Brown & Brown, Inc.

Good morning, and welcome to the Brown and 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 before 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. 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 reference 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 second quarter, that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward-looking statements, is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in an investor presentation for this call on the company's website at www.bbinsurance.com by clicking on the investor relations and then calendar of events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Thanks, Shannon. Good morning, everyone, and welcome to our earnings call. The second quarter was another outstanding one for Brown and Brown. Our team continued to deliver strong net new business across all segments by leveraging our collective capabilities, or as we say, the power of we. I'll provide some high-level comments regarding our performance, along with updates on the insurance market and the M&A landscape. Andy will then discuss our financial performance in more detail. Lastly, I'll wrap up with some closing thoughts before we open it up to Q&A. Now let's get into the results for the quarter. I'm on slide number four. We delivered nearly $1.2 billion of revenue, growing 12.5% in total and 10% organically over the second quarter of 2023. This is now our third quarter of double-digit organic growth out of the last six quarters. Our adjusted EBITDA margin improved 150 basis points to 35.7%, and our adjusted earnings per share grew 17.7% to 93 cents. On the M&A front, we completed 10 acquisitions with estimated annual revenues of $13 million. Overall, it was another great quarter of strong top and bottom line growth. I'm now on slide five. From an economic standpoint, inflation remained elevated but did moderate during the quarter. Consumers continue to spend, driving demand for products and services. However, we continue to see a bifurcation in spending patterns based on income levels of the consumer. In addition, business leaders are making investments in their companies and new construction projects are starting now that interest rates seem to have plateaued. As a result, many of our customers continue to hire employees, but at a slower pace as compared to 12 to 24 months ago. From an insurance pricing standpoint, the overall changes in rates for most lines were relatively consistent with the last few quarters with the exception of the E&S property market. Pricing for employee benefits was similar to prior quarters with medical and pharmacy costs up 7% to 9%. These ongoing upward pressures and the complexity of healthcare are driving strong demand for our employee benefits consulting businesses. We believe we're very well positioned to help companies of any size navigate this very challenging landscape. Rates in the admitted P&C market continue to be up 5% to 10% for most lines. The downward trend for workers' compensation rates remained with decreases of 5% to 10% in most states. With the low level of unemployment, we expect this trend to continue. For the quarter, rate increases for non-cap property moderated. We continue to see upward pressure on rates and deductibles for properties located in convective storm zones. As we mentioned last quarter, rate increases for primary casualty layers remain elevated due to the ongoing size of legal judgments in the U.S. and to a lesser extent, higher levels of inflation. For professional liability, we saw rates flat to down 10%. Shifting to the ENS market, cat property rates moderated throughout the quarter as compared to the first quarter of this year and the second quarter of last year. This is not surprising to us, as we expected cat property rates to further moderate until the effects of the storm season are known. In Q1, we placed properties with rates down 10 to maybe up 10, and it was relatively balanced. This shifted in the second quarter where many renewals were flat to down and generally only loss-prone or poor construction accounts realized rate increases. This continued to be driven by some carriers or facilities willing to put up additional limits combined with some new capital entering the marketplace. We saw some customers increase their limits based on their savings while others captured the savings as a partial offset to the increases they've absorbed over the past few years. While cap property rates moderated during the quarter, the rates for primary and excess casualty continued to increase between 1% and 10%. With our highly diversified business, moderate rate increases or decreases for one line of business will generally not have a material impact on our consolidated results. That's why we focus on diversification across lines of coverage, geography, industry, and customer segment, as these drive our consistently strong and industry-leading financial performance. Lastly, the M&A marketplace remained competitive for high-quality businesses. While the number of acquisitions by private equity backers has decreased, they are still active. For the quarter, we acquired 10 great businesses and continued to build relationships with many other companies. I'm now on slide six. Let's transition to the performance of our three segments. Retail delivered another great quarter with organic growth of 7.3% with all lines of business performing well as a result of winning a lot of new customers along with good retention. Insureds are frustrated and exhausted with the level of rate increases over the last few years, which is driving many companies to shop their coverage. Most of the time this plays to our advantage and has been demonstrated by the growth of our net new business. The strong and consistent performance is a reflection of our talented team and the breadth of our capabilities. The program segment had another outstanding quarter delivering organic growth of 15.4%. This growth is driven substantially by new business and the expansion of existing customers across many of our programs. The strong performance in the majority of our diverse portfolio of businesses continue to drive impressive growth. Wholesale brokerage delivered another strong quarter with organic revenue growth of 11%. This performance was primarily driven by riding more net new business within our binding and personalized businesses. Our open brokerage business performed well, but did not grow at the pace of the last several quarters due to rate decreases in property. As we've mentioned before, We have strategically built our wholesale business to be well balanced between brokerage and binding authority as this diversification helps us deliver consistently strong financial performance. Now I'll turn it over to Andy to get into more details with our financial results.

Thank you, pal. Good morning, everyone. 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. 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 $1,178,000,000, growing 12.5% as compared to the second quarter in the prior year. Income before income taxes increased by 20%, and EBITDA grew by 17.3%. Our EBITDA margin was 35.7%, expanding by an impressive 150 basis points over the second quarter of 2023. The effective tax rate for the quarter was consistent with the prior year, and diluted net income per share increased by 17.7% to 93 cents. Our weighted average shares outstanding increased slightly as compared to last year as we continued to prioritize paying down our floating rate debt. Lastly, our dividends per share paid increased by 13% as compared to the second quarter of last year. Overall, it was a very strong quarter. We're moving over to slide number eight. The retail segment grew total revenues 9.3% with organic growth of 7.3%. The difference between total revenues and organic revenue was driven by acquisition activity over the past year with a partial offset due to lower contingent commissions of approximately $7 million in the second quarter of this year. EBITDA grew slightly slower than total revenues due to lower contingent commissions and to a lesser extent, higher non-cash stock-based compensation. Excluding the impact of lower contingent commissions, the margins expanded nicely due to the leveraging of our expense base. We're on slide number nine. Programs had another strong quarter with total revenues increasing 15.8% and organic growth of 15.4%. Organic growth was positively impacted by approximately $5 million due to the finalization of a non-recurring growth bonus for one of our programs. The incremental growth and total revenues in excess of organic was driven primarily by increased contingent commissions, which resulted from our strong underwriting performance and a quiet hurricane season in 2023. For the quarter, we also recognized approximately $3 million related to the finalization of a contingent commission calculation for 2023. Our EBITDA margin expanded by 220 basis points to 49.6%, driven by higher contingents and the leveraging of our expense base as well as 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 revenues increasing 14.4% and organic growth of 11%. The incremental expansion in total revenues in excess of organic was driven by acquisitions completed over the last 12 months. Our EBITDA margin increased by 240 basis points to 33.3%. primarily due to certain non-recurring costs in the prior year and leveraging our expense base. We had a few other comments regarding our capital structure, cash generation, and outlook. In the second quarter, we issued $600 million of 10-year senior notes in preparation for the $500 million of notes that will mature in September of this year. We had excellent execution and the market responded well to our credit profile and longer-term bias towards lower leverage. These new senior notes have a coupon rate of 5.65%. The remaining proceeds of $100 million were used to pay down a portion of an outstanding floating rate term loan. Additionally, we paid down over $260 million of floating rate debt in the quarter. For the first six months of this year, we had strong cash generation of over $370 million, even when taking into consideration the previously mentioned timing. of paying federal taxes in the first quarter of this year related to 2023. Lastly, regarding margins for the full year, we had previously provided guidance indicating that we expected margins to be up slightly for the full year. With our strong financial performance for the first half of the year, we are now expecting 50 to 100 basis of adjusted EBITDAQ margin improvement for 2024. This guidance is dependent on the outcome of storm season, and as a result, this range may adjust up or down. With that, let me turn it back over to Powell for closing comments.