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.

Thank you very much. Good morning, everyone, and welcome to our Q3 2023 earnings call. We delivered an outstanding performance in the third quarter, achieving organic growth just shy of 10%. Our EBITDAC margins expanded by 350 basis points, while adjusted net income per share increased by 42%. Additionally, we completed the acquisition of Kentro earlier this month. This company operates MGUs in the U.K., U.S., Europe, and other regions, with a retail broker operation in both the U.K. and Europe. Kentro has strong capabilities, particularly focused on financial lines, aviation, and trade credit, along with other lines of coverage. We welcome Colin Thompson and their team to Brown & Brown and look forward to their business growth in the coming quarters and years. Our revenues surpassed $1 billion, growing 15.1% overall and 9.6% organically compared to the third quarter of 2022. Our adjusted EBITDAC margin increased by 350 basis points to 34.7%, and our adjusted earnings per share rose 42% to $0.72. We completed seven acquisitions during the quarter, with estimated annual revenues of $14 million. Also, I'd like to mention that our Board of Directors recently approved a 13% increase in our dividend, marking the 30th consecutive year of dividend increases. We attribute these excellent results to the dedicated efforts of our over 16,000 teammates who develop and deliver innovative solutions for our customers. From an economic perspective, the situation resembled the second quarter, with consumers continuing to spend and drive demand. Consequently, the economy has shown resilience despite higher interest rates, as growth and inflation start to moderate and approach more normal levels. Many business leaders are hiring but remain cautious regarding significant investments. While revenue figures look healthy for many companies, inflation continues to pose a challenge as certain costs outpace revenue growth. In the insurance sector, many buyers are feeling exhausted due to ongoing rate increases primarily affecting property, which have been consistent for several years. The insurance marketplace remains difficult for customers due to their focus on spending. Numerous customers have increased deductibles and lowered limits. We are observing lenders becoming more flexible in certain cat-prone areas regarding total purchased limits. Rate increases across various lines of coverage have generally mirrored the first half of the year, with admitted markets up 5% to 10% and excess and surplus lines markets rising 10% to 25%. However, there are exceptions outside these ranges. Workers' compensation and professional liability rates for larger customers continue to decline, with workers' comp rates dropping less than previously, ranging from flat to down 5%. Professional liability rates, including D&O and cyber for public companies, were flat to down 15%, with some instances showing even steeper declines. Cat-exposed property remains a challenging line of business, as carriers are typically not increasing their capacity. Underwriters are still pushing for higher insured values due to inflation and rising replacement costs. During the quarter, placements for personal lines in California, Florida, and Texas were particularly tough, with policies frequently transitioning into state-sponsored plans or the E&S market. We are well-equipped to support our customers through our extensive carrier relationships and the diverse solutions we offer. While we cannot address every issue, this has contributed to our personal lines growth. In the M&A market for the quarter, the number of deals from financial backers has slowed, resulting in fewer bidders for businesses. Valuations have slightly decreased, but quality businesses still command premium multiples. We remained active, acquiring seven strong companies this quarter, bringing our total for the year to 20. Overall, we are very pleased with our M&A success in North America and Europe. We are in a solid position to identify and acquire high-quality companies that align culturally and financially. Our retail segment had another great quarter with 8% organic growth, driven by strong new business, good retention, and continued rate increases, both domestically and internationally. We are securing a lot of new business by leveraging our collective capabilities and offering innovative solutions to customers looking to manage their insurance costs. Our program segment also had a strong quarter with 12% organic growth, supported by robust new business, good retention, and ongoing rate increases, especially in cat property. Almost all programs experienced significant growth this quarter. The wholesale brokerage segment achieved over 13% organic growth, driven by strong domestic and international new business, good retention, and rate increases across most lines. Our brokerage, delegated authority, and personal lines all performed well during the quarter, although professional liability continues to face pressure due to declining rates. Our services segment saw approximately 3% organic revenue growth, primarily driven by increased claims processing revenue in certain businesses. Now I will turn it back over to Andy for more detailed financial results.

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, one-time 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 enhances 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 one-time 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.

Thanks, Andy. Great report. The impact of inflation, increases in interest rates on our customers and the consumer are the key areas we're monitoring as these will drive the rate of economic expansion and investment. Like previous quarters, we expect business leaders to remain cautious regarding how much they will invest over the coming quarters. As we noted earlier, the consumer is still spending, and most of our customers are growing their businesses. From an insurance standpoint, we believe rate increases will remain relatively consistent through the end of the year. That means customers are going to remain highly focused on managing their insurance spend by either decreasing limits, increasing deductibles, and in certain cases, opting for loss limits. Many of our customers have already done one or more of these items. Regarding our carrier partners, they continue to be focused on diversifying their portfolios and reducing volatility in their earnings. This is evident through cat capacity management and disciplined underwriting. As a highly diversified global insurance platform, we have delivered very good underwriting results by continuing to provide our carrier partners with access to distinct customer segments. We believe we're well positioned to maintain and possibly grow our capacity with these important partners. We feel great about our business as our team is executing and delivering at a very high level. We're making the right investments for the long term and remain focused on hiring and retaining the best teammates. As we continue to do this, we are able to leverage our collective capabilities to retain our existing customers and win more new business. In summary, we're very pleased with our results through the first nine months of the year, delivering organic growth of 11%, adjusted EBITDAC margin expansion of 170 basis points, and adjusted earnings per share growth of 25%. We are well positioned and have great momentum as we head into the final quarter of the year. With that, we'll turn it back over and open the lines for Q&A.

Thank you. Our first question will come from Michael Zaremski with BMO. Your line is now open.

Good morning. Regarding the excellent margins this quarter and year-to-date and their impact on our outlook, Andy, when you discussed the various factors, is it correct to say that the unusual elements going forward could be the low costs for the captives and possibly that organic growth has surpassed your expectations? I just want to clarify whether there are any one-time items we should be aware of.

Yes. Good morning, Mike. Regarding the third quarter, we did not identify any specific one-time items. For the fourth quarter, the main concerns are the incentive bonus and the claims revenue related to Ian. We still have the fourth quarter ahead of us and are currently in storm season, so it's hard to predict how things will unfold. Those two items are significant. Additionally, depending on how storm season concludes and considering the remaining months of the year, our captives also absorb a quarterly share of some of our West Coast earthquake programs. Those are the uncertainties that may arise, but we feel positive about our direction heading into the fourth quarter.

Okay, let's discuss organic growth more broadly. The near-term outlook suggests that rate increases will remain stable. Powell, you mentioned that carriers are still pushing through higher insured values, which I believe relates to exposure. Can you provide your perspective on whether you anticipate any slowdown in exposure, especially as nominal inflation appears to be decreasing? Or is there still a level of exposure that is higher than historical averages running through the system, which is positively impacting your growth?

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.

Thank you.

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.

Yes, thanks. Good morning. Powell, you mentioned maybe prospects for a little more capacity from carriers for next year. I think you've described that as the restraint in 2023, but your organic has obviously been very good with the reinsurers probably doing pretty well this year. Do you think there's more opportunity for faster growth when we think about some of these coastal programs or these states like Texas and California that have had problems getting capacity?

I would be careful about suggesting faster growth. I think it’s important to note that while there is capacity, it comes at a cost. Carriers are being very cautious in managing their available capacity. We see it as a positive if we can sustain the capacity we currently have. In cases where someone might want to reduce their distribution to us, we believe we can fill most of that demand with other carriers interested in our facilities or in the wholesale and retail markets. However, I want to caution you against assuming that this means we have a significant amount of new capacity that will lead to substantial new growth. I don’t want our statements to be misinterpreted in that way. Overall, we feel optimistic about the feedback we are receiving from our carrier partners regarding maintaining our current capacity, and we are confident in our ability to replace any changes in their participation.

Understood. You mentioned construction. Are you noticing any changes in construction? Is there any indication of a slowdown in the next job, which is always important?

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.

Very good. Thank you.

Thank you.

Thank you. One moment for our next question please. Our next question comes from the line of Michael Ward with Citi. Your line is now open. Michael Ward, your line is now open.

Michael, we cannot hear you.

Mr. Ward, are you on mute? I'll go to the next person. One moment, please.

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

Our next question comes from the line of C. Gregory Peters with Raymond James. Your line is now open.

Gregory?

Mr. Peters, your line is now open. All right. Mr. Peters? All right. I'll go to the next one. Next question comes from the line of Rob Cox with Goldman Sachs. Your line is now open.

Can you guys hear me?

Yes.

Yes, we can hear you.

Awesome, so maybe my first question on organic growth. I mean, just in the context of Brown doing significantly more property cat in the second quarter and growth typically being slower in the back half of the year, could you talk about what drove the more resilient than expected organic growth in the quarter, maybe specifically for both Retail and then Wholesale?

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.

That's great. Thank you. And then maybe just a high-level follow-up on expenses, not necessarily related to this quarter, in particular. But if we zone in on the retail segment, can you just walk us through the expense line items that are seeing kind of the most inflationary pressure here in this environment and what line items are doing okay?

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.

Thanks. Appreciate the color.

Thank you.

One moment for our next question please. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is now open.

Hi, thanks. Good morning. My question is about Retail. I know you mentioned dealer services, which was a challenge in the second half of last year and the beginning of this year. Given the strong results this quarter, it seems that may have improved. Is that correct? Or was there still any impact from dealer services in this quarter?

Yes, good morning, Elyse. So as you remember, we indicated that the headwind was kind of going to neutralize in the second half of the year relative to dealer services, and we did see that sort of neutralize in Q3. So we are very pleased with the overall business and even in dealer services. It's just getting inventory for our dealer customers. But I would tell you that, that was a positive for us compared to prior quarters this year, yes.

Thank you. Regarding the margin update, there has been significant margin improvement of 170 basis points so far this year. Is the contraction in Q4 primarily due to the one-off revenue from last year within Programs, specifically the $7 million and $8 million you mentioned? I understand you typically don't provide guidance on a quarterly basis, but I'm trying to see if there is anything else noteworthy in Q4 that you want to highlight.

No. Those are the significant items that are included.

Okay. And then one last question. It appears to be a competitive M&A environment, but it seems like financial sponsors might be considering waiting for a while. What are you observing regarding the M&A pipeline and transaction multiples?

Elyse, I would say that in the past, there were quite a few early participants looking at businesses with financial backing, whereas now there are fewer. This doesn’t indicate that there are none; it simply means there are not as many from that segment. This change is partly due to rising interest rates and their ability to invest their capital. However, we have not experienced significant downward pressure on multiples. I would estimate that they may have decreased by about 0.25 to 0.5 times. For strong businesses, there is still intense competition. We are continuously searching for opportunities and are very satisfied with the acquisitions we've made this year. The reasons for selling vary by transaction, but we believe many opportunities will arise in the coming years, and we feel confident about our position. Specifically regarding inventory, it remains strong, and while it's always been good, we are pleased that it continues to be robust.

Thank you.

Thank you, Elyse.

Thank you.

One moment for our next question please. Our next question comes from the line of Meyer Shields with KBW. Your line is now open.

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

Yes, you're coming through.

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?

Hi, good morning, Meyer. Yes, it's a combination of two things. So if you recall in the third quarter of last year, since Ian hit on the 28th of September, right? We had recorded what we thought the development would be at that stage. And if you recall in the fourth quarter, we had made some true-ups because the development was not as extensive as it was originally estimated. We made a few more of those kind of throughout the year. But now we're kind of back to where, at least from everything we're seeing and hearing from our carrier partners that we're in a pretty good place on loss development. They got through most of the claims that are out there that we were on.

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?

No. No. If anything, it's actually improved to the betterment.

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?

Sure. So I think that there fundamentally is a continued transition of certain types of business, not specifically and limited to cat properties that are rotating into the E&S market. So I think we're going to continue to see that into '24 and '25. That said, is there a time in the future where some of that business that rotates out might come back into the standard market? And the answer is yes, I believe that to be the case. But we've got to have a couple of years of good loss experience for the carriers because I think sometimes there are certain businesses that are because of location, they may be put into a box, and if you looked at them on a one-off basis, they might not necessarily need to move to E&S or all of it to E&S. So I think there's a continued trend towards it. But I also think that in a couple of years, there could be some slight rotation back.

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

Thanks.

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.

Thanks. Employee benefits, seems like the pricing rates are up pretty substantially. Andy, I know in the past, you've talked about how Q1 organic has benefited from employee benefits momentum. Could there be a little bit more this year because of pricing in that market?

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

No, I'm thinking Q1, this coming year.

We don't provide growth guidance for specific lines of business or organic growth. However, we are very happy with the growth of our employee benefits line, and we continue to invest in our capabilities while generating a significant amount of new business across the platform.

Yes. I mean, Mark, if your question is about rates on the EB space, no, we're not seeing any fundamental changes in the rate increases in the EB business. They continue to be pretty robust as we've been talking about for a number of quarters. It is different if you're on a fully funded versus self-funded plan. The pharmacy is probably the biggest topic that everybody is talking about today because of all the specialty drugs that are out there.

Thank you.

Hey, Norma, can we get the couple of people who didn't get in earlier back in the queue, please?

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?

Norma, can you check and see if he's muted by chance on your end?

Not on my end, I'm checking. He's open.

He's not there.

Okay. I'll go to the next person.

We'll get him back around.

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

Good morning. My first question is regarding the services segment. You experienced better growth there, achieving 3%, and mentioned a benefit from some claims processing revenue. Was that a one-time occurrence? I'm trying to determine if you believe this segment can achieve sustainable organic growth, or if there was anything one-time in the claims processing revenue you referenced.

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 one-time 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.

Understood. That clarifies things. My other question pertains to your mention in the script about achieving your target debt leverage of 0x to 3x. Should I interpret that as indicating we shouldn't anticipate further debt reduction in the upcoming quarters? Is that now largely complete, or is there more to come?

You shouldn't assume that now.

No, Mike, looking back historically, we modestly increase our leverage when we pursue larger acquisitions. Typically, we will take our leverage up a bit with higher acquisition levels. However, we tend to de-lever quickly afterward, usually reducing our leverage by about 0.25x to 0.5x, and sometimes 0.75x throughout the year due to normal debt maturities and business growth. Historically, our gross-to-EBITDA ratio has been around 2.2x to 2.4x, and we are currently within that range, likely to continue trending downward. That said, we may increase our leverage again if we identify a compelling acquisition opportunity. Overall, we aim to maintain a conservative balance sheet.

Okay, thanks.

Thank you. Please hold for our next question. I see there are no further questions at this time. I will now hand the call back to you, Mr. Brown, for your closing remarks.

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.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.