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.

Thanks, Norma. Good morning, everyone, and welcome to our earnings call. Q1 proved to be another strong quarter where we delivered excellent top- and bottom-line growth. Our team did an outstanding job of winning more new business again this quarter. I'll provide some high-level comments on our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financials in more detail. Lastly, I'll wrap up with some closing thoughts and comments before we open it up to Q&A. Now let's get into our results for the quarter. We delivered over $1.25 billion of revenue, growing 12.7% in total and 8.6% organically over the first quarter of 2023. Our adjusted EBITDAC margin improved by 130 basis points to 37%, and our adjusted earnings per share grew 18.8% to $1.14. On the M&A front, we completed six acquisitions with estimated annual revenue of $16 million. Growth in the markets we operate in has not materially changed compared to the fourth quarter of last year as consumer spending remained resilient. Levels of hiring and investment were similar to what we experienced in the second half of '23. However, there continues to be a shortage of workers for many industries, which has also driven elevated levels of inflation. From an insurance pricing standpoint, the overall changes in rates for most lines were relatively consistent with the fourth quarter of last year. Pricing for employee benefits was similar to prior quarters with medical and pharmacy costs up 7% to 9%. These pressures are driving strong demand for our EV consulting businesses. Rates in the admitted P&C markets were up 5% to 10% for most lines, while we continue to see decreases of 5% to 10% for workers' compensation in most states. However, we're starting to see some changes in rates for casualty, professional lines, and CAT property compared to prior quarters. Due to ongoing levels of inflation and the size of legal judgments, pricing for excess casualty lines continues to increase, and we're seeing upward pressure for primary limits. Over the majority of my career, primary liability rates seem to have been under downward pressure. As you've seen, the excess market has been up substantially in the past few years. And with the continued deterioration in the general liability market, the primary rate seems to be moving up in certain lines of business. Now, it seems there's an upward pressure on both primary and excess rates. For professional liability, we saw a slight improvement in pricing compared to last quarter, but rates are still flat to down 10%. CAT property rates moderated during the quarter compared to 2023. We saw many accounts that had low or no losses with rates down 10% or more. And accounts with losses or poor construction or a combination of both increased slightly to up 15%. This was driven by some carriers or facilities willing to put up additional limits combined with some new capital entering the marketplace. As we've seen some downward rate pressure on certain properties, this may have a slight impact on those offices in CAT areas. However, their new business activity remains strong, and they're performing well. As we've always said, our organic growth in a steady state economy is generally driven two-thirds by exposure units and one-third by rate. In CAT prone areas, the rate impact might be slightly higher. Keep in mind, we've built a highly diversified company in geography, lines of coverage, and customer size as these enable our consistently strong financial performance. Lastly, in the M&A marketplace, it continued to be competitive for high-quality businesses. In the quarter, we remained active building relationships with lending companies and acquiring another six. Let's transition to the performance of our three segments. Retail delivered another great quarter with organic growth of 7.2%, winning a lot of new customers along with good retention. In addition, all lines of business performed well. We're very pleased with how the team is leveraging our collective capabilities to create unique solutions for our customers. Our goal has always been to have the tools and capabilities to serve our customers as they grow and become more complex. We have strategically built our employee benefits and property and casualty businesses to serve customers of all sizes, from those with fewer than 50 to over 50,000 lives, as well as startups to multibillion-dollar revenue companies.

Great. Thank you, Powell. Good morning, everybody. We're on Slide number 7. I'll review our financial results in more detail. When we mention EBITDAC, EBITDAC margin, income before income taxes, or diluted net income per share, we mean those measures on an adjusted basis, reflecting the previously announced exclusion of intangible asset amortization. The reconciliations of our GAAP to non-GAAP financial measures can be found in the appendix of this presentation or in the press release we issued yesterday. We delivered total revenues of $1,258 million, which is a 12.7% growth compared to the first quarter of last year. Income before income taxes rose by 19.4%, and EBITDAC increased by 17.1%. Our EBITDAC margin was 37%, showing an impressive expansion of 130 basis points over the first quarter of 2023. The effective tax rate for the quarter slightly decreased from the previous year, with diluted net income per share increasing by 18.8% from last year to $1.14. Our weighted average shares outstanding increased by just over 1% as we continue to focus on paying down debt over the full year, given its higher contribution to earnings per share, cash flow, and shareholder value. Finally, our dividends per share paid increased by 13% compared to the first quarter of last year. Overall, it was a 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 mainly due to acquisition activity over the past year. EBITDAC grew slightly slower than total revenues primarily due to higher non-cash stock-based compensation costs and lower contingent commissions. We're on Slide number 9. Programs had another strong quarter with total revenues increasing by 16.9% and organic growth of 11.8%. The additional growth in total revenues beyond organic was largely driven by increased contingent commissions stemming from our strong underwriting performance and a quiet hurricane season in 2023. This growth in contingent commissions included about $7 million related to finalizing prior year estimates, which 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 leveraging our expense base, higher contingents, and the sale of certain claims processing businesses in the fourth quarter of 2023. We're on Slide number 10. Our Wholesale Brokerage segment had another excellent quarter with total revenue growth of 15.4% and organic growth of 10.8%. The additional growth in total revenues exceeding organic was due to increased contingent commissions and acquisitions completed over the last 12 months. Our EBITDAC margin rose by 150 basis points to 32.4%, attributed to leveraging our expense base and higher contingent commissions. A few comments regarding cash generation and capital allocation. Typically, our first quarter is the lowest for cash flow. Additionally, this year, our cash flow from operations was affected by the payment of two-quarters of federal income taxes for 2023 that were allowed to be deferred as part of Hurricane Idalia tax relief, as well as the payment of income taxes related to the sale of certain businesses in the fourth quarter of last year. We continue to anticipate another strong year of cash generation and a conversion ratio of cash flow from operations to revenues in the range of 22% to 24%. Finally, we concluded the quarter with approximately $580 million in operating cash and are in a robust capital position.

Thanks, Andy. Great report. From an economic standpoint, we expect growth to continue this year. As we've mentioned before, we do think this expansion will moderate towards more normal levels over the coming quarters. With persistent inflation and a tight labor market, we believe there's a good backdrop that will drive growth, hiring, and investment for many businesses. Regarding the admitted markets, we believe overall rate changes will remain relatively similar to what we experienced in the first quarter. For the E&S markets, rate decreases for professional lines should continue to moderate as we expect casualty both primary and excess to further increase. Based on what we see today, we believe there will be continued rate pressure for CAT property. This is highly dependent on early storm activity this year. Regarding M&A, we're in a great position with a strong balance sheet and access to capital. We continue to talk to a lot of companies and build relationships. Our disciplined approach has proven to be very successful as we're focused on acquiring high-quality organizations that fit culturally. We have great momentum coming out of the first quarter, there's good economic outlook and our team continues to win more net new business by leveraging our collective capabilities. This positions us to deliver another year of industry-leading financial results. With that, we'll turn it back over to Norma to open the lines for Q&A.

Our first question comes from Robert Cox with Goldman Sachs. Your line is now open.

Maybe just firstly on the margins. I was curious if the margin breakdown this quarter was kind of how you envision this year playing out with National Programs leading the way? And is it right to think that divesting the claims processing business in the fourth quarter created sustainable margin improvement in National Programs that should flow through to coming quarters?

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 over the course of the year. 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 service businesses, yes, year-over-year, we'll see an increase in the margin from that disposal.

Okay. Great. And then just in regard to the pricing moderation in property CAT, I'm just trying to wrap our heads around if increased demand for coverage could offset some of the pricing declines and kind of the magnitude of each of those factors, and how that could play out for Brown & Brown organic growth in 2Q and beyond?

So, Rob, what I would say is this, 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 you’re 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.

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

I would like to hear your thoughts on the different rate movements you mentioned, particularly regarding the two-thirds to one-third ratio. I'm trying to understand the downward pressure versus the upward pressure across various lines of business. Could you provide us with some insight into how much of your total business is in excess and surplus lines, property, and excess casualty? This would help us gauge the moving pieces.

Well, Greg, it's nice to talk to you this morning and thank you for the question. I know you know the answer to this, but we don't give that level of detail out. However, what I would say is this, we write lots of CAT property in all CAT prone states, but we don't write it all exclusively from the CAT prone states. So, you could have an office that is in Chicago or Minneapolis or Milwaukee that writes business in these areas as well. That's number one. Number two, from a casualty standpoint, think about we write an enormous amount in our Retail business of package business. And in that package business, property many times is not the biggest part of the account. The largest account many times is workers' compensation followed by either auto or general liability. So, I know I didn't answer your question, but I'm just trying to give you a little color on our book in small, medium, upper middle market and even large accounts. And so, you're going to have a certain segment in the large accounts that are going to not be as affected up or down because if they're on fees. But what I would say is, we are very focused on delivering very, very competitive programs for our customers. And that is, in many instances, going to have downward pressure on our property book. There is some offset. I'm not going to say it's one for one, but there is some offset with this pressure in the casualty areas and the moderation in professional liability rates going down.

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.

Right. Makes sense. I guess as a follow-up, Andy, I think in your prepared comments, you called out a one-time benefit in the program side. Can you quantify that again? You were going through this quickly so I didn't catch all the detail.

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.

Our next question comes from Michael Zaremski with BMO Capital Markets. Your line is now open.

Regarding the contingents, we can discuss this further if necessary. However, even if we exclude the $7 million, the contingents still appear to be better than what you've indicated directionally, although I understand that the guidance is for the full year. My question is whether there was any seasonality or a pull forward in the first quarter that we should consider when looking at the next three quarters of the year. Additionally, has your perspective on contingents for the year changed, excluding the $7 million?

No, I wouldn't say that there was any pull forward in any nature, so no timing or anything in nature. When we record the contingent commissions based upon the policies that we place with the written premium that's out there. And we estimate those to the best knowledge that we have at the time on what we believe the profitability of the book will be. So that's why there's always going to be some sort of adjustments up and down to the estimates. I think as we went into the year, we thought that they would probably be flat to up a little bit. There will probably be now with the first quarter looks like qualifying potentially for a little bit more than what we had before, which is good for us for the year. And then, there's always a question of kind of what happens during storm season. That's always kind of the wildcard that may adjust the calculations.

Okay. That's helpful. Lastly, regarding cash flow as a percentage of revenues, it's clear that the guidance remains at 22% to 24% for the near term. In the past, you mentioned that a figure closer to 25% was considered normal. Can you explain why the figure is lower today and whether it has the potential to return to a higher level over time, based on what factors are keeping it down currently?

Yes, Mike, regarding your first question, we previously mentioned that we believe our business’s cash flow from operations conversion ratio over the medium to long term is around 24% to 26%. We still feel confident in that range. This ratio has decreased over the past 1.5 to 2 years, mainly due to higher interest expenses. However, as we’re approaching this period, you can see that the impact of interest expenses on cash flow for this quarter was minimal. The primary factor affecting this year has been the additional taxes we discussed. If you exclude those from your projections, you’ll notice we are actually close to our usual rate this year. Therefore, we are quite optimistic about what will happen with interest rates or if we take on additional debt for acquisitions, as we believe there is a clear path to return to that level by next year.

Our next question comes from Mark Hughes with Truist Securities. Your line is now open.

You had mentioned the employee benefits, the medical pharmacy up 7% to 9%. Was the organic in benefits comparable to the overall organic number? Or was it a little bit faster in benefits, a little bit slower?

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.

And then, the wholesale open brokerage, any observations there about the growth profile in that business kind of this quarter versus last quarter? And are you still seeing the mix shift into excess and surplus? Or has that stabilized? How do you see that?

Yes, we continue to see accounts entering the excess and surplus marketplace. Additionally, whenever rates fluctuate—either increasing or decreasing—there's a chance to generate new business. However, the market is currently experiencing a reset, which I would describe as somewhat chaotic regarding which players will engage and how to secure additional limits, with some markets offering more limits than others. Several carriers, both domestically and internationally, have reported strong results and are interested in the catastrophe property market. This presents many opportunities for us, but it's important to remember that after five years of rising rates, we sometimes face difficulties as the messenger. While this can lead to increased business for us, it can also result in losing clients who may be fatigued from the ongoing changes.

Our next question comes from Elyse Greenspan with Wells Fargo. Your line is now open.

My first question is about the strong organic growth you've been seeing in the program segment. I remember, Powell, you mentioned that there was some one-off revenue from last Q1. Could you provide more detail on what is driving such strong growth in that area? Should we expect this momentum to continue for the rest of the year? I'm particularly interested in the programs, excluding the captive business.

We appreciate your acknowledgment of our strong performance in programs. It's important to note that within these programs, we have several that involve significant wind or earthquake exposure. While these aren't traditional catastrophic events, they do face heightened competition. We believe there are promising growth opportunities for us in programs going forward. As mentioned last quarter, we've slightly moderated our expectations due to the increasing number of entrants in the excess and surplus space, particularly in wind and earthquake segments. Nevertheless, we are optimistic about the Programs business. We take a long-term perspective, and our underwriting facilities have generated excellent results for our carrier partners. As a result, there is growing interest from more carrier partners wanting to join our facilities. While we can't accommodate everyone, the demand remains high. It's also worth noting that just 12 years ago, when we acquired Arrowhead, there was skepticism regarding the value of managing general agents. Despite early doubts from the investment community about our decision, Arrowhead turned out to be an excellent acquisition that brought us many outstanding leaders. Lastly, I want to mention that our lender-placed business, which handles loan processing among other services, has performed exceptionally well, and we have seen significant new business written there. I hope this addresses your question, Elyse.

Yes. My second question is about margin. You mentioned in your guidance last quarter that it was slightly improved for the full year, and it seems to have started strong. It looks like you're not changing the guidance for contingents, since there’s no forward. Does this mean margins are expected to be better than initially thought for the full year? How should we consider the potential headwinds from captives in the latter half regarding losses? Are there any other factors that could influence the overall margin expectations for the year compared to the original guidance?

We are still very optimistic about our guidance for the full year. The question now is about the potential impact of storm claim activity, which is likely to affect us in the third quarter or possibly the fourth quarter. While the first quarter exceeded my expectations, I believe we will maintain our position moving forward, still seeing a slight increase, and we feel very confident about the year ahead.

Our next question comes from Jing Li with KBW. Your line is now open.

I just have a question on the program margin. So, I know you mentioned you included the sale of the service segment. Is it possible to see what's the impact on the margin that can you put a number on? Or...

Yes. Jing, it's 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.

Our next question comes from the line of Michael Ward with Citi.

Can you help us understand the differences in strength between rate, exposure, and new business?

Andy here. So, we don't break out that level of granularity, but we're very pleased with the growth in the business of what we're driving from new business where we are on policy retention in that business as well as the rate mix across all the programs again to Powell’s earlier comment. Depends on individual programs, they can be impacted more or less by rate, but we operate 60 programs around the world. And so, we're really pleased with the overall mix. But generally, that overall business as well as the others, a lot of ours comes out of net new business as we talked about.

Let me mention one other thing, Mike, I know you're aware of this. We're underwriting on behalf of our carrier partners, which comes with a significant responsibility to effectively select good risks. We take that responsibility seriously. While the growth we've experienced is quite good, it's important to understand that we are committed to risk selection. We don't just take on every opportunity that comes our way. There's a substantial amount of business that simply doesn’t align with our criteria, and that's perfectly fine. We prefer to maintain disciplined underwriting across the board. While we've seen nice growth, if we had approached it differently, we could have seen even greater growth, but the long-term results for our carrier partners would not have been as favorable. This is a crucial distinction.

You can achieve short-term growth effectively, but it's crucial to consider the long-term implications. We risk losing essential relationships along with this growth, which is significant for our business as we aim to support our carrier partners. We want to avoid the challenges associated with changing carriers, which can be difficult for everyone involved. Therefore, our focus is on a longer-term perspective rather than just increasing growth for a single quarter or over a few quarters.

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?

Well, Mike, I've been in the insurance business for 34 years, and during most of that time, we've faced downward pressure on general liability rates. Recently, as you've noted, there's been increasing adverse development in the last couple of accident years, particularly in 2019, 2018, and possibly 2020. If you discuss this with our carrier partners from a broader perspective rather than just focusing on individual risks, there's a general sentiment that there could and should be upward pressure on liability rates in the near to medium term, which means the next several years. This aligns with logic and rationale. However, our industry has not always been completely rational or logical in how it approaches risk. Nevertheless, I anticipate continued upward pressure on excess, particularly on umbrella policies. While it may not result in a significant increase right away—I'm not suggesting an extreme surge—I do believe we will see some upward pressure on general liability, though it may take a few years to fully materialize.

Mike, it's Andy here. Over the past year, we've noticed that inventories have improved, although not quite as high as they were before COVID. Currently, it's possible to find cars, trucks, and RVs, which is a positive development. The prices for used cars have started to decrease a bit, and there's some sensitivity to interest rates based on the buyer's profile. Overall, our customer base is doing well, and we are gaining more customers in this area, feeling optimistic about the future compared to the peak times during COVID when cars and trucks were selling rapidly. We believe we have successfully navigated that phase, and at this point, we do not perceive any significant challenges ahead.

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.

Thank you, everyone, for joining us. I want to share a few concluding thoughts. First, we are identifying numerous new business opportunities and successfully capitalizing on them. I'm very satisfied with the new business we're securing and how it's positively affecting our books. Second, change brings opportunity. The changes we've discussed today, particularly regarding CAT property, may introduce some challenges, but they also create opportunities and benefits for our customers. Lastly, regarding acquisitions, we don't have a strict target for how much we want to acquire each year. We have a goal to aspire to, but our focus is on finding acquisitions that align with our culture and are financially viable. I believe there will be many opportunities this year, and while I'm unsure if there will be even more next year, I anticipate a similar amount. There's a lot of change coming in distribution, with many private equity-backed firms seeking their next steps. It’s an intriguing time ahead. We're feeling optimistic about the business; we had a strong quarter and are looking forward to Q2. We appreciate your time and wish you all a pleasant day. Goodbye.

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