Brown & Brown, Inc.

Good morning and welcome to the Brown and Brown, Inc. Third 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 statement reflects our current views with respect to the future events, including those relating to the company's anticipated financial results for the third 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. It 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 in the company's determination as it finalizes its financial results for the third 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 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'll now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Thanks, Kevin. Good morning, everybody, and welcome to our Q3 earnings call. First, we'd like to state that our hearts go out to all those impacted by Hurricanes Helene and Milton. These back-to-back storms were unprecedented in many ways and resulted in significant death and destruction throughout the southeastern United States. We're committed to helping communities impacted by these events recover and return to normalcy over the coming weeks, months, and years. With that, let's transition to our performance for the quarter. We had an outstanding top and bottom line results. Our team continues to deliver for our customers, resulting in strong net new business, organic growth, and margin expansion. I'll provide some high-level comments regarding our performance, along with the updates on the insurance market and the M&A landscape. Andy will then discuss our financial performance in more detail. And lastly, I'll wrap up with some closing thoughts before we go to Q&A. Now let's discuss our results. I'm on slide four. We delivered nearly $1.2 billion of revenue, growing 11% in total and 9.5% organically over the third quarter of 2023. Our adjusted EBITDAQ margin improved by 30 basis points to 34.9, and our adjusted earnings per share grew 12.3% to 91 cents. On the M&A front, we completed four acquisitions with estimated annual revenues of $8 million. Overall, it was another great quarter as our team is focused on delivering the best solutions for our customers and strong results. I'm on slide number five. In the countries where we primarily operate, there are no major changes in the economic conditions versus the first half of this year. Consumers are still spending and driving demand. As a result, businesses are continuing to hire and invest, albeit at a more moderate pace as compared to the last few years. Here in the U.S., we're seeing a bit more caution due to the uncertainty around the presidential election. From an insurance pricing standpoint, rates for many lines continue to increase but at a slightly slower pace versus what we experienced in the first half of this year and the third quarter of last year. The line that had the largest change for the quarter was ENS property, which we'll talk about in more detail in just a moment. Pricing for employee benefits was similar to prior quarters with medical and primary cost trends up 7% and 9% for commission-based accounts. The continual upward rate pressure and the complexity of healthcare are driving strong demand for our employee benefits consulting businesses. Based on our historical and ongoing investments to expand our capabilities, we are well positioned to help companies of any size navigate this challenging market. Rates in the admitted P&C markets were up 2% to 7% for most lines. The downward trend for workers' compensation remained, but there was moderation as we realized decreases of down 1% to 5% in most states. With the high level of employment, we expect this range to continue over the coming quarters. For the third quarter, rate increases for non-CAT property moderated and were in the range of flat to up five. For properties in convective storm zones, we did not see the same rate increases that we experienced in the first half of the year. For casualty, we continue to see rate increases for primary layers due to ongoing size of legal judgments in the U.S., and to a lesser extent, higher levels of inflation. Consistent with the last few quarters, rates for excess casualty continue to increase between 1% and 10%, or even more in some instances. Professional liability, we saw rates flat to up 5%. Shifting to the ENS markets, as you know, this year some carriers and facilities have been willing to put up incremental limits on existing insureds and new business. While cap property rates continue to increase slightly in the first quarter of this year, we started to see decreases later in the second quarter and into the third quarter. On average, rates decreased between 10 and 20% as compared to the third quarter of last year. As a result, some customers increased their limits or modified deductibles, and some just captured the savings. As we've mentioned before, moderate rate increases or decreases for one line of business will generally not have a material impact on the results of our company in total. In order to deliver consistently strong and industry-leading financial performance, we focus on diversification across lines of coverage, geography, industry, and customer segment. On the M&A front, competition for high-quality businesses remained consistent with the first half of the year. While the number of acquisitions by private equity backers decreased as interest rates rose, we're now starting to see higher levels of activity as interest rates are beginning to decrease. For the quarter, we continue to build relationships with many companies and remain focused on our disciplined M&A approach to identify great organizations which align culturally and make sense financially. I'm on slide six. Let's transition to the performance of our three segments. Retail delivered 3.9% organic growth for the quarter with most lines of business performing well. We had another strong quarter for net new business but realized the impact of moderating rates for most lines, as well as slightly lower growth in exposure units. In addition, our organic growth was negatively impacted by over 100 bps, resulting from the year-to-date true-up of certain incentive commissions, as well as quarterly volatility in bond or non-recurring revenue. Our team is performing really well and has good momentum going into Q4. Programs delivered an outstanding results with organic growth of 22.8%. This growth was driven by a number of programs resulting from new business and expansion of existing customers. Our lender-placed business and CAPTIS performed very well, and our CAPT programs continued to grow. It was another great quarter due to the diversity of our programs. Wholesale brokerage delivered another good quarter with organic revenue growth of 8.4%. This performance was driven by a combination of net new business and rate increases. Our open brokerage business continued to grow nicely, but at a slower pace due to the decline in cap property rates. Our delegated authority business performed well again this quarter. Personal lines grew nicely driven by California and Texas. We're very pleased that our balanced mix between brokerage and delegated authority continues to drive strong and stable performance. Now, I'll turn it over to Andy to get in more results. our financial results.

Thank you, pal. Good morning, everyone. I'm going to review our financial results in some additional detail. When we refer to EBITDA, EBITDA margin, income before income taxes, or diluted net income per share, we're referring to those measures on an adjusted basis. The reconciliation 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're over on slide number seven. We deliver total revenues of $1,186,000,000, growing 11% as compared to the third quarter of 2023. Income for income taxes increased by 13.1%, and EBITDA grew by 11.9%. Our EBITDA margin was 34.9%, expanding by 30 basis points over the third quarter of the prior year. Effective tax rate for the quarter decreased to 24.6%. versus the third quarter of the prior year, which was 25.6%. The decrease was driven primarily by certain one-time items in the prior year and the impact of changes in the market value of our company-owned life insurance. Diluted net income per share increased to $0.91, or 12.3%. Our weighted average shares outstanding increased slightly as compared to last year as we continued to prioritize paying down our floating rate debt. Our dividends paid per share increased by 13% as compared to the third quarter of 2023. Last week, our board of directors approved a 15% increase to our projected dividend payments for the fourth quarter of 2024. This represents our 31st consecutive annual increase. Overall, we are very pleased with our performance for the quarter and the strong results our team delivered. We're over on slide number eight. The retail segment grew total revenues by 6.5% with organic growth of 3.9%. The difference between total revenues and organic revenue was driven substantially by acquisition activity over the past year. EBITDA decreased due to lower contingent and incentive commissions, higher non-cash stock-based compensation, as well as investments in teammates to drive and support our current and future growth. We're on slide number nine. Programs had another excellent quarter with total revenues increasing 15.7% and organic growth of 22.8%. Our organic growth was benefited by approximately $15 million associated with onboarding of new customers within our lender place business. This revenue will be recognized more evenly throughout 2025. Growth in total revenues was lower than organic revenues due to net acquisition and disposition activity, as well as lower contingent commissions. Our EBITDA margin expanded by 360 basis points to 48.2%, driven by leveraging of our expense base and the sale of certain claims administration and adjusting services businesses in the fourth quarter of 2023. Regarding the impact of the hurricanes, there are still a lot of unknowns primarily associated with Hurricane Milton. Our best estimate is that we anticipate recording flood claims processing revenue associated with the recent hurricanes of approximately 12 to 15 million in the fourth quarter, and then 18 to 22 million in the first half of 2025, with the majority of that revenue being recorded in the first quarter. As of now, we're anticipating claims cost of $5 to $10 million within our captives associated with Hurricane Milton. We're over on to slide number 10. Our wholesale brokerage segment delivered another great quarter with total revenues increasing 14% and organic growth of 8.4%. The incremental expansion in total revenues and excess of organic was driven by acquisitions completed over the last 12 months and higher contingent commissions associated with finalizing estimates recorded in the prior year. Our EBITDA margin increased by 130 basis points to 38.6%. primarily due to higher contingent commissions and leveraging our expense base. We have a few comments regarding our capital structure, cash generation, and outlook. In the third quarter, we paid off $500 million of our inaugural 10-year bonds with the proceeds from our issuance completed in the second quarter of this year. With our continued deleveraging, our balance sheet is in a great position as our gross debt to EBITDA ratio on a trailing 12-month basis is in line with our 10-year average. For the first nine months of this year, we had strong cash generation of over $810 million, increasing our ratio of cash flow from operations as a percentage of revenue to 22.4%. As it pertains to full-year cash generation, we feel really good. We want to highlight that there is U.S. federal tax relief associated with the recent hurricanes. As a result, payments for the third and fourth quarters of this year are permissible to be deferred until the second quarter of next year. Therefore, our full year ratio of cash flow from operations as percentage of total revenue for 2024 should be in the range of 24 to 26%. Based on our strong year-to-date performance and taking into consideration the potential impacts from Hurricane Helena-Milton, We anticipate our full-year EBITDA margin will be up at least 100 basis points for 2024 as compared to 2023. With that, let me turn it back over to Powell for closing comments.