Q1 2021 Brown & Brown Inc Earnings Call
Good morning, and welcome to the Brown <unk> Brown, Inc. First quarter earnings call today's call is being recorded.
Note that certain information discussed during this call, including information contained in the slides presentation posted and 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 and nature.
Such statements reflect our current views 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 and the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced and 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 that its financial results differ from the current and preliminary and unaudited numbers set forth and 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 Companys 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 slides presentation posted and connection with this call and 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 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 and the company's earnings press release or in the Investor presentation for this call on the company's website at Www, Dr. Beebe insurance Dot com by clicking on Investor Relations and then calendar of events.
With that said and I will now turn the call over to Powell Brown, President and Chief Executive Officer, you may begin.
Thank you Holly and good morning, everyone and thank you for joining us for our first quarter 2021 earnings call. We had an outstanding quarter, probably one of the best and Brown in Brown <unk> 82 year history.
The results and a quarter or the outcome of the incredible efforts from our team not only during the quarter, but over the last.
Several years each of our segments had great performance growing significantly on an organic basis and expanding margins due to more new business, good customer retention and increased premium rates across most lines of coverage.
These results demonstrate how we are focused on enhancing our capabilities improving the experience for our customers and delivering creative risk management solutions.
From a customer segment standpoint are large and middle market customers, which represent a significant portion of our revenue recovered much quicker. However, smaller businesses are generally recovering at a slower pace.
During the quarter, we released our first ESG report and are pleased to provide a view into our values as a company. We believe this report provides a comprehensive assessment of where we are and our evolution, but also lays out how we're thinking about the future hopefully our current and future teammates customers and carrier partners and invest.
<unk> will find the report demonstrates our commitment to these important topics now lets transition to the results for the quarter.
On slide three.
As I mentioned, we had an excellent quarter and are very pleased with our results. We delivered $815 million of revenue growing 16, 7% and total and nine 8% organically. This quarter represented one of the strongest quarters of organic growth. Since we began reporting this measure and the early two thousands.
I'll get into more detail and a few minutes about the performance of our segments. Our EBITDA margin was 35, 8%, which is up 120 basis points from the first quarter of 2020.
Our net income per share for the first quarter was 70 cents, increasing 29, 6% on and as reported basis and 37, 3% on an adjusted basis, which excludes the change and estimated acquisition earn out payables during the quarter. We completed two acquisitions with annual revenue of approximately $33 million were excited that.
O'leary insurances, which was the largest independently owned retail broker serving the Irish marketplace has joined the Brown <unk> Brown team.
And we'd like to extend a warm welcome to all of our new teammates and joined during the quarter.
In summary, we're very pleased with our strong performance as the team continues to fire on all cylinders and is focused on executing every day later in the presentation and Andy will discuss our financial results in more detail.
On slide number four.
The economy continues to recover with the vaccine rollout and we're seeing improving business confidence however, not all geographies or industries grew at the same pace.
Premium rate increases and Q1 were similar to the last few quarters with some growing faster while others grew slower.
Admitted market rates continue to be up 3% to 7% across most lines commercial auto rates are the exception as it remain up 10% or more we're still not seeing positive workers' compensation rates, but they're getting closer to flat overall the market is becoming more competitive and sections are areas and we're starting to see.
Carriers willing to bind coverage and.
And that the expiring rates for new business, but that same carrier, we'd like to get and increase if it was their renewal from.
From an E&S perspective, most rates are up 10% to 20% coastal property, both wind and quake or up 15% to 25% professional liabilities generally up 10% to 25% depending on the coverage and the industry. Because these lines of coverage. There are definitely outliers one area, where we continue to see the most challenged.
Right now the E&S personal lines, and Florida, California, and the Gulf States due to the continued reduction and carrier appetite caused by fire and weather events and the increases and litigated claims over the past few years, we believe the reduction and personal line capacity and cat areas will continue to decrease through at least 2021.
And.
The placement of coverage for many lines certain industries, our customers with losses continues to be challenging we.
We do not expect this trend to change for this year. We also believe that rate increases experienced in the first quarter will more than likely continue from most of 2020, one, but there may be some moderation and the second half of this year.
We closed two transactions during the quarter with annual revenue of approximately $33 million as we've said in the past our acquisition activity can vary by quarter. As we are focused on ensuring a good cultural fit that makes sense financially. This disciplined approach has worked well for us over many years to deliver value from the companies that joined the Brown <unk> Brown.
Team and.
And now on slide five let's discuss the performance of our four segments retail delivered a record organic growth of nine eight for the first quarter.
The performance was driven by growth from all lines of business through a combination of improving new business. Good retention and continued rate increases. These results were only possible through the incredible efforts of our team to creatively engage with our customers build our new business pipeline and our broad diversification across customer size.
<unk> line of business and geography, we continue to be very pleased with how our team is prospecting new opportunities and leveraging our capabilities and both the traditional face to face model as well as virtually.
National programs segment grew 13% organically delivering another outstanding quarter, our growth was driven by strong performance from most programs due to new business as well as we realized continued rate increases for our wind and quake programs.
Wholesale brokerage segment delivered good organic growth of six 8% for the quarter brokerage continues to grow faster as we realized improving new business and continued rate increases for most lines of coverage across property general liability and professional liability. However, we continued to experience headwinds and our binding authority and personal lines.
Mrs. Overall binding authority grew but at a slower pace than we experienced in the past primarily impacted by the pullback and cat capacity per property and the economic impact of COVID-19 on small businesses and services segment had a good quarter and delivered organic revenue growth of five 7%.
Similarly, driven by claims associated with the recent weather winter weather events overall was a strong quarter and we'd like to thank all of our teammates who continue to deliver innovative solutions for our customers now let me turn it over to Andy and discuss our financial performance in more detail great. Thank you Paul good morning, everybody.
And we're over on slide six like previous quarters, we'll discuss our GAAP results and certain non-GAAP financial highlights for the first quarter. We delivered total revenue growth of $116 8 million or 16, 7% and organic revenue growth of nine 8% were $65 4 million.
Our EBITDAX increased by 25% growing faster than revenue as we're able to leverage our expense base and further manage our costs and response to COVID-19.
Both of these factors were able to offset increased noncash stock based compensation and lower margins associated with certain acquisitions completed in the past few quarters.
Quick comment regarding our employee compensation and benefits and other operating expenses as a percentage of revenue the ratio of employee compensation and benefits to total revenue increased as compared to the prior year driven by approximately $10 million of higher noncash stock based compensation costs as a reminder.
Minor and the first quarter of 2016, we started issuing annual equity grants, which have a five year vesting period for.
And for the full year, we are expecting noncash stock based compensation expense to be similar to 2020.
In addition, with the continued market recovery during the first quarter of 2021, there was an increase and the value of deferred compensation liabilities as compared to a decrease and the first quarter of 2020. This represents a negative year over year impact to the compensation margin of nearly 200 basis Paul.
<unk>.
The ratio of other operating expenses to total revenue decrease due to the continued management of our variable expenses and response to COVID-19, along with the benefit from the aforementioned change and deferred compensation costs.
Remember the impact on the EBITDA margin associated with deferred compensation cost is substantially zero our income before income taxes increased by 16, 5% growing at a slightly slower pace and EBITDA. This was driven primarily by the $10 million year over year increase.
And the change and estimated acquisition earn out payables.
Our net income increased by $47 $3 million or 31% and our diluted net income per share increased by 29, 6% to 70.
Our effective tax rate for the first quarter was 16, 5% compared to 25, 8% and the first quarter of 2020, the lower effective tax rate was driven by the benefit associated with the vesting of restricted stock Awards. Please note the vesting of our stock awards will generally occur in the first quarter of each year.
Year.
We continue to anticipate our full year effective tax rate for 2020 will be and the 23% to 24% range our.
Our weighted average number of shares increased slightly compared to the prior year and our dividends per share increased to nine three or nine 4% compared to the first quarter of 2020.
We're over on to slide number seven and this slide presents our results after removing the change and estimated acquisition earn out payables for both years. We believe this presentation provides a more meaningful year over year comparison.
During the first quarter of 2021, the change and estimated acquisition earn out payables was a credit of 900000 as.
As compared to a credit of $11 million and the first quarter of 2020.
Our net income on an adjusted basis increased by $54 7 million or 37, 9% and adjusted diluted net income per share was <unk> 70.
Increasing 37, 3% both measures grew faster than total revenue due to margin expansion and a lower effective tax rate for the quarter overall it was a very strong quarter.
Over to slide number eight.
This slide presents the key components of our revenue performance for the quarter, our total commissions and fees increased by 16, 9% and our contingent commissions and <unk> increased by 12, 2% or organic revenue, which excludes the net impact of M&A activity and changes and foreign exchange rates.
<unk> by nine 8% for the first quarter.
We will run the slide number nine our retail segment delivered total revenue growth of 16, 8% driven by acquisition activity over the past 12 months and organic revenue growth of nine 8%, which was driven by growth across all lines of business and our EBITDA margin for the quarter increase.
<unk> by 80 basis points and EBITDA grew 19, 5% due to the leveraging of higher organic revenue and managing our expenses and response to COVID-19.
The growth was partially offset by our recent acquisitions that have margins lower than the average for the segment.
Our income before income tax margin increased 10 basis points and grew slower than EBITDA due primarily to the year over year change and estimated acquisition earn outs and increased amortization expense associated with recent acquisitions.
Over to slide 10, our national programs segment increased total revenue by 26% and organic revenue by 13% the increase and total revenue was driven by strong organic growth across many programs acquisitions over the past 12 months and increased GSE and contingent commissions.
EBITDA increased by $12 7 million or 38% growing faster than total revenue due to leveraging our total revenue growth and lower variable costs and response to COVID-19 income.
Income before income taxes increased by $11 5 million or 38, 9% growing faster than EBITDA due to slower growth and amortization and depreciation and lower intercompany interest expense.
On slide 11, our wholesale brokerage segment delivered total revenue growth of 17% and organic revenue growth of six 8% total revenue growth.
Total revenue grew faster than organic revenue due to recent acquisitions with contingent commissions and GSC is down slightly year over year EBITDA grew by 26% with a margin increase of 80 basis points as compared to the prior year driven by leveraging of organic growth and <unk>.
Variable expenses and response to COVID-19.
And this expansion was partially offset by the impact of lower contingents and <unk>. Our income before income taxes grew by six 2%, which was slower than total revenue growth, primarily due to higher intercompany interest expense and the change and estimated acquisition earn out payables.
Slide number 12, our services segment increased total revenue and organic revenue by five 7% primarily due to increased claims associated with recent winter weather events for.
And for the quarter EBITDA grew by 21, 4% driven by the leveraging of revenue growth and managing our expense base and response to COVID-19.
Income before income taxes decreased seven 9% due to a credit recorded for estimated acquisition earn out payables and the prior year.
A few comments regarding liquidity and cash conversion, we experienced another strong quarter of cash flow generation as we delivered $125 million of cash flow from operations as compared to $34 million and the first quarter of 2020.
Our ratio of cash flow from operations as a percentage of total revenue increased to 15, 3% this quarter, which is more in line with historic performance keep in mind that this ratio is generally the lowest and the first quarter due to the payment of year end bonuses and then is much higher and the other quarters with that let me turn it back over.
Powell for closing comments, thanks, Andy for a great report from an economic standpoint, we believe the speed of vaccine rollouts. The overall vaccination rate the pace of state reopening and any additional stimulus will ultimately influence business confidence and drive economic expansion. We believe there should be further economic improvement through the <unk>.
<unk> of 2021 as.
As we talk with our carrier partners, we expect premium rates to increase at similar levels through most of 'twenty, one, but may moderate slightly and the second half of the year. Please remember we're starting to see a GAAP between renewal increases and new business pricing.
And while M&A and the first quarter was a bit slow for the overall industry. We believe the acquisition space will remain very active and competitive between long term strategic and temporary private equity sponsors.
This will result in continued aggressive pricing for deals. However, we remain well positioned with our low leverage the capital and our balance sheet and access to additional capital to fund our M&A activity. Our pipeline remains good and we're talking with lots of companies.
We're very pleased with the progress of our technology and data initiatives, our investments and technology continue to focus on the following areas optimizing and enhancing our utilization of data and analytics and expanding our digital delivery capabilities around products and services and engaging and initiatives designed to drive greater efficiency and.
And velocity through our underlying processes.
And the financial and operational performance for the first quarter was outstanding and it was driven through the efforts of our 11000 plus teammates and their commitment to help our customers win while there may be some volatility and growth in future quarters, we have good momentum across the business a highly diversified company.
A great team and we are well positioned for continued profitable growth I would like to make one comment to the analysts during questions that we would encourage you to keep your questions to two questions. So we can allow everyone to cycle through and.
And if you have more than two you can get back in the queue.
With that let me turn it back over to Holly to start the Q&A session.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
And are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Ken and Jon one for questions. We will now take our first question from Elyse Greenspan from Wells Fargo. Please go ahead. Your line is open.
Alright, Thanks, Tom Good morning.
My first question is on our revenue growth.
Powell, you mentioned and Bob and your closing comments that the economic improvement should continue during the remainder of the year you also alluded to still healthy.
Healthy price increases, maybe some level of moderation, but.
Combine that with.
And <unk>.
Q1 organic number.
Should we think about the back three quarters.
Continuing from the accelerate given that the comps right, we will get much easier.
Colgate from crest organic and the back three quarters of last year.
Yes.
Thanks for the question Elyse and we thought it was a really good quarter.
And so.
And I would say a couple of things number one why did we.
And as we stayed and why do we have such a good quarter number one we wrote a lot of new business.
We did get rate on most of our book and our retention was good.
The first thing the second thing you need to understand and retail is and we've talked about this before but there is a heavy weighting on employee benefits in Q1 of the year.
So we don't give as you know organic growth guidance, but.
Based on what you have said those are positive things against the comps and the next three quarters.
But I don't want you to get ahead of yourself too.
And at least a couple of other things at least it's Andy a couple of other things to keep in mind is and <unk>.
And important look at you need to look at the four segments and to pay and don't just kind of throw a blanket over the entire company because of the segments are going to perform differently in the back end of the year more likely the remainder of the year.
Specifically, if you look at National programs, we had an incredible year for our lender placed business and 2020, we are expecting growth in 2021.
But not at the level that we saw last year, so that will dampen some of the growth.
And the back into the year again still have growth, probably just not the level that we experienced and national programs last year, even in Q1 and in services. We don't have the winter storms. So if we have more storms and that could but.
Those are the two that jump out so that's why there's going to be puts and takes and the different segments.
Okay. That's helpful. But there is no other than the employee benefits.
And we're thinking chest about retail and think about the employee benefits concentration and the Q1 and then <unk>.
The comment of we can think about that segment benefiting from easier comps as we move through the year.
Yeah, probably easier comp in the and the second quarter. The question I guess that were at least thinking about is as it relates to the third and fourth quarter the benefit of rate increase year over year. We do think we will probably moderate and the back into the year.
Okay. That's helpful. And then my second question is on the.
Margins.
And as Ed pointed to flat too.
No.
Modest improvement and your margins for the year and came in better than that and the first quarter.
And you also from my earlier question right pretty impressive organic growth so no apologies.
Approaching double digit organic.
Scott maybe could.
Could you pull out more margin improvement.
And we saw in the Q1 as we think about.
Going through the rest of the year can you just update us on that full year margin view.
You.
And yes when.
We made our commentary at year, and we said that we anticipated full year 'twenty one to be.
Flat to slightly positive.
It was a it was a great Q1.
On top and bottom line, we still think that we will have some margin expansion and 21.
We're not going to do this change change and a specific guidance for the full year. We've got another three quarters to go but we feel good about the business and where we're positioned.
Okay. Thanks for the color and congrats on congrats.
Congrats on a strong quarter.
Great. Thank you.
And we'll now move to our next question from Greg Peters from Raymond James. Please go ahead. Your line is open.
Good morning, so two.
Questions.
So I guess I'm going to follow up on.
The organic.
Questions.
<unk> asked if I go back to the first quarter of last year.
And you specifically called out.
And impact to.
Revenue from ASC 606 of about $10 5 million.
And also you called out a benefit to guarantee supple gse's, almost 9 million and.
And I'm not hearing any similar commentary.
For this first quarter. So I was wondering if you could sort of update us on some of the moving parts that you commented on and the first quarter last year and how they performed and the first quarter of this year.
Perfect Good morning, Greg.
The let's see on the first one regarding the adjustment that we took in Q1 of last year and debt adjustment was to reflect what we believe would be the impact to our revenues for the policies that were in effect from last year.
So as we make it around to Q1 of this year. We're now on a comparative basis with that adjustment. So you would not want to take that $10 million and somehow put it into the equation for Q1 of this year that would not be an appropriate comparative.
And then at least as debt, how we're thinking about the contingents and <unk> we.
We had a.
Good Q1, we did as we've talked about before.
If there's normally going to be noise in any quarter. It will normally be the first quarter because that's when we generally receive a lot of our cash for what we accrued and the prior year. So you could either have ups or downs, we had a little bit of year over year benefit and Q1, not a tremendous amount.
So still at least on a full year basis thinking somewhere flat to a little bit up and we still got three and three more quarters to go.
Yes.
Okay and then my second question will be on the.
It's a two part but there are so called <unk>.
Okay.
M&A is we're seeing.
And the press news of producers, leaving different firms moving to other firms and.
And.
And then at the same time, we're watching the Willis.
On a merger or sort of evolve and.
And you recognized and your first quarter that the acquisition pipeline and the acquisition.
Numbers were a little bit light.
Can you talk about producer retention at Brown, <unk> Brown and can you talk about how and how.
How youre thinking about the M&A pipeline for the balance of the year.
Okay. So.
Producer retention and brown.
And brown is good.
And we're very pleased with that number one number two.
As to your comment or statement around people, leaving other firms or wherever they are leaving.
We would remind you that we have non solicitation and non piracy agreements that we.
Believe and we abide by and we expect others to do that so if someone were to join us from another firm, we want them to abide by that and if someone were to leave brown in Brown, we would expect they would abide by that.
The second thing the merger that you talked about.
And between those two large firms.
No. It is number one you didn't ask this but is it going to happen and the answer is absolutely I think it's going to happen.
But they may have to sell more.
Revenue.
Revenue than they anticipated initially one to anything that.
Time is not their friend.
And to get it done as quickly as possible and therefore, there continues to be changes and you may read about people that are leaving are considering leaving or whatever the case may be.
And as it relates to acquisitions I would like to remind you that acquisitions don't occur on our timeline or on a quarterly basis as you know Gregg they occur when the sellers want to.
Or they come to the conclusion that they're ready to part with what is many times their largest single asset. So it's not just a financial decision. It's an emotional decision as well so we think that theres going to be.
Plenty of opportunities from an acquisition standpoint.
And we think that there continues to be lots of change and the market.
And what we've tried to do as you know is continuing to build capabilities.
At Brown <unk> brown to enable our producers to be successful not only to retain their customers, but to write lots of new customers and so we are very pleased on where we are and that.
Thank you.
Thank you.
And we'll now move to our next question from Michael Phillips from Morgan Stanley. Please go ahead. Your line is open.
Thanks, Good morning, actually a quick follow up from our first question from the last question on <unk>.
And the animals tower and <unk>.
Mentioned brokers and <unk>.
People and value.
You mentioned.
It's going to go through but.
And they're going to have to sales and stuff maybe more than they think how much interest and you think you have and anything that might have to be sold off.
Well, we don't comment on.
Uh huh.
Transactions that have and occurred or things that so what I would say is this we are always interested and looking at good businesses that we believe could fit culturally and makes sense financially. So thats not an exclusive statement around what you just asked.
But.
We are interested and good businesses.
And that fit culturally and makes sense financially. So we don't like the term never or always is there a little extreme.
Okay. Thanks.
Second question on just on overall competition and Paul You mentioned, a couple of things here the gap between renewal and new business.
One and then I'll.
Just overall competition and new business I think you mentioned in your and your opening commentary I guess can you elaborate more and where I guess youre seeing.
New business competition more intense and other areas.
And so in certain geographies or certain lines, where youre seeing more competition there.
Sure So Michael I'm going to make some fairly broad statements but.
And remember this would be.
And most applicable to middle and upper middle market accounts. Okay. So that's the first thing so.
Pending on.
Where you are.
There are certain areas and the country, where we're starting to see it more often than not.
So, let's say the northeast or the mid west are areas, where we're seeing it more.
And more commonly than maybe Denver, and the mountain States and so that's an example, and so I want to clarify exactly what I'm, saying because for those of you that have followed brown in brown for more than five or six or seven years you have heard this story.
Before which is the following.
Basically if you have and accounts and let's say that account is and the northeast and its a manny.
Manufacturer or a beer distributor or whatever the case may be and it has good loss experience and the incumbent company whoever that is wants a six or 7% rate increase overall on the accounts.
And that would not be it could be 3% it can be 6% and 7%, let's just say, it's 6% for sake of this discussion.
And if it was possible to.
Take the exact accounts something that look exactly the same.
And with the exact same loss experience and you submitted it to the market. It's a different name it's a different account, but it looked exactly the same to the incumbent market that wanted to 6% rate increase on our customer they would write that we're starting to see them right that at the expiring rates.
Okay. So why is that important I'm not saying that's happening universally across the board I am not saying, we're not saying it's happening in every geographic area, but what were saying is were starting to see it and it's not just in one area or one accounts. So.
And it may be anecdotal, but it's more broadly splay space than one geographic region. We believe that that is the beginning.
You start to see some topping out and certain areas and youre starting to see that and some of the rate increases because he can't have let's just use and Florida property, 20% on top of 20% on top of 20%.
Another 20% I'm, not saying, it's not possible, but I am saying.
Insured.
Feels like they've been whipsawed, and so we start to have customers that as rates continue to go up they start thinking about terms and conditions terms, meaning do we change our deductible.
Do we not buy that excess layer of something do we put a bigger deductible on our site whatever it is there's multiple ways to manage cost, but it's not just coverage, but it's such a huge issue on how to manage those cost increases that also has.
And the tendency to moderate the overall impact of the revenue increase on the account.
It's important to notice note that.
Okay.
Yeah.
Very helpful. Thank you Paul I appreciate it.
Thank you Michael.
We will now move to our next question from Mark Hughes from Trust. Please go ahead. Your line is open.
Yes, Thank you and good morning.
Organic growth in retail.
<unk> earned a lot of this no doubt, but how much is new business versus rate and.
All through and there how much of those perhaps related debt.
And the rate is driving policyholders to look for new.
New partners and that has allowed you to drive the new.
And do business.
Activity.
Well, let's mark.
Remember, we don't talk about the specific impact of.
New business versus rate, but historically I want you to know that we've always said, we believe that two thirds to three quarters of the impact is exposure units.
Not right. So that'd be one third 21 quarter to one third is right having said that we have said that.
We wrote a lot of new business and Q1.
So I do want to make sure you heard that we wrote a lot of new business in Q1, and we're happy about that.
No.
Having said that you are tapping on something that is universally applicable.
Across the entire platform and all of the divisions, but specifically retail wholesale and programs which is capacity.
Meaning new capacity that could be new capacity and liability new capacity and property and new capacity and professional liability and so.
And the.
And the first quarter and just like in prior quarters. We do have some very good relationships with carrier partners that have enabled us to win with them to deliver winning solutions to our customers and we're constantly and consistently looking for those new solutions. So.
And what work last year may not work this year as you know.
So.
We are constantly searching the marketplace, not just domestically, but kind of worldwide for capacity to deliver either.
Product, which could be.
And our retail space or on a on a basis of more proprietary product through our wholesale or program space I hope that answered your question.
Yes.
And definitely helpful. And then on the cat capacity for property I think youre talking about binding authority <unk> is a big quarter for.
Florida renewals.
And as the limited cat capacity is that color impact <unk> and <unk>.
Yes, we've talked about how we see it for sure impacting us on our personal lines, but also on the smaller binding authority business. So I believe we believe that carriers and that space continue to reevaluate.
And how theyre going to.
Reposition maybe is the right term their books of business and places like Florida, That's that's probably a nice way of saying that theres, probably some business that they don't want to be on and then there's probably some business that they will be on and open up some capacity hopefully for.
As well, so we think that probably balances out.
But we don't I don't want to give you the impression that.
On the binding authority that it's like wide open right now because it is absolutely not wide open and cat prone areas and it's on a more limited basis and.
And cat capacity is a little bit like gold as you know.
No.
Thank you.
Thanks Mark.
And we will now move to our next question from Derrick Heng from <unk>. Please go ahead. Your line is open.
Yes.
Good morning.
And you hear me Okay. Good morning, yes.
And we can hear you there go ahead.
Thanks for taking my questions. So my first question is you talked about new business opportunities are driving organic growth for the quarter.
Were there any unusual factors or maybe one time benefits that were impacting the organic growth as well as margins.
Hey, good morning, Derik Sandy no nothing material that we called out for the quarter.
Okay. Thank you and then my second question is in the lab.
Last quarter, you talked about how some of the businesses we are delaying investments.
Have you seen that trend kind of subside and <unk> and the further into <unk> or is it really more of the same.
Yes, that's all I'm really on the customer side of things I think our comment was.
We had mentioned and our earlier discussion that at least and business confidence is starting to improve there.
At least from what we're seeing today, we would not say that.
Out of the woods and that business owners across the board all industries, all geographies are feeling really bullish about.
Their businesses and some clearly are and they've had great 2020.
Years, and probably have kicked off well into 'twenty, one, but theres still a lot of companies that are figuring out how to really get restarted how much to put back into their investments when they put it back and so still probably early days.
Before we say it's wide open.
Okay, great. Thank you for all the answers.
Thank you.
And now move to our next question from Yaron <unk> from Goldman Sachs. Please go ahead. Your line is open.
Thank you and good morning, everybody.
My first question.
Going back to your M&A commentary.
So I just wanted to make sure I'm thinking about this correctly. So if there is a cultural fit and makes financial sense.
You are open to opportunities even if they would be.
Outside of the norm or of the core type of acquisitions that you've done and the path, namely.
If you see businesses and get this large and other regions of the world or in some verticals that you may not necessarily have the strength and today.
Those would be open opportunities for you.
Is that fair and Europe.
You are on the answer is yes as long as they are and the insurance space and I'm.
And I'm, making the assumption and I don't like to assume anything but their insurance businesses of some sort, but yes, we would consider and we would evaluate them and if in fact they were overseas. Obviously you have to think about.
Regulatory issues and all kinds of other things, but yes, we would be open to consider that yes.
Okay. Thank you.
Clarification and then my second one is really quick.
Expenses.
I think last year, you had talked about some uptick and it expenses, where they just flat year over year and the first quarter or did you see any.
Any change year over year.
Good morning here and Andy here.
We didn't have any material year over year increases that we need to call out one of the things that we've been talking about over the past year or two.
As we.
Where we are on our technology initiatives the benefits that we're getting from some of those previous investments.
Those benefits, allowing us to redeploy some of that capital into some of our net.
Our initiatives around innovation and the experience for the customer. So we feel really good where we are right now and overall spend.
Got it.
Thanks, so much and congrats on a great quarter.
Thank you Darren.
And we'll now move to our next question from Phil Stefano from Deutsche Bank. Please go ahead. Your line is open.
Yes, thanks, and good morning.
I think one of the one of the words that got the most.
Headlines questions from the last earnings call was Choppiness and it.
And it feels like and we're not looking for organic guidance in any way, but it feels like maybe some of the concerns around choppiness and organic growth. This year may have abated I was just hoping you can kind of give us an update and to think about the.
The standard deviations and organic that we might see this year.
Okay. So.
Phil I think that.
Dropping is now would be more.
Specifically defined it in certain industries. So I'll give you. An example, you start talking to people in the services industries like restaurants.
And theme parks and related things you see we're seeing people, having a hard time hiring people back so.
That business may be choppy.
I'm not saying all of them are like this but that might be and one example, and extreme and then the other side you might say if you want to get a contractor everywhere around the country seems to be not in major metropolitan areas seems to be off the hook, so homebuilders and all kinds of stuff and the cost of.
Wood and all that other stuff, so having said that.
Is that statement correct statement I believe that that statement is.
At face value, probably fair, what what I would say is this.
And there is a difference between.
Yeah.
CEO or business owner confidence level.
And the way that you see people standing at the outside bar on your way home on a Friday night, because the bar that ipass on the way home is packed and there is nobody with a mask not one not insight and it's outside and everybody is allegedly and I'd say apparently theres no.
COVID-19 at that bar, but but what I'm trying to say is there is still a little GAAP, there and until we start seeing business owners, saying, we're all in in terms of reinvesting and their business buying new equipment doing things like that we're still not totally there.
But do we think it is less choppy.
I think that that's fair and I also think that it depends on the industry.
And certain industries are still just really bumpy and then others are coming back with a vengeance.
Yes.
So we got a lot of.
And a lot of discussions post the fourth quarter and.
And candidly it feels like people have read way way too much into the into the word choppiness.
Which was not one not the intent and what we're trying to do is we're trying to just give everybody a feel that and we said this in previous quarters. We do not believe that this recovery is going to be linear in nature, we really don't.
By the way it'd be great. If it was but we don't think Thats reality, we just think that theres going to be unusual ups and downs how people are thinking about buying insurance, how theyre looking at their renewal dates et.
Etc. Hiring people back that's just going to cause things to be different during this recovery than and a normal market.
Thats, all and that just it's just going to need a little bit of time to work itself out and again, we feel positive about the direction of where things are going well.
We just try to be realists that there can be some unusual ups and downs every now and then.
Okay and the follow up to that is maybe looking a bit more internally and I guess I was hoping you could give us an idea of how has the conversations that you have with the regional managers.
Changed over the past several months and does it feel like they have and all in mentality with investments and the way that they're thinking about their business or is there some some hesitation internally and.
Thinking about the investments that youre, making.
So Phil Thanks for the question number one we don't we don't have regional managers, we have regional leaders.
And the nuance at Brown <unk> Brown as you know and number two I want it and I want to yes, I think it's important we don't have employees, we have teammates and we don't have managers, we have leaders at brown <unk> Brown as a clarification, having said that I want to assure you. This.
We have been all and the whole time.
So there is no question about the way our team has navigated the last you know.
Five quarters.
Can tell you that and here's the thing.
I could not and it's not about me, but I could not be more pleased at how our senior leadership team has navigated what I would say is.
One of the most difficult unusual environments that any of us has ever been in.
So having said that.
This is different than the.
Great.
Session and 2008, 910, 11, 12, and what I mean by that is there's lots of things that people have had to deal with different kinds of things as it relates to isolation about mental well wellness I call. It brain health, we call, Brian Health and <unk>.
And like that and so.
What I would tell you is our teammates are pumped.
Generally speaking to come back and the office to see other teammates and allow them to have separation of home and work and.
And so.
That's a long winded answer, but we are very pleased how the senior leadership that we are very pleased about the way they thought about investing and the way they thought about their businesses. During this very difficult time.
And equally as important is we're excited about the opportunity for new people to join our team.
And be large contributors.
And to the progress on our way to $4 billion and beyond.
And.
Alright, well. Thank you guys congrats on the quarter and apologies for the pork terminology, there, but no no no no no. We're just clarifying thanks Bill.
Thanks.
We'll now move to our next question from Greg Peters from Raymond James. Please go ahead. Your line is open.
Great. Thanks for allowing me to ask a follow up.
I wanted to go back to the comments and just.
Help me understand what was going on.
Paul and Andy you talked about the moving pieces on employee compensation and benefits and non cash.
Stock compensation and then you also talked about the other operating expense and so you gave us sort of a benchmark that we.
We should look for and I don't want to put words in your mouth, but I think you said, we should look for employee compensation and benefits as a percentage of revenue to be flat and 'twenty, one versus 'twenty and not look at the first quarter.
Do you want to make a similar comment on or some type of comment regarding other operating expense.
Maybe just a couple of points of clarification, Greg I don't think we what we were trying to do and there was give guidance on the ratio of employee benefits as a percentage of revenue and so what we're trying to be able to do is to just.
Help everybody understand when they looked at the ratio are all of you look at the ratio for the first quarter. It looks like it's actually up year over year.
And we're just trying to give really kind of the two components inside of there what stock comp did.
The noncash stock comp the impact for the first quarter and we gave guidance of what we thought that would be for the for the full year and then the impact of our deferred compensation costs again that moves up and down has no impact really on margins in the quarter, but it moves between salary and benefits.
Well as is Opex and we kind of gave that piece up thats out there. So hopefully with that Didnt gives you an idea of what other operating did as well.
And our salaries and related for the quarter.
Okay, well I'll go back to the transcript there was a lot of cash.
And I'll unpack a lot of information there, but thanks for the answer.
No problem and give a call afterwards, if you want to chat some more about it.
Count on that.
Okay. Thank you Sir.
And we will now move to our next question from Mark Hughes Suntrust. Please go ahead. Your line is open.
Yes. Thank you just on that point I think you said the $10 million increase was maybe 200 basis points and the extra margin differential.
But on a full year basis, you look for.
Non cash stock to be steady as debt to say the margin will be it'll be a good guy and the subsequent quarters.
Yes.
So markets the stock comp is about a.
100 basis point impact on margins in the quarter.
Is it bad Guy but.
But on a full year basis, we're expecting stock comp to be relatively similar to 20 <unk>.
Barring our performance for the following three quarters, which may cause us to adjust that up or down.
Yes.
As it stands today is probably a good guide and modest depending a little bit.
I don't know that you answered or addressed the issue of the <unk> spending I think you gave us some good thoughts on margin and overall, but how.
About the potential ramp and PND.
Yes.
So.
Mark here.
What we would say.
Number one as you know and a decentralized sales and service organization our leaders.
And run their businesses like their own and so they were very efficient to begin with number one number two we saw.
Pretty significant drop off and <unk> as you have said and in different businesses.
And different parts of the country, we're already starting to travel and see people or they are allowing us to come out and see them and we anticipate.
It would be just.
It would be speculative in terms of when we get back to whatever we get to.
But what I would say is this.
We want to see our customers and they want to see us. So there is a feeling of desire on both parts to see people. So we think that in some businesses that will pick up more quickly than others.
Do we think it will be back to so called what it was before by the end of the year I don't know about that.
But I think that we're going to see absolutely a pickup and if in fact the.
The COVID-19 vaccination Rollouts and.
COVID-19 and America continues to.
Moving the right direction, meaning not spike or things like that I think thats going to add to it.
And Mark on that one just make sure everybody.
And it takes into consideration everything we've said.
We made a mention of that during year and commentary that we do anticipate debt. It will grow during 2021 versus 'twenty, but when we gave our.
Guidance on margin expansion.
For 2021 that included the fact that we knew that our variable costs are going to go up during 2021, okay.
Very good thank you.
Great. Thank you.
Hey, Holly will take one final question. Okay. If there is one and the Q.
And there are currently no more telephone questions.
Okay perfect well. Thank you all very much for your time and questions and we look forward to talking to you next quarter Good day and good luck.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.
Okay.
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