quarter or more so by a deceleration in growth this quarter.

Robert Cox:

Got it. Thank you. That's helpful. And maybe just moving onto some of the Florida legislative changes. Any comments on what you think the impact of those might be for Brown & Brown in the near term and then perhaps longer term?

Robert Cox:

Got it. Thanks. And maybe just lastly could you quantify the annual growth bonus in National Programs and maybe specifically to programs, where you see contingents going in 2023?

Robert Cox:

Thank you.

Weston Bloomer:

Thanks for taking my questions. First, one is just a follow-up on the employee benefits comment. Can you just remind us of the seasonality of that business? And do you expect there to be any material headwinds in the first quarter as well?

Weston Bloomer:

Got it. Thank you. And then kind of a similar type of question within professional lines. I know you highlighted the slowdown in D&O pricing. Is there any seasonality or how should we think about the impact of lower rates in that business both in retail and then in wholesale?

Weston Bloomer:

Great. Thank you. And then last one, just on the margin I know you highlighted no material headwinds or tailwinds, and maybe you don't gain too granular here, but it is the March '22 M&A that came in at a higher overall margin. Is that business still running higher overall relative to kind of the core Brown & Brown?

Weston Bloomer:

Yes. The margin guidance that you gave --

Weston Bloomer:

Great. Thanks for taking my questions.

Operator:

Thank you. One moment for our next question. And our next question comes from Elyse Greenspan with Wells Fargo. Your line is now open.

Andy Watts:

So, one of the items that we saw in the third -- during the fourth quarter, is we did recognize about $3 million or $4 million that we had anticipated we would not recognize in the fourth quarter. If you remember back to the call, we said we had backed out to the third quarter call. We had backed up $15 million year-to-date and said, we probably would -- therefore, not record in the fourth quarter. Development was not at the extent that we anticipated at that stage, which is that positive. And so we recognize those three to four, and then as we look to 2023, we would anticipate earnings some in '23, not back to kind of normal levels because there is some still carry-over in the calculation. But we've taken that into consideration when we have given guidance at a total level for the company, substantially flat.

Andy Watts:

Yes. If you look at it by itself that would be a true statement it would be accretive to margins.

Andy Watts:

Yes. I think isolation, I think that's probably fair at least. But there's -- within our business, like most businesses, but at least we'll talk to ours specifically, there's always a lot of moving parts, and you've always got things kind of moving back and forth. And that was really why we're trying to give guidance about any major tailwinds or headwinds that are out there.

Andy Watts:

Nothing at a top-level until Weston's earlier question is, will there be potentially a little bit of headwind in the first quarter from what we saw in the fourth quarter a little bit, but we feel really good about our business and how it's positioned and the capabilities that we have served customers of all sizes in that business and feel like we will perform well during 2023.

Andy Watts:

Great. Thank you.

Operator:

Thank you. One moment for our next question. And our next question comes from Michael Zaremski with BMO Capital Markets. Your line is now open.

Powell Brown:

Yes. No. I would say, Michael, it's probably a net positive but slight net-net positive, and the reason I say a hedge with a slight is because of changes that we can't see in the market yet i.e., limits for -- limits being reduced by carriers or some potential for any commission pressures or anything of that nature, but -- and basically also clients just basically raising their hand and saying look uncalled. And I know that's tough, but it's true because we are the deliverer of bad news when it comes like this. So, it will be -- I think it will be slightly positive that is how I would want you to think about that.

Powell Brown:

So, let's talk about your comment around wage pressure. We're not immune to wage pressure and I think that's a very important thing. And one of the things that we find just like anybody else out there in our space is the war on talent is very competitive and people are looking for people not just salespeople, but there could be service people, or marketing people, or administrative people that administer claims or things like that. So, it's a very competitive marketplace. So I don't want you to think that we're immune to that because we are far from that. That's number one. Number two, when we say T&E pressure, it's not as though we think there's going to be so much -- that much more travel and entertainment. We think that the -- if you do the same, there's just significant pressure on, let's just say an airplane ticket or a hotel depending on where you're going. And so, that's where we're seeing that pressure. And so, our business is not unlike many of the other businesses that you know, or follow, or all of the above, it isn't an inflationary environment. The pressure here although it is high is not as high as it is in England,, and in Ireland that wage pressure seems to be higher there. But we're working through that as well. So, that's kind of what we mean by that, Michael.

Powell Brown:

No. We haven't seen anything interestingly enough in California. As you know, they don't get a lot of rain to begin with. And so, when they do get a lot of rain, they get significant flooding, and there are not a lot of people that buy flood insurance in the State of California. So, it's no. We don't see that.

Powell Brown:

Thank you.

Yaron Kinar:

Hi, good morning, everybody, and thanks for [all] my questions. I guess my first question and I think it may be tied back to a couple of other questions you have already received. As you think about the property CAT rate environment, where do you see maybe the -- which segments do you think would benefit most and which ones would you see maybe facing greater pressure from the various components you talked about kind of reduced commissions, maybe more difficult placing business.

Yaron Kinar:

I'm asking of the four segments that you have or I guess really three Retail National Programs and Wholesale which do you think would benefit more and which would maybe face greater pressure?

Yaron Kinar:

Thank you. That's helpful color. If I could switch gears to M&A for a second. So, I think you had said that the pipeline remains robust. That said, you are seeing M&A activity slowing. Is that just a function of a bid-ask spread that is too wide? Or are there other drivers there?

Yaron Kinar:

Thank you very much.

Operator:

Thank you. One moment for our next question. And our next question comes from Mark Hughes with Truist. Your line is now open.