BRO - Earnings call transcript Q1 2019

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Operator

Good morning, and welcome to the Brown & Brown Incorporated First Quarter Earnings Call. Today’s call is being recorded. Please note that certain information discussed during this call including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company’s anticipated financial results for the first quarter and are intended to fall within the Safe Harbor provisions of the 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. numbers company’s first it results quarter, the preliminary the results its differ include the current the in for that unaudited factors determination issued finalizes as financial from press Such release forth yesterday. set its financial the company’s that have not the Commission. and reports those filed may quantified, time to currently identified Exchange and with uncertainties company from or time and factors Other identified risks in the Securities

of as well discussion slide company’s company’s the information, otherwise. or prospects, Additional with revise filings disclaim these We business statements, forward-looking future factors and presentation and Securities obligation or connection the intention additional or result the to in affecting any as whether and is of other new Exchange Commission. in statements, update events, this in with regarding the call forward-looking information any and contained posted a as

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

You may begin.

Powell Brown

joining thanks for on XXXX and Thank first Good X. call. for us Slide everybody, you, morning, Kevin. I’m earnings our quarter

$XXX.X revenue, million growing of XX.X% For total. the first we in delivered quarter,

organic a get I’ll few X% of our in segments. revenues details increased growth by into each quarter. organic first Our for the minutes about the more for

XX. is was points basis margin XX.X%, up XX EBITDAC Our which versus

of share for XX% first XXXX. the net quarter first to $X.XX, income grew as compared to Our quarter per the

many #X. we I’m in financial customers Similar to million. quarter, what Slide people will to of revenues in our more now of also their results in quarters, we’ve for in growing and detail. approximately XXXX presentation, with business, annualized the more QX economy transactions our a number the completed investing Later of been on the eight Andy experiencing continue with During $XX organically. discuss expand of hiring

first XX% remain markets pressure lot some pronounced most there’s free see of rates barriers X%, while companies higher market. past X% of are rates in coastal competitive, The well, a certain other there’s including premium did but also consistently a coverage seeing slightly still employee couple competitive. general during is guidelines, we’re wind property, in want and the main lot lot there’s losses loss of of overall underwriting insurance a benefits compensation. across some tightening up quite the of talk where lot in hearing years, quarter, we as liability. lines, rates, flat see But we auto While other this of to line and we’re down Therefore, that upward with accounts desire in in the automobile and the there’s a where capital remain risk regions lines earthquake, to most over result – talk workers’ As to a increase X% to markets. commercial London discussion rates, Most up both for of

realize we innovation new Slide X. expected. returns some and we’re pleased on of technology, programs with I’m in and that the investments our to We’re initial starting

lines QX, with segments. Let’s of most X.X% of talk of four organic activity about we through existing our the Retail, new solid business of growing business on customers. in delivered renewals and performance growth growth In

due that’s and impacted acquisitions last into our to in revenues expect standard amount revenue first year, expectations. margins line our all of we new went Please QX. Hays with benefits, is the of recognition quarter performance effect and the with combined that performing remember, relative with the employee pleased margins new positively Hays. to in higher We’re the our in

During from acquisitions XX within quarter, last and months. the we completed completed growth year-on-year million revenue six the $XX realized acquisitions approximately of

Programs primarily impacted as processing the X.X% was by National year. revenue, organically. decreased less segment This claims Our prior to flood compared

We our continues some Commercial consolidations our continued to carrier our in of and all are headwinds challenge impacting improving that personal some partners. to due lender-placed also automobile economy experienced business customers. the bank and

We have several are that programs auto-focused.

new business We’re retention existing of watching our closely. and business

growth just During name risk in the all wind and good a to our earthquake, quarter, we programs few. realized

renewed renewal for in Our accounts growth QX and was Wholesale larger QX QX timing opposed revenue of accounts, couple This Brokerage segment where as delivered growth and of a impacted the renewing X.X%. organic by to March are second in higher organic over years. will XXXX, have the growth been would they our those organic accounts Therefore, revenue quarter. did our growth slightly X.X%. for in in like prior If wholesale be have

Services growth for points organic Our basis segment delivered quarter. of revenue the XX

we expected this the resulting in claims our advocacy business, Isolating nicely. business call, social the impact, of year-end advocacy security the book completion on work of the businesses a in the grew from during segment mentioned year. prior lower we majority of As in Services

a we an Set-Aside really pleased of results. existing good our quarter acquisition quarter, a our completed to business NuQuest Medicare business. Medicare complementary Set-Aside be Overall, with and the that During will it’s we’re

to more detail. me it discuss to financial turn our Andy performance Let in over

Andrew Watts

discuss Slide our everyone. morning, to results, over I’m on financial #X. going good Consistent impact highlights. and adjusted earn-outs. I’m and the acquisition and with certain presents Powell, of slide previous GAAP results our our non-GAAP quarters, excluding GAAP you, The Thank then

X%. organic revenue the For of total revenue delivered quarter, first XX.X% we of growth and growth

increased by Our to leveraging income both due tax XX.X%, revenues than XX.X% our expense growing increased by faster before base. EBITDAC and our income

$XX.X our XX% or increased diluted to million, net increased per XX.X% by by and Our income share net to million, $XXX income or $X.XX. $X.XX,

the the state year tax and with tax apportionment, vesting first rate associated grants quarter the a normally each the was of footprint first our stock to our tax Our our we by of be tax effective rate With rate corresponding have expect Remember lower XX.X%. changing tax state benefit to to for quarter slightly we that effective lower. due teammates.

tax we the versus projecting XX% XX%. previous expected our to rate item, result our range effective in XX% full-year are a of guidance XX% to of be this As to last

a flat result shares of connection in share our programs weighted repurchases, average maintain been our the equity compared for a issued offsetting of we’ve of outstanding, able acquisition XXXX. number to is relatively as shares As Hays. to This with and

the share dividends first $X.XX, our compared per of Lastly, or quarter increased X.X% XXXX. to to

acquisition Slide Moving were This more a years, and This diluted for our results per therefore income Since both slide share our after the to our in XX.X% payables approach increased by estimated both year-on-year earn-outs by basis. net the there first for changes provides $X.XX XXXX. increased change for versus presents years. quarter over removing earn-out estimated minimal each quarter acquisition to #X. comparable

our Moving components over to presents performance. the Slide of revenue #X. key This slide

XX.X% XXXX. clarity were my our we fees increased by on increased by instances our higher later slightly million, was give contingent final the commissions amounts than cash For commissions to where total commissions the comments. and recent and This that $X.X in amount the settlements in quarter, compared accrued impacted and as We’ll contingent further XXXX. acquisitions

our When we M&A commissions X%, by increased by and items activity, organic driven that or isolate the revenues million, fees core impact the net described increased $XXX Our XX.X%. by earlier. of Powell

to margin, additional into break included is we’ve it was In XXXX quarter, provide to quiet To the so there much #X. EBITDAC Slide of through our to not insight components from a walk summary, XXXX. a over out. Moving

of the for on amount in basis Our business disposals realized underlying teammates by compensation employee This the This across stock new the year-on-year gains points are resulted how the Hays non-cash margins accounting in some revenues impacted negatively change investments margins points results discuss quarter. XX the the business, our or in benefits of the and leveraging returns as to margin first basis and experienced base. we were we impacted positively from by businesses. partially XX higher cost. revenues later higher technology losses due reflects are detail to and within We’ll our was by and presentation. driven our our offset from more the margin rules. due improvement expansion to expense Hays in the beginning realize previous Other quarter, of approximately in the

presented slides, results the business following of our we segments. four of our the On

Retail start to XX Slide going We’re the with segment. on

and Retail organic growth delivered revenue activity, acquisition segment growth year X.X% by almost driven Our growth. organic total of of XX%, and this revenue for good first quarter commissions of the contingent

organic we growth revenue the second As revenue the to XXXX to first quarter year. mentioned quarter standard lower year, as QX the in XXXX prior to during have compared earnings new the impacts of in of the slightly division this Retail due the call, of expected

received commissions accrued less the effect – earned While anticipated we higher amounts did is XXXX see due in than to incentive was – and for XXXX. this in

by Hays, leveraging and XXX higher some for from basis increased driven our base investments. and previous supplemental margin EBITDAC realizing from Our our cost by points, the performance commissions, benefits quarter the contingent

declined acquisition before our income activity. associated tax and intercompany Our basis XXX by income to amortization with points due margin interest expense higher

to #XX. over Slide Moving

offset experienced decline Our driven well organically. and taxes was some $X Income or by National Programs in year, X.X%, by compared primarily revenues declined X.X%, income in driven commissions. segment primarily by by claims decrease million, EBITDAC contingent flood in intercompany but as the approximately interest before to lower organic prior $X.X headwinds partially was expense. decreased as lower lender-placed decreased processing X.X% due decreased revenues, as the This to million our business. revenue,

Side over #XX. Moving to

within growth increase segment organic margin as a an higher Brokerage acquisitions XXX completed basis a of as of points months X.X% to increased result the result commissions contingent commissions. organic leveraging revenues total and contingent revenue past XX The of Wholesale EBITDAC X.X% and revenues. Our increased in delivered and

revenues Over than the recorded that before Slide income increased prior in income to estimated taxes payables Our the were year. to earn-out faster #XX. due acquisition

is months. quarter, the driven perspective, last than prior Isolating total interest Our security increased quarter. was taxes offset in lower year, the with EBITDAC the incremental businesses, claims. in Total The margins by growth on for acquisitions. revenues, was income gain the charges we the the growth intercompany of disposal Services From due by margin that for impact social gain acquisitions driven primarily the a to in expanded year. lower but a points grew associated EBITDAC for the substantially completed before segment’s by XX due nicely organic advocacy to XX slower in revenue revenue most basis prior income growth

Slide and while post-acquisition. to ASC a the update in is profit Hays, expectations. larger our on will end of expenses acquisitions, performance Moving remember of phasing range, the due performance expected Hays to on #XX. the the with wanted business. to larger were disclosure for in higher our with revenue was the that which with the first expenses year We portion Consistent of line due associated of the quarter provide provide to Please Total better, an plan the recorded of updates QX through percentage primarily over quarterly in first to be revenue benefits of annual the slightly XXX. employee we

the order the outlook. further In term of We for year-end X.X% for $XXX earnings maturity of revenue the and continue Please Hays estimates, acquisition previously Hays our the quarter coupon communicated have other with to stagger in that and some a XX-year deliver will within remaining changed. March. refer public and A full-year to profit. not we comments issued range million to of of bonds, on the back ladder, which believe borrowings deck the quarterly few

at X.X%. as XXXX with issued in interest We’re we rate this pleased XX-year really September bonds

flow was what was also to year movement about operations there quarter. compared the in to as this first last We cash our material generated want quarter, talk a from as

million quarter quarter of the As XXXX. this first the million main reported, in activities by and drivers, $X.X net operating are $XX.X of was timing year There nature. in first two are cash is for provided which

one year-end relates first The million a the $XX payable million, of balance increased the $XX quarter in cash companies, any funds we’ve have barriers the in upon the remittance compared in large balance. to period, balance carriers by realized $XX therefore, we XXXX, million. to risk which insurance and first change to can past. swings This the premiums the quarter. pass-through decreased account quarterly generation to during this represents as which This In movements like represents during based to flow

the over this we items million over will the Both $XX coming timing reverse our of comfortable of timing is working for The quarter normal over impacted feel full-year. these acquisitions. the industry-leading about two. recent flow to are quarter. and timing that cash will next our conversion continue revert we’ll This or This relates the second Therefore, settlements timing quarters. negatively to by of ratio XX% and capital to for remain cash temporary item

While a total National was million was decrease for a see Programs. good contingent QX we $X in good a for quarter commissions, year or did

year, know continue for a expect back-end that for in remainder year. trend commissions certain as the the the of qualify contingent will We the this to not we we of

For about growth the Programs over remaining should decrease should contingent in $XX the estimating be $XX recognized to we commissions quarters. million substantially in are be retail. will remaining full-year, National by This our decline evenly about offset The million. be down

We for the to $X down million full-year expect wholesale to flat be XXXX.

commissions For full-year, the be to for closing it XXXX. to for over turn $X $X down estimate Powell we as me With compared company million back contingent the million, about will that, let to comments.

Powell Brown

for Thank a great report. Andy, you,

be to numerous changes. excitement have across four insurance world. the diversified we customers possible divisions a As to around broker, States us and rate the seems distinct serve There United some enable that

a finite pressure capital than there’s thus, of that as believe There mitigated. be I’m others, risks, will of reiterate, areas mitigated. but we we more of certain that see broad lot to chasing like statement number I’d out rate saying be may that a some there much First, a

believers Second, U.S. the supporters expand to want and see economy in further. and we’re

for watching how potential of impact slowdown that always might a signs then business. our we’re and However,

shareholders. to a clear and everyone, of try to we picture present our business Third, analysts

great an makes are to Culture, There be and interests that average. price lack are cultural others because do, not companies long-term Our thing some We will but long-term. valleys, aligned of the could but know investing or we’re and we not with choose acquisitions or a for there investors. the it’s fit. intangible peaks

As the momentum. & how some revenue. me. in of or our teammate $X intermediate a – teammates. above culture drive as we around we Brown need we an get and combination we our move we of there, next have cross threshold, about we lot excuse Brown, time think more at exciting cultivate It’s and towards hire or XX,XXX of goal billion to It’s the acquire XX,XXX an To

dedicating pipeline expansion organic teammates will Q&A margin turn year. serving to know have long-term And We creation me QX good. The we finally, great over to start and With was to it good the is and the approach session. that, a acquisition let our Kevin a balanced back deliver customers. growth value for

Operator

[Operator of will you. ahead. Thank Instructions] Phillips our Stanley. take first question from go We Morgan now Michael Please

Michael Phillips

is, guess the down just the inflection a thoughts on the everybody, an there. you morning, I guess, very commentary. bottom a a little are of thanks more and headwinds first line year of for kind that think forward? There’s helpful and and this question some headwinds Thank drill on want bit margins. lot couple things you. for They all question congrats do Good possibly – going quarter. to I the margin of what’s are

kind actually minuses talking corporate kind of can So on of whether not maybe just margins about inflection you little going think kind the segments, and we’re I’m and or pluses give what of you not And individual at details point? forward an wide.

Powell Brown

right. Sure. All

One, going really as business of and the two, and we acquisitions impacted a more slightly margin that’s lower and forward, and of high-quality operating they’re you as make, one, team. those things. as is Michael, prove by margins several are result is efficiently to teammates; then the our if continue part that they of know, and So, some the

just that hire of means second But from Yes. important to there talked them something we increasing in we capabilities in, – long-term, firms. have that maybe Number for first the So we opportunities That one. think we’ve the worked other industry, work intermediate from months available them in know a become in biggest them want invest from or going opportunity to of third who be point? are believe area people we of impact our I lots one The of there’s have be the and another there of hire people we people pleased in lots may the bring high-quality team some What today, do there That XX, inflection the positioning or that’s number is of they the hire we because to that past. this of is, whether near We will the people in for business. invest an see going new without it the with. those be firms we’re about us new and bucket, that people, we’re mean M&A to out you margins. to industry be with people well another lots firm, disruption hire would to are us continue not XX, think to most at XX how there high-quality don’t would trying on areas the we return there’s know and bunch two, future. short-term firms some also are aren’t term, out it’s they to and does in for next and shareholders.

Andrew Watts

Good Michael. our here. of you from year-end. comments just would things. remind It’s add morning, at couple I’ll a I Andy

on. is Hays said I so think is year, million margins we about would have this this the in inflection That Hays the impact then mind. the that the National one-time because year a adjustment negative point spot Programs. recorded impact of year, that we pre in $X third other last quarter piece had we that in of talked And keep the was on

we’ve on technology, so the out where those about items there. that investment are cetera. been at talked et we’ve of fact with And we’re big the And kind the then, full two

those to those benefits will of start from the quarters. a and So headwinds recognize coming lot us slowly are over behind

Michael Phillips

early more bit detail Thank and you a on That’s guess, some helpful. much. very both I great. the little of Okay, commentary. if question second

curious I in comp the terms there quarter. believe was on that’s is, I then that or said wondering mentioned you whether buckets professional little you workers’ comp GL press last your that be was detail on just from up? GL of would and you. Thank if the and specifically or on a where up lines commentary provide decrease could what down, more so slide in of mentioned deck what accelerated I decelerated is mentioned You was in And – you your

Powell Brown

is workers’ it’s comment, was continues don’t last drastically there so call. dramatic just so than it different to a This our in be earnings to relative think I pressure. So compensation, broad

which that the be you business very line, liability. of in So attractive in as trying I’d a aware are or line been there have, as of some say and it’s to there be a figure they just that to we’ve that I short I liability, long is in seemingly of should terms liability, line seen tail now you’ve interesting. but similar, need difficult more as Liability, out it’s think actually making money really tail not are long carriers – out business

be whether rate so And you That any we’re that could so it of certain very a be exposure. products would anything on I with account, manufacturer not habitational, or are seeing does or product a Carriers mean, we pressure. a apartments spotty reevaluating accounts. have premises high you that, exposure could like between, or that. tell have in It is

conditions it. just in there are we if things habitational may rate might mention it, continued housing Well, the what. But accounts, or terms So pressure business, particularly because certain that or you be might that like there talking things HUD are you of classes people in both. and changes about say be tougher at look or

more chatter important increases amount rate on across as of the distinction. seeing might think you based it. broadly That’s sticking market the not on We’re the

Michael Phillips

you. appreciate Thank great. Okay, it. I

Operator

from our Suisse. Mike ahead. take go now Zaremski will question next of Please We Credit

Michael Zaremski

that that’s rates. I��ll are more do if a continue than lines rates question. component understand or upward morning. guys believe others, brokers? of the Are if there book a you that maybe pricing hard P&C reinsurance about more reinsurance your potentially terms you in? nuances to it pricing pressure certain other us if you a not – to wholesale Florida maybe more deck, lever in start or have In and Could the sure in good I’m help any watching I the than on retail. Hey, Thanks. with in question talks of

that could you maybe So flush out more?

Powell Brown

Okay.

primary price fact, you be in as percentage increasing percentage are for mean about know, pass-through dollar will hear So if, not or and/or by that, necessarily you one. that reinsurers carrier, that’s dollar the pricing, that number does for

by reinsurance going Florida, fact, going write one. relates carriers. you read that it’s about Mike, a can primary different. in up which the in it trigger price, not you to That’s number a individual is change, to rates a of assume to want joined if that in so I don’t of was I marketplace, concentration But you two, the in XX that that XX% they living x It is as Florida team the insurance set that that marketplace So up. pricing born actually be our others. the ago, I change think automatically significantly and by amount, business means some now is years was class was, go in There lot set when – should of Number revenue. may it think, if, our

we large you’re presence by, be areas We that rate business in wholesale do a business here. would have accounts So do about would business Florida. and changes We asking here. impacted typically be Those potential if program property-driven most here. do services retail

write State we Florida. other a lot of So across the of habitational property and

of we’re all to comments our However, it, a the hear about carriers, lot it – and we’re stick time. as not in from call referenced seeing continuing London my but I talk domestic

so revenue So started dominated you Brown now I is heavily of our direct versus Florida. business, in draw maybe XX%, XX%, when to I Brown maybe trying & all would & Brown or overall Brown’s XX% caution in saying, and about at is parallel XX% which XX%

one. if going I it’s dramatically. that, about two. their change, a would to is So Number business impact you therefore, there number caution

books versus – can’t As about it can’t comment business. we brokers, their to us other relates I of

we up East business areas, Coast, a we and the Although Gulf down in want of coastal California, and run a write Washington. lot in Coast, of to quake Florida Oregon do lot and the Texas,

slight having said pressure – some we’re starting in pressure to that, see some of the limits. so on earthquake bigger And

time been an had and it’s it’s a know, when. a long of it’s since not any if, question you we’ve magnitude question As of a earthquake of

So what not about are be said, and it brokers pricing in seeing of cautious yet we’re saying other because terms like I the just sticking. expectations trying about or manage marketplace, carriers to we’re your

Michael Zaremski

Okay, that’s has of on follow-up for know couple helpful. tax to the years. there And changes a regime a tax the Andy rate. lot of been I over last the

as, So the XX% you do maybe of longer-term just XX% kind thinking or think to beyond XXXX? curious a the XX%, is XX% range for normal new

Andrew Watts

Hi, a is Good range Mike. company. morning, to it on Yes, XX% XX% probably the good for

I our think state with footprint there. any approach. if probably it in significantly wouldn’t happens level the modifications barring what move their today, But there’s that’s down and overall at out

Michael Zaremski

very you much. Thank Okay.

Andrew Watts

Thank you.

Operator

question ahead. our Raymond Greg take next now from Please of go will Peters We James.

Greg Peters

everyone. morning, A couple questions. Good of

Powell Brown

Good morning.

Greg Peters

is you billion you think from margins down when when going profile margin XX smaller. about $X to comments, revenue, compare First you look opportunity take hit sort about I tick? of it your they you were But bunch of when the closing guess talked a teammates. and $X I hire one of how, it all, dovetails then revenue getting another about do and at industry-leading, you’re downward billion you bigger, X% When margins at what with – to of still your you think where earlier EBITDAC but with in X%, your new were EBITDAC are questions. the of

Powell Brown

than we $X evolve profile have me think that $X as predominantly means say different to an doing back that, as billion, and the evaluating earlier, have Number make were $X serve a us continued a I technology said going little company, some is which segments, billion of the made we spend, that help will one. those organization let is capabilities different billion always spend that and we on, that in as things as segments margin that’s not technology, number but additional to the Well, to of continue up security. marketplace. a investments In And you what we but we’re believe like two, business good technology at the investments as is now, scale to that we’re we that. know, infrastructure, have just will Andy from

company to when billion as look billion we about billion. business, $X have continue a the And were million the think way much we at didn’t about or maybe company to on we $XXX to that $X.X continue to so things billion as think or a we versus $X $X

based know next very So long today, coming, i.e., answer going profile or we a are not we to cybersecurity, unknown to the see think what and going in events to we profile, similar make without do years, is think that’s the saying assuming an forward margin upon Greg, that acquisitions we that margin that similar. event like be five XX we

growing as organically growing part, opportunities So we focused on you is our and are because know But it we speculation our margins. be I on think don’t obviously long-term. the that will presented know, us to

reinvest can that money we So time. over

important can us, our conversion to is in reinvest cash we So it so really team.

long that’s your to answer So question. a

Greg Peters

appreciate I it, Well, guys.

Andrew Watts

back Yes. Hey, over mind keep in perspective Greg. of keep things to with commissions. in happened what’s other couple look just A when you contingent time,

long than matters end north XX%, fact stay of for of we really sort do generally cash still past that XX%. the back of that can’t last to been in what low-XXs of to We margins publicly good mid-XX, average other business. range of what to day, that’s and the of side, the XX really we’ve really, good. north every due we count that’s twice our anything a But industry. else over to double we at think As free And for average to on been organization the cash there. time point, – business the the cash because that’s that’s is somewhere that’s the been And able down conversion part that’s you on years, if and a we’ve We’ve really of those and flow, run over our trend believe the around Powell’s you the that profitability able we said look downward just free yield. years dollar’s We’ve the of up carrier drive out $X.XX a flow the cash. a move cycle number

Greg Peters

I a a you small picture Great. have two question another comment on big questions nitpicky on guys question – and other then made.

buying your So would healthcare couple of been business. all and there? And news let’s around made I��m – the a major there’s about move last environment Medicare the course, months, curious thinking lot the other items out a you guys of Willis, for one of in discussion that then, context prevailing are news in about has There how benefits political of by of your benefits your are competitors, be entering these just and all. the business about TRANZACT in

Powell Brown

Okay.

the in people goes look was So to change, uninsured of fact, of to number XX prior benefits to, you people Number period think, in a then ACA That’s Number number one, small, XX% have give medium of maybe everybody about ACA business. it million, to benefits, accounts this prior I okay? to give business just large baseline. million you that Andy? and is we of one, just background, two, Retail see during and ACA. at Then down interesting employee continued kind a XX our to if, it’s

Andrew Watts

$XX million.

Powell Brown

person of million XX range kind …XX in million now. it’s and hovered right that

having discussions we take the said very seriously. So that,

customers doing more financing insurance. their and or absolutely be i.e., is there rules ACA that the that, for in demand, to drafted, going complexity probably to then a interpret believe that Medicare X.X, excuse let’s all if further place ACA there’s costs. in for, then to we private giving we those someone there’s me, for so, And regulations it, that call However, solutions again address for healthcare something be, and which a creates And is there of cost-prohibitive. is place believe a would

private huge then hospital, versus i.e., there have go believe carefully. good that, watches weekend. and It also the an Medicare social very sounds they industries, be this said Journal in of having and was across Number we There’s a number but i.e., any evolve articles, shortfalls. a years to country you So will funding, may a that paid article one, Wall Times would to do it The seen and to how would was potential security application the next this two, discussion in and a to one insurance. and Medicaid – is as those and currently impact hospital and impact lot multiple the that in some And we the that. address just around a New morning has Street there XX what that and on how it York – funding need does people, reality XX to we you the

about be D to the if it elected a right Florida, So year-and-a-half. in here of it It reelected. deal we’re to a is because or was and a long there’s next in of question. headlines lot if grabs solution we And hear state going answer discussion R going the believe to or elected a there potentially We battleground different have some here. was an great

Greg Peters

Okay.

watching you mentioned the The changes give you about with other final Which is? on talk Just your question you auto. I comments, additional retention had. said closely. Can you’re it segments on in? Powell, in that carrier your some your specifically, market color business In of auto-related the And us going of where round size wholesale? behind auto-related Is the comment? profitability the the it’s in businesses

Powell Brown

remember, was to write have comment. I have Greg, of made one tightens I to we specifically, of not We impact the that revenue was – And trying of programs that have in program. exclusively, are dramatically, could was on fact, I thinking market. What when is, market auto-focused. that that the Sure. market. or trying but appetite we we our about address that we’re or I programs if, changes a specifically behalf what And couple address, that

primarily some our some have was That of comment wholesale that business retail. programs auto-related large also we that of several and of in business do directed we at businesses. Although program our and

Greg Peters

any their so And you the about from in indication appetite? change are carrier getting

Powell Brown

and that of reserves all of Well, to trying companies, not and in is a write I’m that that about we’re our not – If, signal. – we fact, have that. in attributed people our could fact, not would right be is, areas being right might that possible you is programs. underfunded. somebody saying specifically companies believe I’m books, it might say is now book. auto to that that we’re saying insurance some change. dramatic discussions are that of that ongoing to and to in particular and do.” impact about there it impacting there’s now. always we This nothing is those That’s some if, aware the you service then performance what to – book But what partially that I’m geographic want auto a is, in there’s reserves do We’re things I’m the trying and come things aware aware all of book carriers states entire around this And say, is discussion "Hey, of All

Greg Peters

Thank you your answers. for

Powell Brown

Absolutely.

Operator

from take go of Elyse question Wells Please Greenspan now Fargo. will ahead. our We next

Elyse Greenspan

Hi, good morning.

a question. So My questions. first few

the QX that to still weaker, better. your of you had – terms some did the true higher QX second the then call? quarter quarter’s the the it little holds fact is kind weaker, comments In together Retail the be I’m guys your of a from going or that would the it Is does said even bit some segment, tie comments this be pointed call comment more introductory of to trying should be but that the come and last comment average and throughout just in quarter’s you year? to the of than full-year

Andrew Watts

we as we So that stronger is probably anticipated, okay? with Elyse. in and made as good large as originally think Yes, gap quarter will comment relevant I year-end. QX coming It’s anticipated, at between to what about… Andy you what what Hi, be than first just think But here. not the Yes. morning, still we the QX

Powell Brown

Slightly.

Andrew Watts

it would average …and thought bit yes, little the up from bit we over little or bigger so before. a have the still just gap been probably average But for year. a slightly estimating where you’re whatever

Elyse Greenspan

the also growth reflective related stronger a in QX growth of was XXXX have that than it business, was that year-end? some growth better it at is type expected partially seems or you to Okay. might due And to timing like the of – exposure pricing stronger partially then economy, stronger

Andrew Watts

a Yes, little I of think bit Yes. both. it’s

Elyse Greenspan

Okay, that’s question. a And few then numbers helpful.

Hays. The first thing on

with so earnings you quarter. guys bit in the You guys little better, it first a got quarter The for about margin line expectations said this about $X.XX was that than guide. more your was

$X.XX quarters, to think earnings way see lower right or higher? in going a we’re is the the the three back that is to So full-year guide earnings

Andrew Watts

probably of still Yes, $X.XX. projection good full-year already estimated higher and $X.XX might that flat basically Elyse, range. this a per that that’s QX We given think the would we be the second share. would the quarter. earnings quarter It down we probably $X.XX were a said had round. had QX were be then a And on $X.XX yes, contribution. And We on we to be

to think $X.XX. position We first Now good. think it a it’s $X.XX we’re outlook $X.XX full-year of phasing a a that this we may see I to give just view. quarter we a of belt at our because actually better would a just the us got out. to like stage quarters inside a XXX where we’ve still mean, in make change is We don’t couple under

Elyse Greenspan

to about guys million Okay, for that million be for the that’s contingents the – the full-year. $X would helpful. you million And down $X said on outlook, it $X

down if why now are prior that to you was in So million relative quarters $X three the your be right the to does around $X million, stronger, mean to then going for back weaker And is are I around why math guidance? million $X guys if my you that guess, be QX three quarters? to looking back the

Andrew Watts

would math on correct back-end your of the that the Yes, in year. be

contingents. what we’re couple a of the going we the about reminder, we made things projecting in to do to true-ups to as that that a the commissions So earn had is, we’re in in we’re year year. we going collect following what is, definitely comments that contingent first have quarter for coming And we on believe

we So best have those. estimate our on make to

almost the have least already we’re carriers know are look there of final through. Programs. growth will will based the by again, was a adjustment and that in today. we going for. at as the always into around saw some in we a have that upon of we’re sort National know that been told We offset that’s we those But So amount primarily We’ve Then our be cash pretty primarily in we back-end good the going and, we year as commentary so settlements, definitely to view by the quarter came to just of first retail. everything not some qualify fair get

Elyse Greenspan

guys just one When When target, until? you ASR that cash can were that that your quick question. numbers of XX% about revenue. then remainder flow, And a settle quarter. that’s last Okay, you then of the talking percent out settle free as And this didn’t you helpful.

Powell Brown

Yes. Perfect.

are the XX%, percentage conversion when settle we the this a free kind a cash that stage, ASR of at of So based talk upon And in second total will quarter. where it the is about revenues, here flow as okay? we then out

Elyse Greenspan

the much for that’s Thanks so all Okay, color. helpful.

Powell Brown

you. Thank

Operator

our We go Goldman Sachs. Yaron ahead. from question next will Please of Kinar now take

Yaron Kinar

you Thank very much.

couple of contingent commissions. on another Just questions

us industry fact, through your it can pricing the are in there? suggest contingent in the some if the terms hearing about necessarily industry? about segment, for profits. and thinking commissions manifesting underwriting that fair wholesale tighter – would improving better aren’t way aren’t walk Is Wholesale you and that that of First, a or, think conditions in decreasing, thoughts I would we’re that action that themselves the

Andrew Watts

good think you to all a side. level, look at to a if almost it’s the what Yaron. decline be about wholesale, on the three a entirely contingent profitability it would that’s way carrier our top years seen really and driven last in commissions that to back we’ve Yes, And in –

of we’ll back things get on to talks a trying those then see does of profitability lot drive a But that of to it level really nature, the to get of long take how basis. hold takes contingents? to kind rates consistent if there’s appropriate question one, of and some while that different an is, again, So,

Yaron Kinar

matter it. Got segment, so flip profitability? Retail in that question or And to expect expecting why are then commissions the there? purely you growth of better do segment, you the I stronger that Is a contingent if

Andrew Watts

that’s acquisition No, primarily activity. all the almost driven by

Yaron Kinar

Okay.

Andrew Watts

Yes.

Yaron Kinar

much. Thank very you

Powell Brown

you. Thank

Operator

our Mark ahead. Please go SunTrust. question of now will Hughes We take from next

Mark Hughes

that expense, for Andy, should the interest of we morning. balance how Good look the you. The Yes. Thank year? directionally at

Andrew Watts

we debt presuming don’t and said, kind interest good million pretty $XX Hey, the of think given at of that to guidance $XX We Based range. good somewhere a upon do Mark. still that’s morning, Is in rates current outstanding – the million. we’ve range unusual. as anything year-end,

movement now. So more get while the have for borrowings, but we material it wouldn’t guess, on right in bonds activity acquisition need issued to expense. in I subject XX-year a full-year we And to, interest then, good March, if our any

Mark Hughes

in at a National faster – think? than the little look slower, carrier that of then Programs or as Is line you sense should Okay. And pipeline business the grow whole overall Brown the Brown & new that you potential opportunities, in programs, business, do appetite. any when how

Powell Brown

I of think, a What in Mark, underwriting say it depends. interest I there. is MGUs there lot is, MGA, out would

with there’s acquisition there size, targets that define are in you to not as than So however want retail. many

business, than that So of you us. just are interested other that one. Number more have number are space, a or more limited scope business firms there certain two, not types in

we’re growth just in And with supplementing about We’ll And then invest or of financially. depends think have in those so firm. to that organic But very you programs space the we programs. of the limited, – and a smaller it but with right market it in sense absolutely we the idea the on on say the the the wouldn’t pool growth that of on culturally that. I thus, limited profitability organic have evolves want interested terms if how acquisitions the and make

So looking for always we’re it.

Mark Hughes

Thank you.

Operator

take next Please will now Shanker our ahead. of We Bank. from Deutsche Josh question go

Joshua Shanker

flow the basis? paying to is attention net longer-term over What income, to a there. amortization you thinking Yes, I’m your between If when a difference should your the trying cash out for. for obviously, on and depreciation in look I multi-year update it and items short-term the you I’m figure item out be cash flow on big if thank

Andrew Watts

inside would look Yes, runs you Josh. it the XX% range pre-tax if our generally the XX%. or those be about a mean, two main morning, to I in there. income Good our income, at items of of net

over nature metric good do we that’s the And fully amortizable you that we’ve upon so time kind of organization. can kind of the it an valuation and then the a intangibles. got just But a pretty of attributed of time. as look amount loaded. – runoffs that And transactions That’s to we the all depends the get at

Joshua Shanker

period Over the one-year time, rate of cash in income materially than there be between any longer growth difference any your and net flow? should real free your

Andrew Watts

so. I’m a I kind your significant through not – thinking question – just of don’t be think no amount. Nope, here. should not a There’s

keep there. to in mind I non-cash item one the one think piece the out that’s probably compensation. is the bigger stock That’s

Joshua Shanker

to know to the ownership in employees change non-cash free was that of And to flow? on the a awards Does you increases hunt And talent. comp that better maybe and I your weight benefits you that’s people. for get get an as I item. train the cash that going there’s own percentage you your bigger have offer structure incentive and to better

Powell Brown

Josh, Powell. Well, it’s

an you some already that ownership culture we we have we of As our know, for And already. teammates. do believe

business through well. there running XXX(k) of people buy at overall grants or businesses performing invest choose growing of the the upon ways their in a sort and are stock based stock discount, So they equity for if and the large company books get to

program We new in not So to our some it’s it’s now. drive be present shift to a constantly as the or from and about something going what year behavior. that doing. use years how haven’t we no. though consistently that time, present we a thought desired But at think three about we at dramatic think with there’s rewards There non-cash would would we kind the stock but of in be things time, grow we’re think line believe that be going comp, might to of that or some it’s we

Joshua Shanker

for I Okay, Thank appreciate answers. you it. all the

Powell Brown

Thank you.

Operator

take ahead. We go Please next of Meyer Shields question will from our now KBW.

Meyer Shields

Thanks. One brief numbers question to start.

to well? expenses that the growth expect second quarter organic wholesale some the the come expenses out as was in we was or there that the with to that mentioned deferred quarters. should and You third pushed first associated be Did basically

Andrew Watts

quarter. a the would first born morning, impact Andy – have it’s margins. No. the were Is during Good not most of Meyer, costs material on here. The around the movement

Meyer Shields

Okay.

So…

Andrew Watts

Yes.

Meyer Shields

coming news for good …that sounds like quarters.

So drill bit margin. waterfall benefit a I it find you the the little – of EBITDAC you’ve very I as that deeper hoping into got sort to could helpful, categorized the other, one-time sounds investments. of within function It because that’s just want category? to there any issues recent sure it that Were I negative understand. or make I sustainable positive a was sounded. like

Andrew Watts

one-time and no No unusual real items.

think, was a our I quarter. comments quiet relatively

with hard down we’ve number always had previous leveraging of that to growth. margin it a walk comes quarters, So revenue expense our good to the to as no, associated get investments will arms and is those expansion – It mix organization. we that’s it’s fully some business the Then inside compared our previous again, of seems through. really I be the just this over continue to also that’s around. time. forward with may guess, There’s be there’s just a piece of slight base move But your thing the items where a we

depending us. same impact on how does So not back upon all businesses they have and are the profitability, – an forth a so move have

that it comp. a – non-cash the still we offset it stock was was again, overall, growth good that So the quarter, – had but there

really quarter a us. it So was for good

pleased. We’re

Meyer Shields

is it for adding you employees, obviously, maintain first teammates, saw. fantastic. like no more that, expensive? second That’s it then go helpful. it of it question. Is final cohort more for you the When the Brown through XX,XXX to And another I on than timeframe Brown culture short-term least, Yes, XX,XXX XX,XXX? expensive about at was talked the – & Is what

Powell Brown

That’s an interesting question.

think directly are how XX,XXX related answer teammates new be onboarded. I the to those would

acquisitions, them last high I them amount careers, get how we But better think acquisitions all billion. the $X hire them all individual an their in you right the do inordinately bring if in we’ve up do that and in time. them be able time, don’t based so we now, groups when and upon of too. that launch we tell offices So I’ll into But there. we the do and done train we to If

Meyer Shields

then. I’ll Okay, ask

Powell Brown

Yes.

important that focus a commentary things You specifically hear lot is one our about upon. we that of the culture in most on M&A

approach making and continue join on culture, to come will much make organizations team that sustain those easier it that that we it our if with disciplined our process. sure so match And

Meyer Shields

Thank you much. Fantastic. very

Powell Brown

Thank you.

Operator

[Operator will go Instructions] next Blair. Klauber our Adam William We of now Please take ahead. from question

Adam Klauber

guess, they Hays Thanks. I the is really organization? the expertise strong What what of that bring do And to can organization. how didn’t quickly obviously to morning. benefits table they very rest to that you roll Good out the – you have? did

Powell Brown

They the space. benefits of lot capabilities have in strong and a large employee middle

and say that occurring up So that right I XXX lives would and is already now.

Adam Klauber

to road as then Okay. year at And that as the down far prospect up what organization? get you two, Hays, in three as go year margin the

Powell Brown

They talented job people high-quality exceptional bringing have done of onboard. an

said as to people – of in those a in of to to their where It going like Remember, margins. we’ve middle in was expense upward periodically. profile people of it slightly margin less, not careers, Some investments early in because business Hays margin a continue a be of be way over that was said margin increase there time. We make positive positive. just believe investments their positive we people opposed be we somewhere will what there were that margin. a is some and structured the more a add an Those to but revenue not that’s their is market, will will

Adam Klauber

Thank Okay. you.

Powell Brown

okay? Kevin, then, anybody we in question, if the final left one – there’s we’ll And take else queue,

Operator

are further this time. at questions no There

Powell Brown

a go. time. Good All next you very to all day. much, We’ll right. talking Thank wonderful day. we to and forward Here look you have

Operator

gentlemen, conference Thank this participation. today’s you Ladies and call. concludes for your

disconnect. now may You

Brown & Brown (BRO) 23 Apr 192019 Q1 Earnings call transcript