Q4 2021 Brown & Brown Inc Earnings Call
Deep relationships with our carriers now lets transition to the results for the quarter and the full year I'm on slide three we.
We delivered total revenue of 739 million growing 15% in total and 9% organically.
Our EBITDA margin was 29, 2%, which is an increase of 210 basis points from the fourth quarter of 2020 net income per share for the fourth quarter was 36 cents on an as reported basis and on an adjusted basis, which excludes the change in estimated acquisition earn out payables, which was 42.
An increase of 31, 3% over the prior quarter during.
During the quarter, we completed another eight acquisitions with annual revenues of approximately $67 million. We welcome all of our new teammates that joined during the quarter and throughout 2021 and thank them for their contributions to our results.
Yes.
I'm on slide four for the year, we delivered over $3 billion in revenue growing 16, 8% in total and 10, 4% organically. This was the highest level of organic growth. We've achieved since the early two thousands when we were much smaller and less diversified.
Today, we are a highly diversified retail and wholesale broker one of the largest operators of MGA and operate a number of great claims businesses. Our geographical footprint is also expanding as we operate throughout the United States Bermuda, Canada, The Cayman Islands, Ireland, and the United Kingdom we.
We plan to grow and enhance our capabilities over the coming years and continue to deliver our industry leading results.
We improved our EBITDA margin by 240 basis points to 33, 5% compared to 2020 as we leverage the growth in organic revenue and manage our expenses, while we continue to make investments in our business to support long term profitable growth.
Our net income per share for the full year of 2021 increased 22, 5% to $2 seven.
On an adjusted basis, which excludes the change in estimated acquisition earn out payables. Our net income per share increased 31, 1% to $2 19.
Lastly, we had another good year of M&A activity, completing 19 acquisitions with approximately $132 million of annualized revenue continuing.
Our disciplined strategy to acquire top quality businesses that fit culturally and makes sense financially.
Later in the presentation, Andy will discuss our financial results in more detail I'm on slide number five.
From a customer and market perspective business confidence continues to improve slowly business leaders are cautious due to the emergence of the omicron variant, which represents another hurdle in the overall growth of the economy.
For many industries challenges continue to be the ability to find and retain employees supply chain constraints and inflationary pressures. Ultimately these factors are impacting how quickly companies can grow.
From a placement standpoint, the themes were pretty consistent as compared to previous quarters.
Which included heightened pricing sensitivity in coverage availability for cyber liability or customers with high losses.
As a result customers continue to modify their risk management programs to best control premium increases.
Admitted market rates increased consistently with prior quarters and were up 3% to 8% across most lines with the outlier beer being workers' compensation rates, which are which continue to be down 1% to 3%.
From an E&S perspective, most rates continued to be up 10% to 20% cat property, both wind and quake were up 10% to 30% with some moderation experienced an earthquake rates.
<unk> liability for most accounts remained very challenging with rates up 10% to 15 plus percent or more regarding cyber rates and deductibles in many instances have increased dramatically with carriers requiring enhanced security protocols.
To obtain coverage.
For professional liability cyber and excess umbrella, we continue to see carriers reduce limits, while seeking significant rate increases.
Similar to previous quarters, California, and Florida placements for personal lines remained challenging due to losses or aggregate concentrations. We expect the appetite for personal lines in cat areas to continue to be constrained into 2022, which will likely put pressure on state sponsored programs and the cost of insurance for the <unk>.
<unk>.
I'm now on slide six let's discuss the performance of our four segments. Our retail segment had another very good quarter delivering organic growth of nine 5%. The performance was fueled primarily by growth from most lines of business through a combination of new business, good retention rate increases and modest.
Exposure unit improvement.
Retail organic revenue growth for the full year was a very stout, 11%, which is the first time, we've delivered double digit full year organic growth in over 20 years. These.
These outstanding results are reflective of the benefits from the multiyear investments. We've made are powerful decentralized sales and service model and our high performance based culture that leverages, our capabilities to provide innovative solutions to win and retain more customers.
For the fifth consecutive quarter, our national programs segment grew double digits delivering excellent results in growing 10, 4% organically in the fourth quarter.
This performance was driven by strong new business, good retention rate increases and increasing exposure units across many of our programs.
For the full year National programs grew organically 12, 4%. The team continues to fire on all cylinders, creating new capabilities in delivering best in class solutions for our customers.
Our wholesale brokerage segment grew eight 3% organically for the quarter due to strong new business. Good retention and continued rate increases despite ongoing headwinds in our personal lines business for.
For the full year, our wholesale brokerage segment grew eight 1% organically delivering another good year.
Our services segment grew one 2% organically for the quarter with growth in property auto and workers compensation claims, which was partially offset by continued headwinds in our advocacy businesses for the full year organic revenue increased by 3% now.
Now, let me turn it over to Andy to discuss our financial performance in more detail great. Thank you Bill good morning, everybody.
We're over on slide number seven like previous quarters, we are going to begin with our GAAP results and then discuss certain non-GAAP financial highlights, which present additional meaningful year over year comparisons.
For the fourth quarter, we delivered 15% total revenue growth and organic revenue growth of 9%.
Our EBITDAX increased by 24%, which was driven by leveraging our revenues and the continued management of our expenses during the quarter, we recognized gains on sales of certain businesses or business a business that benefited the growth and EBITDA margins by approximately 50 basis points.
Our income before income taxes increased by seven 6%.
Growing at a slower pace than EBITDA due to the change in estimated acquisition earn out payables.
While these adjustments had a negative impact on income before income taxes and earnings per share. They highlight our recent acquisitions are performing better than our expectations.
On an as reported basis, our net income increased four 5% and diluted net income per share increased by five 9% to 36.
Yes.
Our effective tax rate for the fourth quarter was 27, 8%, which was negatively impacted by the non deductibility of a change in estimated acquisition earn out payables associated with an acquisition, where we purchased the shares of a business.
Our weighted average number of shares were substantially flat compared to the prior year and our dividends per share increased to $10 three or.
Were 10, 8% compared to the fourth quarter of 2020.
We're over on slide number eight this.
<unk> presents our results after removing the impact of the estimated acquisition earn out payables for both years.
The charge was $19 $8 million in the fourth quarter of this year compared to a credit of $9 5 million for the same period in 2020.
Excluding these amounts which are substantially noncash in nature income before income taxes, and net income increased by 32, 3% versus total revenues growing 15% or.
Our adjusted diluted net income per share was <unk> 42.
Which grew by 31, 3% in summary, it was another very strong quarter on the top and bottom line.
We're over on to slide number nine.
It presents the key components of our revenue performance for the quarter, our total commissions and fees increased by 15, 3% and our contingent commissions in Gse's were up $5 $3 million as we qualified for certain additional contingent in GSC, primarily in the national programs segment.
Our organic revenue, which excludes the net impact of M&A activity and foreign exchange increased by 9% for the quarter.
We'll go on to slide number 10.
Our retail segment delivered total revenue growth of 19, 1% driven by acquisition activity over the last 12 months and organic revenue growth of nine 5% with strong growth across most lines of business.
EBITDA grew 25% with the margin increasing by 120 basis points for the quarter, which was driven by leveraging organic revenue growth and managing our expenses, even with increased variable operating costs.
The change in income before income tax as compared to the change in EBITDA is impacted by fluctuations and intercompany interest.
Amortization depreciation and estimated acquisition earn out payables, which is applicable for all segments.
We'll go on to slide number 11, our national programs segment increased total revenues by 12, 6% and organic revenue by 10, 4%. The increase in total revenue was driven by strong organic growth across many programs and increased contingent commissions.
EBITDAX increased by 25, 4% with the margin improving 420 basis points as a result of strong organic revenue growth.
Managing our expenses.
Higher contingent commissions and a gain on the sale of one of our businesses.
The gain on the sale benefited margin improvement by approximately 250 basis points.
Over to slide number 12, our wholesale brokerage segment delivered total revenue growth of 12, 4% driven by acquisitions in the past 12 months and organic revenue growth of eight 3%.
EBITDAX increased by 14% with the margin improving by 40 basis points as a result of good organic revenue growth the impact of the foreign exchange charge recorded in the prior year managing our expenses despite higher variable cost.
Over to slide number 13, our services segment increased total revenues by half a percent and organic revenue by one 2%.
For the quarter EBITDA decreased by 18, 3% due to the mix of revenue growth in the businesses along with certain investments to support future growth.
We're over on slide number 14. This slide represents our GAAP results for both years in 2021, we delivered revenues of over $3 billion growing.
Growing 16, 8% and earnings per share of $2 seven growing 22, 5%.
EBIT increased by 25, 5%.
And the margin increased by 240 basis points for the year, our share count increased slightly and our dividends paid during 2021 increased by nine 2%.
For 2021, we're just simply outstanding.
Over to slide number 15.
This slide presents our results excluding the impact of the change in estimated acquisition earn out payables for both years for the full year of 2021 on an adjusted basis. Our income before income taxes grew 29, 6% and net income per share was $2 19.
Growing 31, 1% as compared to total revenue growth of 16, 8%.
A few comments regarding liquidity and cash conversion. In addition to our strong revenue and income performance metrics. We also had another great year for cash generation delivering $948 million of cash flow from operations.
Among publicly traded brokers brown in Brown continues to deliver the highest cash flow conversion, which we define as cash flow from operations divided by total revenues.
We also finished the year in a strong liquidity position with this capital the cash we will generate in 2022 as well as the capacity on our revolver. We are well positioned to fund continued investments in our company.
We've got a few comments regarding our outlook for 2022.
First regarding contingent commissions, we anticipate them to be relatively flat year over year.
As it pertains to taxes, we expect our effective tax rate for 2022 to be in the range of 24% to 25%. This does not take into consideration any potential changes in federal or state tax rates.
We anticipate interest expense may increase slightly depending upon the frequency and magnitude of fed rate increases this year for reference our floating rate debt is less than $500 million.
Sure.
In the first quarter of 2022 will be transitioning to a fiduciary reporting model for cash accounts receivable and payables held or owed in a fiduciary capacity. This changes to reflect the nature of the accounts more appropriately on our balance sheet and reduce volatility in the cash flow from operations.
On the balance sheet, we will label them fiduciary assets and fiduciary liabilities.
And the cash flow statement changes in fiduciary cash will be presented within financing activities.
For 2021, our conversion ratio of revenues to cash flow from operations was 31%.
Taking into consideration the upcoming change it would've been approximately 27% to 28%.
Starting in the first quarter of 'twenty, two will present the prior periods on the same basis.
And then lastly regarding EBITDA margins, where we've communicated in the past that we believe our margins should be in the 30% to 35% range. We feel good about our current profile after increasing margins by 350 basis points over the past two years for 2022.
While we will have some headwinds from increasing variable costs, we are targeting margins to be relatively flat year over year barring something unusual happening with that let me turn it back over to Powell for closing comments. Thanks, Andy Great report, we had an outstanding 2021, and we're well positioned to deliver profitable growth this year and.
We're confident in our ability to execute.
As the economic growth starts to return to a more to more normal levels. There are several issues that will influence business confidence in the economy, which include.
The availability of employees across all industries, the resolution of supply chain constraints.
Inflation.
Interest rate increases resolution of global geopolitical matters and the continued management of Covid.
How and when each of these play out over the coming quarters will influence the trajectory of the economy, how leaders invest in their businesses and exposure unit expansion with.
With that being said, we feel really good about our business and the ability for our team to perform well this year.
From a rate perspective, we anticipate premium increases to remain relatively constant or may moderate downward slightly in the first half of 'twenty two as compared to the second half of 'twenty one.
The main challenge for many Es E&S lines of coverage will be the availability of capacity, which may impact some of our growth in 2022.
A few comments regarding the M&A market.
Until interest rates increase materially and capital becomes constrained, we expect competition and valuations to remain at peak levels. We continue to feel good about our positioning and have a solid pipeline to attract great company to join the Brown <unk> Brown team our continued disciplined approach.
Focusing on culture and financial alignment will be the keys to our long term success of delivering shareholder value.
We think the market will further evolve in 2022 as it pertains to innovation and the experience for the customer as a result differentiated utilization of data collaboration and technology to attract and retain customers will be even more important.
The combination of these will enhance the underwriting process provide more tailored solutions improve the delivery of insurance and how we engage with our customers and carriers.
We have a very talented team that continues to be focused on the most important deliverables to enhance the solutions, we provide for our customers.
In closing, we feel great about our business our capabilities and most importantly, our team, we're making thoughtful investments in allocating capital to drive long term profitable growth with that let me turn it back over to Sergey for the Q&A.
Thank you, Sir ladies and gentlemen, if you wish to ask a question at this time, please sigma by pressing star one on your telephone keypad and please make sure you mute function on your phone is switched off that out a signal to reach of equipment again. It is star one to ask a question.
We have to cancel your request please press star two.
Last question comes from Mark Hughes from <unk>. Please go ahead.
Yes, Thank you and good morning.
Good morning, Paul on the organic growth front I know you don't provide specific guidance, but you had very strong year in 2021 double digit.
How do you think that impacts 2022 does that make for a tougher comp or with.
Feel good pricing tailwind too.
The organic outlook look a little bit better than your historical norm.
So we think about it in several.
Fronts Mark.
One.
There was.
No GDP was I think six 7% and 21 so we.
We believe there will probably be a moderation in GDP slightly so when you go back to some sort of normal level.
Yes, we believe so to inflation.
<unk> interest rates and for availability of employees.
To our customers and so you put all those together and we believe that it's going to be another good year, but as you said, we don't give organic growth guidance and.
To have a year, where we did 10, 4% we were extremely happy and very very pleased with the performance, but we also understand that last year. There were some unusual factors and how some of those moderate this year, how and when they moderate we don't know.
<unk>.
Understood.
One other question you had mentioned the appetite on the part of carriers for some of the cat exposed personal line.
Maybe that is the constraint in 2022, when you think about your business net net presumably you're getting rate increases, which would be a benefit but maybe some shift into citizens which would be.
More of a headwind.
How do you think about this the cat exposed market.
Is this incrementally better for you all things considered.
Yes, let me make sure that we're clear.
We talk.
Mostly about cat personal lines, but it is not exclusively cat personal lines. There are admitted personal lines.
Issues in California, and Florida. So I think it is important and those are big name companies that you might have your personal lines with that are taking what you might say is dramatic action in some instances having.
Having said that.
I think that it is.
It places.
A lot of pressure on our teams to be able to deliver.
Palatable product in some instances, particularly if you live in a.
Fire Burns zone, or a brush zone as they call in California or.
Here in Florida on the coast, particularly if you have an older home or not the construction is not that good.
That's a nice way of saying I think it will continue to be a headwind.
In wholesale as we've alluded to I think in retail, it's probably a push.
How I would.
But a little bit on the negative probably a little bit pressure in retail, but that's what Andy we're going to start marketing. It will probably also within programs just because that's primarily where.
We really see the impact on the quake and the win programs.
Pending upon what the capacity looks like in 'twenty, two that could represent a little bit of headwind. There is a lot of discussions going on right now.
Understood. Thank you very much.
Thank you.
Our next question comes from.
Elyse Greenspan from Wells Fargo. Please go ahead.
Hi, Thanks, Good morning, My first question.
Clinical software organic growth recognizing you guys don't give guidance did start off 2021 with some pretty impressive growth within your retail segment.
Remembering correctly with you've been offered some pretty good benefits resulted in some new business wins that you guys had so can you just talk to us about how we should think about the growth in that business.
You lapped some.
Pretty impressive comps I think you saw some really strong growth to start 2021.
Good morning Elyse.
So remember we don't break out the growth by line of business in our retail.
Yes.
Segment, having said that I would tell you that we were pleased with the performance.
And we continue to think that.
That.
That line of business along with the other lines of business can perform very nicely.
This year.
And so I don't.
Im not I don't want to.
I don't I'm not trying to take you off one direction or another relative to retail and specifically employee benefits I think the important thing is this.
I know that you want everybody on this call is looking for organic growth guidance and we just don't get it.
And the answer is we were very pleased with our performance last year, and we know that where.
We are well positioned for this year.
Subject to the things that I, just talked about with Mark's question relative to GDP growth inflation interest rates and availability of employees.
Okay, maybe I'll try maybe shifting to the margin side right. So Andy I think you said.
They are targeting flat margins in 'twenty two.
Some headwind from variable costs, you did mentioned so when you came up with that kind of flat in totality can you just help us think about what.
What you were thinking in terms of organic revenue growth or just how you came up to that figure recognizing that there could be some greater leverage obviously, the greater growth with shell in 2022.
Okay.
Good morning, Louise I think you've hit on all of the key items that we evaluated when we.
As we looked at 'twenty, two and trying to give the guidance for it is based upon the overall growth of the business the mix of the business inside changes in variable cost, which will probably go up in 2022 and then just.
How we manage our costs through the year I think we felt comfortable right now at this stage as we mentioned borrowing something unusual happening that we'll manage our way through.
Increasing variable cost.
Should end up with margins around flat for 2022.
Again, we think that would be a very very good year, considering the 350 basis points of expansion that we did over the last two years, but as you know we're not going to answer your question I like your back.
Backwards way of asking it but we're not going to answer your growth question.
And then just one last quick one Andy I think you usually talk to noncash stock based comp and like your outlook and guidance figures.
Any sense, you can give us on noncash stock based comp in 'twenty two relative to 'twenty one.
Yes, it will probably go up a little bit but again nothing.
Overly material otherwise, we would have called it out.
Okay. Thank you.
Thank you.
Yeah.
Greg Peters Raymond James. Please go ahead with your question.
Hey, good morning, everyone.
The first question I will focus on will be you did provide some guidance from profit sharing contingent being flat for 'twenty two relative to our.
Close to flat for 22 versus <unk>, 21, and I guess I'm trying to understand the mechanics of that.
As you know well know and I've talked about the market's been pretty hard, especially on the commercial line side and it seems like personal lines is also there.
Why one profit sharing go higher as the carrier's profitability improves and maybe you can just give us.
Some background information on why you think it's going to be flat those line items would be flat for this year.
So <unk>.
Greg Good morning, and as you know this last year was a very active loss year for the insurance industry not just in cat prone areas and so.
Although your thought process.
Is logical.
I don't think it's applicable in this instance, because what you have is you.
Have things where terms I'm not a big.
Fan of them, but things like social inflation nuclear verdicts and things like that I don't typically use those but those are real.
And so.
I would tell you that.
The industry the carriers are doing better.
And if in fact interest rates were to go up that would help their performance.
But the losses and the loss costs continue to go up and so we believe it'll probably be more flattish.
Barring something that we don't see.
And Greg when we when we made that comment we try to look across the three segments that.
Participate in contingents and <unk> and we're still not seeing movement in the wholesale space yet.
But your comment is one of Shouldnt, we already but honestly, we would have thought that a couple of years ago and we still are not seeing a move. So that's why we think at least flat for right now it seems like a pretty reasonable approach.
Got it I just had a follow up on your answer.
Yes.
Can you give us like the split between what's personal lines and what's commercial lines, just as a big picture percentage.
In terms of profit sharing and guaranteed supplemental and then Paul in your answer you mentioned interest rates.
Would have figured that these these type of numbers would have been based on underwriting results exclusive of.
Investment income.
Let me take the last question first the answer is that's true, but I'm just talking about the overall results of the carriers could improve and yes. They are involved based just well profit sharing is based on underwriting results of the.
The carrier not investment income that is correct.
So Andy do you want to answer yes, Greg on your first question, we just break out the contingent and <unk> by each of the segments, which we do in the MD&A section, but we don't break it out by the different <unk>.
Lines of business.
Got it Okay. My second question.
He is on the free cash flow number which was.
Phenomenal results.
Especially if you look at the growth rate and then you talked about your change in accounting.
Moving fiduciary cash round.
When.
Helping us work through the moving pieces, when we think about cash flow for 'twenty two.
Yes.
It sounds like it's going to be down.
Because the change in accounting, but maybe maybe I'm missing something and maybe you could provide us just some additional color there.
Yes, so Greg I think.
We're trying to do with this one is based upon the timing of receipts and disbursements to the from the customers into the carriers, we do get volatility in our cash flow from operations and you can see that this year and specifically in the fourth quarter. We've had these in the past it moves around so what we wanted to be able to do.
With the new fiduciary reporting is we'll take that those movements and the fiduciary assets liabilities put those down in the financing section. So therefore cash flow from operations is reflective of our direct management of our working capital Okay.
So that's why we gave the reference of that 27%, 28% on a conversion that's a pretty good range. We think on a go forward basis.
I don't view that Hey, we went from 31.
<unk> 27 to 28.
Negative.
That could flip right back around in Q1, Thats the whole volatility factor fiduciary.
And just to follow up the 27% 28 is that a full year number or is that sort of the target range of expectation. We should expect every quarter I would imagine that would be schedule utility going around that quarters.
Yes, definitely by the quarters, so thats a full year guidance.
But if you look back you'll be able to get an idea by the quarter's win.
Upon the.
On the EBIT that we deliver each quarter, you'll get a pretty good idea of how that will flow.
Got it alright, thank you for your answers.
Okay.
Our next question comes from Mike <unk> from Wolfe Research. Please go ahead.
Okay great.
Just for Andy I think the 24% to 25 tax guidance up a point or so from the previous tax guide.
Is it just kind of variability or is I guess 24 to 25 potential new normal.
Good morning, Mike.
When we looked across kind of all of our blended effective state tax rates. They are inching up about 1% going into 2022. So that's why.
In 'twenty, one we've given the range of 23 to 24.
And at least what we can see right now we think 'twenty four 'twenty five a pretty good range.
Barring if anything else happens at the fed or state level.
Okay, great understood system, some some pressure I guess from certain states.
Yes.
Next questions on.
I get a lot of questions on wage inflation, which is one of your main expenses, maybe you can kind of talk about what.
What.
Brian is seeing in terms of wage inflation and expense management has been used.
And a number of the prepared remarks.
You can kind of talk about whether expense management's alleviating if there are any kind of operating businesses on wage inflation. Thank you.
Okay I'll take that.
So as you know Mike our goal is to grow our business and grow it profitably. So we're focused on profitable growth over a long period of time, So we do.
Don't have a lot of extra expenses that were trying to take out. So we don't think of it as <unk>.
Expense control, we believe that our expenses are controlled having said that yes.
Yes, we are absolutely encountering wage inflation.
And it's not just in areas that are bigger cities, it's kind of across the board and where and how much that impact is occurring is dependent on a bunch of factors, but what we're trying to do is our business as you know is a.
Very localized sales and service business, where local leadership addresses compensation needs.
As they see fit in order to keep the best people to reward the best people for their efforts and doing a good job for our customers. So we will work through this.
We're not going to give a number and say this is exactly how much. It is because in different markets are different and we don't give an aggregate number but we are working our way through it.
We are absolutely subject to.
The pressures of it than anybody else right now is.
I think that I've read recently that we're in are somewhere between 30 to 40 year.
Low in terms of labor labor shortage.
And across all industries, and I'm not going to say, that's indicative exclusively of our industry, but I'm, saying the industry hasn't done a very good job of reinvesting in the teams that are there we feel really good about our team.
And we're going to continue to reward people.
Appropriately and as you know one of the fundamental.
Trademarks of our business as wealth creation for all teammates.
So all of our teammates are able to buy stock at a discount.
And they can they.
<unk> been able to participate in the appreciation of the equity, which has helped them and their families and so that's part of the overall compensation not just cash comp and in every teammate has able to participate in that so we think that's really important.
That's helpful. Finally, one last follow up I think it is thank you for Andy for.
Moving out fiduciary.
Yes.
Some income impacts from the cash flow just curious if U.
U S fed fund rates or overnight rates do.
Rise over the coming year to two years.
Pro benefit a little bit from making a margin on fiduciary assets.
We do a little bit Mike, but honestly, probably by the time you take all of it together between the fiduciary or other cash and then an increase in our borrowing youre probably about a push anyway.
Got it thank you.
Yes.
Our next question comes from Michael Phillips from Morgan Stanley . Please go ahead.
Thanks, Good morning, I wanted to stick with the theme of pressures on our recruiting.
Wage inflation as well there.
I guess maybe.
Maybe two questions on that any impact on the current quarter because of that other words organic would have been ex were it not for that or margins would have been ex.
Not for that and then is there any impact on that.
On M&A multiples.
Does this actually helped M&A multiples because folks that maybe otherwise would have sold maybe more willing to sell because of their own pressures on wage inflation.
So.
No.
No.
Meaningful impact.
In Q4, and no it doesn't impact purchase price multiples.
And I'm not trying to be funny, but I'm, saying the short answer is.
It's still frothy relative to the M&A market.
Okay, Yeah sure, but it feels like there is still plenty of maybe p/e firms.
Firms out there kind of trying to chase it.
Peter impact given keeping is high.
But yes short term short term money that's right.
Okay.
Okay.
Second question is still kind of related to that the recruiting issue a little bit with that in the backdrop you for those questions.
How does that influence how you think about prioritizing investments for the coming year, you mentioned customer experience in tech.
How does that.
Do you weigh those kind of investments with possible hiring given the.
The impact on recruiting so just kind of prioritizing your investments priorities for the year.
Sure So remember.
We do three things.
With the money that we earn one we reinvested in ourselves, meaning hiring new people and investing in technology that can help drive not only efficiency, but experienced both for teammates and customers.
Two a higher and better level, two we acquire businesses.
And three we returned to shareholders in the form of dividend and sometimes if we believe the stock price is undervalued, we would buy some back.
That said we.
We have and Andy and I have talked about made.
Some concerted technology investments over the last several years and we will continue to do so, but it's not as though we're going to make one big investment and.
We are going to do that in a very thoughtful way.
And how we do that because.
Any organization can only withstand a certain amount of change from a technology standpoint, so nice way of saying it we think it's all about people.
And the right firms. So we will probably do a mix depending on what becomes available and if we find the right firms that fit culturally make sense financially of hiring people.
To add to our existing team and acquiring businesses that fit culturally make sense financially.
Yes.
Mike just a couple of things for you to think about there also.
Inflation is going to move up and down over time as you know well right the ability to just throw technology at things just doesn't happen overnight. So if you recall I mean, when we started on some of the investments back in 2016.
One of the areas inside of there was about how do we improve the experience for our teammates.
The work that they have to go through and do each day. So we've been on this journey for a number of years I think those investments that we've made in the past have actually helped position us even better for working through times like this.
Okay makes sense. Thank you guys appreciate it.
Thank you.
<unk> from Jefferies. Please go ahead.
Good morning.
My first question.
Can you maybe spend a little more time discussing the impact of the pullback of insurance from the standard homeowners market in California.
On the various segments I guess, it's time to me that that would be a negative to the wholesale business I would have thought that the pullback from standard markets.
The E&S market would be positive for wholesale.
Yeah, let me.
Let's talk about that and you are referencing there was an article I think it was last week, where there were several.
Large admitted carriers that were pulling back.
On thousands of personal lines accounts in California, particularly high end Super High end values. These are five and 10 and $15 million coverage, a or the home value in up.
So I was thinking about those juran in two distinct capabilities number one the scenario is.
In retail it puts pressure on the organic growth of personal lines. There if youre not able to find a replacement or if you do move into wholesale at lower Commission. That's number one and number two the E&S market the impact on the E&S market is independent.
Although some of that business you are right, we will move into the E&S market.
But there is such another impact in the burn area. The brush zones in some of these other zones that there continues to be.
A downward pressure on that segment for wholesale so I want to make sure that I'm clear.
Your assessment is correct.
Initially, which is yes, it could be more positive for wholesale.
However, there is a bigger impact on wholesale in those two areas. So I don't think that.
That group of let's make that up 25000 homes flowing in is going to offset the other homes that are being impacted and potentially have to go to the fair plan. That's our impression right now now something may change if one of those large carriers.
More draconian action, which I don't think they will.
Because there's only so much you can do the insurance regulator in the state of California will let you do at a time because if they were to take more dramatic action. If that was necessary. Then the regulator may say something like you can't write and the state of California, which is not what they want.
<unk>.
Got it.
Very helpful color I appreciate that.
And then my second question is going back to the prepared comments I think what you had referenced there was debt.
Organic growth in 'twenty, two could be impacted by your clients ability to hire I guess, what I'm trying to get to us.
What about brown in Brown, <unk> ability to hire and will the company be willing to forgo some organic growth.
Because it's not willing to.
Spend more on more expensive hires.
Well, let me let me.
Make it clear we're very.
<unk> focused on.
People that fit culturally with brown <unk> Brown and so we are going to continue to invest.
People that embellish our capabilities.
Other existing or new capabilities and embody the characteristics of the team that we've assembled and so having said that that does not mean that we are not impacted by.
By hiring.
And the impact.
Of wage pressure, but we are going to continue to invest in the right people when the right people come along because usually I think of it as it's fairly simple when you meet somebody that's so good that you can't afford not to hire them then you just hire them.
Speaker 1: wage pressure, but we are going to continue to invest in the right people when the right people come along because usually I think of it as it's fairly simple. When you meet somebody that's so good that you can't afford not to hire them, then you just hire them.
Speaker 1: and we'll figure out how to make it work in the budget. And so that's the way we look at it and we will continue to look at it that way.
And we will figure out how to make it work in the budget and so.
That's the way we look at it and we will continue to look at it that way.
Yes.
Speaker 2: Yeah, you're I mean, you've heard us make comments in the past that while the quarterly results are important, we're not in this game for the 90 day sprint.
<unk> made comments in the past that.
While our quarterly results are important.
We're not in this game for the 90 day sprint we're in this for the long term and so.
Speaker 2: We're in this for the long term. And so that would be extremely unusual that we would make a trade off on a good investment just to try to make a number for the quarter. That's just not how we run our business. We think we've got good people or technology investments or whatever the case might be. We think that moves the ball forward over the long term. We're going to make those investments. That's a good thing for our company.
That would be extremely unusual that we would make a trade off on a good investment just to try to make a number for the quarter. That's just not how we run our business.
We think we've got good people or technology investments or whatever the case might be.
That moves the ball forward over the long term, we're going to make those investments that's a good thing for our company.
Speaker 2: that's out there. So again, we're not foreshadowing anything, just saying this is how we think about running the organization and how all of our leaders make investments in the businesses.
That's out there. So again, we're not foreshadowing anything just saying this is how we think about running the organization and how all of our leaders make investments in the businesses.
Alright that makes sense I appreciate that.
Thanks.
Yes.
Speaker 3: And our next question comes from Mayor Shields from KBW. Please go ahead.
And our next question comes from Meyer Shields from K B W. Please go ahead.
Speaker 2: Thanks. I want to start, I guess, with a follow-up on the last question. A fair amount of the compensation expense that Brown & Brown has is paying producers a percentage of the revenues that they bring in. Is that percentage being impacted by the national worker shortage that we keep hearing about?
Thanks.
I want to start I guess follow up on the last question.
A fair amount of the compensation expenses. The battleground has is paying producers a percentage of the revenues that they bring in is that percentage being impacted by the sort of national worker shortage that we keep hearing about.
No.
Remember that the heart of the reward plan.
Speaker 1: Remember that's part of the reward plan. You are paid, as it relates to a producer, you get paid commissions. And there's also an equity component, which is a long-term wealth creation component that producers qualify for based on their performance. So it's a combination. It's not just a cash reward system. It's a cash and equity reward.
You are paid.
As it relates to a producer you get paid.
Commissions.
And there's also an equity component, which is a long term wealth creation component.
That.
Producers qualify for based on their performance. So it's a combination it's not just the cash rewards system into cash and equity.
Reward system.
Understood.
Speaker 1: Understood. I'm thinking that that should mitigate the impact of rising wages on on on your overall income statement. If that
Thinking that that should mitigate the impact of rising wages on.
On your overall income statement.
Don't don't think of it that way.
Speaker 1: Don't think of it that way, Mayor. It's, remember there's a lot of people who are teammates that are paid on a salary plus a bonus, or whatever the case may be. And so with roughly 12,000 teammates, there's a lot of people that are on salary. So that would impact their income.
Remember theres a lot of people who are teammates that are paid on a salary plus bonus or whatever the case may be and so with roughly 12000 teammates.
There's a lot of people that are on salaries, so that would impact their their income.
Okay. No. That's helpful. I didn't think it would be euro second question going back to organic growth I just wanted to standard if you have.
Speaker 4: Okay, no, that's okay. I don't think it would be at all. Second question, and I'm going back to organic growth. I just want to understand it. If you have
Our year with phenomenal organic growth and there is nothing unusual in the timing of that in other words. It sounded like you had like one off revenues.
Speaker 4: a year with phenomenal organic growth. And there's nothing unusual in the timing of that. In other words, it's not as though you're looking at one-off revenue.
Speaker 4: Would that have any implication on the following year's organic growth? In other words, isn't it just raising the base?
Would that have any implication on the following year's organic growth in other words isn't interest raising delays.
Well, let me let me ask you this.
Speaker 1: Well, let me ask you this. If you have a year where interest rates are close to zero and the Fed stimulates with trillions of dollars into the economy, at some point that starts to change.
If you have a year where inter.
Interest rates are close to zero and the fed stimulates.
With trillions of dollars into the economy at some point that starts to change.
And so when that changes.
Speaker 1: And so when that changes, i.e. you have a more normal or historical growth level, let's talk about GDP for a moment, because our business is more of a reflection of GDP or plus or minus GDP, number one. Number two, when interest rates do.
I E you have.
A more normal or historical growth level, let's talk about GDP for a moment because our business is more of a reflection of GDP plus or minus GDP.
Number one number two when interest rates do go up.
Speaker 1: It's not if. And then when inflation is present and it's higher than the Fed would want to acknowledge, those all impact the organic growth in subsequent quarters or years. That doesn't mean we're negative on it, Mayor. That's not what we're saying. We're trying to moderate.
Is not if and then when inflation is present and it is higher than the fed would want to acknowledge those all impact the organic growth.
Subsequent quarters or years that doesn't mean, we're negative on it mayor that's not what we're saying we're trying to be we're trying to moderate the understanding of what is the possible out there for anybody growing a big base.
Speaker 1: the understanding of what is the possible out there for anybody growing a big base.
Speaker 1: in the coming market. And so, as I said, we were very, very pleased with our performance in 2021. That year is now over and we're out executing in 2022. We think, as Andy said earlier, we don't think quarter to quarter. We think, how do we do year over year? How will we do in the next three to five years, next 10 years? And we're very positive on that outlook. So, I know it's hard to answer.
In the coming market and so.
As I said, we were very very pleased with our performance in 2021 that year is now over and we're out executing in 2022, we think as Andy said earlier, we don't think quarter to quarter. We think how do we do year over year, how will we do in the next three to five years next 10 years and were very.
<unk> positive on that outlook so.
No it's hard to answer that for you.
Speaker 1: without giving, you know, without saying much more, but...
Without giving.
Without saying much more but.
We are very.
Speaker 1: We are very, we think we're very thoughtful around how we grow the business and how we try to present that to the outside world, including yourself. So that's kind of the take on it.
We think we're very thoughtful around how we grow the business and how we try to present that to the outside world, including yourself. So that's kind of the take on it.
Okay, No thats very helpful. Thank you so much.
Uh huh.
Speaker 3: Thank you and we have a follow-up question for Mark Hughes from Truist. Please go ahead.
And we have a follow up question from Mark Hughes from <unk>. Please go ahead.
Yes, Thank you anything on the advocacy business.
Speaker 5: Yeah, thank you. Anything on the advocacy business changed here lately? I know that's been a headwind.
James here lately I know that's been a headwind.
Speaker 5: any cracks starting to open, and then just more broadly any thoughts about the services growth prospect.
Any cracks starting to open and then just more broadly any thoughts about the services growth prospects.
Yes, good morning, Mark.
Speaker 2: Yeah, more in Mark. No, I think our comment would be pretty similar this quarter as it was in the previous quarters.
I think our comment would be pretty similar this quarter as it was the previous quarters on the advocacy businesses, we're seeing really good flow in.
Speaker 2: on the advocacy businesses, we're seeing really good flow in. So that we view as a positive around just the health of the business continue to be challenged, getting, you know, ultimate, you know, awards and everything else out of the Social Security Administration. Again, that's a cycle that we've seen in the past, but no, no cracks there on that front yet. That's there. So that'd probably be the item that.
That we view as a positive around just the health of the business continue to be challenged.
Getting ultimate.
Awards and everything else out of the social Security administration again, that's a cycle that we've seen in the past, but no no cracks there on that front yet.
But there so that would probably be the item that.
Speaker 2: would probably have the largest influence on the organic growth for services depending upon the direction that goes.
We'll probably have the largest influence on the organic growth for services, depending upon the direction that goes.
Thank you.
Thank you all and there are currently no further questions in the phone queue, but this I would like to hand, the call over back over to our speaker, Mr. Powell Brown for any additional or closing remarks.
Speaker 3: Thank you all and there are currently no further questions in the phone queue. With this I would like to hand the call back over to our speakers, Paul Brown for any additional or closing remarks.
Speaker 1: Thank you all very much and have a great first quarter of the year. We'll talk to you next quarter. Good day.
Thank you all very much and have a great.
First quarter of the year, we will talk to you next quarter good day.
Speaker 3: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect.