Brown & Brown, Inc.

Good morning, and welcome to the Brown and Brown, Inc. First Quarter Earnings Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call, and including answers given in your 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 our 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 security 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 number of factors. Such factors, including the company's determination as it finalized its financial results for the first 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 reports filed in 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 filing in 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, atbbrown.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.

Thank you, Tawanda. Good morning, everyone, and welcome to our first quarter earnings call. Overall, we delivered good financial results for Q1, reflecting the continued dedication of our nearly 23,000 teammates who provide best-in-class solutions to our diversified customer base. These results are a continuation of the industry-leading top and bottom-line performance we delivered in 2025. I'll provide some high-level comments regarding our performance, along with updates on our customers, the insurance markets, and the M&A landscape. Then Andy will discuss our financial performance in more detail. This quarter, we also wanted to take some time to provide an update on our technology and data journeys, with a focus on how we're leveraging these capabilities in combination with artificial intelligence to provide even more value to our customers, teammates, and carrier partners. Lastly, I'll wrap up with some closing and forward-looking thoughts before we open up to Q&A. I'm on slide number four. For the first quarter, we delivered revenues of $1.9 billion, growing 35.4% in total. Beginning this quarter, we're also presenting our organic growth with contingent commissions as another comparable measure to other publicly traded brokers. Andy will get into more detail how this metric gives a good correlation to our margins and cash flow generation. For the first quarter organic revenue growth was flat with the prior year and with contingents increased 2.2%. Both growth metrics were impacted by prior year flood claims processing revenue and continued pressure on cap property rates. The flood claims revenue represented a negative impact on our organic growth metrics of nearly 100 basis points. We had another great quarter for profitable growth. Our EBITDA adjusted EBITDA margin increased 40 basis points to 38.5%, and our adjusted earnings per share grew nearly 8% to $1.39. For the first quarter, we generated good cash flow from operations of over $260 million. Overall, we're pleased with the solid top and bottom line results for the quarter. I'm on slide five. From an economic standpoint, conditions during the quarter were stable. Customer hiring and investment activity levels were generally consistent with prior periods, which continued to drive demand for creative insurance and risk management solutions. Customers remained focused on balancing cost and coverage decisions while prioritizing value and risk management. At the end of the quarter, the geopolitical issues and specifically the cost of oil and gas did influence some of our customers. As a result, they began to take a slightly more cautious outlook and are balancing the implications of absorbing cost increases versus passing them on to their customers. From a commercial insurance standpoint, the changes and rates remained relatively consistent with prior quarters except for capped property, which declined further than in the fourth quarter of last year. Pricing for employee benefits was fairly similar to prior quarters with medical costs up 8 to 10% and pharmacy costs up over 10%. We continue to consult and advise our customers on multiple strategies that can be employed to manage high-cost claimants and pharmacy spend. We leverage our extensive consultative solutions to deliver high-impact strategy for population health, captives, stop-loss, and carve-outs for certain services. Shifting the rate environment, the admitted P&C markets continue to be in the range of flat up 5% versus prior year. but did moderate slightly as compared to last quarter. Workers' comp rates remained flat to down three, while we saw a few states increase rates modestly. For non-cap property overall, rates remained down five to up five, depending on the loss experience and the location. For casualty lines, rates increased two to five percent for primary layers, with excess layers increasing materially more. For professional liability, rates remained similar to the last couple quarters and were down five to up five. Shifting to the ENS market, let's split the conversation between property and casualty. For property, both wind and quake, rate declines were modestly more than we experienced in Q4 of last year. Most of our placements for the quarter were down 15% to 35%. At the end of the quarter, we saw placements above and below this range. Generally, customers are capturing most of the savings. However, some are utilizing the savings to decrease deductibles, increase limits, or buy other lines of coverage. These tactics are common when rates are moderating or declining. On the casualty front, not much has changed versus prior quarters. The ability to get higher limits is extremely challenging. Pricing continues to increase. Primary layers are becoming more expensive, and carriers are decreasing the limits they'll offer. We do not expect this trend to change materially over the coming quarters. I'm on slide six. Let's transition to performance for our two segments for the quarter. Retail delivered organic growth, including contingents of 1.3%, and organic growth excluding contingents of 1%. This was due to the combination of rate, the change in a revenue model of one of our pharmacy consulting businesses, and lower net new business in the quarter. The revenue model of this business in terms of consulting business is changing and is expected to negatively impact organic growth by 50 to 100 basis points over the next couple of quarters. Then we expect this business to start growing towards the end of the year. In connection with our integration efforts to bring both companies together and position us to leverage our combined capabilities, we've been very deliberate regarding augmentation of our operating model. Legacy Risk Strategies was more of a regional sales model, while Legacy Brown & Brown Middle Market was more of a local sales model. Steve Hearn and his leadership team have taken the best of both to create a new sales model that's underpinning with industry and line and coverage specialization. We believe these enhancements will drive higher net new business as leaders establish their operating rhythm. While it's still a bit early, we're already seeing increased activity that gives us optimism about the second half of the year and heading into 2027. Based on the rate environment, the changes in one of our pharmacy consulting businesses and the operating model enhancements, we're projecting modest organic growth improvement each quarter this year as compared to the first quarter. Now let's talk about specialty distribution. For the quarter, organic revenue, including contingents, increased by 3.9% and decreased by 2% when excluding contingents. These organic revenue metrics were negatively impacted by nearly 300 basis points driven by the $12 million of flood claims processing revenue we recognized in the first quarter of last year. We believe the results for the first quarter were strong considering cap property rates were down 15 to 35% and even more later in the quarter. We have a highly diversified and specialized business, and when we look at the underlying volumes for policies and force, exclusive at any rate impact, most of our businesses had good growth. From a contingent standpoint, it was another great quarter. As we look forward, we anticipate relatively flat organic growth, excluding contingents in Q2 due to heavy weighting of cat property placements. In the second half of the year, we're expecting improving growth as we place less cap property, and the 180 businesses from a session help drive our organic growth. Remember, 180 has a comparatively smaller amount of property and heavier weighting of casualty as compared to the legacy Brown & Brown specialty distribution business. Now I'll turn it over to Andy to get more details of our financial results. Thank you, pal.

Good morning, everybody. Before we get into the financial details, we want to talk about a few items. The first is reporting organic growth with contingents as another measure of our performance and a reference point to other public brokers. As we discussed in the past, our ability to generate contingent commissions is a core part of our business model and can fluctuate quarterly. Contingent commissions are a higher percentage of total revenues in the specialty distribution segment as compared to retail, due to the fact that we substantially control underwriting discipline. While organic growth has been pressured in certain parts of our business, primarily due to capped property pricing, we have realized a substantial increase in contingents due to underwriting profitability. Generally, when E&S rates are decreasing, our contingents will increase. This inverse correlation creates more stability in our revenues, margins, and cash flow. Transitioning now to our consolidated results. As a reminder, 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. Now, let's get into more detail regarding our financial performance for the quarter. over on page seven. On a consolidated basis, we delivered total revenues of $1.9 billion, growing 35.4% as compared to the first quarter of 2025. Contingent commissions grew by an impressive $54 million, with $22 million coming from a session. The underlying organic increase was driven by minimal storm claim activity and higher underwriting profitability. primarily within our specialty distribution segment. Income before income taxes increased by 28.7% and EBITDA grew by 36.6%. Our EBITDA margin was 38.5%, a 40 basis point increase over the first quarter of the prior year. This was a strong result considering the impact from a session, which we'll talk about in a few minutes, and the prior year of flood claims processing revenue. The underlying margin expansion was driven by significantly higher contingent commissions along with our continued discipline management of our expenses. Regarding the session, we recognize total revenues of approximately $445 million for the quarter. Due to Legacy Brown and Brown's high margins in the first quarter associated with our employee benefits businesses and the expected quarterly phasing of revenue and profit for a session, our adjusted EBITDAG margins were negatively impacted by approximately 200 basis points for the quarter. For the full year, we still expect the overall adjusted EBITDAG margins for the accession business will be around 35%. Our effective tax rate for the quarter was 22.8%, a slight increase over the prior year of 21.8%. The incremental rate was driven by an increase in certain state taxes. Diluted net income per share increased 7.8% to $1.39. Our weighted average shares increased by approximately $52 million to $337 million, primarily due to shares issued in connection with the acquisition of a session. During the last six months, we reduced our share count by approximately $5 million, or 1.4% through $350 million of stock repurchases. Lastly, our dividends paid per share increased by 10% as compared to the first quarter of 2025. We're over on slide number eight. The retail segment grew total revenues by 33.4%. This growth was driven primarily by acquisition activity over the past year and organic growth, including contingents of 1.3%. Since we're in litigation with the startup broker, we are excluding the impact on organic revenue growth associated with individuals that left and joined the startup. The impact for the first quarter was approximately $10 million. At the end of March, the startup has taken customers representing approximately $31 million of annual revenue as compared to the $23 million we announced last quarter. Our EBITDA margin decreased by 130 basis points to 36%, resulting from the quarterly weighting of revenue and profit for Legacy Brown and Brown as compared to risk strategies. This impact of more than 300 basis points offset good underlying margin expansion driven by disciplined expense management. Additionally, there was a net benefit to our margins of approximately 40 to 60 basis points due to individuals that departed to the startup. As we hire new teammates over the coming quarters, a portion of this margin benefit will moderate. We're over on slide number nine. Specialty distribution grew total revenues by 40% driven by the acquisition of a session and a substantial increase in contingent commissions. The higher contingent commissions of $52 million were driven by $22 million of acquisition activity and $30 million from favorable underwriting performance. We realized approximately 5 million of contingents associated with adjustments to prior year accruals based on finalization of the calculations and approximately 10 million of contingents this quarter that were recorded over the third and fourth quarters of 2025. Our EBDAC margin increased by 30 basis points to 40.8% due to higher contingent commissions and our disciplined management of our expenses. These were partially offset by the profit associated with lower prior year flood claims processing revenue. Turning to cash flow in the balance sheet, we had another strong quarter and generated over $260 million of cash flow from operations, increasing approximately $50 million or 23% versus the prior year. Our ratio of cash flow from operations to total revenues was approximately 14% for the quarter, down slightly as compared to 15% in the prior year. The decline reflected a session integration cost and higher than anticipated final earn-out payments related to acquisitions that outperformed our original estimates. These items offset strong underlying cash conversion. We continue to anticipate good cash generation for the remainder of the year and will balance our deployment of capital between share repurchases, M&A, dividends, and delevering. With that, let me turn it back over to Powell for some comments regarding technology, data, and artificial intelligence.