Brown & Brown, Inc.

Good morning, and welcome to Brown and Brown Incorporated's first quarter earnings conference call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call, and including answers 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 and with respect to future events, including those relating to the company's anticipated financial results for the first quarter and are intended to fall within the safe harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made. as a result of a number of factors. Such factors include the company's determination as it finalizes its financial results for the first quarter and its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday. Other factors that the company may not have currently identified or quantified and those risks and uncertainties identified from time to time and the company's reports filed in the Securities and Exchange Commission. Additional discussions of these and other factors affecting the company's business and prospects as well as additional information regarding forward looking statements is contained in the slide presentation posted in connection with this call and the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results, or otherwise. In addition, these certain non-GAAP financial measures used in this conference call, a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures, can be found in the company's earnings press release or in the investor presentation for this call. on the company's website at www.bbinsurance.com by clicking on investor relations and then calendar of events. With that said, I would now like to turn the call over to Powell Brown, President and Chief Executive Officer. You may begin, sir.

Thanks, Norma. Good morning, everyone, and welcome to our earnings call. Q1 proved to be another strong quarter. where we delivered excellent top and bottom line growth. Our team did an outstanding job of winning more net new business again this quarter. I'll provide some high level comments on our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financials in more detail. Lastly, I'll wrap up with some comments, some closing thoughts and comments before we open up to Q&A. Now let's get into our results for the quarter. I'm on slide four. We delivered over $1.25 billion of revenue, growing 12.7% in total and 8.6 organically over the first quarter of 2023. Our adjusted EBITDA margin improved by 130 basis points to 37%, and our adjusted earnings per share grew 18.8% to $1.14. On the M&A front, we completed six acquisitions with estimated annual revenue of $16 million. I'm on slide five. Growth in markets we operate in has not materially changed compared to the fourth quarter of last year, as consumer spending remained resilient. Levels of hiring and investment were similar to what we experienced in the second half of 23. However, there continues to be a shortage of workers for many industries, which has also driven elevated levels of inflation. From an insurance pricing standpoint, the overall changes in rates for most lines were relatively consistent, with the fourth quarter of last year. Pricing for employee benefits was similar to prior quarters, with medical and pharmacy costs up 7% to 9%. These pressures are driving strong demand for our EV consulting businesses. Rates in the admitted P&C markets were up 5% to 10% for most lines, while we continue to see decreases of 5% to 10% for workers' compensation in most states. However, we're starting to see some changes in rates for casualty professional lines, and cat property as compared to prior quarters. Due to ongoing levels of inflation and the size of legal judgments, pricing for excess casualty lines continues to increase, and we're seeing upward pressure for primary limits. Over the majority of my career, primary liability rates seem to have been under downward pressure. As you've seen, the excess market has been up substantially in the past few years, And with the continued deterioration in the general liability market, the primary rates seem to be moving up in certain lines of business. Now, it seems there is an upward pressure on both primary and excess rates. For professional liability, we saw a slight improvement in pricing as compared to last quarter, but rates are still flat to down 10%. Cat property rates moderated during the quarter as compared to 2023. We saw many accounts that had low or no losses with rates down 10% or more. And accounts with losses or poor construction or a combination of both increased slightly to up 15%. This was driven by some carriers or facilities willing to put up additional limits combined with some new capital entering the marketplace. As we've seen some downward rate pressure on certain properties, This may have a slight impact on those offices in CAT areas. However, their new business activity remains strong and they're performing well. As we've always said, our organic growth in a steady state economy is generally driven two-thirds by exposure units and one-third by rate. In CAT-prone areas, the rate impact might be slightly higher. Keep in mind, we've built a highly diversified company in geography, lines of coverage, and customer size as these enable our consistently strong financial performance. Lastly, in the M&A marketplace, it continued to be competitive for high-quality businesses. For the quarter, we remained active, building relationships with many companies and acquiring another six. I'm on slide six. Let's transition to the performance of our three segments. Retail delivered another great quarter with organic growth of 7.2%, winning a lot of new customers along with good retention. In addition, all lines of business performed well. We're very pleased how the team is leveraging our collective capabilities in order to create unique solutions for our customers. Our goal has always been to have the tools and capabilities to serve our customers as they grow and become more complex. We have strategically built our employee benefits and property and casualty businesses to serve customers of all sizes, those with less than 50 to over 50,000 lives, as well as startups to multibillion-dollar revenue companies. The program segment had an outstanding quarter, delivering organic growth of 11.8%. This is even with the headwinds of $8 million of flood claims processing revenue we recognized in the first quarter of last year. Our highly diversified global portfolio of over 60 programs performed very well for the quarter as we continue to provide market differentiated solutions that enable us to bind more accounts. Wholesale brokerage delivered another strong quarter with organic revenue growth of 10.8%. This growth was primarily driven by binding more net new business and rate increases. Our highly diversified lines of business, including open brokerage, delegated authority, and personalized grew very well during the quarter. Now I'll turn it over to Andy to get into more details regarding our financial results.

Right, thank you, pal. Good morning, everybody. We're over on slide number seven. I'll review our financial results in additional detail. When we refer to EBITDAQ, EBITDAQ margin, income before income taxes, or diluted net income per share, we're referring to those measures on an adjusted basis which now reflect the previously announced exclusion of intangible asset amortization. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. We delivered total revenues of $1,258,000,000, growing 12.7% as compared to the first quarter in the prior year. Income before income taxes increased by 19.4%. and EBITDA grew by 17.1%. Our EBITDA margin was 37%, expanding by an impressive 130 basis points over the first quarter of 2023. The effective tax rate for the quarter was down slightly from the prior year, with diluted net income per share increasing by 18.8% from last year to $1.14. Our weighted average shares outstanding increased a little over 1% as we continue to prioritize paying down debt on a full year basis, as this has a higher contribution to earnings per share, cash flow, and shareholder value. Lastly, our dividends per share paid increased by 13% as compared to the first quarter of last year. Overall, it was a very strong quarter. We're on slide number eight. The retail segment grew total revenues by 10%. with organic growth of 7.2%. The difference between total revenues and organic revenue was driven by acquisition activity over the past year. EBITDA grew slightly slower than total revenues due primarily to higher non-cash stock-based compensation costs as well as lower contingent commissions. We're on slide number nine. Programs had another strong quarter, with total revenues growing 16.9% and organic growth of 11.8%. The incremental growth in total revenues and excess of organic was driven primarily by increased contingent commissions due to our strong underwriting performance and a quiet hurricane season in 2023. The growth in contingent commissions included approximately $7 million related to finalizing prior year estimates that we do not expect to recur in the first quarter of next year. Our EBITDA margin expanded by 580 basis points to 42.3%. driven by the leveraging of our expense base, higher contingents, and the sale of certain claims processing businesses in the fourth quarter of 2023. We're over on slide number 10. Our wholesale brokerage segment delivered another great quarter with total revenue growth of 15.4% and organic growth of 10.8%. The incremental growth in total revenues in excess of organic was driven by higher contingent commissions and acquisitions completed over the last 12 months. Our EBITDA margin increased by 150 basis points to 32.4% due to leveraging our expense base and higher contingent commissions. A few comments regarding cash generation and capital allocation. From a cash flow perspective, our first quarter is normally the lowest of the year. In addition, for this year, our cash flow from operations was impacted by paying two quarters of federal income taxes for 2023 that were permitted to be deferred as part of Hurricane Adelia tax relief and the payment of income taxes associated with the gain on the sale of certain businesses in the fourth quarter of last year. We're continuing to expect another strong year of cash generation and a conversion ratio of cash flow from operations to revenues in the range of 22 to 24%. Lastly, we ended the quarter with approximately 580 million of operating cash and are in a strong capital position. With that, let me turn it back over to Powell for closing comments.