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. As a reminder, today's call is being recorded. Please note that certain information discussed during this call, including details in the slide presentation and responses to your questions, may be forward-looking in nature. These statements reflect our current views regarding future events, particularly concerning the company's anticipated financial results for the second quarter, and are intended to comply with the Safe Harbor provisions of securities laws. Actual future results or events may differ significantly due to various risks and uncertainties, including potential discrepancies between the final financial results for the second quarter and the preliminary unaudited figures shared in yesterday's press release. Other unidentified or unquantified factors, as well as risks and uncertainties mentioned in the company's filings with the Securities and Exchange Commission, may also affect outcomes. Further discussion about these factors and their impact on the company's business and outlook, along with more information on forward-looking statements, is available in the slide presentation and in the company's SEC filings. We do not intend to update or revise any forward-looking statements based on new information or future events. Additionally, this call includes certain non-GAAP financial measures. A reconciliation of these measures to the most comparable GAAP measures can be found in the company's earnings press release or the investor presentation on our website at www.bbinsurance.com under Investor Relations and Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Thank you, good day, everyone and welcome to our Q2 2023 earnings call. We had an outstanding second quarter and the first half of the year. We're very pleased with our strong top and bottom-line results with robust total revenue, organic revenue, and earnings per share growth. Today, Andy and I are in London headquarters at GRP where we've wrapped up our quarterly Board Meeting and then had the opportunity to engage with our European businesses and reviewed strategic plans for the coming years. After our discussions, we feel even better about our leaders and the growth opportunities for our businesses here. Now let's get into the results for the quarter. I'm on Slide number 4. We delivered over $1 billion of revenue growing 24.7% in total and 11.2% organically as compared to the second quarter of 2022. As a reminder, our calculation of organic revenue does not include contingent commissions, investment income, other income or gains and losses on business sales. Our adjusted EBITDAC margin expanded 150 basis points to 34.2% and our adjusted earnings per share grew 55% to $0.68. On the M&A front, we completed six acquisitions with estimated annual revenues of $24 million. This outstanding performance is a direct result of the relentless daily commitment by our 15,000 plus teammates to create innovative solutions for our customers. Now, on Slide 5, the insurance marketplace continued to be very challenging for customers. They remain focused on the overall spend for insurance and how to best manage their costs. Across most lines and coverage, rate increases were similar to recent quarters with admitted markets up 4% to 10% and excess and surplus markets up 10 to 20%. However, there are exceptions; workers compensation rates continue to decrease at a consistent rate. E&S professional liability rates including public company D&O and cyber continue to moderate downward with rates being flat to down 10% or more. The area remains the most challenging: CAT exposed property. Carriers continue to evaluate their coastal property portfolios and we're seeing more admitted carriers exiting the Californian and Florida personal lines space. As a result, placements are becoming even more difficult; consequently, more properties are moving to state-sponsored plans and into the E&S space that might have otherwise been written by an admitted carrier. At the same time, we continue to see underwriters seeking to increase insured value per square foot due to inflation and higher replacement costs. Thus, customers are seeing premiums rise significantly due to inflation and higher values. These factors are causing buyers to purchase loss limits, increase deductibles, decrease overall limits or even self-insure certain layers within a placement. Regarding the Florida insurance market, that has not materially improved; we have more admitted carriers either reducing their appetite or stepping away from the market entirely. This is pushing more policies to citizens and the E&S market. From a customer perspective, many businesses grew and hired employees during the quarter at levels similar to the first quarter, while the overall rate of inflation continues to slow. Business leaders remain cautious regarding the level of investment in their business in the second quarter, but incrementally are feeling better than they did in Q1 and Q4 of last year. As it relates to overall M&A, the level of deals primarily from financial backers continues to slow during the second quarter. As a result, we're seeing fewer bidders for businesses and valuations have come down slightly from their peak. But that doesn't mean that a good business won't trade at high multiples. From our perspective, we remained active during the quarter acquiring six great companies. We completed the acquisition of Highcourt Breckles, a retail agency based in Canada; two acquisitions in the United States and three here in the United Kingdom. We announced in May the pending acquisition of Kentro Capital Limited, which we anticipate closing in the fourth quarter. Kentro is an MGA Retail agency headquartered in London with a team of over 350, annual revenues of approximately $90 million, and with locations primarily in the UK, US, and Continental Europe. Kentro’s MGA Nexus underwrites across a diversified portfolio of 20 risk classes including trade credit, financial lines, and aviation. Xenia, its retail agency, is one of the largest trade credit brokers in the United Kingdom. We're excited to have Colin Thompson and his team join Brown & Brown. Overall, we're very pleased with the success of our M&A efforts and are in a strong position to leverage our disciplined approach that remains centered on identifying high-quality companies that fit culturally and make sense financially. I'm on Slide number 6. Our Retail segment had a good quarter, delivering organic growth of 6.3%. This growth was driven by solid new business, continued rate increases, and modest exposure and even expansion. Most lines of business performed well while our dealer services business continues to face headwinds due to vehicle inventory levels and higher interest rates. To give some context around that, the impact to our organic growth was approximately 200 basis points for the quarter. Our Program segment delivered a spectacular quarter with organic growth over 23% driven by strong new business, good retention, and continued rate increases, especially around CAT property. The majority of our Programs grew nicely during the quarter. Wholesale brokerage delivered an excellent quarter with organic growth of 13% driven by new business and retention, as well as rate increases for most lines of business. Our open brokerage and delegated authority businesses had a great quarter. Organic Services segment declined about 2% for the quarter due to the external factors that continue to impact our advocacy businesses. This decline was partially offset by higher claims processing revenue for certain businesses. In summary, we're very pleased with our first half results, delivering organic growth of nearly 12%, adjusted EBITDAC margin expansion of 70 basis points, and adjusted earnings per share growth of nearly 19%. Now turn it over to Andy to discuss our financial results in more detail.

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 costs 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% 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 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 the 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 costs 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.

Thanks, Andy. Great report. We continue to monitor the impacts of inflation and increases in interest rates on our customers in the economies in which we operate. We expect business leaders will remain cautious regarding their hiring and how much they will invest over the coming quarters. With that said, consumers are still spending money and most of our customers are prospering. We believe this trend will continue for at least the next few quarters. From an insurance standpoint, buyers remain fatigued due to continued increases in insurance rates, especially for CAT properties, which we expect similar increases through the end of the year. With these market conditions, buyers will continue to either decrease limits, increase deductibles, or, in certain cases, opt for loss limits. Regarding our carrier partners, they remain focused on capacity, as well as a flight to quality and diversification. Historically, we've delivered good underwriting results and are uniquely positioned with the breadth of our MGAs and MGUs to provide an opportunity for carriers to allocate capacity across multiple programs. The combination of our diversification and strong underwriting results positions us well to retain and possibly increase our capacity, which will support incremental organic growth from our programs. A few comments regarding our recent international acquisitions of GRP and BdB. We're extremely pleased with the performance of these businesses, as they're ahead of our expectations for the first year. The leadership teams are focused on driving continued growth over the coming quarters and years, both organically and through M&A. GRP has been active over the past year acquiring over 20 high-quality businesses. Additionally, we'd like to welcome all teammates that joined us over the past few months. Overall, we feel great about our business and how our team continues to execute and deliver. Our focus is on hiring and retaining the best teammates and leveraging the total capabilities of Brown & Brown to retain our existing customers and win more new business. In summary, we had a great first half of the year and have great momentum heading into the second half of the year. With that, we'll turn it back over to Michelle and open it up for Q&A.

Our first question comes from Weston Bloomer with UBS. Your line is open.

Hi, thanks. Good morning. My first question is on the Retail segment organic growth. You highlighted a 200 basis point headwind from dealer services in the quarter. I'm curious if you can disclose what that impact was in Q1? Or how you're thinking about that headwind for the remainder of the year? And, given those headwinds there, is it just fair to say Retail organic may be lower in the second half, just given the property outlook that you took - see in the second quarter?

Yeah. Hey, good morning, Weston. To give a little bit of color and context around this, we mentioned this back during Q1 as well as Q4 of last year that we did anticipate some headwinds for dealer services in the first quarter. 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 the 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 Q2 of last year. We saw those through the third quarter and fourth quarter, and now continuing through the impact in the back end of last year was about 1% on 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 onto 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 going into a little bit of a cycle right now, but they are great businesses, and we made significant investments in them over time to enhance our capabilities.

Got it. Thank you. And I guess, sticking on retail, can you maybe quantify the uplift you saw from property in the second quarter? And just remind us how much of that business is 2Q weighted maybe relative to the third quarter or fourth quarter?

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. 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 we said that normally our organic growth is generally a little bit lower in the second half of the year versus the first half because of the amount of CAT property as well as employee benefits that we see in the first quarter.

Great. Thank you. And just last one on professional lines. Are we close to the point where we're starting to lap the headwinds just given the lower pricing within that market? Just maybe you could expand on that and what you're seeing in professional lines more broadly as we move into the second half?

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? I don't know. But that's the one place where we really see real softening in the market. My instinct would tell me that in the near to intermediate term, we're going to continue to see that kind of pressure in that part of the space.

Yeah, Weston, you see it probably in the commentary in our deck. It's the one that we did call out that actually softened a little bit more, the second quarter versus the first quarter. So it could go a little bit more potentially.

Great. Thank you. Appreciate the color.

Thank you.

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

Hey. Great. Good morning. Wanted to touch on a topic that you guys have brought up within the deck as well about challenging placements in certain parts of the marketplace. So, I know, net - net, now that we're in July, is there any - should we be thinking that there's the potential for some lack of capacity that could impact your revenue growth rate or net- net between just much higher pricing and maybe there isn't a lack of capacity Brown is a big beneficiary? Just kind of curious if there's any nuances we should be thinking about in the back half of the year on the challenging marketplace?

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 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? This is a 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 increases. 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 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.

That's helpful commentary. I know it's not an easy question to parse out. My follow-up is on, I guess, contingents and ultimately margins should in the National Program segment; we can see there we are seeing a higher share of contingents, which I'm assuming helps drive the margin higher. So any commentary on the sustainability and maybe just stepping back on the contingent commissions if or for the overall company, are the contingents more weighted towards property or any specific business lines? And I guess, I was just thinking, when we're looking at kind of outer year forecasts for the insurance carriers we are all saying, hey, this is year five or six of a lot of meaningful rate increases, which you mentioned and ROEs are expected to be much higher on a go-forward basis on the property side of the business than they have been historically. So, I'm just curious maybe that could give Brown and other brokers kind of a lift in contingents, as well, in future years.

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 may be 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 of 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 earn 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 quarters 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?

I’d like to also make a comment there around property in general. And this is kind of our view on this. The rates in property today are at what I would call all-times high levels. And if you spoke to a risk bearer and they would talk to you honestly about their view on property rates, I think that you might hear that if we don't have an event this season, that there would be a leveling or even possibly a slight moderation in pricing next year. So, I just want you to kind of keep that in the back of your mind, and not every program or not every placement qualifies for contingents, but the contingents are driven on loss experiences. So you got a higher rate, obviously, you can sustain higher losses before you exit out the qualification. So just keep that in mind on the property thing, because it is a thing that we talk to our clients about all the time. If there is one thing that comes up time after time after time, is what's going to happen to property rates? When are we going to see some relief? How, you know, that type of thought process?

And Mike, the other question you asked is around kind of which ones that you earn on. 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 that the industry does not just us normally incentives, and then kind of all other lines are contingents and 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.

Thank you for the color.

Yes. Thank you.

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

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?

Yes. Sure. Just to give you context on that, personal lines inside of our organization represent about $130 million of revenue.

In retail.

In retail, sorry. Yeah, yeah. And so, when we're talking about that, we do also have a program; I mean personal lines businesses in wholesale and we have it in programs.

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 may happen if there's an event or not an event in Florida or Texas, I am just trying to understand the magnitude 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.

Yeah Greg, we’ll see - we may have a little context to the personal lines. If you recall, and this is good 18 months ago or so when we had all of the fires on the west coast. That was kind of the start of that process and so we've been facing the headwinds of declines in personal lines for a while, right? And that bled over from California, then into Florida, Louisiana, and the north part of Texas. And so, that's been some of our numbers for a while. So don't read anything into this that we're actually saying; we think that there are incrementally larger headwinds now in our business. We've been working our way through those. The one where you probably see it or we would see in percentage-wise the biggest impact is actually in our wholesale business. And that's back to Powell’s comment about properties in the past moving over into the state-sponsored plans. And back to our earlier discussion about the admitted carriers pulling out at certain markets; that is forcing some policies back into the E&S space. And so, we are actually seeing some uptick in our submissions and our binary in our wholesale business that's there. So, I don't know how long that continues on. Carriers change appetites and they decide to readjust their portfolios. But it definitely was for once, at least not a headwind in the wholesale business, which is, which is a really good thing.

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 are 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 Farm 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?

Yes. Hey, Greg, add one other piece. And we've talked about this on our calls before. We think diversification is extremely powerful. And so, just as you know we - you know, the discussion here about potential headwinds California, Florida, et cetera, keep in mind, we bought an outstanding business at the end of the first quarter of last year called Working, and they primarily focus on high-net-worth personal lines in the Southeast all the way up the Eastern Seaboard. That business is growing really well. So, just while there's headwinds, we also have things that are going well. That's what diversifications about inside of our business and that's how we want to make sure that hopefully we continue to grow the organization, because everything doesn't work perfectly every day. But if we have a lot of businesses, that can move back and forth that balances everything out. So just a little bit of perspective for you. On the captives, another good quarter for us. So this was really kind of our last quarter of meaningful organic growth. Recall, we started writing policies in the first quarter of last year. We got up to basically full written premium at the end of the fourth quarter. As we said before, that will be will have minimal organic impact in the fourth quarter. We had about $6.5 million of organic benefit this quarter. We still think we're going to be on the high end of the previous guidance that we gave. We said somewhere around 30 to 35, we think will be on the high end of that. And then it'll come down to what happens with storm activity in the back end of this year or if there happens to be an earthquake on the west coast. But they’re performing right in line with what we expected, which is a good thing. Just keep in mind, when we get to the third quarter in National Programs is we did accelerate the recognition of premiums last year with the claim cost that we had. So that will actually be about a $5 million to $7 million headwind on organic in the third quarter of this year as we get on to the comparatives.

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?

No, not substantial. I think a couple of pieces on that. One is, we were pleased to see that the reinsurance market was a little bit more orderly this year than it was last year. So we actually got all of our reinsurance treaties put in place back before they're back in kind of the May time frame, which is good. And then, with that, we were able to slightly reduce our maximum exposure. So, we feel really good about kind of how the captives are performing. The organic growth that they've delivered, as well as the profitability.

Got it. Thanks for the answers.

Thank you.

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

That's great. All right. Thank you all very much. We are very pleased with the quarter and look forward to an exciting third and fourth quarter of the year. We got a lot of cool things going on at Brown & Brown and we appreciate your time. And we look forward to talking to you next quarter. Good day.

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