BRO - Earnings call transcript Q2 2020

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Operator

Good morning and welcome to the Brown & Brown Inc.

Second Quarter Earnings Call. Today’s call is being recorded. Please note that certain information discussed during this call including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions, may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company’s anticipated financial results for the second quarter and are intended to fall within the Safe Harbor provisions of the securities laws. referenced in uncertainties and from of and anticipated desired events of to those number or statements or and forward-looking risks may or of results factors. the a subject future number currently made Actual as any result in differ materially Such the set release the from current as un-audited numbers company’s it results press its financial differ factors the financial second yesterday. results in include forth issued the for quarter determination finalizes thus its preliminary have reports not risks Exchange may identified the company or from those the that factors and and currently and time-to-time qualified Other Securities Commission. in filed identified uncertainties the company’s with

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

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

begin. may You

Powell Brown

call. second you for quarter everyone. Anita. you, XXXX us joining Thank Thank for good morning, our earnings And

work to have successfully XX,XXX teammates environment a return businesses. workplace for months, transitioned Over stage the a four the we've to and last our commenced over remote

wanted of of COVID-XX on ago. safety I mention, trading customers our and teammates, focused partners. weeks remain contract a will We number families, to their I that our the did

now it times, negative from results little and received sluggish people phone felt calls with I did I at engaging yesterday. making fine me my not While a and feeling have prevent I'm test virtually.

believe to Therefore, lose As it relates sporadic. a is the to return we society and of going economy, to focus levels corona possible be as to the do personal and slow determination contain our cannot the economy to and of our further pre-COVID-XX This our a full we us of the taking is frontline best all responsibility through contain virus. to each own spread. our help efforts workers

innovative providing to outstanding of creative with do and management teammates them customers Our an risk job solutions. and continue on focusing our

we best COVID-XX the customers quarter, and the continue regular other to During host response practices companies helping with of these through share difficult times. manage for and successfully calls goal prospects,

COVID-XX to our ways our I be continue and help and to dedication get addition, creative the of relief to new back the teammates determination, well-received we everyone center find customers. will to and humbled - the has In continue our Like we been commitment normal. to last quarter, by

slide the transition quarter. of the Now - let's results result I'm the on X. to

revenue, of performance growing in our of each get basis detail of organically. few will For points X.X% I a we million the more about quarter and second on $XXX minutes segments. total the delivered XX into

points over XX.X%, quarter EBITDAC XX Our margin is which up XXXX. was basis of the second

basis, prior the reported was an basis adjusted increasing and as income to compared acquisition in year, $X.XX, change X.X% net quarter on X% an for earn-our share payables. excluding the when on the second Our per as

of to presentation, doing all that our extend will all for summary, in the quarter. business. the a their with with new warm our to Later approximately an on and acquisitions to results like doing revenues annual pleased quarter, In quarter, the of completed of retain best They're am joined the I We'd performance insurance now more million job. our services. revenue, another three in given all the X. our $XX being teammates teammates Andy loan slide we with customers we're welcome largest new excellent During headwinds. the discuss protector for further during thank like detail. win in financial I'd our to

construction hospitality, and started During Conversely, expand. in down, some certain entertainment, the the exposure cases in units. significantly reductions healthcare continued to the second industries quarter, resulting other financial such we effects as slowing corresponding of see pandemic in with were and and resilient to including industries restaurants

compensation the employee we quarter, our of the impacted. would payrolls be and business there worker's lines would expected significant benefits most be and consequently For decline in

is during rather than grew employees many However, to reducing that and furloughed due quarter new business what occurred workforce. the employers our the their employee business benefits

our other hand, the than compensation of anticipated. lines On faster we business workers declined

impacted solutions payrolls. with included collaborating coverages provider, to customers by sales a in many with manage worked This As carriers quarter mid-term the to are their we during premium or adjustments changes certain cost. for that provide

how certain the driven Ultimately, amount experience was a carrier. class a loss to what unknown impact been many already what limits. carriers few underwriting or the as businesses, is has A the on industries past coming participation their there standards for increase were the and coverage, over from continued increases experienced it's funding additional the the reduced from lot individuals. at significant provided rate given federal quarter perspective, We'll business account later or be continue we upward quarters. see a of views first will much or in lines effect outlook depends From These of the full While for geographies, by quarters. state the generally on to the trend of in tightened level about most we further our on rate movement talk lines for of more and presentation. businesses coverage, above and the for

Based excluding increase ENS XX% slowing X% more. auto, in perspective compensation the X%, workers to rates down X%. to commercial From were generally rate XX%, experienced XX% increased XX% up the for continued being rates in fairly markets increased increases XX% liability an in remain During X% we X% property consistent to the cyber the of we the the remainder XX% coastal to a property to professional will rates XX%, quarter, expect Premium second decline what to for we of on or rates year. increases quarter, and see rates did to rate rates XX%. which increased for accounts admitted to X% general

things while. Regarding the would down thought a I M&A landscape, bit a for slow

appropriately of of able three %XX However, project The few with deals remains how to we close were am for businesses. sellers and implications questions closing and already uncertainty, this July. an million of completed percentage but appear to value With annual decrease at it somewhat, materially the buyers slide not money at the have will on paid the X. this pandemic estimated to still valuations now revenues I and in a therefore transactions biggest point. change might financial how does

of about our segments. four talk the Let's performance

declined segments, quarter. Retail X.X% the organic for revenue Our second

a associated quarter for we an revenue policies COVID-XX. to in quarter. liability This with economic This growth resulting for points the revenues adjustment the organic of recorded represents reduction XXX disruption over approximately from million $X basis general impact of organic

retention. most also We increases for rate lines and good experienced

we as While still we are our harder it was results prospects, in decline QX. experienced with pleased and engage business, wins new of with for had great a a number to

of quarter. Our again, Once National the growth another an ever XX.X% one delivered. we've the segment grew was organic highest Program impressive delivering strong revenue organically,

rate many just performance and driven continued including commercial business, programs, by retention earthquake our programs, new good This and driven was lender strong and was growth our name a place, Our from by increases. few. of residential our wind to growth

Some customers deliver the compensation of the our able programs we coming a We're the did during and earlier. future. month we'll national and it programs. quarter, pleased completed In great workers our programs. early quarter May, I with experienced and said our solutions over to this acquisition of the Protector, Overall, as the for was acquisition be such to in entertainment headwinds Loan and sports as

Our Wholesale segment quarter. revenue Brokerage the for growth was slightly positive organic

our geographies, impact our of the claims related the a appetite the Our space. for pandemic our in the carriers terminated impacted were to XX.X% pandemic driven revenue lower many reduction organic for decreased Authority performance coverage, segment one contract retention and main claims, industries lower business the lines businesses, related Social continued year. primarily our our new prior of and was the lower processing weather of certain Services by drivers compared and driven Binding claims and for claims as for businesses, customer in Advocacy volume, of by to Security of The related decline for businesses by quarter. The and the

organic like activity. As quarter Services of innovative in now, its in compared we volatility segment as we've year, depending year. Services timing volume the of revenues in half our to can half of Based the second the the have the good teammates seeing the and expect the solutions what our very in decline we're we'd on to of revenues for thank segment more claims on Overall, seen delivered who prior XX% to environment. all challenging X% to second this and past,

performance Andy me our more discuss financial let in over Now turn to detail. to

Andrew Watts

adjusted of X. Good then financial results, Powell. impact over with the morning, the you, non-GAAP on Thank we'll our results, payables. our excluding previous discuss and everybody. in earn-out I'm highlights Consistent acquisition change number slide quarters, GAAP certain

$XX.X growth in quarter, total basis points. of of second revenue delivered X.X% we XX the or organic growth For revenue million

changes and expenses compensation guaranteed by to to as Our headwinds of with employee in the the other expenses. with operating expenses comment lower of offset offset expenses EBITDAC or their quarter percentage our demonstrates in employee and faster driven of the EBITDAC higher market operating compensation our cost. operating of a of to of cost first associated driven XXXX revenue proactively increased managing one change than stock-based our increased the compensation operating all the variable from the benefits lesser and margin, compensation to benefit revenues extent as revenues, increase by the recognizes in X.X% compared We're focus prior expenses, other manage the and values, power commissions results value in leaders ratio of quarter non-cash and deferred a to liabilities, stock-based decreased able aforementioned increased compensation and of our the compensation of supplemental from from our within A The relation million, as by organic it benefit $XX the of and non-cash growing approximately and each the year, in substantially to we third regarding the its expansion revenue. year. other cost model GSCs lower ratio The this increase acquisitions were that as quick and an cost. with our manage deferred pleased due

with increased X.X%, income tax Our income before by EBITDAC. in growing line

depreciation amortization to our expense recent from had and incremental rates. acquisitions, interest due lower we While declined

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

Our well one-time impacted second tax tax compensation rate XX.X% market the compared to insurance quarter for second our our in by effective XX% rate quarter as state plan. to The of refund, for a as effective was tax related life XXXX. was the change valuation deferred company-owned the in the quarter the

number substantially average the of X. prior year-on-year second slide over per more basis. our to provides and number results We believe comparable $X.XXX to share compared for year weighted slide We're both payables on were increased earn-out X.X% change removing Our estimated quarter after this shares This in dividends our the compared flat or presentation years. acquisition the presents a to XXXX. of

in the second X.X%. had change During XXXX, income Isolating years liabilities. of our $X.X both in minimal income million grew our earn-outs or we quarter the in before acquisition changes taxes earn-out

income increasing net $X.XX, was basis or $X.X increased net X.X%. adjusted and by on per X.X% income adjusted Our diluted million share an our

really key of a X.X%. Over increased Overall All number revenue it This faster components was of revenue of to growth performance. good presents these the X. our slide than slide total quarter.

For commissions and increased fees X.X%. the quarter, our by total

adjustment compared offset decreased of contingent quarter National XXXX. second incremental in GSCs related within Our as year. the by segment, recorded driven second a quarter and and finalization contingent our of for of last one-time in but we was million, to to GSC was qualifying This commissions by Program estimates positive decrease the by partially the commissions a XXXX, $X.X

number revenue, Our organic slide the M&A to of net the by X. quarter. XX basis points which activity isolate impact for increased second Over

In the commissions, with Retail sharing higher insured. accordance organic revenue of growth segment revenue basis ASC earn driven modification total such offset COVID-XX. for and primarily at exposure general the contingent of as are declining points, substantially X.X%, delivered estimates the impact revenues XXX, expect were by by activity we driven policies where XX changes lowered units, revenue growth Our the and existing profit liability to by our acquisition based which from on the primarily other subject in we premiums to of

resulted were basis approximately the estimates revised revenue over reduction organic growth for pandemic, the in the of points projected million impact by Our quarter. by which a after and of assessing $X revenue organic revenue XXX

the basis revenue, negative Our intercompany margin revenue points organic higher of of year response based to by the the EBITDAC savings compensation cost material quarter of and acquisition, profit offset impact EBITDAC all declined the and in due $X stock for items aforementioned impact these decreased million IT prior to adjustment, non-cash pandemic. XXX decreased the cost, X.X% achieved the

on tax expense XXX revenues slower and number increase an grew and slide decreased due We're Our acquisition points margin acquisition income the amortization than basis income higher total XX. earn-outs. in over before to

organic growth, total continued organic XX. which but well base, decreased XX.X% XX.X%, XXX driven as taxes sharing contingent $X.X income increased by by expense was increase increasing many acquisition It organic or was our Our the business a million higher substantially expansion, partially EBITDAC basis offset our in EBITDAC certain due great lower revenue and strong rate driven National points National acquisitions and leveraging partially growth increased before due and revenue programs earn-outs another quarter profit our interest growing growth contingent was faster offset than margin by slide for to the total XX of as decreased The basis margin and Over expense. by or by commissions, commissions, were cost, organic increased retention, GSCs. was Program number margin COVID-XX. programs The increased by by was segment XX.X. This segment Income by variable offset by points. strong intercompany by was increase new offset was an which by Program partially and GSCs. by to driven revenues. and by EBITDAC in $XX.X million XX.X% new and total impacted increases to good increased partially revenues

growth commissions. Our growth contingent reduced variable points. the margin to year, delivery organic of prior these stock-based faster organic XX and total higher by revenue new higher the acquisitions Wholesale flat and substantially lower non-cash expenses to segment We to Brokerage increased and EBITDAC offset delivered as and X.X% organic headwinds X.X% grew IT compared revenue basis with revenues grew able due the of than was Total to due intercompany compensation. and higher growth, commissions were of expenses. contingent

Our by taxes income X.X% before by Services XX.X%, that points, income interest grew our for segment intercompany organic number slide higher basis primarily XX Powell and the decreased Over items XX. and to the driven due revenues by declined to expense. revenues margin earlier. mentioned Total

basis basis before regarding taxes declined and revenue organic Few income mix for lower certain comments margin cash margin the intercompany and quarter. income reducing quarter, outlook with the were by by associated expenses. EBITDAC and XX.X% profitability offset by variable higher and partially points. conversion decreased the expenses. IT and XXX by of XX.X% These the liquidity declined XXX For our driven decreased by points,

outlook. First the compared mentioned for and We stock non-cash prior on increased the compensation second contingent that our as year. quarter to earlier

of are As of year half period differences material the items now, last expecting for same the for these year. of not we the either versus second

our acquisition line revolver revolving end earlier on payment for to on quarter. our we to on liquidity cash in the conversion, before cash quarter million and Loan the borrowed repaid relates impacted of Based performance, $XXX liquidity we the $XXX additional moratoriums of it a million As financial pay the to in case the receipts. and second the have credit premium Protector

revenue Act levels operations the normal. taxes increased federal than see to from our also to to as pay primarily due cash first companies in a July. was Cares higher allowing This percentage of You'll flow their quarter

million. end me a a We Powell. remain the back our operations due conversion expect let approximately liquidity With will strong third from revenues of this as that, we At over cash financial quarter, flow and making $XX historical in decrease for the payment of position. the to from levels, to of percentage quarter turn

Powell Brown

good report. a Andy Thanks, for

their comments started focus. about Lastly, close teammates with our same and with want I I the and families to

on team We We and our could mid single year continued grow be customers. believe if of individuals, we serve our to the that Therefore, who for previously full teammates. XX,XXX down Based of low plus to to cannot the our our slightly have and slightly full are growth business dedicated We of focus year. our strength. guidance provided hardworking recovery, be organic negative. health and deliver great could our a the driven to our revenues uncertainty slightly team up solutions the positive are don't is on always at digits safety we

questions to right until How are Will now will how lot will be think a may However, might and half it's to to rates recovery and We we stimulus we sporadic in will much levels increase second big a and continue The rates, levels consumers still there going needed their spending? to increase additional when XXXX. the continue - economy Regarding believe of slow questions and are recover. year. the see be increase? regarding continue pre-pandemic to employment will of the see most not provided?

marketplace benefit competitive. around Brown innovative solutions. teammates. already teammates great more customers to as delivering questions capabilities over back valuations. and But deals and remainder many be for are second really of In Through and to closed We've revenues with a closed to estimated candidates our these partners of as talk quarter, At to transactions the possible and solutions in expect a believe well main few over are year. Brown, of with positioned we have Anita with we’re lot we close risk We will let acquisition for be our also and turn that, the me need look million. our we'll second will forecasts Q&A creative committed successful XXXX. highly the to of The forward half good customers. times, financial & innovative continue it July We management We the XX $XX the a pipeline. customers session. the annual a of the of And hopeful for end remain and

Operator

[Operator Instructions] Mike from Thank Zaremski Please question from take you, the sir. ahead. first Suisse. Credit go Let's

Mike Zaremski

hear you've all morning. And to happy good Hey, Powell, recovered. we're

know, the $X you First of an something sounds could similar premium it like question, book you remain better entire terms extent - kind adjustments, - to one some and it's kind of It that look of think to remain to about sounded you pressure understand clients audit and it your or kind adjustment? that of I'm in under this as hopefully just million described it's how the like the through it recur, adjustment. trying clients is a done. to sounds

Andrew Watts

for there, Its outstanding estimate here. with which looked correct. in policies up to to to general GL all traditionally number we Mike. were and down working a partners Yeah, this receptive adjustments, have. is see come in the at of we we you're of and as policies. were we be we across out and the that What at would we consumer audits that policies could mid-term with tried spend after for that revenues do doing to what mourning, do a thought Hi. those seeing tried outstanding carriers the tried for Good quarter cases premium Andy customers What end carrier of to our the

out estimate kind So and of adjust to up quarters you play now. best the down depends next us. few that that's hopefully and We right need on how know, well, we've captured all may our that kind for of

Mike Zaremski

levers us uncertainty back you kind organic your And - of of Okay. on you a thank fairly Would could in is like of year, healthy, as of fairly looking margin the half that say, Powell, you have on in those peers you say helpful. for the update giving on are mildly starts half guys know, You expense That's lot this talked you cited Would could - some about have levers? negative. help well Are been know, these you the continue organic resilient. be thinking an clearly you year-to-date about that terms expense if it quarter. to the call there the of impact? pulling back

Powell Brown

a Well, about for moment. let talk that just

in fixed as again, to in costs T&E, just a be would those are So a cost are be expenses going travel, certain operating our certain that one. costs use variable structure there's there that and fairly variable easy and

see teammates And circumstances. so lot have normal we that to a lot customers of under travel a

we our go. customer obviously, want So come, we ask if we you customers, to but a says

it's So people see flying not are as frequently. but have just now, to that customers we

because levered more serve open up what I best And some like they It's in healthier, see anticipate result the running operating or a as that want right - that go expenses way our economy be the that serve predicated also pull on impression was variable some down are could future fact like quarters I in little it's in current not to - that. and a stay environment. we speculative current And don't their to forward. environment. could each fit to started to leave corona business with conversely this now Hello? our happens so office up other yet environment It's and the have situation expenses you something. virus looks variable It's - some those the or if and T&E the of we and would basically and grow operating not customers this there, in as down would it we more. Those going is

Mike Zaremski

of get can having - minds? last on up your we T&E, we we've much benefits can moving given down, estimate how the feel way any expense one a base for that's got is, follow of what percentage and Sorry, to up just everyone's your kind T&E answer. it's

Powell Brown

sorry. Yes,

We don't that. Mike. Sorry, disclose

Mike Zaremski

Thank answers. problem. No you for the Okay.

Operator

Greenspan we now And Elyse you. next our from Thank Wells go Fargo. question ahead. take from Please

Elyse Greenspan

first guide. better. updated you're question the Powell, organic, feeling I echo comments, would glad And lot thanks. to goes My morning. organic Hi, a hear just Good to Mike’s

spoke quarter there have last most I you lag. we a to and of peers your being pointed think when

worse the quarter. So to the was the in third thoughts that could I get quarter and trying might updated – maybe there question, conceptually be an second I get than just kind could wanted you should the lag - the wanted think, to third in you just think if of more and adjustment $X include impact negative? be about the of however we quarter million terms

Powell Brown

Hi, we when you estimate no at - comments Elyse. QX would give be But you're firm right you the we believe It's the Andy what Actually QX this we moment. toughest because in speculation. earlier like with no is made in the the And that call, future $X believe that not this to to it's not that those going adjustment want. quarter. be best again, able because be one, enough see million, will the going on we policies that to we as with impact for of can said our QX, certainty,

This what, this and there at things not like hard an you that So very excuse. say to observation an anticipate are again, play is okay. remember is might are and

of solvency the so, to I'm struggle going they of number of to two, all, next that's are be or increases insurance. more. in are firm, the hope We impact they the they even but Number saying going First to not. purchase And be quarter one. on solvent are of going rate a customer,

then and that by round mandated way, you transfer nice number to have to or which is the going rather have be other the at for point of look consumer a downtown by of to a impact very dramatically law. keep certain are that at is that you thing you'd that that Portland your back behavior. take their of in is, There is us affected there or know, are interested to in And people cannot certain pay I'm businesses risk going to operate. stimulus people, are area to certain Number just and change that as they example unable things the all some the are two. three, to that program. next how have in what the That's other mind the are people. So things There

into to up. got and sort of mix it that you've So mixer put a all

– to the I And final so ability get would by prospects. that to the be thing way and the say didn't new

So people us people come willing for see virtually. some to are want to some out there, us

hands know. just with so may that future to I team is Some with I would tell renew might wane a us, in translate bit, our their the situation. I'm people very the but a If this got just continue happier we who our that way you, the under but - they've full everybody what, new to numbers, call be going so doesn't see couldn't just that that be to to I they don't say got. knows, business with it's little and what would want responding a good, difficult

Elyse Greenspan

right. why are obviously narrowing sum helpful. side, you comments, Powell That's the reason just to up some those that of do you that think guys

to the worst could be you organic thinking, significantly sharp know, is were organic better ago. slowdown three have than going - case you months a see so what And to been

what's general would you a And you timing then economy have stimulus would as combination of know, also on that so is also say from of money. you exposure market in much just up better holding the that's And impact expected? place, the the perhaps some as better

Powell Brown

these Well, parts I mean, actually very guidance tried, are - don't to as and we historically we give circumstances. growth organic I unusual couple there's story. on a you that one, know, Number

the we have or we that snapshot all variables is, the tried know we've want which like final performance that an over. many you comparing and there is So consideration the are thing tried that very draw discussion quarter sure lots best I that takes of I that of this. don't think the to to I our retail can. a make control that is first best, an And orange. That into have we to of again That important. to it's a some I give something, clarify quarter between definitely because business, second and parallel think the and apple that merits

the dramatically a QX of business it don't performance, say can the our compare in in of else's along segments. know you performance QX, retail think understand in higher anybody or our was and example I is, in a organic business others the States kept dramatic be would QX So that. middle been unit, conclusion. be our United whether performance differently is market may business some or numbers that QX QX our the it got I you've bang the growth than to have and base just and saying to what let's upper business, we've what an as don't economy our economy middle is the our Because in But if just in on our like that business, think what said, business and customer of I'm draw mix is impacted other reflection

sure because very So you to everybody I under and and on I the second think is our we're a more just give estimate that else it I with teammate internally, operated best we're than customers, we're much as quarter, circumstances. this want in well and frustrates how trying I environment with and doing pleased the to you know the but on remarkably it our us. clear anybody's financial were Elyse, said, the that know, But attitude I both importantly team. our working different and results, we're make we frustrates Andy the

Elyse Greenspan

one Powell. helpful, to last my back maybe That's question, And questions. then goes my of

well. playing chunk the correctly am And like you like and other it reduced quantifying. not then of I several are guys expenses in is that some good guys variable times the just a and expenses or in that question which perhaps down prepared T&E mentioned there was responses as You cost, that sounds you're remarks understanding T&E,

for the of of the some on least, Just the balance margins, you initiatives trying a on impact, kind of go expense forward get at to side? know, of sense your year, the

Andrew Watts

There Andy, just here. Elyse. morning, than inside there. Good of was more T&E

et So professional everything over from services, time, cetera.

So those at any are accordingly. order variable in all kind cost our our them of of leaders of to adjust looked

Powell Brown

as I the was came just It was mind. not only. to first just use that one It example. that an

Andrew Watts

So why that's we’re give… to trying

Elyse Greenspan

Okay…

Andrew Watts

that are give in between trying some regarding and operating compensation we're two deferred compensation and between why was benefits the offsets color other that's movement Yeah, the categories. costs the Because different the you costs. employee to it additional

Elyse Greenspan

Okay.

think way to the if a revenue, quantify balance So ratio to on don't good saying - as about you year? a you the you other was that forward the with full of operating that low impact we of were expense QX. going that’s guys for think Is the right, maybe about percent that want

Andrew Watts

of Don't artificially again use it's a that No. low because deferred of ratio, item. the because comp low

got would area of down to what quarter were know, growth to if would XXXX, to was over the sitting in time. know, what credit to you and and probably up, They'll the That open year economy expect out. back can a and you continues where because is earlier, up Will see first continues you've that depends they the then not. costs the probably expect or in an slowly over end they see Powell that customers employee increase go works jump that talking of back we some we to lot you will year. to start on of again, other or the - know, operating benefits. would about this we expense how start we a expect So But go variable

Elyse Greenspan

for Okay. the you Thank color.

Andrew Watts

Yeah. that had QX could mid-term that the what understand for that We just reason make understood because on in is And just just be. the want you third adjustments to guidance you sure the idea of quarter, stage. the the at then we did no in change Elyse, didn't piece

that third quarter, best visibility some of a thought first little recorded think bit second The second next quarter in into $X of and of we the hopefully estimate. maybe fourth that quarter. I should quarter. and adjustment we in million We more the we off of better got take quarter originally see the kind might year. the That is the pressure third and in our fourth

Elyse Greenspan

Okay. the I color. That's helpful. Thanks, appreciate again. excellent

Andrew Watts

Yeah. Thank you.

Operator

take Stefano you. Thank now question go Phil ahead. next Deutsche Please our Bank. from And from we’ll

Phil Stefano

just seems to that's echoing back comments Yeah. great Thanks. everyone's Brown the that to be health coming And hear. & to Brown,

they into assets? expense Are impact about commentary be actions. variable from It quarter or that. back getting non-variables thinking to been the the how Just has, might actions handled in of like and the regions. I not you call, But you the want that dig would thought it's business be going or be the about feels question like addressed costs to would its know, at strategically to taking your any might expenses about some the the don't non-variable regions they need differently on least first earnings continue

Powell Brown

short answer run Yeah. fit The businesses in looking is, our at to long-term. business the leaders are the way see best the they

opinion. things will want think and and we there like that important. and are clarify things talk in my people that to like know something, that, that when a can I So impact, I very think in about variable levers pull don't fixed think, about that's the I that companies it's big field cost you because way

do And think our to is, best our the and our about thing we short customers for the so for long-term. the teammates is answer company, what

we all are And and companies commenting that of and people they so are furloughing that under their depart intense of understand and/or their you there off if pressure, been it's lots a not we've are you and the teammates. of reasons across wide, we're that. businesses number performance impact a laying have But all had related. because you somebody know, team, up know, know, to It's point, this not

the to do going agenda et environment days near we learned we're business that as about that out going want operating done in in we've a is to remote some understand and this so via although to that sure to lot big think make number. to things, the environment. how that no, difficult cetera. impact this to working ways customers field intermediate And with like in Having seven a out and different interfacing come But there's we because clip some of the will term, in going by and of work evidenced it video I off hidden you not

I that very with and QX. were I think in - pleased our margins quite good under the that circumstances our that. We're think growth

Andrew Watts

Yeah.

first convey don't not how culture. upon we know, on quarter, we to run I the adjust do leaders rely we initial first the our company? And its mandates, know our our give put trying hopefully insight. what cost. you just their operating quarter to out and of businesses just So, call, first We mean, at everybody How the were to we talked about

team job run the very It their but of instead perfectly. look differently They great at it second Brown costs it with other needs all part worked the Up to we outstanding works did to of we might quarter the variable Brown, their demonstrates well exactly If very of need of so be years why the we're everybody how & and you companies, them did works. in we organization. for the so inside pleased customers. managing and very, reason it's of we've and many it the of how be an and margins well of how think have because had down

Phil Stefano

fair particularly at was programs expecting. a growth Look, point. in much That's than least I was stronger

you as a downturns. the focusing is and Just my are that’s place of something And on a of I positioned strong past how be lender was – question, portfolio negative particularly that I versus correlation highlighted mean, there? help market what I been the economic the makeup guess, me broader business. hoping couple quarters, in be growth understand stronger might the it could to have

that about run able proportionality You in the the segments? things we know, countercyclical continuing might that growth think be to the maybe of

Powell Brown

Okay.

let's What coverage coverage. and about big broadly. So just wind just quake use two comments,

heard me the okay. some in to XX%, even comment yes, property instances say as up coastal the - that, So in in you XX%, prepared XX%, properties comments

provides other above, you could be have of construction, if be be it a good the frame, it increases. cover, rate habitational, program mix it a be it of habitational, all could that wind seeing So they're could could

create in like a very tension this. capacity a constraints period So, unusual

would said unlike and the as tell rates the are going QX, we going and to had going you rates now XXXX is So, in going the had you, economy XXXX, up you down. down economy down. We

you unique dynamic. this So have

dates And come so you seasonality there not accounts it but I an make some whether I'm I'll not, some could It's and - be just some renewal, about something it example. programs for up, when a make mean, instances be give those Public specific, are up for up, big program entities, area. a on seven just usually entities entities this But we about moment. one, not nine six think in and for let's public one, thirty. public ten have one, date

they you renew, whether you're Florida or York six So in in or board may school Washington. or you're on Oklahoma, seven New or know, Texas you're in thirty one,

going they month any as opposed big important have exposure, they something that large seeking school companies July, in I are are in have But have be the obviously, so and mean, quake school June think I large to and seeking, that June might board, And hypothetically, same you of this with this coverage. if a huge want that in acknowledge not I it we to large mean, - may that's wind exposure not coverage have companies then you is or of to renews that boards to I want wherever I any lot an nuance. here quake are,

not some now to I lot everybody areas. want that not online. of good serve if half discussion. they're about to and carriers in comes potentially that. our it's in And that, That a out or the be said in moderate that more on of in want activity comes in might that it continue gives programs you and to customer of seen of up, think an and start-up dried capacity your rate thing may you dried but competes fact, overseas yet, sure know, or X, rate, us We is that up capacity could get marketplace businesses What these both. only, us? extreme thing a you Having were new the or thing get could up, seen growth. to that capacity renewals standard that, because extent occur, case you you saying, write insurance additional certain that's pressure if believe to of and go plugged able capacity dried example. our where is have that as into America because capacity governor hear do would base. additional instance some also increases. upward X to and be to in management Conversely, But renewals knows alone, capacity in yet. to could that bearers, to this new be risk on good lot organic bad a coming heard a this forming of because impact or didn't read not allegedly reinsurance new capacity that make and - up going for it has haven't a we rates, rate and there's on the and/or It's large it write X happened would have that governor, there your business, All okay, That about teams against able there the a the they're new is that to are fact and you

new with then good very providers. and not how very this, So we capital business. we a going growth very the you we for I’d impacted actions have is are programs. And do - going providers or to lot what outlook this the of think will that the is entrance say of We We quarter be the want capital it's think pleased of and next that. existing it with the view inactions pleased on organic to by the a think moderated we're it's quarter. more national be We're growth of

Phil Stefano

Got it. much. Thanks so

Powell Brown

You’re welcome.

Operator

go Thank you. take from ahead. And we question Raymond Please James. now Greg our next from Peters

Greg Peters

Willis lack the Good up your seen private then fallout is or back around comments equity M&A? you Watson in private the involvement you Aon, morning. year-to-date any Towers also Can and to And of full the side continuing potential circle Have we equity can or back speak any to from benefit side in proposal? running steam?

Powell Brown

equity Okay. steam. full going Private is

they that's COVID the means on, their And gas. on initial you XX would highway, put it this hour. miles brake is gas. an the analogy they Greg, the not their tell I take about foot driving about off would environment, into somebody take use mean That you the and the we think they come foot So, does off

going for up So to period an hour, months, let's hour now pedal and to they're of they've back a an months, three XX go the miles put back from towards the maybe or floor, miles you say, XX two and XX.

So two very it acquisition merger as the environment, of in the continuing firms. relates Again, the space. proposed to active

really exploring to that. But are I on not hear don't people that. opportunities. going we that to other about of we about to there things that in interested really we're on know, seem and talk we and You that speculate mean, And be and speculate the and know, complicated to business people the however, can new get we just keep them you on we're best best. trying on, a that wish at all And deal, complex, works write our going know, out to all team. you

don't too I want about that. to much speculate really So

Greg Peters

mean, through you up, I historical to the producer held you, retention has up six relative you brought Can fair. That's first your it can months, how talk standards? about

Powell Brown

is Yeah, sure. think it up And I answer the held is well. exceptionally

I think really, that good. our retention teammate been really has producer retention overall our and

Greg Peters

profit circle guaranteed in be that back we the takes the Andy go on back Can Okay. prepared for again you review the should be how and supplementals. and puts on to comments to the full and know can thinking remarks, Fair Maybe we but about you year? helpful. I commented enough. if it'd can that results your you sharing year-to-date

Powell Brown

yeah. No morning. problem. Greg, Sure,

combined. at just Let's through them go look and

estimates based the finalize have And quarter, you the we our again, we GSCs one-time of our throughout we final the for that we year. we can. that that in that record made new million, you contingents the quarter the have upon about down contingents to least written that of that we we got first know, were is represented year-over-year, best about XXXX. there second for $X.X last to Then we were The up million, quarter, ASC, if due when adjustments the that second or second those $X.X with policies the in and either first recorded for the and GSC do So quarter, primarily in year to cash at comments receive the to we true-ups. the half to recall, we first $X.X was million, qualify new the year or

similar so the for year, We look that they did what second as will the know half second the half combination we half of the upside. last to the mentioned barring right really GSCs second So of drives we pops in as year, which of think about. as those the all now, in year contingent earlier, fairly of that's we don't don't up just this new anticipate that of something

Greg Peters

And of that have this shrinkage been be lead the there piece, that about several the thanks. could just total feels for organic year? a a know sort of in and of going final kind struggles terms beyond It's quarters watching on revenue Is this sense business. that we Or trough you now. something Services the guys that we've to business? right, your I structurally year right that like with is All there then further might as segment think you for revenue know,

Powell Brown

I was think correct. assessment your first

with of a comments look is, or think - it that. comments in we things, alluded have eater. don't my believe that a anything that and we wrong I there's structurally as at to That's There's the as trough business we outlined in Andy’s anything that. like just combination

you we So future. of, And, kind you better our know, through in know, way the it. it'll be work

Andrew Watts

at around and is the and social the one of security talking Yes, a the is government. that, been impacted quarters some at for administration always federal what of We're unknowns we've Greg, happens business. piece few advocacy inside definitely times about security this

the amount there they resources claims are and So how of and quickly depends put. on on they processing

over adjust number down we've over and time. seen things does of that a So up And years. that

of just one starts know coming until wildcards, those along. of it, of kind we it don't about kind just it's So

what general again, based are we watch see Those on and out there. with to weather move just happens forth that property have that then and So claims back related.

Greg Peters

the Powell, Got for okay? the away and beaches nightclubs the answers it. in quarter, third and stay and fourth from Thanks

Powell Brown

weeks Actually, know, have Greg, lot. you a I of immunity. as XX Thanks

Operator

take next Yaron go question Thank now you. Sachs. from from Kinar we ahead. Goldman our And Please

Yaron Kinar

everybody. morning, Good Hi.

$X revenue for adjustments ones, Just COVID. a couple million of of the

employee other such million I I comp you hold? million that see think got first, $X lines guess, could benefits workers So take GL. on said last there you you adjustments $XX.X like Are quarter, on any

Andrew Watts

Yaron. morning, Good

see to not incorporate in we'll seem those we've to What our to in pop policies stage, that captured the up, outstanding QX, outstanding the lines into tried in is and don't right we of again, have no if the at other now, policies adjustments. other we QX address facts this to try those. we As do for

kind right was to now lag we second of challenges play In had - how of at see it's into just estimate kind estimate to reporting. So continue all of the to quarter how we things had one the effect least out. the need the we best on going because that

on So employee benefits we until reporting May June. the really start comp good for in of getting for didn't monthly work some real

So down. a got months we've couple only

to and we'll start of quarter to the of see for start give to did renewals and and going continue well also we're premiums to return they'll estimating idea monitor look $X the third see what an in us also look things like what and on some we So then like the that million. how

Yaron Kinar

Okay.

holding are estimates employee well? benefits And the so far comp workers and

Andrew Watts

hard you're more one time, hear. Sorry, to

Yaron Kinar

Sorry, comp last The as workers was employee that. quarter, the one still about those and had addressed benefits that now? are well estimates holding you of

Andrew Watts

are. mix they The Yes, in but yes. is full, different,

Yaron Kinar

$X can what you from million earnings quarter? this was say And impact those Okay. the

Andrew Watts

up repeat, hard you’re little can a hear Sorry, What Yaron, on. you're again, breaking you bit. was, to please?

Yaron Kinar

was I was say what impact million, if you, $X this asking from earnings you the could quarter? the

Andrew Watts

Oh, it's, there. quite high on

Yaron Kinar

many to we're of other carrier opposed cut actions retail and as costs, programs wholesale your and to order saying specifically one cut lowering the have then coming to what? insurance taken question. How customers, And where or in Okay. chosen in

Andrew Watts

Yeah.

don't I clarify, There's aware I would I'm I to maybe of, should segments. what think up. I not say back is, two want I well, -

first. think Let's small about business

have scenario just like We people here's that wholesale. and business. that's done. we out business both say are retail we're where and keys, of we in So the call we small they're have And - - a

those small in but So we've areas, are had small of a accounts. lot that business

Okay? coverage. And the find might buy mean you they that goes buy therefore substantially less what accounts, is But doesn't and up don't the cost they coverage. of the larger

perfect a you let me me give example. Let

broker was of have is say you clothing, and your infant going umbrella and in - we're $XX that the carrier manufacture, million, of $X to premium. And $XX large And million like comes just million let's your for a a of premium. million and something million on manufacturer, that. this something $X baby through sake company umbrella say up and put that $XX know, cribs children's, million $XX coverage Let's quote your says a the $XX you just like you back million you discussion, for to you're

out that's goes $XXX,XXX $XX So then something. broker say get and million, your and other or the let's

to $X.X million So your XX $X.X up whatever the limit $XX the same the $XX price as million or number or primary million, is, year for was just million but [ph] went your the before.

hey, But is, what may talking to of XX You saying million That's there I what an not say, They're they're not buy That's about buy they're we're I'm can are certain saying. not umbrella. saying, only extreme going in examples. what larger customers. coverage.

you let's business, gone in through the multiples is liability excess transportation you're times. of have long XXXX premium If trucks, roof, say haul the your

price able so you now only you the bought million have to XX limits before, And so of $XX been if million is high. might buy because

we the see rate see see we lower excess of but we not area, may area, in renewing, middle out - mostly So business. the In limits we increases are seen people because business, teeth. the large particularly accounts, going in it's of classes of some the haven't so accounts accounts substantial. purchase In the small there's - people tougher mashing market

Yaron Kinar

Thank your hope and Understood. and Powell, all color stay and teammates it. healthy. you the I that you Got for families

Powell Brown

Thank you very much.

Operator

now ahead. Hughes from question go our SunTrust. take from Mark Please Thank we next you. And

Mark Hughes

a authority we to you. go prospects said up? the that Or should binding thank Thank you the is quarter. for mid-single Yeah, What on more new this And are digit back think normal? back I this growth? was to the you little slower wholesale, pick

Powell Brown

it's I'll tell Mark, what wholesale, you've in Yeah, interesting. got you

brokerage. in smaller You've smaller. binding business, but that's primarily know, binding small, not the that authority The so And premium got then you you as two have transactional is brokerage, segments authority. accounts,

and $XX,XXX something in that. and be you primarily, or property So or wholesale under, are accounts layered say accounts that. under, of think that transactional $XX let's higher bigger premium umbrella then like transactional, be know, could an would or large But than it and

impacted, and question, said think business, it's the is is of lot I our business got is the as the what impacted full estimate the to authority that impact, previous business because in prospects. being hard you've in binding I a by

and direction. the whole So number down was it the months. let was it's prior other binding authority closed, deal more - back and June was in opened May, But going economy the than the two an April me and up, new because now I of the give new business businesses example. way significantly you when we mean, wrote

I be that so kind to is And going business under to term. authority of think near pressure intermediate binding the in the

But the in business the market go that an got So market Brokerage the of admitted to of year. you it is non-admitted enormous amount pressure certain might to where there's opportunity from instances. an in rest remember for - the say nicely. to that of let's some there's grow also some instances

that, where instances of don't are but certain there You think normally happening. that's

expectations part I no, some that around growth think headwinds would I how in uncertainty there. just great there's just responds. of that, of moderate I'd for of say year half the Normally it's the market So but that because it's second a the the lot I think going, there is and

Mark Hughes

Understood. of capital? good Interest of the a bigger rates, run up. Then quick some use follow absent expense, Andy,

Andrew Watts

a probably stay Mark. have incremental they presuming acquisitions. that And any Yes, rates run where quarter for we good are is don't borrowings second rate,

Mark Hughes

Thank you.

Powell Brown

a that it's is to very I important. clarify timely Mark, want And something And think example. I

been write all things know, One over lines as of an burning in example business, personal be And of the is there California lot years. binding of authority kinds California. and would we has couple the last a you areas that

basically carriers not in we're of you to the admitted California state write personalized number said a areas. in going is, So coverage of not know, which Rush have zones,

or have what that already certain of where is, of there's market, gotten does pockets in Florida, that some in And in so their exceeded disruption hit capacity. lot might carriers you find a that

backing they're so off. And

mean where So, forces to just know, the of don't world, on interesting big all personal California, it's we're like is again, sudden, and kind doesn't you largest which little know, in sixth a different, you have work that it a choking a of they're we is through are it. it. economy - that are going a just you But the place line if market there

a state And of lot the plan. so it's going to

Mark Hughes

Thank you. Understood.

Operator

Thank you. And now from Shields Please we take our next question from go KBW. Meyer ahead.

Meyer Shields

itself, revenue obviously, have like surviving morning. does or that hope it any Powell, any your If well. correctly, margin I retail, But Thanks. that's market implications? comments you're that. in does I whether on more the accounts, small sit at shift Good there's sounds implications? in understand Or And overall mix margin wholesale. margins are doing pressure that

Powell Brown

of business. think and it's small been our Well, part business, the a we like I nice

part it a And but whole, impact. negative have margins, smaller a so or a remember, segment, does a positive on the as it's our impact of

Meyer Shields

So negative when back it goes away?

Powell Brown

I'm you sorry, could you were unclear? repeat that,

Meyer Shields

am I sorry.

impact. it positive or that has think you So negative a

small business, I margins? just or that missed negative equal - saying that. having is I I'm for afraid less all else You're positive account

Powell Brown

a you The that less fact is, small is the answer Yes. business have negative.

Meyer Shields

, quarter the more so means results that Okay. even impressive.

to good that's So hear.

just higher and quarter and component? first thing that I and anticipated a small we lower And and talk – wholesale COVID. wondering less I'm just the think business less this happened Is retention, maybe call, new about talk the retentions. about in what talked you that business On about, had

Powell Brown

overall exclusively about a That that. XX% not to I it, retail, it's remember, us revenue think retention. overall in be retention of you've but as it, an office, XX% before some rate in might heard mean, say

in than if maybe on a know, brokerage, that, business or you wholesale depending You XX authority binding more. know, it's, points less it's

churn So there's that know, book. in you a of, lot

those i.e., it. you're if more there's of couple impact And were business, a puts to able pressure Or that replace there. you it, accounts new so if accounts, lose either not if and big, on

many have that Rental, So how of period Car might say compared would last so I’ll you I'll one very four any about okay, this time. the impacted many cars that let's you give rent. you. in for example. rented industry pick be to normal dramatically months, Think an the not in you

which like you say guess in something number tenth or if are, is, on translates as to What got or an sort it's based use it whatever have that. was the might customers, fair a a, a the or that, people get think you going just some they or $XX it's well a it's could can that bar, know, of entertainment example, receipts, said if so of environment, okay, and you be - that's you I the might to be say, it's restaurant know, the number case, it you about, And a receipts customer I - like usually now know, their one an what?

in of the whether of rate existing book, restaurants, fact that that’s so League the retail general, in sight compression all let's So in hospitality, or this you we impacted. call Soccer, about think lose remember, Little talked in sports, we but the just it's that about you entertainment, know, there's compression professional not out, sports, know,

account you what is sudden you the we it may So was. renew of the but - had all account, XX% of a

in of the by compression Meyer, not, inherent there's So it's not wholesale. way, book, certain the segments exclusive to

We have in programs. that

in We have that services.

We in have distinction. very important that retail,

Meyer Shields

helpful. you very much. No, was very that Thank

Powell Brown

Yes.

Operator

you. Thank

Please Stanley. follow have Phillips Michael a from question go up ahead. Morgan We from

Michael Phillips

to two any rebates Hey, what you any or appreciate that rate ones, simply any from on theme of commercial you or Have kind can't that outside quick parties seen you is a issue number we've on me thanks. mentioned relief sitting a the other in. any examples Powell, pressure Actually, here first Or big pay. well? accounts personal you I think as of seen do side? questions,

Powell Brown

large my head prices of maybe have trading than willing others. been carriers more commercial and I partners - their that adjust been so the of than to who that we yet I off there not more and mid-term, top some seen more the aware to on answer country, around the taken we've health of by question is, some And where side, actions some the regionally. has The insurers things I'm say several know

there. rate relief gives that so And right

basically you premiums. of your you have So whatever. payrolls give we're do now reduction not you, XX know, give down might can going XX% said XXX trucks say hey, you let's you adjust right exposure road policy, your a they to going they you the is, them, we're auto on and your or a said, What know, personalized like have driving, units down or only to you're in

them trucks warehouse. being So a for that sitting are it's going charged of to in the the benefit not give

So exposures. we seen And we've it's have And rate boy, not adjustment willing then them. not scenario, some are are mean, do that. carriers it's seen cut. It's a thing, every to same an I but the and that there

Michael Phillips

there. of quarters? guess, you up still Or there can I opportunities to recent M&A any you make seeing terms today side, held what equity full is I private out level? Okay. relative evaluation you're one, comments imagine. steam, prior last on Can on the there running in mentioned what's still being

Powell Brown

know one Yeah, prices, that the I mean, are that a tell of multiple is, what, saying paid. is if modified seller the the always would I I'm real EBITDA know, versus you somebody I likes that sustainable, to what know, EBITDA, to the buyer, remember, being what you acquisition multiples up, the And you say a you dramatically ongoing to got not jacked want they EBITDA. have

tell were paid paid of quarter, what even last multiples the being today and the is, would of quarter last being that you our similar maybe the year. in first they very I it are to sense So,

impact necessarily comfortable of just That's with are multiples it's the earnings. how important. So not pandemic the that the different, on really to the Michael, get

Michael Phillips

that for time. Okay, your makes Stay answers. I well. Thanks the sense. appreciate

Powell Brown

Absolutely.

Powell Brown

for of its and okay? question take XX one in top then past wrap and we'll about the last queue hour, - unless today, there's the Anita we'll Hey, it ahead the go up

Operator

last It’s go Elyse is our actually question This sir. follow is ma’am. question. ahead, you, a up from Please She from Wells Greenspan. Fargo. Thank

Elyse Greenspan

we of the couple know, guide, for My back Thanks. Thanks just negative normally the to do year, guide queue. comments keeping trying the to as think there. I questions pry of necessarily check a guys or positive given the about the kind me kind you follow recognize of for on up, throughout back call, the slightly an and not but in organic was of you I slightly

you two know, see the the it the the think QX you two those right, question for in how quarter case, to And on an its want answer positive quarters. best see pointed that quarters – maybe worldwide thing to about next the second my help the two as $X together, positive the quarters? adjustments is or QX million overall is no this back you basis, can you the better You out of next the slightly yourself on year? Do long

Powell Brown

Great.

of the unknown So be course, how of exposure be be with the is of had the be Could business positive? could by the of question, also hard. It a positive? even all of growing the like There's and if variables, a of idea Of COVID, to of answer amount comments. be negative. insured's, down with the economy to of Yes, said, know, the not good lot you bunch could between number year, our Could unit the I'm be and cases and end trying out that, it again, a now it might growth issues. resulting confirmed could diverting XX% their new all all of impacted the in the positive. the I it spikes a be. sudden go

that's So first thing. the I don't know, Elyse,

this answer, I adjustment a think As okay. it that referenced, Andy a an relates the of to is is non-GAAP this kind important -

in business. that in not QX, only and made, what has estimate QX, based the we but adjustments the So were GAAP – Andy on the those it's but The adjustments at principles. in see team time the best could of

know So that's an that the we up right the have we is, some the possibly reason very business, adjustment. But distinction. we know. it think looked bring the the made at judgment I into don't And QX, that today. business we we another and as best on We I important get see there's could now way

helps. mentioned is. because, it what just that I it's what it but for know So that I frustrates - is me I I too, again, it's frustrating it hope worth.

Elyse Greenspan

you. Thank Okay, Powell. helpful, very that's

Operator

Thank you.

time. this at questions further no have We

Powell Brown

safe. I got to it. know that, be a will for have I that Okay. look talking and very and it or people I it of be Thank to time your number you today. forward QX. tell But don't you it. gotten you in We much want I Please all have that well come you through

So like it it's everybody. seems almost touching

next we look well Thank and and safe to forward talking to be quarter. you So you. be

Operator

This concludes today's call. for you participation. your Thank

disconnect. now may You

Brown & Brown (BRO) 28 Jul 202020 Q2 Earnings call transcript