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 statements reflect our current views with respect to 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 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 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 any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at bbrown.com by clicking on 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.

Good morning, everyone, and welcome to our third quarter earnings call. Before we get into our performance for the quarter, we wanted to recognize the 5,000-plus teammates from our recession acquisition that marked their one-year anniversary on August 1. It's amazing what we've accomplished over a relatively short period of time, and we look forward to everything we'll accomplish together in the future. A bit later, we'll provide additional color on our accomplishments and the first year of performance. Additionally, we'd like to highlight that last week our board of directors raised our dividend by 9%, which represents an increase for the 33rd year in a row. Now, let's move on to our results for the quarter. In total, our overall financial performance represented a continuation of the improvement we delivered last quarter. Retail had a good quarter and performed above the top end of our expectations. Specialty Distribution had some incremental headwinds and came in below our expectations, which we'll talk about in a few minutes. Our overall improvement was the result of utilizing our robust specializations to win more new business. I'll provide some comments regarding our performance, the insurance markets, and our customers. Then Andy will discuss our financial performance in more detail, including a first-year recap session. Lastly, I'll wrap up with some thoughts on our AI journey and closing comments regarding Outlook. Then we'll open the call up to Q&A. I'm on slide five. For the third quarter, we delivered revenues of $1.7 billion, growing 7.4% in total. Organic revenue increased 1.2% from the prior year and 1.5% when including organic contingents. Our adjusted EBITDAQ margin decreased 200 basis points to 34.6 and our adjusted earnings per share grew nearly 2% to $1.07. Through the first nine months of 2026, we generated strong cash flow from operations and repurchased $750 million of our shares. That includes $250 million in Q3. On slide number six, from an economic and customer investment standpoint, conditions in the third quarter were consistent with the first half of the year. Sentiment remained relatively stable, but varied based on industry and customer size. Some customers were more bullish than others regarding their level of hiring or investments, and were generally influenced by exposure to inflation and interest rates. Rate changes this quarter were fairly consistent with the first half of 26. rates in the admitted market moderated downward slightly compared with the first half of this year. Casualty and auto rates continue to increase with primary casualty generally up two to five percent. Although the pace of increases for auto moderated slightly in some regions. excess and umbrella layers continue to see the largest increases and capacity continues to tighten for certain classes. Non-CAT property moderated downward and was generally flat to down five. Workers' compensation rates continue to decrease at rates similar to the first half of 2026. Outside the U.S., commercial rates in the U.K., Ireland, and the Netherlands remain modestly negative, with larger accounts seeing greater decreases than smaller accounts. Shifting to the ENS markets, property rates decreased 15% to 35%, and casualty rates continued to increase at a pace similar to the first half, with transportation and excess casualty remaining quite difficult to place. For employee benefits, medical rates increased 9% to 11%, driven by high-cost claimants and surging health care costs. Materially higher medical and pharmacy costs are more pronounced for smaller, fully insured groups. These cost pressures continue to create demand for our advisory and consulting capabilities as customers need to evaluate plan designs, employee contributions, and alternative funding arrangements, including self-funded and captive solutions. Overall, when we step back and look at both the economy and the insurance market, customers are operating with discipline, while overall growth and investment levels remain steady. The insurance market continues to be competitive for many lines, while casualty pressures persist. In these market conditions, we believe our capabilities position us well to win more new business and help our customers navigate this complex landscape. I'm on slide number five. Let's transition to the performance of our two segments for the third quarter. Retail delivered organic growth at 2.6% and 2.5% when including organic contingents. These growth rates reflect continued incremental improvement in our net new business and good performance within our employee benefits and bond practices. In addition, the growth was driven by the alignment of our teams to enhance collaboration, identify incremental opportunities, and generate new business wins that leverage our capabilities. Turning to specialty distribution, organic revenue growth for the quarter was down 80 basis points and increased 30 basis points, including organic conditions. As we discussed last quarter, we anticipated organic growth of plus 2% to plus 4% for the second half of the year. The third quarter performance was below our expectations due to several factors. First, the desire of admitted carriers to write more business and the abundance of capital drove incrementally more downward pressure during the quarter. For binding and personalized accounts, we realized incremental movement from the ENS market into the admitted market. As an example, we're seeing admitted carriers now wanting to write in California and Texas. In addition, available capacity drove prices and terms downward even further for certain programs, primarily commercial earthquake. As we mentioned previously, our disciplined approach to underwriting means we'll walk away from business at certain times with the objective to balance organic growth and profitability. Second is our lender-placed program. While we did realize the $10 million of revenue delayed from last quarter, this same amount was offset by another delay on onboarding a portfolio of loans. When our customers acquire portfolios, they provide an estimate of loans as well as projected onboarding timelines. Due to size and complexity, the volume and timing can change over quarterly periods. We anticipate onboarding these loans during 2027. And finally, a quiet storm season resulted in lower than anticipated flood claims processing revenue. Areas where we've delivered growth were in brokerage and programs for casualty, professional liability, and public entity lines. Our cat exposed lines of business In our cat exposed lines of business, we saw increased policies in force, even though our revenues declined due to significant rate decreases. Despite specialty distribution facing cyclical headwinds as cat property rates decline and some policies return to the admitted market, We have a great business. It's differentiated capabilities, a broad global distribution network, and world-class carrier partners. This has enabled our team to deliver double-digit organic growth over the past five years, organic growth above 8% over the past 10 years. We've been through cycles like this and have confidence that our team knows how to navigate this market for the long-term success. Now, I'll turn it over to Andy to discuss our financials in more detail.

Great. Thanks, Paul. Good morning, everybody. I'll dive a little deeper into our consolidated results and certain non-GAAP financial measures. As a reminder, when we refer to EBITDAG, EBITDAG margin, income before income taxes, or diluted net income per share, we're referring to those measures on an adjusted basis. We delivered total revenues of $1.7 billion, growing 7.4% as compared to the third quarter of 2025. We had another good quarter for contingent commissions that grew by over 8% on an organic basis. Income taxes increased by 1.3% and EBITDA grew by 1.7%. Our EBITDA margin was 34.6%, a 200 basis point decrease from the third quarter of the prior year. Over half of this decrease was driven by approximately $29 million of lower interest income as compared to the prior year when we were holding cash for the acquisition of the session. Our effective tax rate for the quarter was 25.5%, slightly higher as compared to 24.7% in the third quarter as a result of an increase in state taxes. Deluded net income per share increased by 1.9% to $1.07 with growth slower than revenues due primarily to the higher investment income in the prior year. Lastly, our dividends paid per share increased by 10% as compared to the third quarter of 2025. Over on slide number nine, the retail segment grew total revenues by 10.8%. This expansion was driven by the combination of acquisition activity during the past year and organic growth. Regarding the litigation impact associated with individuals who left and joined the startup broker, current period adjustment to organic Based on currently available information, we are not changing our previously communicated expected four-year impact for 2026 of $50 to $60 million. Our EBITDA margin expanded 10 basis points from the third quarter of last year. The increase was driven by disciplined expense management, revenue phasing from recession, and the impact of synergies. We're over on slide number 10. Specialty distribution grew total revenues by 8.5% driven by the acquisition of a session. Our EBITDA margin decreased by 60 basis points to 43.3% due to lower organic growth and investments in our European wholesale capabilities. We're over on slide number 11. Turning to a session, the third quarter marked the first anniversary of the acquisition. During the past year, over 5,000 new teammates have become part of the Brown and Brown team. We're pleased with the cultural alignment, financial performance of the business, and the progress of our integration efforts. During the first year, a session generated approximately $1.7 billion in revenue, as well as EBITDA margins and accretive diluted earnings per share that were substantially in line with our expectations. Regarding our EBITDAX synergies, we previously communicated our full year estimate for 2026 would be in the range of $30 to $40 million. Based on the efforts of our teammates, we're increasing our full year 2026 expected benefit to approximately $50 million. The incremental synergies reflect strong execution across the organization and include operating efficiencies, enhanced carrier engagement, and the continued alignment of our go-to-market capabilities. We are now targeting run rate net EBITDA synergies of $175 million by the end of 2028, up from the $150 million previously anticipated. Regarding integration costs, when we announced the acquisition, we estimated incurring $200 to $250 million over the first three years. With the higher expected synergies, we are increasing our range to $250 to $300 million. In addition, GAAP requires that we expense certain pre-funded or debt-like items that approximate $90 million. As such, they will be recorded incrementally to the $250 to $300 million. From the integration standpoint, we have made incredible progress. Key milestones include aligning leadership structures, operating models and brands. We also harmonized teammates benefits and producer compensation, integrated financial and HR systems as well as controls, consolidated offices and selected businesses, and refined our carrier engagement strategies. We want to thank all our teammates for their incredible efforts to achieve these major milestones in the first year. While substantial work has been completed and there's still more to do, we believe the hardest part is behind us. We see meaningful opportunities on the horizon as our teams collaborate more closely, leverage broader capabilities, and create new opportunities to serve customers and carrier partners. We're pleased with the performance of the Accession business and teammates for the first year. We also remain confident in our ability to deliver incremental organic growth, margin expansion, and long-term share value on a company-wide basis. We've got a few other comments. Transitioning to cash flow and the balance sheet, we generated $1.1 billion of cash flow from operations, increasing approximately $135 million, or 13%, as compared to the first nine months of 2025. Our ratio of cash flow from operations to total revenues was 22% for the first nine months and was substantially in line with the prior year. We anticipate continued strong cash generation in the fourth quarter and will balance our deployment of capital between hiring people to help us grow organically, share repurchases, deleveraging, and M&A. Regarding outlook and taking into consideration the improvement we've delivered over the past couple quarters, We are now anticipating retail's organic growth excluding contingents to be in the range of 2% to 3% for the fourth quarter. For specialty distribution, based on our earlier comments regarding market headwinds, as well as the incremental negative impact of certain non-recurring and timing-related items of $8 to $12 million, we're anticipating organic growth excluding contingents to decline 2% to 4% in the fourth quarter. As it relates to 2027, currently in the process of finalizing our budgets, and based on what we see today, we are expecting improving organic growth, excluding contingents for both divisions. For the retail segment, we're projecting organic growth in the range of 2% to 4%, and 1% to 3% for specialty distribution segment. Once we finalize year-end results, we'll clarify or adjust the ranges based on incremental information. Few other comments regarding contingent commissions within specialty distribution. Taking into consideration accrual adjustments in the fourth quarter of last year and anticipated adjustments in the fourth quarter of this year, we're anticipating our year-over-year contingent commissions for specialty distribution to decrease $14 to $16 million in the fourth quarter as compared to the fourth quarter of 2025. With that, let me turn it back over to Powell for an update on our AI initiatives and closing comments. Thanks, Andy.