Q3 2023 Brown & Brown Inc Earnings Call

October 24, 2023

Speaker 1: I'm on slide number four. Our revenues exceeded $1 billion growing 15.1% in total and 9.6% organically as compared to the third quarter of 2022. Our adjusted EBITAC margin exceeded 300, expanded 350 basis points to 34.7% and our adjusted earnings per share grew 42% to 72 cents.

I'm on slide number four our revenues exceeded $1 billion growing 15, 1% in total and nine 6% organically as compared to the third quarter of 2022, our adjusted EBITDA margin exceeded 300 expanded 350 basis points to 34, 7% and our adjusted earnings per.

Share grew 42% to 72.

Speaker 1: On the M&A front, we completed seven acquisitions with estimated annual revenues of 14 million. Also, I'd like to highlight that last week, our Board of Directors approved a 13% increase in our dividend. We're extremely proud as this is the 30th and second year of dividend increase.

On the M&A front, we completed seven acquisitions with estimated annual revenues of $14 million.

I'd like to highlight that last week, our board of directors approved a 13% increase in our dividend. We're extremely proud as this is the 30th consecutive year of dividend increases.

We were able to deliver these outstanding results through the relentless dedication of our 16000, plus teammates that create and deliver innovative solutions for our customers.

Now on slide number five.

Speaker 1: From an economic standpoint, it was similar to the second quarter and consumers are continuing to spend and drive demand. As a result, the economy remained rather resilient, even with materially higher interest rates, while growth and inflation continue to moderate and return to more normal levels.

From an economic standpoint, it was similar to the second quarter and consumers are continuing to spend and drive demand as a result, the economy remained rather resilient, even with materially higher interest rates, while growth and inflation continued to moderate and return to more normal levels.

Many business leaders continue to hire but remain cautious regarding large investments in their business.

While the revenue side of the P&L is generally healthy for many companies inflation remains the main challenge is certain costs are still outpacing revenue growth.

Speaker 1: Specifically, as it relates to the purchasing of insurance, a lot of buyers are exhausted due to the level of rate increases mainly for property that have occurred for multiple years.

Specifically as it relates to the purchasing of insurance a lot of buyers are exhausted due to the level of rate increases mainly for property that have occurred for multiple years.

Speaker 1: Shifting to the insurance marketplace it remained very challenging for customers with their focus on overall spend. Many customers have already increased their deductibles and reduced their limits. We're also seeing lenders being more flexible in certain cap-prone areas regarding total purchase limit.

Shifting to the insurance marketplace. It remained very challenging for customers with with their focus on overall spend many customers have already increased their deductibles and reduce their limits. We're also seeing lenders being more flexible and certain cat prone areas regarding total purchased limits.

Speaker 1: Across most line to coverage, rate increases were fairly consistent with the first half of the year with the mid-end markets up 5 to 10% and excess and surplus lines markets up 10 to 25%.

Across most lines of coverage rate increases were fairly consistent with the first half of the year with admitted markets up 5% to 10% in excess and surplus lines market up 10% to 25%.

Speaker 1: Like previous quarters, there were exceptions out by these ranges. Two lines of coverage that continued to decline are workers' compensation and professional liability for larger customers.

Like previous quarters, there were exceptions outside of these ranges two lines of coverage that continue to decline of workers compensation and professional liability for larger customers.

Speaker 1: Workers' Comparates declined less than we've seen in previous quarters, and we're in the range of flat to down 5%. Professional liability rates, including public company D&O and cyber, were flat to down 15% or in some instances down even further.

<unk> comp rates declined less than we've seen in previous quarters, and we are in the range of flat to down 5% professional liability rates, including public company D&O and cyber were flat to down 15% or in some instances down even further.

Speaker 1: Regarding cat exposed property, it remained the most challenging line of business as carriers are generally not increasing their capacity.

Regarding cat exposed property. It remained the most challenging line of business as carriers are generally not increasing their capacity. We're also seeing underwriters continue to push for higher insured values due to inflation and increased replacement costs.

Speaker 1: We're also seeing underwriters continue to push for higher and churred values due to inflation and increase replacement costs.

Speaker 1: During the quarter, the placements for personal lines in California, Florida, and Texas remain very difficult. With policies continuing to move into state sponsored plans or the ENS space.

During the quarter the placements for personal lines in California, Florida, and Texas remained very difficult with policies continuing to move in a state sponsored plans or the E&S space.

Speaker 1: We are well positioned to help our customers do the breadth of our carrier relationships and the multiple solutions we're able to deliver. This doesn't mean we can solve all issues, but it has helped to drive additional growth for our personal line business.

We are well positioned to help our customers do the breath of our carrier relationships and the multiple solutions, we're able to deliver this doesn't mean, we can solve all issues, but it has helped to drive additional growth for our personal lines businesses.

Speaker 1: Regarding the M&A market for the quarter, the level of deals primarily from financial backers continue to slow, and we generally saw fewer bidders for businesses from a valuation standpoint.

Regarding the M&A market for the quarter the level of deals primarily from financial backers continue to slow and we generally saw fewer bidders for businesses from a valuation standpoint.

Speaker 1: They have come down slightly however good business is still trade at premium multiple

They have come down slightly however, good businesses still trade at premium multiples, we remained active and acquired seven great companies for the quarter, which brings us to a total of 20 year to date.

Speaker 1: We remain active and acquire seven great companies for the quarter, which brings us to the total of 20 year to date. Overall, we're extremely pleased with the success of our M&A efforts in North America and Europe . We're in a strong position to identify and acquire high quality companies that fit culturally and makes sense financially. I'm now on slide number six.

Overall, we're extremely pleased with the success of our M&A efforts in North America, and Europe , we are in a strong position to identify and acquire high quality companies that fit culturally and makes sense financially.

Now on slide number six our retail segment had another great quarter and delivered organic growth of 8%. This growth both domestically and internationally was driven by strong new business. Good retention and continued rate increases we were winning a lot of new business by leveraging our collective capabilities and creative innovative.

Speaker 1: A retail segment had another great quarter in delivered organic growth of 8%. This growth both domestically and internationally was driven by strong new business, good retention and continued rate increase.

Speaker 1: We're winning a lot of new business by leveraging our collective capabilities and creative innovative, creating innovative solutions for our customers.

Creating innovative solutions for our customers.

Speaker 1: that are searching for ways to manage their cost of insurance. Our program segment delivered another outstanding quarter with organic growth of 12% during my strong new business, good retention and continued rate increases, especially cat property. Almost all of the programs grew nicely again this quarter.

That are searching for ways to manage their cost of insurance are program segment delivered another outstanding quarter with organic growth of 12% driven by strong new business. Good retention and continued rate increases, especially cat property almost all of the programs grew nicely again this quarter.

Speaker 1: wholesale brokerage delivered a great quarter with organic growth over 13% driven by domestic and international strongly business, good retention as well as rate increases for most lines.

Wholesale brokerage delivered a great quarter with organic growth over 13% driven by domestic and international strong new business, good retention as well as rate increases for most lines.

Speaker 1: Our brokerage delegated authority and personalized businesses all performed well during the quarter, while professional liability continued to be under pressure due to decline in rates mentioned earlier. Organic revenue in our services segment was approximately 3% for...

Our brokerage delegated authority and personal lines businesses, all performed well during the quarter, while professional liability continue to be under pressure due to the decline in rates mentioned earlier.

Organic revenue in our services segment was approximately 3%.

Speaker 1: with the growth driven by an increase in claims processing revenue for certain business.

With the growth driven by an increase in claims processing revenue for certain businesses now with that I'll turn it back over to Andy for more details regarding our financial results Alright. Thank you Bill Good morning, everyone. I'll review, our consolidated financial results on an adjusted basis, which for the third quarter exclude the change in estimated earn out payables.

Speaker 2: Now with that, I'll turn it back over to Andy for more details regarding our financial results. Thank you, Val. Good morning, everyone. Our review our consolidated financial results on an adjusted basis, which for the third quarter, exclude the change in estimated earnout payables.

Speaker 2: One-time acquisition integration costs associated with GRP, BDB, and ORCID.

One time acquisition and integration costs associated with <unk> BBB and working.

Speaker 2: Gain and law is on business investors and the impact of foreign currency translation. We believe isolating these above items provides a better reflection of the performance of the business and enhanced comparability.

<unk> losses on business divestitures, and the impact of foreign currency translation, we believe isolating the above items provides a better reflection of the performance of the business and enhance comparability the.

Speaker 2: The reconciliation of our non- GAAP financial measures, including these adjusted amounts to the most closely comparable GAP amounts, can be found either in the appendix of this presentation or in the press release issued yesterday.

For reconciliations of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts can be found either in the appendix of this presentation.

Or in the press release issued yesterday.

Speaker 2: We're on slide number seven. On an adjusted basis, total revenues were nearly 1.1 billion for the quarter, growing 14.2% as compared to the third quarter of the prior year. Income before income taxes increased by 40.7% and even that grew by 27%.

We're on slide number seven on an adjusted basis total revenues were nearly $1 1 billion for the quarter.

14, 2% as compared to the third quarter of the prior year.

Income before income taxes increased by 47% and EBIT that grew by 27%.

Speaker 2: Our EBEDAC margin was 34.7% increasing 350 basis points as compared to the third quarter of 2022. And the margin increase was driven primarily by leveraging our cost base and connection with strong organic growth, as well as higher continue.

Our EBITDA margin was 34, 7%, increasing 350 basis points as compared to the third quarter of 2022.

The margin increase was driven primarily by leveraging our cost base in connection with strong organic growth.

As well as higher contingent commissions increase.

Speaker 2: Increased interest income and minimal claims costs for our captives.

Increased interest income and minimal claims costs for our captives.

Speaker 2: The higher growth in income before income taxes was driven by depreciation, amortization, and interest expense growing slower than total revenues.

The higher growth in income before income taxes was driven by depreciation amortization and interest expense growing slower than total revenues.

Speaker 2: The effective tax rate for the quarter was 25.5%, which is in line with our expectations and compares to 26.1% in the third quarter of last year. Our adjusted diluted net income per share increased by 42% from last year to 71 cents.

The effective tax rate for the quarter was 25, 5%, which is in line with our expectations and compares to 26, 1% in the third quarter of last year.

Our adjusted diluted net income per share increased by 42% from last year to 71.

Speaker 2: Our weighted average share count increased approximately 1% as we are directing more of our capital towards reducing our debt. Lastly, our dividends paid increased nearly 12% as compared to the third quarter of 2022. Overall, the performance by our team for the quarter was outstanding.

Our weighted average share count increased approximately 1% as we are directing more of our capital towards reducing our debt lastly, our dividends paid increased nearly 12% as compared to the third quarter of 2022 overall the performance by our team for the quarter was outstanding.

Speaker 2: We're over on slide number eight. The retail segment grew almost 10% growing primarily by strong organic growth of 8% and acquisitions completed in the last year. Adjusted EBEDEC grew slightly faster than revenues and our adjusted EBEDEC margin expanded to 28.6%.

We're on slide number eight the retail segment grew almost 10% driven primarily by strong organic growth of 8% and acquisitions completed in the last year adjusted EBITDAX grew slightly faster than revenues and our adjusted EBITDA margin expanded to 28, 6%. This.

Speaker 2: This expansion was driven by leveraging our expense space along with strong organic revenue growth, but it was partially offset by the impact of higher non-cash stock base compensation and slightly lower profit sharing contingent commissions.

This expansion was driven by leveraging our expense base, along with strong organic revenue growth, but it was partially offset by the impact of higher noncash stock based compensation is slightly lower profit sharing contingent commissions.

Speaker 2: World Rumps 5, number 9. National programs had another outstanding quarter with adjusted total revenues growing 20.1% and organic growth at 12.1%. The incremental growth in excess of organic growth was driven almost entirely by an increase in our contingent commissions that were impacted negatively in the prior year related hurricane being.

We're over on slide number nine national programs had another outstanding quarter with adjusted total revenues growing 21% and organic growth of 12, 1% the incremental growth in excess of organic growth was driven almost entirely by an increase in our contingent commissions that were impacted negatively.

<unk> in the prior year related to Hurricane Dorian.

Speaker 2: Our Juductive Evidac margin expanded over 11%. I do the level of organic growth and leveraging our expense space.

Our adjusted EBITDA margin expanded over 11% due to the level of organic growth leveraging our expense base higher profit sharing contingent commissions and lower claims cost in the current year within our captives due to acquire storm season as compared to the third quarter of 2022.

Speaker 2: Higher profit sharing contingent commissions and lower claims cost in the current year within our captives due to acquired storm season is compared to the third quarter of 2022.

Speaker 2: As relates to organic growth for the fourth quarter of this year, please keep in mind that in the fourth quarter of 2022, we highlighted a non-recurring incentive bonus of $7 million and also recorded $8 million of claims processing revenue associated with Hurricane Ian.

As it relates to organic growth for the fourth quarter of this year. Please keep in mind that in the fourth quarter of 2022, we highlighted a nonrecurring incentive bonus of $7 million and also recorded $8 million of claims processing revenue associated with Hurricane Ian.

Speaker 2: Moving over to slide number 10, our wholesale segment deliver another strong quarter with adjusted total revenue growth of 17.7% and organic growth at 13.4%. The incremental growth in excess of organic growth would driven by higher profit sharing contingent commissions and acquisitions completed in the past 12 months.

Moving over to slide number 10, our wholesale segment delivered another strong quarter with adjusted total revenue growth of 17, 7% and organic growth of 13, 4% the incremental growth in excess of organic growth was driven by higher profit sharing contingent commissions and acquisitions completed in the past 12 months.

Speaker 2: are adjusted EBITDAQ margin expanded 110 basis points at 37% due to a combination of leveraging our expense base with good organic growth and higher profit sharing contingent commissions but was partially offset by the impact of higher non-cash stock base compensation.

Our adjusted EBITDA margin expanded 110 basis points at 37% due to a combination of leveraging our expense base with good organic growth and higher profit sharing contingent commissions, but was partially offset by the impact of higher noncash stock based compensation.

Speaker 2: On file 11, the services that delivered organic growth at 3.2% with a slight decline in adjusted EBDAQ margin due to one-time expenses for certain businesses as well as the impact of inflation.

On slide 11, the services segment delivered organic growth of three 2% with a slight decline in adjusted EBITDA margins due to onetime expenses for certain businesses as well as the impact of inflation.

Speaker 2: Few other comments concerning cash generation, capital allocation, and outlook for the remainder of the year. From a cash perspective, we generated 704 million of cash flow from operations for the first nine months of this year. It had another strong third quarter growing our U to date cash flow from operations by $104 million or 17%. Our U to date ratio of cash flow from operations as percentage of total revenues remain strong year over year at approximately 22%.

A few other comments concerning cash generation capital allocation and the outlook for the remainder of the year from a cash perspective, we generated $704 million of cash flow from operations for the first nine months of this year and had another strong third quarter growing our year to date cash flow from operations by $104 million or <unk> <unk>.

17%.

Our year to date ratio of cash flow from operations as a percentage of total revenues remained strong year over year at approximately 22%.

Speaker 2: As we mentioned previously, post-theacquisitions of GRP, VDB and ORCID, we remain committed to delivering. In the third quarter, we further reduced our outstanding debt by approximately $100 million. At the end of the third quarter, we are already within our stated target gross debt to EBITDA ratio of zero to three times.

As we mentioned previously post the acquisitions of GOP BTB, an orchid, we remain committed to delevering in the third quarter. We further reduced our outstanding debt by approximately $100 million at the end of the third quarter. We are already within our stated target gross debt to EBITDA ratio of zero to three times.

Based on current interest rates, we would expect our investment income and interest expense in the fourth quarter to be similar to what we recognized in the third quarter.

Speaker 2: Based on current interest rates, we would expect our investment income and interest expense in the fourth quarter to be similar to what we recognized in the third quarter.

Speaker 2: Regarding profitability, we have previously provided guidance that our full year expectations for adjusted EBITAC margins would be up slightly compared to 2022. Based on our strong financial performance for the first nine months, as well as higher investment income and profit sharing contingent commissions, we now expect our margins for the full year will be up at least 100 basis points.

Regarding profitability, we had pre lease we provided guidance that our full year expectations for adjusted EBITDA margins would be up slightly compared to 2022 based on our strong financial performance for the first nine months as well as higher investment income and profit sharing contingent commissions, we now expect our margins for the <unk>.

Full year will be up at least 100 basis points in summary, we continue to be in a strong position and generate industry, leading cash conversion ratios, which enable us to invest in our company Delever and acquired businesses with that let me turn it back over to Powell for closing comments. Thanks, Andy Great report the impacts of it.

Speaker 1: In summary, we continue to be in a strong position and generate industry-revenue and cash conversion ratios, which enable us to invest in our company, be lever and acquired businesses. With that, let me turn it back over to Powell for closing comments. Thanks, Landy. Great report. The impact of inflation increases and interest rates on our customers and the consumer or the key areas we're monitoring. As these will drive the rate of economic expansion and investment.

Relation of increases in interest rates on our customers and the consumer are the key areas. We are monitoring as these will drive the rate of economic expansion and investment.

Speaker 1: Like previous quarters, we expect business leaders to remain cautious regarding how much they will invest over the coming quarters. As we noted earlier, the consumers still spending and most of our customers are growing their businesses.

Like previous quarters, we expect business leaders remain cautious regarding how much they will invest over the coming quarters. As we noted earlier the consumer is still spending being in most of our customers are growing their businesses.

Speaker 1: From an insurance standpoint, we believe rate increases will remain relatively consistent through the end of the year. That means customers are going to remain highly focused on managing their insurance spend by either decreasing limits, increasing deductibles, and in certain cases opting for loss limits.

From an insurance standpoint, we believe rate increases will remain relatively consistent through the end of the year that means customers are going to remain highly focused on managing their insurance spend by either decreasing limits, increasing deductibles and in certain cases opting for loss limits.

Speaker 1: Many of our customers have already done one or more of these items.

Many of our customers have already done one or more of these items.

Speaker 1: Regarding our carrier partners, they continue to be focused on diversifying their portfolios and reducing volatility in their earnings. This is evident through cat capacity management and discipline to underwriting.

Regarding our carrier partners. They continue to be focus on diversifying their portfolios and reducing volatility in their earnings. This is evident through cat capacity management and disciplined underwriting as a highly diversified global insurance platform. We have delivered very good underwriting results by continue.

Speaker 1: At the highly diversified global insurance platform, we have delivered very good underwriting results.

Speaker 1: By continuing to provide our carrier partners with access to distinct customer segments, we believe we're well positioned to maintain and possibly grow our capacity with these important partners.

Turning to provide our carrier partners with access to a distinct customer segments. We believe we're well positioned to maintain and possibly grow our capacity with these important partners we.

Speaker 1: We feel great about our business as our team is executing and delivering at a very high level. We're making the right investments for the long term and remain focused on hiring and retaining the best teammates. As we continue to do this, we are able to leverage our collective capabilities to retain our existing customers and win more new business.

We feel great about our business as our team is executing and delivering at a very high level.

We're making the right investments for the long term and remain focused on hiring and retaining the best teammates as we continue to do this we were able to leverage our collective capabilities to retain our existing customers and win more new business in.

Speaker 1: In summary, we're very pleased with our results through the first nine months of the year, delivering organic growth of 11%, adjusted EVEDAC margin expansion of 170 basis points, and adjusted earnings per shared growth of 25%. We are well positioned and have great momentum as we head into the final quarter of the year. With that, we'll turn it back over and open the lines for Q&A.

In summary, we're very pleased with our results through the first nine months of the year delivering organic growth of 11% adjusted EBITDA margin expansion of 170 basis points and adjusted earnings per share growth of 25%.

We are well positioned and have great momentum as we head into the final quarter of the year with that I will turn it back over and open the lines for Q&A.

Speaker 3: Thank you. To ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. Due to time constraints, we ask that you please limit yourself to one question and one follow-up. Again, we ask that you please limit yourself to one question and one follow-up until all have had a chance to ask a question, after which we'll be able to answer any additional questions from you as time permits. Please stand by while we compile the Q&A roster. One moment for our first question.

Thank you to ask a question you'll need to press star one on your telephone to withdraw your question.

<unk>. Please press star one again, please wait for your name to be announced due to time constraints. We ask that you. Please limit yourself to one question and one follow up again, we ask that you. Please limit yourself to one question and one follow up until all have had a chance to ask a question after which we'll be able to answer any additional questions from you as time permits. Please.

Please standby will compile the Q&A roster one moment for your first question. Please.

Speaker 3: And our first question will come from the line of Michael Zaremsky with BMO. Your line is now open.

And our first question will come from the line of Michael Zaremski with BMO. Your line is now open.

Speaker 4: Hey, great. Good morning. I'm thinking about the commentary on the great margins this quarter and year to date and kind of the lift to the outlook. If Andy will me when you gave color on the kind of the.

Okay great.

Good morning.

Thinking about that.

Commentary on the great margins this quarter and year to date and kind of the lift to the outlook.

Yes, Andy will me when you gave color on the kind of the.

Speaker 4: pluses and minuses, is it fair that the only kind of things that might be unusual on a four-lifte basis could be the low costs for the captives and maybe kind of organic growth has exceeded your expectations, just trying to level set kind of to make sure we kind of understand if you feel like there was some one time I'm usually thinking about.

The pluses and minuses.

Is it fair that the.

That the only kind of things that that might be unusual on a forward looking basis could be that the LOE costs for the captives and maybe kind of organic.

Growth has exceeded your expectations.

Expectations, just trying to level set kind of to make sure we.

We kind of understand if you feel like there was some onetime items, we should be thinking about.

Speaker 2: Yeah, good morning, Mike, as it relates to the third quarter, no, we didn't have any distinct kind of one time items that we that we called out pertaining to the fourth quarter. The main items were the ones that we highlighted, which were the incentive bonus and the claims and the claims revenue associated with Ian.

Yes, Hey, good morning, Mike.

As it relates to the third quarter no. We didn't have any distinct kind of onetime items that we that we called out pertaining to the fourth quarter. The main items were the ones that we highlighted which were the incentive bonus and the claims.

The claims revenue associated with Ian.

Speaker 2: We've still got the fourth quarter yet to go, so we're still in storm season right now, so we don't know actually how everything will play out. But those will be part of two of the bigger ones and then again dependent upon how storm season ultimately finalizes itself as well as we still got the back end of the year. Remember on our our captives that they also take a quota share on some of the

So that fourth quarter, yet to go so we're still in storm season right now so I don't know actually how everything will play out but those will be part of the two of the bigger ones and then again dependent upon how storm season, ultimately finalizes itself as well as we still got the back into the year remember on our our captives that.

They also take a quota share on some of our.

Speaker 2: West Coast earthquake program. So that's the only kind of, those are the unknowns that could pop up, but we feel good about kind of where we are heading in the fourth quarter.

West Coast earthquake programs. So that's the only kind of those unknowns that could that could pop up but we feel good about kind of where we are heading into the fourth quarter.

Okay.

Speaker 4: And maybe pivoting to to organic growth more broadly, you know, so the outlook is the near term is for rate increases to remain constant.

Maybe pivoting to the organic growth more broadly.

The outlook is.

Near term for rate increases to remain constant.

Speaker 4: Paul, you talked about kind of carriers still pushing through higher insured values, which I think comes through on the exposure side. Can you kind of talk about if you have a forward-looking view of whether there's a decel in exposure at all, as kind of nominal inflation looks to be decelling a bit, or is there this kind of still

Paula you talked about kind of carriers still pushing through higher insured values, which I think comes through on the exposure side can you kind of talk about if you have a forward looking view of whether there is.

Diesel and exposure at all as is kind of nominal inflation last year.

T settling a bit or.

Is there this kind of still.

Speaker 4: higher than historical level of exposure, kind of running through the system, which is benefiting your growth.

Higher than historical level of exposure kind of running through the <unk> system, which is benefiting your growth.

Well, Mike as you know, we don't give forward looking organic growth guidance and historically speaking we've said that our business is two thirds exposure units and one third right.

Speaker 1: Well, Mike, as you know, we don't give forward looking organic growth guidance. And historically speaking, we've said that our business is two thirds exposure units and one third rate.

Speaker 1: In certain areas of the business, particularly in coastal communities, rates might have a slightly higher impact.

In certain areas.

Business, particularly in coastal communities rates might have a slightly higher impact, but as it relates to the question specifically on exposure units.

Speaker 1: But as it relates to the question specifically on exposure units.

Speaker 1: We have not seen anything that would indicate a slowdown in those exposure units in the near term yet, but we remain ever vigilant as we kind of watch. But as Andy and I both said, we do see people being more cautious in terms of their willingness to make large capital investments in the business. I think they're pausing on a

We have not seen.

Anything that would indicate a slowdown.

And those exposure units in the near term.

Yet, but we remain ever vigilant as we kind of watch.

But as Andy and I, both said, we do see people being more cautious in terms of their willingness to make large capital investments in the business.

Think they're pausing on a lot of those so from a standpoint of lyft and exposure units there.

Speaker 1: So from a standpoint of lift in exposure units there, we are not seeing that as much as it relates to sales of product or construction revenues or whatever. It seems to be continuing as usual.

Not seeing that as much as it relates to sales of product.

Construction revenues or whatever it seems to be.

Continuing as usual.

Thank you.

One moment for our next question please.

Speaker 3: Our next question comes from the line of Mark Hughes with Truist Securities. Your line is now open.

Our next question comes from the line of Mark Hughes with <unk> Securities. Your line is now open.

Speaker 5: Yeah, thanks. Good morning. Um, you mentioned, uh, maybe prospects for a little more capacity from carriers for next year. I think you've described that as the. Restraint in 2023, but you're organic has obviously been very good.

Yes, good morning, Paul.

Paul You mentioned, maybe prospects for little more capacity from carriers for next year I think you've described that as a risk.

The strength in 2023, but your organic has obviously been very good.

Speaker 5: with the re-insures probably doing pretty well this year. Do you think there's the...

With the reinsurers, probably doing pretty well this year do you think there is.

Speaker 5: more opportunity for faster growth when we think about some of these coastal programs or these states like Texas and California that have had

More opportunity for faster growing when we think about some of these coastal programs or the.

States like Texas, and California that have had.

Problems getting capacity.

Speaker 1: I would caution you about saying faster growth. I think the way I would look at it is there's capacity, but the capacity is at a price.

I would caution you about saying faster growth I think the way I would look at it is theres capacity, but that capacity is at a price.

Speaker 1: And so, as I said earlier, carriers are very careful about managing their cat capacity. We view it as a positive if we can maintain...

And so.

As I said earlier carriers are very careful about managing their cat capacity, we view it as a positive if we can maintain.

Speaker 1: our capacity that we currently have. And in some instances, if somebody wants to modify their their distribution to us, i.e. modify down,

Our capacity that we currently have and in some instances if somebody wants to modify their their distribution to us I E modified down.

Speaker 1: We believe that we can fill most of that with other carriers that want to participate in our facilities or

We believe that we can fill most of that with other carriers that want to participate in our facilities or.

Speaker 1: wholesale or in retail. But I would caution you Mark on trying to draw a parallel that we've got a whole bunch of new capacity.

Wholesaler and retail, but I would caution you mark on trying to draw a parallel that.

We've got a whole bunch of new capacity, that's going to bring a whole bunch of new growth with that I don't want you to add please do not misinterpret our statements that way I would say that we feel good about the indications that we've been given from our carrier partners without maintaining what we have.

Speaker 1: that's going to bring a whole bunch of new growth with that. I don't want you to, please do not misinterpret our statements that way. I would say that we feel good about the indications that we've been given from our carrier partners about maintaining what we have.

<unk>.

Speaker 1: And as it relates to stuff that they want to modify their participation on, we feel good about replacing that.

And as it relates to stuff that they want to modify their participation on we feel good about replacing that.

Understood and then I think you had mentioned in construction are you seeing anything.

Speaker 5: understood and then I think you had mentioned construction are you seeing anything changes in construction the next job is always important any kind of

Any changes in construction.

The <unk>.

Next job is always important.

Moving on from there.

Speaker 5: So Mark, I would tell you that inventory seems to be okay, still okay, but that's usually a nine to 12 month outlook. I can't comment beyond that, but there just seems to be a lot of activity and so that's positive. Very good, thank you.

So mark I would tell you that inventory seems to be okay.

Still okay.

But that's usually a nine to 12 month outlook I can't comment beyond that.

But there just seems to be a lot of activity.

So thats positive.

Very good thank you.

Thank you.

One moment for our next question please.

Speaker 6: Next question comes from the line of Michael Ward with City. Your line is now open.

Our next question comes from the line of Michael Ward with Citi. Your line is now open.

Michael Ward your line is now open.

Michael we cannot hear you.

Mr. Ward are you on mute.

Speaker 2: I'll go to the next person. One moment, please. Yeah, Norma, just put him back in the queue. We'll come back around.

I'll go to the next person one moment. Please yes, yes normally just putting back in the queue will come back around.

Speaker 7: Our next question comes from the line of C. Gregory Peters with Raymond James. Your line is now open.

And next.

Question comes from the line of Gregory <unk> with Raymond James Your line is now open.

Gregory Mr. Peters Your line is now open.

Right.

Yeah.

Alright, Mr Peters.

Alright, I'll go to the next one.

For the next one.

Speaker 3: I can come from the line of Rob Cox with Goldman Sachs. Your line is now open.

Comes from the line of Rob Cox with Goldman Sachs. Your line is now open.

Speaker 8: Hey, can you guys hear me? Yes. Oh, we're going to hear you. Awesome. So maybe my first question on organic growth. I mean, just in the context of brown doing significantly more property cat in the second quarter, in growth typically being slower in the back half of the year, could you talk about what drove the more resilient than expected organic growth in the quarter, maybe specifically, for both retail and then wholesale? Yeah.

Hey can you guys hear me.

Yes.

Awesome.

So maybe my first question on organic growth I mean, just in the context of Brown doing significantly more property cat in the second quarter and growth typically being slower in the back half of the year.

Could you talk about what drove the more resilient than expected organic growth in the quarter and maybe specifically for both retail and then wholesale.

Sure, we're just writing more net new business.

Speaker 1: I mean, I'm not trying to be funny Rob, but we're executing really well. And we are maintaining our existing customer relationships and we are picking up a lot of new customers.

And I'm not trying to be funny, Rob but.

We are executing really well.

We are.

Maintaining our existing customer relationships and we are picking up a lot of new customers.

Speaker 1: That's both on both sides, sale and retail.

That said both on both sides.

And retail.

That's great. Thank you.

Speaker 2: And then maybe just a high-level follow-up on expenses, not necessarily related to this quarter in particular, but if we zone in on the retail segment, can you just walk us through the expense line items that are seeing kind of the most inflationary pressure here in this environment and what line items are doing okay? Yeah, hey, good morning, Rob. It's Andy here.

And then maybe just.

A high level of follow up on on expenses not necessarily related to this quarter in particular.

But if we zone in on the retail segment.

Just walk us through the expense line items that are seeing kind of the most inflationary pressure here in this environment and what line items are doing okay.

Yeah, Hey, good morning, Rob It's Andy here.

The areas where.

Speaker 2: We probably continue to be challenged. By the way, we've always been challenged in this space is around just the cost of talent. And that's not been just a COVID issue. If you need good talent, which we do, and like everybody else, talent is expensive.

We probably continue to be challenged by the way we've always been challenged in this spaces around just the cost of talent.

And thats not been just a COVID-19 issue if you need good talent, which we do and like everybody else talent is is expensive.

We are seeing some moderation in the level of inflation and the increases in comparison the volumes from a year ago, but you still see some of those pressures that are out there, but we work or work our way through those and then we.

Speaker 2: And then, you know, we've we've got through most of the headwinds. It doesn't mean that hotels and airlines aren't expensive. They already probably been out flying lately or staying somewhere. It's still pretty expensive, but it feels like we've got through most of those headwinds in comparison to where we were a year ago on that front.

<unk> got through most of the T&D headwinds it doesn't mean that.

Hotels and airlines are expensive they are probably been offline lately are staying somewhere it's still pretty expensive.

It feels like we've got through most of those headwinds in comparison to where we were a year ago on that front.

Speaker 2: And then we mentioned in the commentary about, you know, stock compensation that that's a Edwin year over year for for the business both in retail as well as wholesale.

And then we mentioned in the commentary about <unk>.

Compensation that that's a headwind year over year for the business both in retail as well as wholesale.

Speaker 2: That's not a bad thing at all. So keep in mind that the way that those plans are structured is they're driven off of how well we perform on organic and earnings per share. So the cost that we're taking through the current year is also reflective of the strong performance that we've had over the last couple of years. So we think that's a really good indicator.

That's not a bad thing at all so keep in mind that the way that those plans are structured is.

They are driven off of how well we perform on organic and earnings per share. So the costs that we're taking to the current year is also reflective of the strong performance that we've had over the last couple of years. So we think thats a really good indicator.

Thanks, I appreciate the color.

Speaker 3: Thank you. Thank you. One moment for our next question.

Thank you.

Thank you one moment for our next question. Please.

Speaker 3: Our next question comes from the line of the least green span with Wells Fargo. Your line is now...

Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is now open.

Speaker 9: Hi, thanks. Good morning. My question was on retail. I know you guys had called out.

Hi, Thanks, good morning.

My question was on retail.

I know you guys had called out dealer services right that was a headwind last second half of last year and the first part of this year it seems given.

Speaker 9: that was a headwind last, second half of last year and the first part of this year it seems, given the strong results you guys saw this quarter, and maybe that's...

Long results you guys saw this quarter and maybe that dissipated.

Speaker 9: Is that correct or is there any impact?

Is that correct or was there.

Any impact.

Taylor services in the quarter.

Speaker 1: Yeah, so good morning, Elise. So as you remember, we indicated that the headwind was kind of going to neutralize in the second half of the year relative to dealer services. And we did see that sort of neutralize in Q3.

Yeah. So good morning, Lisa so as as you remember we indicated that the headwind was kind of going to neutralize in the second half of the year relative to dealer services and we did see that sort of neutralize in Q3.

Speaker 1: So, we are very pleased with the overall business and even in dealer services, it's just getting inventory for our dealer customers.

So.

We.

We are very pleased with the overall business and even in dealer services is just.

Getting inventory for our dealer customers.

Speaker 1: But I would tell you that that was a pot week for us compared to prior quarters this year, yeah.

But I would tell you that.

That was a policy for us compared to prior quarters. This year, yes.

Thanks, and then.

Speaker 9: And then on the margin update, you guys have seen good amount of margin improvement, I think 170 basis.

On the margin update.

Good amount of margin improvement I think 170 basis points, so far this year.

Speaker 9: For contraction, just a function of Andy, the one-off revenue you guys had last year within programs, the $7 million, and the $8 million that you called out, whereas I know you don't typically typically got on a one-quarter basis, but I'm...

Q4 contraction just a function of Andy the one off revenue you guys had last year with <unk> 7 million.

$8 million that you called out.

Alright, I know you don't typically guide on a one quarter basis, but I'm just trying to understand if there's anything else in the Q4 that you're highlighting.

Speaker 2: Now those would be those are the big items always that are in there.

No those would be those are the big items the lease that are in there.

Speaker 9: Okay, and then one last one, you guys pointed to, you know, it seems like a still competitive M&A environment, but it sounds like financial sponsor, I think you guys said, interest is maybe waning a little bit. You know, what do you guys see on the M&A side in terms of the pipeline and multiples on trans-

Okay, and then one last one you guys pointed to.

It seems like a still competitive M&A environment, but it sounds like financial sponsors I think you guys said interested maybe leaning a little bit.

What are you guys seeing on the M&A side in terms of the pipeline.

And multiples on transactions as well.

Speaker 1: So at least I would tell you that the way we describe it is in the past there might have been let's say two handfuls of early participants in looking at a business that have financial backing.

So at least I would tell you that.

The way we describe it as in the past there might've been let's say two handfuls of.

Early participants in looking at a business that have financial backing.

Speaker 1: Whereas now there might be a handful. That doesn't mean that there are none. It just means it's not as many people that are from that segment of the space.

Whereas now there might be a handful that doesn't mean that there are none it just means it's not as many people that are from that segment of the space.

Speaker 1: Number one, and part of that is obviously do increase interest rates and their capacity to put their money to work. Having said that, we have not seen an enormous downward pressure on multiples. I would tell you that it's, you know, on roughly, there might be a quarter to a half a turn down, but on good businesses.

<unk> and part of that is obviously due to the increased interest rates and their capacity to put their money to work having said that.

We have not seen an enormous downward pressure on multiples I would tell you that it's on roughly there might be a quarter to a half a turn down but on good businesses people are they are still very competitive for good businesses.

Speaker 1: People are still very competitive for good business.

Speaker 1: So we are just out there looking all the time. We are very pleased with the acquisitions we've made this year.

So we.

We are just out there looking all the time, we are very pleased with the acquisitions. We've made this year.

Speaker 1: And we're, you know, when and why someone sells, it's different for every transaction.

And where when and why someone sells its different for every transaction.

Speaker 1: But we think that there are lots of opportunities that will present themselves in the next one, two, and three years and beyond. But I think there continues to be good opportunities for us. And we really like our position. And we like, and to your question specifically, the inventory is good. But remember, it's always good. And we're very pleased because it's still good. Thank you.

But we think that there are lots of opportunities that.

That will present themselves in the next one two and three years and beyond but I think there continues to be good opportunities for us and we really like our position and we like.

And to your question specifically the inventory is good but remember it's always good.

And but we're very pleased because it's still good.

Thank you.

Thank you Luis.

One moment for our next question please.

Speaker 3: Next question comes from the line of Meyer Shields with KBW. The line is now open.

Our next question comes from the line of Meyer Shields with Keybanc. Your line is now open.

Great. Thanks, Good morning am I coming through.

Speaker 10: Yep, you're coming through. Okay, fantastic. So two really cool questions. First, in the national programs, fly, does the fly nine. You mentioned higher profit sharing, or let me say it's a point, improve loss development on hurry.

Yes, you are coming through.

Fantastic. So two really quick questions first in the national programs Slide is on slide nine.

You mentioned higher profit sharing or let me say it differently improved loss development on hurricane in was there any favorable development on the exposure or is this just a.

Speaker 10: Was there any favorable development on the exposure or is this just much better recorded than last year because of the blast?

Much better quarter than last year because of lack of issues.

Hi, good morning.

Speaker 2: Good morning mayor. Yes, a combination of two things though if you recall in the third quarter of last year

It's a combination of two things. So if you recall in the third quarter of last year.

Speaker 2: Ian hit on the 28th of September . We had recorded what we thought the development would be at that stage. And if you recall in the fourth quarter, we had made some true ups. We had the development was not as expensive as was originally estimated. We made a few more of a few out the year. But now we're kind of back to where at least.

Ian hit on the 2008 at September .

<unk> recorded what we thought the development would be at that stage and if you recall in the fourth quarter. We had made some true ups. We have the development was not as.

His extensive as was originally estimated we made a few more of those kind of throughout the year.

But now we're kind of back to where at least.

Speaker 2: From everything we're seeing, the hearing from our carrier partners, that we're in a pretty good place on lost development. They've got to prove most of the claims that are out there that we were on.

From everything we're seeing and hearing from our carrier partners that we're in a pretty good place on loss development they've got.

Most of the claims that are out there that we were on.

Speaker 10: Okay, but to the extent that you had a little bit of exposure, there's no change in sort of bad, and I'll call it.

Okay, but to the extent that you had a little bit of exposure. There is no change in sort of that I'll call it underwriting loss.

Speaker 2: No, no, if anything, it's actually improved to what of them.

No no if anything it's actually improved two to the betterment.

Speaker 10: Okay, perfect. I think questions, I'm trying to understand the process. One theme we've seen this year is a lot of catastrophe cause property moved from the...

Okay perfect. One question I'm, just trying to understand the process. One theme. We've seen this year is a lot of.

Catastrophe property move from the standard market to EMEA. When you look at that segment of the marketplace for that.

Speaker 10: When you look at that segment of the marketplace or that phenomenon, is that of one year transition or should we expect to see that sort of directional move continue in 2024? Maybe.

Phenomenon is that a one year transition or should we expect to see that sort of directional move continue in 2024, maybe beyond.

Speaker 1: Sure. So I think that their fundamentally is a continued transition, a certain types of business, not specifically and limited to cat property that are rotating into the ENS market.

Sure. So I think that there fundamentally is.

A continued transition of certain types of business not not specifically and limited to cat property that are rotating into the E&S market.

Speaker 1: So I think we're going to continue to see that into 24 and 25.

So I think we're going to continue to see that into 'twenty, four and 'twenty five.

Speaker 1: That said, is there a time in the future where some of that business that rotates out might come back into the standard market? And the answer is yes, I believe that to be the case.

That said is there a time in the future where some of that business that rotates out might come back into the standard market and the answer is yes, I believe that to be the case.

Speaker 1: But we've got to have a couple years of, you know, good loss experience for the carriers.

But we've got to have a couple of years of.

Good loss experience for the carriers.

Speaker 1: Because I think sometimes there are certain businesses that are because of location. They may be put into a box.

Because I think some times.

There are certain businesses that are because of location.

They may be put into a box.

Speaker 1: And if you looked at them on a one off basis, they might not necessarily need to move to ENS or all of it to ENS. So I think there's a continued trend towards it, but I also think that in a couple of years, there could be some slight rotation back.

And if you looked at them on a one off basis, they might not necessarily.

Need to move to E&S or all of it E&S. So.

I think there is a continued trend towards it but I also think that in a couple of years there could be some slight rotation back.

Okay. That's perfect. Thank you so much.

Speaker 3: Thanks. Thank you. Thank you. One moment for our next question.

Thanks, Thank you.

Thank you.

One moment for our next question please.

Speaker 3: Our next question comes from the line of Mark Hughes with two of security. The line is now...

Our next question comes from the line of Mark Hughes with <unk> Securities. Your line is now open.

Speaker 5: Yeah, thanks. Employee benefits seems like the pricing rates are up pretty substantially. And I know as you've talked about how Q1 organic is benefited from employee benefits momentum, could there be a little bit more this year because of

Yes. Thanks.

Employee benefit seems like the <unk>.

Breaking rates are up pretty substantially and in the past you've talked about hope.

Q1 organic.

<unk> benefited from employee benefits momentum could there be a little bit more this year.

Closed.

Pricing in that market.

Speaker 5: When you say this year, are you talking about in Q4 or I'm thinking Q1

When you say this year are you talking about in Q4.

Or.

In Q1.

This year.

Speaker 1: Well, again, we're not giving, we don't give growth guidance on lines of business, just like we don't give organic growth, but we're very pleased with the way our employee benefits line of businesses growing and we continue to invest in the capabilities and we are writing lots of new business across the platform.

Oh well.

Again, we're not giving we don't give.

Growth guidance on lines of business, just like we don't give organic growth.

But we're very pleased with the way our employee benefits line of business is growing and we continue to invest in the capabilities and we are writing lots of new business across the platform.

Speaker 2: Yeah, I mean, Mark, if you're questions about rates on the EV space, and no, we're not seeing any fundamental changes in the rate increases in the EV business, they continue to be pretty robust as we've been talking about for a number of quarters. It is different if you're on a fully funded versus a self-funded plan. The pharmacy is probably the biggest top if that everybody's talking about today because of all the specialty drugs that are out there.

Yes, I mean market for your questions about rates on the EV space.

No we're not seeing any fundamental changes in the rate increases in the <unk> business they continue to be.

Pretty robust as we've been talking about for a number of quarters. It is different if you are on a fully funded versus self funded plans on the pharmacy is probably the biggest topic that everybody is talking about today because of all the specialty drugs that are out there.

Thank you.

Speaker 11: Yes. Thank you, Lauren. Hey, Norma, can we do a, we had a couple people that didn't get in earlier. Can we get them back in the queue, please? Yes. Thank you.

Yes, yes.

Hey, norm can we do we had a couple of people that didn't get in earlier can we get them back in the queue. Please yes. Thank you.

One moment for our next question.

Speaker 6: Our next question comes from the line of C. Gregory Peters with Raymond James. Your line is now open.

Our next question comes from the line of C. Gregory Peters with Raymond James Your line is now open.

Mr. Peters. Your line is now open are you muted.

Speaker 6: Hey, Norris, can you check and see if he's muted by chance on your end? Not on my end. I'm checking. He's open. Mr. Peters, are you muted?

Hey, norm can you check and see if he has muted by chance on year end.

Not on my Yang from checking please open Mr. Peters are you muted.

It's not there.

Okay I'll go to the next horizon.

We'll get him back around.

Speaker 6: One moment for our next question comes from the line of Scott Haleniac with RBC Capital Markets. The line is now open.

One moment for our next question comes from the line of Scott <unk> with RBC capital markets. Your line is now open.

Speaker 12: Yeah, good morning. The first question I had was just on the services segment, you had better growth there than you had in a while, the 3%, and you'd mentioned in there, there's a benefit from some claims processing revenue. Was that sort of one time, just kind of trying to figure out, is this something where you think you can get sustainable organic growth in this unit, or was there anything kind of one time in that, what did you call out the claims processing revenue?

Yes. Good morning first question on how we're just on the services segment, you had better growth there than you had in a while the 3% and you had mentioned in there there is a benefit from some claims processing revenue was that sort of.

One time.

Just kind of try and.

Trying to figure out is this something where you think you can get sustainable organic growth in this unit or was there anything kind of onetime in that.

Called out the claims processing revenue.

For that unit.

Speaker 2: Yeah, I get more into Andy. That was really drawn off of, we've expanded some customer relationships there as well as we once knew relationships and that business that's what's driving the new claims. The way that we really think about the services business is the actual transaction is one time in nature, but the relationships are recurring in nature of course. And that's really what we try to focus on.

Yeah, Hi, good morning, it's Andy.

Was really driven off of we've expanded some customer relationships there as well as we've won some new relationships in that business and that's what's driving the new claims the way that we really think about the services business is the actual transaction is onetime in nature, but the relationships are recurring in nature.

For us and Thats really what we tried to focus on it.

Speaker 2: That business in general, that segment, it's, you can't forecast by individual quarters very well. You quite often have to look at averages just because the way items kind of flow back and forth, but now we're real pleased with the performance for the third quarter.

That business in general that segment, it's you can't forecast by individual quarters, very loyal equal out and have to look at averages just because the way items kind of slow back and forth, but we're real pleased with the performance for the third quarter.

Speaker 12: Got it, that makes sense. Yeah, the other question I had was just on, you mentioned in the script, you were at your zero to three times debt, leveraged target now. So, should I take that to mean that we shouldn't expect additional debt reduction in the next three quarters, is that largely over, or is there more left? No, or is that still too short? You should. You should.

Got it that makes sense. The other question Howard just on you mentioned.

This script you were at zero to three times debt leverage target now.

Should I take that to mean that.

We shouldnt expect additional debt reduction over the next few quarters is that largely over or is there more more left now or is that still to be sure.

You Shouldnt assume that now.

Speaker 2: Now, okay, no, if you look back.

Now okay.

If you have them back here.

Speaker 2: historically, you know, we will increase our leverage modestly, the times when we have, you know, incrementally higher, oh, I'm sorry, Scott, sorry to have that, is

Historically.

We will increase our leverage modestly tie.

Times, where we have incrementally higher I'm, sorry, Scott sorry about that.

Is.

Speaker 2: You'll end up, you know, we'll have, we'll take our leverage up a little bit when we have higher levels of larger acquisitions. And if you look at it, we deliver on the back end. It's pretty rare.

Youll end up we will have we will take our leverage up a little bit when we have higher levels of larger acquisitions and if you look at it we de lever on the backend.

At a pretty rapid pace the organization itself will normally delever anywhere from a quarter to a half sometimes three quarters return during the year and Thats really driven off of just normal maturities that we have and then growth in the business, but if you go back over time, we will.

Speaker 2: The organization itself will normally do ever anywhere from a quarter to a half.

Speaker 2: sometimes three quarters of a turn during the year. And that's really driven off of just normal maturities that we have. And then growth in the business. But if you go back over time, we'll run somewhere kind of a two, two to a two, four on a gross to ebidah ratio.

<unk> somewhere in kind of two two to two four on a gross EBITDA ratio.

Speaker 2: And we're in our range and probably continue them, moderate down. That doesn't mean that we won't take it back up at some point if we find a really good acquisition for the organization, but generally, we're gonna have a pretty conservative balance sheet. Okay.

And we're we're in a range from probably continue to moderate down that doesn't mean, though that we won't take it back up at some point, if we find them.

Really good acquisition.

For the organization, but generally we're going to have a pretty conservative balance sheet.

Okay. Thanks.

Okay.

One moment for our next question please.

Speaker 6: As a reminder to ask a question, you'll need to press star 11 on your telephone.

As a reminder to ask a question you will need to press star one on your telephone.

Okay.

Our next question comes from.

Speaker 6: the line of Michael Ward, one moment for your line to be open.

The line of Michael Ward, one moment for your line to be open.

Okay.

Michael Ward your line is now open.

Okay.

Michael Your line is open.

Speaker 6: All right, we seem to have two new, two folks are having some technical difficulties today. All right, Norma, do we have anybody else in queue? I see no other calls, but ladies and gentlemen, as a reminder to ask a question that's star 11.

Alright, we seem to have two <unk>.

Few folks are having some technical difficulties today, alright normally do we have anybody else in queue.

No other callers, but ladies and gentlemen, as a reminder to ask a question Thats Star one one.

Okay, we'll give.

Speaker 11: We'll get Mike and Greg if they're in queue just a second. And if not, we'll go ahead and we'll call the other column. We can only do a follow up with them. Okay. Again, ladies and gentlemen.

We'll give Mike and Greg if they are in queue, just a second and if not we'll go ahead and we will call. The call. We can always do a follow up with them okay.

Okay.

Again, ladies and gentlemen that star one to ask a question.

And I'm showing no further questions at this time I'll go ahead and turn the call back over to you Mr. Brown for closing remarks.

Speaker 6: And I'm showing no further questions at this time. I'll go ahead and turn the call back over to you, Mr. Brown, for closing remarks.

Speaker 1: Thank you all very much. We're very pleased with the quarter and equally excited about going into Q4. Look forward to talking to everybody in January . Have a great day. Thank you.

Thank you all very much we're very pleased with the quarter and equally excited about going into Q4 look forward to talking to everybody in January have a great day. Thank you.

Speaker 6: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

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Speaker 7: Music Music

Yes.

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Speaker 7: already.

Speaker 6: Good morning and welcome to Brown and Brown Incorporated third quarter earnings conference call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained and the slide presentation posted in connection with this call and including answers given and response to your questions, may relate to future results and events or otherwise before we're looking in nature.

Good morning, and welcome to the Brown <unk> Brown incorporated third quarter earnings Conference call. Today's call is being recorded. Please note that certain information discussed during this call including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions may relate to future results and events or.

Otherwise be forward looking in nature, such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the third quarter and are intended to fall within the safe Harbor provisions of the securities laws.

Speaker 6: Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the third quarter, and our intended to follow within the safe harbor provisions of the security laws.

Speaker 6: Actual results or events in the future are subject to a number of risk and uncertainties and may differ materially from those currently anticipated or desired.

Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired.

Speaker 6: or reference in any forward-looking statements made as a result of the number of factors. Such factors include the company's determination as it finalizes its financial results for the third quarter that its financial results differ from the current preliminary unaudited number set forth and the press release issued yesterday. Other factors that the company may not have...

Or referenced in any forward looking statements made as a result of a number of factors such factors include the company's determination as it finalizes its financial results for the third quarter that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday other factors.

The company May not have <unk>.

Speaker 6: currently identified or quantified are those risks and uncertainties identified from time to time and the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects as well as additional information regarding forward-looking statements is contained in the slide presentation posted in the connection which is called Annual Company's Fowlings with the Securities and Exchange Commission. We describe any intention.

Currently identified or quantified are those risks and uncertainties identified from time to time in the Companys reports filed with the Securities and Exchange Commission.

Additional discussion of these and other factors affecting the companys business and prospects as well as additional information regarding forward looking statements is contained in the slide presentation posted in connection with this call and the company's filings with the Securities and Exchange Commission.

We disclaim any intention or obligation to update.

Speaker 6: or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the company's

Or revise any forward looking statements, whether as a result of new information future events or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or.

And the company's Investor presentation for the call on the company's website at Www Dot BB insurance dot com by clicking on Investor Relations and then calendar of events. What's that's it I will now turn the call over to Powell Brown, President and Chief Executive Officer, you may begin.

Speaker 6: investor presentation for the call on the company's website at www.bbinsurance.com by clicking on investor relations and then calendar of events.

Speaker 6: With that said, I would now turn a call over to Powell Brown, President and Chief Executive Officer. You may begin.

Speaker 1: Thank you very much. Good morning, everyone, and welcome to our Q3 2023 earnings call.

Thank you very much good morning, everyone and welcome to our Q3 2023 earnings call. We delivered an outstanding performance in the third quarter organic growth was just shy of 10% we expanded our EBITDA margins by 350 basis points and grew adjusted net income per share by 42% in.

Speaker 1: We delivered an outstanding performance in the third quarter. Organic growth was just shy of 10%. We expanded our EBITAC margins by 350 basis points and grew adjusted net income per share by 42%.

Speaker 1: In addition, we closed the acquisition of Kintro earlier this month. As a reminder, the company operates MGUs and the UK, US, Europe , and other locations. And has a retail broker operation in both the UK and Europe .

In addition, we closed the acquisition of <unk> earlier this month.

As a reminder, the company operates M views in the U K U S Europe and other locations and has a retail broker operation in both the UK and Europe .

Speaker 1: Kentrow had great capabilities with the significant focus on financial lines, aviation and trade credit, in addition to a number of other lines of coverage.

<unk> has great capabilities with significant focus on financial lines Aviation and trade credit. In addition to a number of other lines of coverage wed like to welcome Colin Thompson and their team at Brown <unk> Brown and look forward to seeing the business continue to grow over the coming quarters and years now let's get into our results.

Speaker 1: We'd like to welcome Colin Thompson and their team to Brown and Brown and look forward to seeing the business continue to grow over the coming quarters and years. Now let's get into our results.

For the quarter.

And our adjusted earnings per share grew 42% to 72 cents on.

On the M&A front, we completed seven acquisitions with estimated annual revenues of $14 million.

Also I'd like to highlight that last week, our board of directors approved a 13% increase in our dividend. We're extremely proud as this is the 30th consecutive year of dividend increases.

Speaker 1: We were able to deliver these outstanding results through the relentless dedication of our 16,000 plus teammates that create and deliver innovative solutions for our customers. I'm now on slide number five.

We were able to deliver these outstanding results through the relentless dedication of our 16000, plus teammates that create and deliver innovative solutions for our customers I am now on slide number five.

Speaker 1: From an economic standpoint, it was similar to the second quarter and consumers are continuing to spend and drive demand. As a result, the economy remained rather resilient, even with materially higher interest rates while growth and inflation continue to moderate and return to more normal levels.

Speaker 1: Many business leaders continue to hire, but remain cautious regarding large investments in their business. While the revenue side of the P&L is generally healthy for many companies, inflation remains the main challenge. At certain costs are still outpacing revenue growth.

Many business leaders continue to hire but remain cautious regarding large investments in their business.

The revenue side of the P&L generally healthy for many companies inflation remains the main challenge as certain costs are still outpacing revenue growth.

Speaker 1: Specifically as it relates to the purchasing of insurance, a lot of buyers are exhausted due to the level of rate increases Mainly for property that have occurred for multiple years

Specifically as it relates to the purchasing of insurance a lot of buyers are exhausted due to the level of rate increases mainly for property that have occurred for multiple years.

Shifting to the insurance marketplace that remained very challenging for customers with their focus on overall spend many customers have already increased their deductibles and reduce their limits. We're also seeing lenders being more flexible and certain cat prone areas regarding total purchased limits.

Speaker 1: Across most line to coverage, rate increases were fairly consistent with the first half of the year with the mid and market up 5 to 10% and excess and surplus lines markets up 10 to 25%.

Across most lines of coverage rate increases were fairly consistent with the first half of the year with admitted market up 5% to 10% in excess and surplus lines market up 10% to 25%.

Speaker 1: Like previous quarters, there were exceptions out by these ranges. Two lines of coverage that continues to decline a workers' compensation and professional liability for larger customers.

Like previous quarters, there were exceptions outside of these ranges two lines of coverage that continued to decline in workers' compensation and professional liability for larger customers workers.

Workers' comp rates declined less than we've seen in previous quarters, and we are in the range of flat to down 5% professional liability rates, including public company D&O and cyber were flat to down 15% or in some instances down even further.

Speaker 1: Regarding cat exposed property, it remained the most challenging line of business as carriers are generally not increasing their capacity.

Regarding cat exposed property remained the most challenging line of business as carriers are generally not increasing their capacity.

Speaker 1: We're also seeing underwriters continue to push for higher and shared values due to inflation and increase replacement costs.

Also seeing underwriters continue to push for higher insured values due to inflation increase replacement costs.

Speaker 1: During the quarter, the placements for personal lines in California, Florida, and Texas remained very difficult. With policies continuing to move into state-sponsored plans or the E&S space.

During the quarter the placements for personal lines in California, Florida, and Texas remain very difficult with policies continuing to move in a state sponsored plans or the E&S space.

We are well positioned to help our customers due to the breadth of our carrier relationships and the multiple solutions, we're able to deliver this doesn't mean, we can solve all issues, but it has helped to drive additional growth for our personal lines businesses.

Speaker 1: Regarding the M&A market for the quarter, the level of deals primarily from financial backers continue to slow. We generally saw fewer bidders for businesses from a valuation standpoint.

Regarding the M&A market for the quarter the level of deals primarily from financial backers continue to slow and we generally saw fewer bidders for businesses from a valuation standpoint.

Speaker 1: They have come down slightly however good business is still trade at premium multiple

Speaker 1: We remain active and acquire seven great companies for the quarter, which brings us to the total of 20 year to date. Overall, we're extremely pleased with the success of our M&A efforts in North America and Europe . We're in a strong position to identifying acquire high quality companies that fit culturally and makes sense financially. I'm now on slide number six.

Now on slide number six our retail segment had another great quarter and delivered organic growth of 8%. This growth both domestically and internationally. It was driven by strong new business. Good retention and continued rate increases we are winning a lot of new business by leveraging our collective capabilities and creative innovative.

Speaker 1: We're winning a lot of new business by leveraging our collective capabilities and creative innovative, creating innovative solutions for our customers.

Creating innovative solutions for our customers.

Speaker 1: Whole-fail brokerage delivered a great quarter with organic growth over 13% driven by domestic and international strongly business, good retention as well as rate increases for most lines.

Wholesale brokerage delivered a great quarter with organic growth over 13% driven by domestic and international strong new business, good retention as well as rate increases for most lines.

Speaker 1: Our brokerage delegated authority and personalized businesses all performed well during the quarter, while professional liability continued to be under pressure due to the decline in rates mentioned earlier. Organic revenue in our services segment was approximately 3% for-

Organic revenue in our services segment was approximately 3%.

Speaker 1: with the growth driven by an increase in claims processing revenue for certain business.

Speaker 2: Now with that, I'll turn it back over to Andy for more details regarding our financial results. All right, thank you, Val. Good morning, everyone. Our review are consolidated financial results on an adjusted basis, which for the third quarter, exclude the change in estimated earnout payables.

Speaker 2: One-time acquisition integration costs associated with GRP, BDB, and ORCED.

One time acquisition and integration costs associated with ERP BBB and working.

Speaker 2: Gains and losses on business investors and the impact of foreign currency translation. We believe isolating these above items provides a better reflection of the performance of the business and enhanced comparability.

Gains and losses on business divestitures, and the impact of foreign currency translation, we believe isolating the above items provides a better reflection of the performance of the business and enhanced comparability a reconciliation.

Speaker 2: The reconcilations of our non- GAAP financial measures, including these adjusted amounts to the most closely comparable GAP amounts, can be found either in the appendix of this presentation or in the press release issued yesterday.

<unk> of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts can be found either in the appendix of this presentation.

We are in the press release issued yesterday.

We're over on slide number seven on an adjusted basis total revenues were nearly $1 1 billion for the quarter growing 14, 2% as compared to the third quarter of the prior year income before income taxes increased by 47% and EBIT that grew by 27%.

Speaker 2: Our EBEDAC margin was 34.7%, increasing 350 basis points as compared to the third quarter of 2022. And the margin increase was driven primarily by leveraging our cost base and connection with strong organic growth.

EBITDA margin was 34, 7%, increasing 350 basis points as compared to the third quarter of 2022.

The margin increase was driven primarily by leveraging our cost base in connection with strong organic growth as.

Speaker 2: as well as higher contingent commissions, increase interest income, and minimal claims costs for our captives.

As well as higher contingent commissions increased interest income and minimal claims cost for our captives.

Speaker 2: The higher growth in income before income taxes was driven by depreciation, amortization and interest expense growing slower than total revenues.

The higher growth in income before income taxes was driven by depreciation amortization and interest expense growing slower than total revenues.

The effective tax rate for the quarter was 25, 5%, which is in line with our expectations and compares to 26, 1% in the third quarter of last year. Our adjusted diluted net income per share increased by 42% from last year to 71.

Our weighted average share count increased approximately 1% as we are directing more of our capital towards reducing our debt.

Lastly, our dividends paid increased nearly 12% as compared to the third quarter of 2022 overall the performance by our team for the quarter was outstanding.

Speaker 2: We're over on slide number eight. The retail segment grew almost 10% growing primarily by strong organic growth of 8% and acquisitions completed in the last year. Adjusted EBEDAC grew slightly faster than revenues and are adjusted EBEDAC margin expanded to 28.6%.

Speaker 2: This expansion was driven by leveraging our expense base along with strong organic revenue growth, but it was partially offset by the impact of higher non-cash stock base compensation and slightly lower profit sharing continued commission.

Speaker 2: World RUN slide number nine. National programs had another outstanding quarter with adjusted total revenues growing 20.1% and organic growth at 12.1%. The incremental growth in excess of organic growth was driven almost entirely by an increase in our contingent commissions that were impacted negatively in the prior year related to Hurricane Ian.

We're over on slide number nine national programs had another outstanding quarter with adjusted total revenues growing 21% and organic growth of 12, 1% the incremental growth in excess of organic growth were driven almost entirely by an increase in our contingent commissions that were impacted negatively.

In the prior year related to Hurricane Dorian.

Speaker 2: Our Juductive Evidac margin expanded over 11%. I do the level of organic growth and leveraging our expense space.

Our adjusted EBITDA margin expanded over 11% due to the level of organic growth and leveraging our expense base higher profit sharing contingent commissions and lower claims cost in the current year within our captives due to acquired storm season as compared to the third quarter of 2022.

Speaker 2: higher profit sharing contingent commissions and lower claims cost and the current year within our captives due to a quieter storm season is compared to the third quarter of 2022.

Speaker 2: Moving over to slide number 10, our wholesale segment delivered another strong quarter with adjusted total revenue growth of 17.7% and organic growth at 13.4%. The incremental growth in excess of organic growth were driven by higher profit sharing contingent commissions and acquisitions completed in the past 12 months.

Speaker 2: are adjusted EBITEC margin expanded 110 basis points at 37% due a combination of leveraging our expense base with good organic growth and higher profit sharing contingent commissions but was partially offset by the impact of higher non-cash stock base compensation.

Our adjusted EBITDA margin expanded 110 basis points at 37% due a combination of leveraging our expense base with good organic growth and higher profit sharing contingent commissions, but was partially offset by the impact of higher noncash stock based compensation.

Speaker 2: On file 11, the services segment delivered organic growth at 3.2% with a slight decline in adjusted EBDAQ margin due to one time expenses for certain businesses as well as the impact of inflation.

On slide 11, the services segment delivered organic growth of three 2% with a slight decline in adjusted EBITDA margin due to onetime expenses for certain businesses as well as the impact of inflation.

A few other comments concerning cash generation capital allocation outlook for the remainder of the year from a cash perspective, we generated $704 million of cash flow from operations for the first nine months of this year and had another strong third quarter growing our year to date cash flow from operations by $104 million or <unk> <unk>.

17%.

Our year to date ratio of cash flow from operations as a percentage of total revenues remained strong year over year at approximately 22%.

Speaker 2: As we mentioned previously, post-theacquisitions of GRP, BDB and ORCID, we remain committed to derevering. In the third quarter, we further reduced our outstanding debt by approximately $100 million. At the end of the third quarter, we are already within our stated target gross debt to EBITDA ratio of zero to three times.

As we mentioned previously post the acquisitions of GOP BBB in orchid, we remain committed to Delevering and the third quarter, we further reduced our outstanding debt by approximately $100 million.

At the end of the third quarter, we are already within our stated target gross debt to EBITDA ratio of zero to three times.

Speaker 2: Based on current interest rates, we would expect our investment income and interest expense in the fourth quarter to be similar to what we recognized in the third quarter.

Based on current interest rates, we would expect our investment income and interest expense in the fourth quarter to be similar to what we recognized in the third quarter.

Speaker 1: In summary, we continue to be in a strong position and generate industry-leading and cash conversion ratios, which enable us to invest in our company, be lever and acquired businesses. With that, let me turn it back over to California closing comments. Thanks, Landy. Great report. The impact of inflation increases and interest rates on our customers and the consumer or the key areas we're monitoring. As these will drive the rate of economic expansion and investment.

<unk> increases in interest rates on our customers and the consumer are the key areas. We are monitoring as these will drive the rate of economic expansion and investment.

Speaker 1: Many of our customers have already done one or more of these items.

Many of our customers have already done one or more of these items.

Regarding our carrier partners. They continue to be focused on diversifying their portfolios and reducing volatility in their earnings. This is evident through cat capacity management and disciplined underwriting is a highly diversified global insurance platform. We have delivered very good underwriting results by continue.

Speaker 1: As a highly diversified global insurance platform, we have delivered very good underwriting results.

Turning to provide our carrier partners with access to a distinct customer segments. We believe we're well positioned to maintain and possibly grow our capacity with these important partners we.

Speaker 1: We feel great about our business as our team is executing and delivering at a very high level. We're making the right investments for the long term and remain focused on hiring and retaining the best teammates. As we continue to do this, we're able to leverage our collective capabilities to retain our existing customers and win more new business.

We feel great about our business as our team is executing and delivering at a very high level.

We're making the right investments for the long term and remain focused on hiring and retaining the best teammates as we continue to do this we are able to leverage our collective capabilities to retain our existing customers and win more new business in.

Speaker 1: In summary, we're very pleased with our results to the first nine months of the year, delivering organic growth of 11%, adjusted EVEDAC margin expansion of 170 basis points, and a just that earnings per shared growth of 25%. We are well positioned and have great momentum as we head into the final quarter of the year. With that, we'll turn it back over and open the lines for Q&A.

In summary, we're very pleased with our results through the first nine months of the year delivering organic growth of 11% adjusted EBIT margin expansion of 170 basis points and adjusted earnings per share growth of 25%.

We are well positioned and have great momentum as we head into the final quarter of the year with that I will turn it back over and open the lines for Q&A.

Speaker 6: Thank you. To ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. Do the time constraints we ask that you please limit yourself to one question and one follow-up. Again, we ask that you please limit yourself to one question and one follow-up until all have had a chance to ask a question, after which we'll be able to answer any additional questions from you as time permits. Please stand by. We'll compile the Q&A roster. One moment for our first question.

Thank you to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced due to time constraints. We ask that you. Please limit yourself to one question and one follow up again, we ask that you. Please limit yourself to one question and one follow up until all have had a chance to ask a question.

After which we'll be able to answer any additional questions from you as time permits. Please standby, while we compile the Q&A roster one moment for your first question. Please.

Speaker 6: And our first question will come from the line of Michael Zoremsky with BMO. Your line is now-

And our first question will come from the line of Michael Zarefsky with BMO. Your line is now open.

Speaker 4: Hey, great. Good morning. You know, thinking about the commentary on the great margins, this quarter and year to date, it's kind of the lift to the outlook. Yes, Andy will me when you get color on the kind of the

Okay great.

Morning.

Thinking about the commentary on the great <unk>.

Margins this quarter and year to date and kind of the lift to the outlook.

Yes, Andy will me when you gave color on the kind of the.

The pluses and minuses.

Is it fair that the.

That the only kind of things that might be unusual.

Looking basis could be that the LOE costs for the captives and maybe kind of organic.

Growth has exceeded your.

Your expectations, just trying to level set kind of to make sure we.

We kind of understand if you feel like there was some onetime items, we should be thinking about.

Speaker 2: Yeah, good morning, Mike. As it relates to the third quarter, no, we didn't have any distinct kind of one-time items that we call out pertaining to the fourth quarter. The main items were the ones that we highlighted, which were the incentive bonus and the claims revenue associated with Ian.

Yeah, Hey, good morning, Mike.

As it relates to the third quarter no. We didn't have any distinct kind of one time items that we that we called out pertaining to the fourth quarter. The main items were the ones that we highlighted which were the incentive bonus and the claims.

The claims revenue associated with Ian.

Speaker 2: We still got the fourth quarter yet to go. So we're still in storm season right now. So no, actually, how everything will play out. But those will be part of two of the bigger ones. And then again, depending upon how storm season ultimately finalizes itself as well. As we still got back into the year, remember on our captives that they also take a quarter share on some of them.

So that fourth quarter, yet to go so we're still in storm season right. Now so we don't know actually how everything will play out, but those will be two of the bigger ones.

Then again dependent upon how storm season, ultimately finalizes itself as well as we still got the back into the year remember on our our captives that.

They also take a quota share on some of our.

Speaker 2: West Coast earthquake program. So that's the only kind of those the unknowns that could that could pop up, but we feel good about kind of where we are heading in the fourth quarter.

West Coast earthquake programs. So that's the only kind of those unknowns that could that could pop up but we feel good about kind of where we are heading into the fourth quarter.

Okay.

Speaker 4: And I'm maybe pivoting to organic growth more broadly. So the, I'll look at the near term is for rate increases to remain constant.

Maybe pivoting to organic growth more broadly.

The outlook is.

Near term is for rate increases to remain constant.

Speaker 4: Polly talked about ton of terriers still pushing through higher insured values, which I think comes to on the exposure side. Can you kind of talk about if you have a forward-looking view of whether there's a D cell in exposure at all as kind of nominal inflation looks to be decently a bit, or is there this kind of still...

Paula you talked about kind of carriers still pushing through higher insured values, which I think comes to on the exposure side can you kind of talk about if you have a forward looking view.

Whether there is.

A T cell and exposure at all is kind of nominal inflation last year.

T settling a bit or.

Is there this kind of still.

Speaker 4: higher than historical level of exposure, kind of running through the system, which is benefiting your growth.

Higher than historical level of exposure kind of running through the system, which is benefiting your growth.

Speaker 1: Well, Mike, as you know, we don't give forward looking organic growth guidance. And historically speaking, we've said that our business is two thirds exposure units in one third rate.

Well, Mike as you know, we don't give forward looking organic growth guidance and historically speaking we've said that our business is two thirds exposure units and one third right.

Speaker 1: In certain areas of the business, particularly in coastal communities, rates might have a slightly higher impact.

In certain areas.

Business, particularly in coastal communities rates might have a slightly higher impact, but as it relates to the question specifically on exposure units.

Speaker 1: But as it relates to the questions specifically on exposure units,

We have not seen.

Anything that would indicate a slowdown.

And those exposure units in the near term.

Yet, but we remain ever vigilant as we kind of watch.

But as Andy and I, both said, we do see people being more cautious in terms of their willingness to make large capital investments in the business.

Think they're pausing on a lot of those so from a standpoint of lyft and exposure units. There, we're not seeing that as much as it relates to sales of product.

Speaker 1: So from a standpoint of lift and exposure, and it's there, we are not seeing that as much. As it relates to sales of product, or construction revenues or whatever, it seems to be containing that usual. Hello, it is Garis and Niko. Hello? Hello.

Construction revenues or whatever it seems to be.

Continuing as usual.

Thank you.

One moment for our next question please.

Speaker 6: Our next question comes from the line of Mark Hughes with two of security. Your line is now open.

Our next question comes from the line of Mark Hughes with <unk> Securities. Your line is now open.

Speaker 5: Thanks, good morning. Tell you mentioned maybe prospects for a little more capacity from carriers for next year. I think you described that as a restraint in 2023, but your organic has obviously been very good.

Yeah. Thanks, Good morning, Paul.

Paul You mentioned, maybe prospects for little more capacity from carriers for next year I think you've described that as a risk.

The strength in 2023, but your organic has obviously been very good.

Speaker 5: with the re-insures probably doing pretty well this year. Do you think there's the...

With the reinsurers, probably doing pretty well this year do you think there is.

Speaker 5: more opportunity for faster growth when we think about some of these coastal programs or these states like Texas and California that it had.

More opportunity.

The faster growth when we think about some of these coastal programs or the.

States like Texas, and California that have had.

Problems getting capacity.

Speaker 1: I would caution you about saying faster roads. I think the way I would look at it is there's capacity, but the capacity is at a price.

I would caution you about saying faster growth I think the way I would look at it is theres capacity, but that capacity is at a price.

Speaker 1: And so, as I said earlier, carriers are very careful about managing their cat capacity. We view it as a positive if we can maintain...

And so.

As I said earlier carriers are very careful about managing their cat capacity, we view it as a positive if we can maintain.

Speaker 1: or capacity that we currently have. And in some instances, if somebody wants to modify their distribution to us, I.E. modified down.

Our capacity that we currently have and in some instances if somebody wants to modify their their distribution to us I E modified down.

Speaker 1: We believe that we can fill most of that with other carriers that want to participate in our facilities or...

We believe that we can fill most of that with other carriers that want to participate in our facilities or.

Speaker 1: wholesale or in retail. But I would caution you Mark on trying to draw a parallel that we've got a whole bunch of new capacity.

Wholesaler and retail, but I would caution you mark on trying to draw a parallel that.

We've got a whole bunch of new capacity, that's going to bring a whole bunch of new growth with that I don't want it.

Speaker 1: that's gonna bring a whole bunch of new growth with that. I don't want you to, please do not misinterpret our statements that way. I would say that we feel good about the indications that we've been given from our carrier partners about maintaining what we have.

<unk> do not misinterpret, our statements that way I would say that we feel good about the indications that we've been given from our carrier partners about maintaining what we have.

Speaker 1: And as it relates to stuff that they want to modify their participation on, we feel good about replacing that.

And as it relates to stuff that they want to modify their participation on we feel good about replacing that.

Speaker 5: understood and then I think you had mentioned construction are you seeing anything changes in construction the next job is always important.

Understood and then I think you had mentioned in construction are you seeing anything.

Any changes in construction.

The <unk>.

Next job is always important.

Moving on there.

So mark I would tell you that inventory seems to be okay.

Still okay, but that's usually a nine to 12 months outlook I can't comment beyond that.

But there just seems to be a lot of activity in.

So thats positive.

Very good thank you.

Thank you.

One moment for our next question please.

Speaker 13: Next question comes from the line of Michael Ward with City. Your line is now open.

Our next question comes from the line of Michael Ward with Citi. Your line is now open.

Michael Ward your line is now open.

Michael we cannot hear you.

Mr. Ward are you on mute.

I'll go to the next person one moment. Please yes, yes normally just putting back in the queue will come back around.

Speaker 11: I'll go to the next person one moment please. Yes. Yes Norma just putting back in the queue will come back around.

Speaker 7: And next, first question comes from a line of C Gregory Peters with Raymond James. Your line is now open.

Our next.

Question comes from the line of Gregory Peters with Raymond James Your line is now open.

Gregory Mr. <unk>. Your line is now open.

Right.

Alright, Mr Peters.

Okay.

Alright, I'll go to the next one.

For the next one.

Speaker 6: I can come from the line of Rob Cox with Goldman Sachs. Your line is now open.

Comes from the line of Rob Cox with Goldman Sachs. Your line is now open.

Hey can you guys hear me.

Yes.

Awesome.

Could you talk about what drove the more resilient than expected organic growth in the quarter and maybe specifically for both retail and then wholesale.

Sure, we're just writing more net new business.

Speaker 1: I'm not trying to be funny Rob, but we're executing really well. And we are maintaining our existing customer relationships. And we are picking up a lot of new customers.

And I'm not trying to be funny, Rob but.

We are executing really well and.

We are.

Maintaining our existing customer relationships and we are picking up a lot of new customers.

Speaker 1: That sets both on both sides, well, and retail.

Thats both on both sides.

And retail.

That's great. Thank you.

Speaker 2: And then maybe just a high level fallup on expenses not necessarily related to this quarter in particular. But if we zone in on the retail segment, you just walk us through the expense line items that are seeing kind of the most inflationary pressure here in this environment and what line items are doing, okay? Yeah, hey, good morning, Robert Sandy here.

And then maybe just.

A high level of follow up on on expenses not necessarily related to this quarter in particular.

But if we zone in on the retail segment can you just walk us through the expense line items that are seeing kind of the most inflationary pressure here in this environment and what line items are doing okay.

Yeah, Hey, good morning, Rob It's Andy here.

I think the areas where.

Speaker 2: We probably continue to be challenged, but we've always been challenged in this space is around just the cost of talent And that's not been just a COVID issue if you need good talent which we do and like everybody else Town is is expensive

We probably continue to be challenged by the way we've always been challenged in this space is around just the cost of talent.

And thats not been just a COVID-19 issue if you need good talent, which we do and like everybody else talent is is expensive.

Speaker 2: We are seeing some moderation in the level of inflation and the increases in comparison to volumes from a year ago, but you still see some of those pressures that are out there, but we work our way through those.

We are seeing some moderation in the level of inflation and the increases in comparison to volumes from a year ago, but you still see some of those pressures that are out there, but we work or work our way through those and then.

Speaker 2: And then, we've got through most of the T&E headwinds. It doesn't mean that.

We've got through most of the T&D headwinds it doesn't mean that hotels and airlines are expensive. They already have probably been offline lately are staying somewhere it's still pretty expensive, but it feels like we've got through most of those headwinds in comparison to where we were a year ago on that front.

Speaker 2: Hotels and airlines aren't expensive. They already probably been out flying lately or staying somewhere It's still pretty expensive But feels like we've got through most of those headwinds in comparison to where we were a year ago on that front

Speaker 2: And then we mentioned in the commentary about, you know, stock compensation that that's a, an Edwin year over year for, for the business, both in retail as well as wholesale.

And then we mentioned in the commentary about stock compensation that that's a headwind year over year for the business both in retail as well as wholesale.

That's not a bad thing at all so keep in mind that the way that those plans are structured is they're driven off of how well we perform on organic and earnings per share. So the costs that we're taking to the current year is also reflective of the strong performance that we've had over the last couple of years. So we think thats where.

Good indicator.

Thanks, I appreciate the color.

Speaker 3: Thank you. Good. Thank you. One moment for our next question.

Thank you.

Thank you one moment for our next question. Please.

Speaker 6: Our next question comes from the line of the least green span with Wells Fargo. Your line is now...

Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is now open.

Speaker 9: Hi, thanks. Good morning. My question was on retail. I know you guys had called out.

Hi, Thanks, good morning.

My question was on retail.

You guys had called out dealer services right that was a headwind last second half of last year and the first part of this year. It seems given the strong results you guys saw this quarter and maybe that dissipated.

Speaker 9: that was a headwind last, second half of last year, and the first part of this year it seems, given the, you know, strong results, you guys saw this quarter, and maybe that's...

Speaker 9: Is that correct or is there any impact?

Correct or was there.

Any impact.

Taylor services in the quarter.

Yeah. So good morning, Elyse, so as as you remember we indicated that the headwind was kind of going to neutralize in the second half of the year relative to dealer services and we did see that sort of neutralize in Q3.

Speaker 1: So, we are very pleased with the overall business and even in dealer services is just, you know, getting inventory for our dealer customers.

So.

We.

We are very pleased with the overall business and even in dealer services. It's just.

Getting inventory for our dealer customers.

Speaker 1: But I would tell you that that was a pot week for us compared to prior quarters this year, yes.

But I would tell you that.

That was a policy for us compared to prior quarters. This year, yes.

Speaker 9: And then on the margin update, you guys have seen good amount of margin improvement, I think 170 basis.

Thanks, and then.

On the margin update.

Good amount of margin improvement I think 170 basis points, so far this year.

Speaker 9: For contraction, just a function of Andy, the one-off revenue you guys had last year within programs, the $7 million and the $8 million that you called out. For us, I know you don't typically got on a one-quarter basis, but I'm...

Q4 contraction just a function of Andy the one off revenue you guys had last year within programs the $7 million.

$8 million that you called out.

Alright, I know you don't typically guide on a one quarter basis, but I'm just trying to understand if there's anything else in the Q4 that you're highlighting.

Speaker 2: Now those would be those are the big items the least that are in there.

No those would be those are the big items the lease that are in there.

Speaker 9: Okay, and then one last one, you guys pointed to, you know, it seems like a still competitive M&A environment, but it sounds like financial sponsor. I think you guys said interest is maybe leaning a little bit. You know, what are you guys seeing on the M&A side in terms of the pipeline and multiples on trends?

Okay, and then one last one you guys pointed to.

It seems like a still competitive M&A environment, but it sounds like financial sponsors I think you guys said interest is may be waning a little bit.

What are you guys seeing on the M&A side in terms of the pipeline.

And multiples on transactions as well.

So at least I would tell you that.

The way we describe it as in the past there might have been let's say two handfuls of.

Early participants in looking at a business that have financial backing.

Speaker 1: Whereas now there might be a handful. That doesn't mean that there are none. It just means it's not as many people that are from that segment of the space.

Whereas now there might be a handful that doesn't mean that there are none it just means it's not as many people that are from that segment of the space.

Speaker 1: Number one, and part of that is obviously do increase interest rates and their capacity to put their money to work. Having said that, we have not seen an enormous downward pressure on multiples. I would tell you that it's, you know, on roughly there might be a quarter to a half a turn down, but on good businesses.

Number one and then part of that is obviously due to the increased interest rates and their capacity to put their money to work having said that.

We have not seen an enormous downward pressure on multiples I would tell you that it's.

Roughly there might be a quarter to a half a turn.

Down but on good businesses people are they're still very competitive for good businesses. So we.

Speaker 1: People are still very competitive for good business.

Speaker 1: So we are just out there looking all the time. We are very pleased with the acquisitions we've made this year.

We are just out there looking all the time, we are very pleased with the acquisitions. We've made this year.

Speaker 1: And we're, you know, when and why someone sells, it's different for every transaction.

And where we.

When and why someone sells its different for every transaction.

Speaker 10: But we think that there are lots of opportunities that will present themselves in the next one, two, and three years and beyond. But I think there continues to be good opportunities for us and we really like our position and we like and to your question specifically, the inventory is good, but remember it's always good and we're very pleased because it's still good. Thank you.

But we think that there are lots of opportunities that.

That will present themselves in the next one two and three years and beyond but I think there continues to be good opportunities for us and we really like our position and we like.

And to your question specifically the inventory is good but remember it's always good.

And but we're very pleased because it's still good.

Thank you.

Thank you Luis.

One moment for our next question please.

Speaker 6: Next question comes from the line of Meyer Shields with KBW. Your line is now open.

Our next question comes from the line of Meyer Shields with <unk>. Your line is now open.

Great. Thanks, Good morning am I coming through.

Speaker 10: Yep, you're coming through. Okay, fantastic. So two really cool questions. First, in the national programs, fly doesn't fly nine. You mentioned higher profit sharing, or let me say it's different. Improve loss development on hurry.

Yes, you are coming through.

Fantastic. So two really quick questions first in the national programs Slide is on slide nine.

You mentioned higher profit sharing or let me say it differently improved loss development on hurricane in was there any favorable development on the exposure or is that just.

Speaker 10: Was there any favorable development on the exposure or is this just much better quoted than last year because of the blast?

Much better quarter than last year because of lack of issues.

Speaker 2: I am morning mayor. Yes, a combination of two things. So if you recall in the third quarter of last year.

Hi, good morning.

It's a combination of two things. So if you recall in the third quarter of last year.

Speaker 2: Uh, in hit on the 28th of September , right? We had, we had recorded what we thought the development would be at that stage. And if you recall, in the 4th quarter, we had made some true ups. We had the development was not as as extensive as was originally estimated. We made a few more than a few out the year, but now we're kind of back to where at least.

Ian hit on the 28 at September .

Reported what we thought the development would be at that stage. If you recall in the fourth quarter. We had made some true ups the development was not as.

His extensive as was originally estimated we made a few more of those kind of throughout the year.

But now we're kind of back to where at least.

From everything we're seeing and hearing from our carrier partners that we're in a pretty good place on loss development they've got.

Most of the claims that are out there that we were on.

Speaker 10: Okay, but to the extent that you had a little bit of exposure, there's no change in sort of bad calling.

Okay, but to the extent that you had a little bit of exposure. There is no change in sort of that I'll call it underwriting loss.

Speaker 2: No, no, if anything, it's actually improved to what of them.

No no if anything it's actually improved to the betterment.

Speaker 10: Okay, perfect. I'm going to understand the process. One theme we've seen this year is a lot of catastrophe cause property moved from the...

Okay. Perfect question I'm, just trying to understand the process. One theme. We've seen this year is a lot of.

Catastrophe property move from the standard market to EMEA. When you look at that segment of the marketplace for that.

Speaker 10: When you look at that segment of the marketplace or that phenomenon, is that a one year transition, or should we expect to see that sort of directional move continue in twenty twenty four?

Phenomenon is that a one year <unk>.

Or should we expect to see that sort of directional move continue in 2024, maybe beyond.

Sure so.

Speaker 1: Sure. So I think that their fundamentally is a continued transition of certain types of business, not specifically and limited to cat property that are rotating into the EMS market.

I think that there fundamentally is.

A continued transition of certain types of business not not specifically and limited to cat property that are rotating into the E&S market.

Speaker 1: So I think we're going to continue to see that into 24 and 25.

So I think we're going to continue to see that into 'twenty, four and 'twenty five.

Speaker 1: That said, is there a time in the future where some of that business that rotates out might come back into the standard market? And the answer is yes, I believe that to be the case.

That said is there a time in the future where some of that business that rotates out might come back into the standard market and the answer is yes, I believe that to be the case.

Speaker 1: But we've got to have a couple years of, you know, good loss experience for the carriers.

But we've got to have a couple of years of.

Good loss experience for the carriers.

Speaker 1: because I think sometimes there are certain businesses that are because of location. They may be put into a box.

Because I think some times.

There are certain businesses that are because of location.

They may be put into a box.

And if you looked at them on a one off basis, they might not necessarily.

Need to move to E&S or all of it E&S. So I think there is a continued trend towards it but I also think that in a couple of years there could be some slight rotation back.

Okay. That's perfect. Thank you so much.

Speaker 3: Thanks. Thank you. Thank you. One moment for our next question.

Thanks.

One moment for our next question please.

Speaker 6: Our next question comes from the line of Mark Hughes with two of his securities. The line is now...

Our next question comes from the line of Mark Hughes with <unk> Securities. Your line is now open.

Speaker 5: Yeah, thanks. Employee benefits seems like the pricing rates are up pretty substantially. And it knows as you've talked about how Q1 organic is benefited from employee benefits momentum. Could there be a little bit more this year because of

Yes. Thanks.

Employee benefit seems like.

Breaking rates are up pretty substantially.

You've talked about how.

Q1 organic.

<unk> benefited from employee benefits momentum could there be a little bit more this year.

Closed.

Pricing in that market.

Speaker 5: When you say this year, are you talking about in Q4 or I'm not taking Q1

When you say this year are you talking about in Q4.

Or.

Im going in Q1.

This year.

Speaker 1: Oh, well, again, we're not giving we don't give growth guidance online to business, just like we don't give organic growth. But we're very pleased with the way our employee benefits line of business is growing. And we continue to invest in the capabilities. And we are writing lots of new business across the platform.

Oh well.

Again, we're not giving we don't give.

Growth guidance on lines of business, just like we don't give organic growth.

But we're very pleased with the way our employee benefits line.

Business is growing and we continue to invest in the capabilities.

And we are writing lots of new business across the platform.

Speaker 11: Yeah, I mean, Mark, if you're questions about, you know, rates on the EB space, and no, we're not seeing any fundamental changes in the rate increases in the EB business. They continue to be pretty robust as we've been talking about for a number of quarters. It is different if you're on a fully funded, versus a self-funded plan. The pharmacy is probably the biggest topic that everybody's talking about today because of all the specialty drugs that are out there.

Yes, I mean market for your questions about <unk>.

<unk> on the EV space.

No we're not seeing any fundamental changes in the rate increases in the <unk> business they continue to be.

Pretty robust as we've been talking about for a number of quarters. It is different if you are on a fully funded versus self funded plans.

Pharmacy is probably the biggest topics that everybody is talking about today because of all the specialty drugs that are out there.

Thank you.

Speaker 11: Yes. Thank you, Norton. Hey, Norma, can we do, we had a couple people that didn't get in earlier. Can we get them back in the queue, please? Yes, thank you.

Yes, yes.

Hey, norm can we do we had a couple of people that didn't get in earlier can we.

Get them back in the queue. Please yes. Thank you.

One moment for our next question.

Speaker 6: Our next question comes from the line of C. Gregory Peters with Raymond James. Your line is now open.

Our next question comes from the line of C. Gregory Peters with Raymond James Your line is now open.

Mr. Peters. Your line is now open are you muted.

Speaker 13: Hey, Norris, can you check and see if he's muted by chance on your end? Not on my end. I'm checking. He's open. Mr. Peters, are you muted?

Hey, norm can you check and see if he has muted by chance on year end.

Not on my Yang from checking.

Mr Peters, our you're muted.

It's not there.

Okay I'll go to the next horizon.

We'll get him back around.

One moment for our next question comes from the line of Scott <unk> with RBC capital markets. Your line is now open.

Speaker 6: One moment for our next question comes from the line of Scott Helleniac with RBC Capital Market. The line is now open.

Speaker 12: Yeah, good morning. First question, how was just on the services segment? You had better growth there than you had in a while, the 3% and you'd mentioned in there there's a benefit from some claims processing revenue. Was that sort of one time? Just kind of trying to figure out is is this something where you think you can get sustainable organic growth in this unit or was there anything kind of one time in that what that you called up the claims processing revenue?

Is that sort of.

One time.

Just kind of.

Trying to figure out is this something where you think you can get sustainable organic growth in this unit or was there anything kind of onetime in that.

Called out the claims processing revenue.

Hi, Yes, hi, good morning, it's Andy.

Speaker 11: Yeah, I get more into Andy. That was really drawn off of, we've expanded some customer relationships there as well as we once knew relationships and that business that's what's driving the new claims. The way that we really think about the services business is the actual transaction is one time in nature, but the relationships are recurring in nature of course. And that's really what we try to focus on. And it's...

That was really driven off we've expanded some customer relationships there as well as we've won some new relationships in that business and that's what's driving the new claims the way that we really think about the services business is the actual transaction is onetime in nature, but the relationships are recurring in nature.

Sure.

For us and Thats really what we tried to focus on it.

Speaker 2: That business in general, that segment, it's, you can't forecast by individual quarters very well. You quite often have to look at averages just because the way items come slow back and forth, but we were real pleased with the performance for the third quarter.

That business in general that segment.

Can't forecast by individual quarters, very loyal equaled out you have to look at averages just because the way items kind of slow back and forth, but we're real pleased with the performance for the third quarter.

Speaker 12: Got it, that makes sense. Yeah, the other question I had was just on, you mentioned in the script, you're at your zero to three times debt, leveraged target now. So, should I take that to mean that we shouldn't expect additional debt reduction in the next three quarters, is that largely over, or is there more left? Nope, or is that still a two-week time limit? No. You should.

Got it that makes sense. The other question Howard just on you mentioned in the script you were at zero to three times debt leverage target now.

So should I take that to mean that we shouldnt expect additional debt reduction over the next few quarters is that largely over or is there more more left no or is that still TBD.

You Shouldnt assume that.

Speaker 2: Now, okay, no, if you look back.

Okay.

Mike If you look back historically.

Speaker 2: historically, you know, we will increase our leverage modestly times when we have, you know, incrementally higher, oh, I'm sorry, Scott, sorry about that, is

We will increase our leverage modestly.

Times, where we have incrementally higher I'm, sorry, Scott sorry about that.

As.

Speaker 2: You'll end up, you know, we'll have, we'll take our lever, jump a little bit when we have higher levels of larger acquisitions. And if you look at it, we de-lever on the back end. It's pretty rare.

Youll end up we will have we will take our leverage up a little bit when we have higher levels of larger acquisitions and if you look at it we de lever on the backend.

At a pretty rapid pace the organization itself will normally delever anywhere from a quarter to half sometimes three quarters return during the year and Thats really driven off of just normal maturities that we have and then growth in the business, but if you go back over time, we will.

Speaker 2: The organization itself will normally do ever anywhere from a quarter to a half.

Speaker 11: sometimes three quarters of a turn during the year. And that's really driven off of just normal maturities that we have. And then growth in the business. But if you go back over time, we'll run somewhere kind of a two, two, to a two, four on a gross to even die ratio.

Runs somewhere in kind of two two to two four on a gross EBITDA ratio.

Speaker 2: And we're in our range and probably continue them, moderate down. That doesn't mean that we won't take it back up at some point if we find a really good acquisition for organization, but generally, we're gonna have a pretty conservative balance sheet. Okay.

And we're we're in a range from probably continued moderate down that doesn't mean, though that we won't take it back up at some point, if we find them.

A really good acquisition.

For the organization, but generally we're going to have a pretty conservative balance sheet.

Okay. Thanks.

Okay.

One moment for our next question please.

Speaker 6: As a reminder to ask a question, you'll need to press star 11 on your telephone.

As a reminder to ask a question you will need to press star one on your telephone.

Okay.

Our next question comes from.

Speaker 6: the line of Michael Ward, one moment for your line to be open.

The line of Michael Ward, one moment for you wanted to be open.

Okay.

Michael Ward your line is now open.

Yes.

Oh.

Michael Your line is open.

Speaker 6: All right, we seem to have two folks that are having some technical difficulties today. Norma, do we have anybody else in queue? I see no other calls, but ladies and gentlemen, as a reminder to ask a question that's star 11. Number 11.

Alright, we seem to have too.

Folks are having some technical difficulties today, alright normally do we have anybody else in queue.

No other callers, but ladies and gentlemen, as a reminder to ask a question Thats Star one one.

Okay, we'll give.

We'll give Mike and Greg if they are in queue, just a second and if not we'll go ahead and we will call. The call. We can always do a follow up with them.

Speaker 11: We'll get Mike and Greg if they're in queue just a second and if not we'll go ahead and we'll call the other column. We can only do a follow up with them. Okay. Again, ladies and gentlemen.

Okay.

Again, ladies and gentlemen that star one to ask a question.

Speaker 6: And I'm showing no further questions at this time. I'll go ahead and turn the call back over to you, Mr. Brown, for closing remarks.

And Im showing no further questions at this time I'll go ahead and turn the call back over to you Mr. Brown for closing remarks.

Speaker 1: Thank you all very much. We're very pleased with the quarter and equally excited about going into Q4. Look forward to talking to everybody in January . Have a great day. Thank you.

Thank you all very much we're very pleased with the quarter and equally excited about going into Q4 look forward to talking to everybody in January have a great day. Thank you.

Speaker 6: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Q3 2023 Brown & Brown Inc Earnings Call

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