Earnings call transcript: Brown & Brown beats Q2 2025 forecasts, stock drops

Brown & Brown Inc. (BRO) reported better-than-expected earnings for Q2 2025, with earnings per share (EPS) of $1.03 surpassing the forecast of $0.99. Revenue also exceeded expectations, reaching $1.29 billion. Despite these positive results, the company’s stock fell 7.39% in premarket trading, closing at $95. This movement comes amid broader market concerns and sector-specific challenges.

Key Takeaways

• Brown & Brown’s Q2 2025 EPS of $1.03 beat forecasts by 4.04%.
• Revenue grew 9.1% year-over-year to $1.29 billion.
• The stock declined 7.39% in premarket trading, nearing its 52-week low.
• The insurance market is experiencing a softening cycle, affecting investor sentiment.
• The company completed 29 acquisitions, contributing to its growth strategy.

Company Performance

Brown & Brown demonstrated solid performance in Q2 2025, with significant revenue growth and a notable increase in earnings per share. The company’s strategic acquisitions have bolstered its market position, despite a challenging insurance market. The performance aligns with its historical trend of steady growth, driven by diversification across retail, programs, and wholesale segments.

Financial Highlights

• Revenue: $1.29 billion, up 9.1% year-over-year
• Earnings per share: $1.03, up 10.8% from the previous year
• Cash flow from operations: $537 million, an increase of $164 million
• Adjusted EBITDAC margin: 36.7%, expanding by 100 basis points

Earnings vs. Forecast

Brown & Brown’s actual EPS of $1.03 exceeded the forecast of $0.99, marking a 4.04% surprise. Revenue also surpassed expectations, with a slight margin of 0.78%. This earnings beat reflects the company’s strong operational performance and effective cost management.

Market Reaction

Despite the earnings beat, Brown & Brown’s stock experienced a significant decline of 7.39% in premarket trading, dropping to $95. This reaction suggests investor concerns about broader market conditions and the company’s future prospects, despite strong quarterly results.

Outlook & Guidance

The company anticipates continued moderation in admitted rates and potential decreases in catastrophic property rates in the coming quarters. Brown & Brown remains active in mergers and acquisitions, focusing on disciplined capital deployment to drive future growth.

Executive Commentary

CEO Powell Brown expressed confidence in the company’s direction, particularly with the upcoming acquisition of Ascession. CFO Andy highlighted the company’s robust top-line growth and strong margins, emphasizing the successful execution of their strategic initiatives.

Risks and Challenges

• The insurance market is experiencing a softening cycle, which could impact revenue growth.
• Declining property rates in the E&S market may affect profitability.
• Potential margin pressures due to market changes and increased medical and pharmacy costs.
• Economic uncertainties could influence future performance.

Q&A

During the earnings call, analysts inquired about the impact of market softening on new business and potential margin implications. Executives addressed these concerns, highlighting the cyclical nature of the market and the company’s strong performance in the first half of the year.

Full transcript - Brown & Brown Inc (BRO) Q2 2025:

Didi, Conference Call Moderator, Brown and Brown Inc.: Good morning, and welcome to the Brown and Brown Inc. Second Quarter Earnings Call. Today’s call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions, may relate to future results and events or otherwise be forward looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company’s anticipated financial results for the second quarter and are intended to fall within the safe harbor provisions of the securities laws.

Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward looking statements made as a result of a number of factors. Such factors include the company’s determination as it finalizes its financial results for the second quarter, that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday. Other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company’s reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company’s business and prospects as well as additional information regarding forward looking statements is contained in the slide presentation posted in connection with this call and in the company’s filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

In addition, there are certain non GAAP financial measures used in this conference call. A reconciliation of any non GAAP financial measures to the most comparable GAAP financial measure can be found in the company’s earnings press release or in the investor presentation for this call on the company’s website at www.bbrown.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Thanks, Didi. Good morning, everyone, and welcome to our second quarter earnings call. Before we get into the results for the quarter, we wanted to provide an update acquisition of RSC Topco, or as we refer to it, Ascession. Post the announcement, John Mina, myself and a number of other senior leaders met with many of the teammates from Ascession, and the feedback has been positive. We’re very excited about our expanded capabilities and how we can leverage them for the benefit of our customers.

From a regulatory standpoint, we have substantially all approvals and anticipate an eightone close. From a financing standpoint, we completed a very successful follow on equity issuance and a multi tranche bond issuance that were both significantly oversubscribed. The teams have been working on our integration plans and efforts are well underway to bring our two great companies together. Now let’s transition to the results. I’ll provide some high level comments regarding our performance along with updates on the insurance market and the M and A landscape.

Then Andy will discuss our financial performance in more detail. Lastly, I’ll wrap up with some closing thoughts before we open it up for Q and A. I’m on slide number four. For the second quarter, we delivered $1,300,000,000 of revenue growing 9.1% in total and 3.6% organically as compared to the same period in the prior year. Our adjusted EBITDAC margin improved by 100 basis points to 36.7% and our adjusted earnings per share grew over 10% to $1.03 On the M and A front, we completed 15 acquisitions with estimated annual revenues of $22,000,000 I’m on slide five.

At a macroeconomic level, things have not changed substantially. Customer outlook and confidence seem to be fairly similar to the first quarter. Generally, customers are cautiously optimistic that the uncertainties of tariffs and other matters will resolve in a favorable manner. We continue to see many customers investing in their businesses, while some customers are delaying investment decisions until they have a better view on growth trajectory. With continued economic and job expansion, we think some customers will more than likely only be able to delay their investment decisions for so long.

Overall, we believe the economy is still in a good place. From an insurance pricing standpoint, rates for most lines moderated even further in the second quarter, and in some cases, more than we expected. The outliers were auto, casualty and cat property. We’re now seeing classic market softening signs for certain lines of business where carriers can have a material difference in quoted rates for renewal business versus new business on similar insured assets. Pricing for US employee benefits was similar to prior quarters as medical costs are up 6% to 8% and pharmacy costs are generally up over 10%.

We do not expect this trend to slow over the coming quarters, which will continue to drive demand for our consulting businesses. Rates in the admitted P and C market continue to moderate down, while rates were up 1% to 5% versus the prior year. This is in comparison to rate increases of 2% to 7% in the ’5 and rate increases of 5% to 10% in the second quarter of last year. The downward trend on workers’ compensation rates remained in most states and were flat to down 5%. For non cat property, we’re seeing a general softening of rates, which were down five to up five.

It totally depends on the loss experience. For casualty, we’re seeing rate increases of five to 10 for primary and excess layers and believe this trend will continue over the coming quarters. For professional liability, rates were down five to up five as compared to last year. Shifting to E and S property market. In the first quarter, rates were generally down 10% to 20%.

The trend continued throughout the second quarter with rates down 15% to 30%. We saw more pressure on rates at the end of the quarter. Consistent with previous quarters and the softening cycle, there continues to be exceptions to the ranges. With the decline in admitted rates, customers were more times than not pocketing the savings. While we saw certain non admitted customers consider higher limits or deductible buy downs, which partially offset the premium decline related to the changes in rates.

On an M and A front, we had another good quarter. On a year to date basis, we’ve acquired 29 companies with annual revenues of approximately $60,000,000 I’m on Slide six. Let’s transition to the performance of our three segments for the quarter. Retail delivered organic growth of 3% with the results impacted by slowing admitted and cat property rates and lower new business. Regarding new business, we continue to have a good pipeline and can have fluctuations by quarter.

Programs delivered 4.6% organic growth for the quarter. We had several programs that performed well, including our lender placed business. Our organic growth was impacted by the slowing of our commercial cat programs. We saw increased downward pressure on rates late in the quarter. Brokerage delivered organic revenue growth of 3.9%.

This performance was driven by growth across most lines of business with the growth partially offset by rate declines and the seasonality of property renewals. From an open brokerage standpoint, we had a good quarter even with the decline in property rates. For both binding and personal lines, we’re seeing increased competition from other markets. Professional liability rates continue to decline during the quarter for D and O and EPL. Now I’ll turn it over to Andy to get into more details regarding our financial results.

Thank you, Powell. Good morning, everyone. Before we get

Andy, Chief Financial Officer, Brown and Brown Inc.: into financial details, we wanted to share and talk about the impact on our earnings related to the acquisition of Accesion and our related debt and equity issuances in June. As discussed during our call announcing the acquisition, transaction and integration costs related to our pending acquisition of Acesion will be excluded from our calculation of adjusted EBITDAC and adjusted earnings per share, which for this quarter included approximately $37,000,000 of onetime transaction and integration related costs. In addition, with the debt issuance, we recorded approximately 13,000,000 of incremental interest income for the quarter, and we recorded incremental interest expense of approximately $5,000,000 The shares issued as a result of our equity offering increased our weighted average share count by approximately $8,500,000 for the quarter. Transitioning now to our consolidated results for the quarter. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis.

The reconciliations of our GAAP to non GAAP financial measures can be found either in the appendix of this presentation or the press release we issued yesterday. On a consolidated basis, we delivered total revenues of $1,285,000,000 growing 9.1% as compared to the 2024. Income before income taxes increased by 13.6% and EBITDAC grew by 12.1%. Our EBITDAC margin was 36.7%, expanding by 100 basis points over the second quarter of the prior year, driven by incremental interest income and underlying margin expansion. For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with some recent acquisitions.

Our effective tax rate for the quarter decreased slightly to 24.7% versus 25.3% in the second quarter of the prior year. Diluted net income per share increased 10.8% to $1.03 Our weighted average shares outstanding increased by approximately $10,000,000 primarily due to the share issuance we mentioned earlier. Lastly, our dividends paid per share increased 15.4% as compared to the 2024. Overall, we are pleased with our performance and how our team delivered for the quarter. We’re on Slide number eight.

The Retail segment grew total revenues by 7.9% with organic growth of 3%. The difference between total revenues and organic revenue was driven substantially by acquisition activity over the past year. Our EBITDAC margin decreased by 50 basis points to 27.5% due to the impact of revenue seasonality for Quintess, which we acquired in the 2024. As we discussed previously, approximately 60% of the revenues for Quintess are recognized in the first quarter. Therefore, we have higher margins in the first quarter and lower margins in the others.

We will see similar impacts in the third and fourth quarters of this year. We’re on Slide number nine. Program delivered organic growth of 4.6%. Total revenues increased 6.1% driven by higher contingent commissions. Our EBITDAC margin expanded by three twenty basis points to 52.8%, primarily driven by organic revenue growth, incremental contingent commissions and managing our expenses.

We’re on Slide number 10. Our Wholesale Brokerage segment had another good quarter with total revenues increasing 14.5% and organic growth of 3.9%. The incremental expansion in total revenues in excess of organic was driven by acquisitions completed in the last twelve months and higher contingent commissions. Our EBITDAC margin increased by 80 basis points to 34.1%, primarily due to higher contingent commissions. Our margin was impacted due to recent due to a recent acquisition that has a lower margin than the average for the total business.

As we’ve done in the past, we expect to increase the margin for this business over time. As a reminder, starting in the third quarter, we will be combining our programs and wholesale segments into one division, which will be called Specialty Distribution. Few other comments. From a cash perspective, we generated $537,000,000 of cash flow from operations, which was an increase of $164,000,000 over the 2024. In addition, in connection with our pending acquisition of Accession, we successfully issued $4,400,000,000 of equity and $4,200,000,000 of debt.

Both offerings were significantly oversubscribed, demonstrating the support for Brown and Brown. The discount on the equity was just over 3%, and the average coupon on our debt was 5.4%. Lastly, we also paid the outstanding balance of $400,000,000 on our revolving credit facility during the quarter. Our balance sheet is in great shape and we have strong cash flows to support delevering post closing, which is consistent with our historical approach after a larger deployment of capital. With that, let

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: me turn it back over to Powell for closing comments. Thanks, Andy, and a great summary of our results. From an economic standpoint, we believe the main areas of focus will be tariffs and interest rates. As we mentioned earlier, we think there’s still a good backdrop for economic expansion. Hiring remains solid and most companies are growing.

This is even while leaders have a cautious bias and some are delaying investment decisions. From a pricing standpoint, we expect admitted rates to continue to moderate in the second half of the year at a rate similar to the second quarter. Cat property rates should continue to decrease in the third and fourth quarter subject to the outcome of hurricane season. We expect rate changes for casualty and professional liability in the second half of the year to be similar to the second quarter. On the M and A front, we’re diligently working on our integration plans for the acquisition of Session and have teams from both organizations focused on bringing us together.

As we mentioned on our announcement call, we plan to remain active in the M and A space and have a good combined pipeline both domestically and internationally. Our balance sheet remains strong and we have outstanding cash flow conversion to help fuel our growth. We’re focused on deploying our capital in a very disciplined manner to ensure we get a compounding effect over many years. We’re in a great position as a company and are very pleased with our strong results for the 2025. Our team delivered double digit growth in total revenue and adjusted diluted net income per share, expanded our margins, and we grew our cash flow from operations approximately 44%.

With the planned closing of Session acquisition in August, our team is going to grow to over 23,000 outstanding teammates. And we will further increase our diversification and specializations, which will enhance our ability to deliver creative solutions for our customers. We’re looking forward to a successful second half of the year and continued profitability to grow our company profitably. With that, I’ll turn it over to Didi to open it up for questions.

Didi, Conference Call Moderator, Brown and Brown Inc.: Thank And our first question comes from Mark Hughes of Truist Securities. Your line is open.

Mark Hughes, Analyst, Truist Securities: Yes, thank you very much. When you think about the retail organic in the quarter, you had talked last quarter about maybe some timing of new business. In this quarter, you talked about a strong pipeline, but likewise with some fluctuations on a quarterly basis. Could you expand on that? What fluctuations there might have been?

How is that shaping up for 3Q?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Sure. So based on the consensus of what we were gonna grow in Q2 in retail versus what we delivered, over half that discrepancy was because of rates. So downward pressure on rates. The other half is we basically just had lower new business in the quarter. And so sometimes that can happen.

And as I said, I feel like the I feel that we have good new business going into the third quarter. But it it, every quarter is a little different. And our visibility into it seems to indicate that we are in good shape for q three. But I just wanna make sure that everybody understood that over more than half the discrepancy was because of rate pressure.

Mark Hughes, Analyst, Truist Securities: Thank you very

Didi, Conference Call Moderator, Brown and Brown Inc.: much. You. And our next question comes from Rob Cox of Goldman Sachs. Your line is open.

Rob Cox, Analyst, Goldman Sachs: Hey, thanks. Yes, I just wanted to ask on the contingents, some strong growth in the contingent commissions there. Just curious, is there a theme, or is that more driven by certain products?

Andy, Chief Financial Officer, Brown and Brown Inc.: Good morning, Rob. I think probably couple of themes on that front is, you know, I think what we’re seeing at least in a a number of areas in our business is that overall profitability, right, for a number of the carriers is up and also for a number of our programs, they’re performing really well. So we’re participating in the profits that underpin those. So again, maybe just a piece to keep in mind is when you see the organic growth at times starting to moderate down, the other side of that is also generally an increase in the contingent commissions. That’s why we focus so much on growth in the cash because all of that that’s why we also look at it on a total revenue basis because there is a a linkage inside of there.

But overall, we feel really good with how we’re performing on the the contingent commissions. In the program space, it’s one of the things that we really pride ourselves on is the discipline of our underwriting and making sure that we’re delivering really good results back for our carrier partners.

Alex Scott, Analyst, Barclays: Thank you.

Andy, Chief Financial Officer, Brown and Brown Inc.: Thanks.

Didi, Conference Call Moderator, Brown and Brown Inc.: Thank you. And our next question comes from Gregory Peters of Raymond James. Your line is open.

Greg Peters, Analyst, Raymond James: Good morning, everyone. So I I guess for my question, I’m gonna focus on Ascension Strategies in January. I guess since you’ve had some time to look at the business in a great a lot greater detail, I know you said, Powell, that you’re excited, but I’m curious about your perspective on the financials. I I know you previously had mentioned out some integration expenses, revenue synergies, expense synergies, etcetera. I’m wondering if you have any visibility on how the timing of those costs and synergies might be realized over the next couple of years.

And related to that, just the retail, the organic profile of the business, in particular, 180, I’m curious what your perspectives are on that business since you’ve had some more time to look at it.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: So good morning, Greg. So, first off, as it relates to the the numbers that we talked about in the announcement and the, revenue and expense synergies, we talked about capturing those over the next three and a half years. So nothing’s changed on that from what we talked about in the previous call. As it relates to the two businesses, risk strategies and 180, I would make this comment. Number one, we have been very impressed with the talent inside both of

Mark Hughes, Analyst, Truist Securities: the

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: organizations. So they do have deep specializations and very talented people. And that’s very nice. I’ve met a lot of them now, or talked to a lot of them, which I can confirm that that is absolutely true. As it relates to 01/1980, not unlike our program facilities, they have a deep commitment to underwriting.

And they have more of a casualty book of business than a property driven or cat heavy book of business. And some of those are tougher classes of business, meaning transportation and some other things. And so I continue to be very, very impressed with the discipline and the people in those businesses. And we believe that, as I think we said the last time, that their growth profile is substantially similar to ours over time. And so we feel really good about the business overall, individual divisions, the whole deal.

We’re excited about it.

Greg Peters, Analyst, Raymond James: Just a a clarification, and it’s just because I’ve been getting some inbound questions on it. Can you can you just spend a second and talk about the, 750,000,000 set aside that that happened and talk about your perspective and the due diligence you did around that?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Sure. As we said before, that they have some discontinued operations that are in runoff. And basically, we felt that it would be appropriate to have a set aside for those operations. And when those are all wrapped up, that whole thing will be wrapped up as well. So we felt really good about the process, and we did a lot of work around it.

But I wanna stress that it’s not something that they do anymore. And those operations or accounts are just in runoff.

Greg Peters, Analyst, Raymond James: Thanks so much.

Didi, Conference Call Moderator, Brown and Brown Inc.: Yep. Thank you. And our next question comes from Elyse Greenspan of Wells Fargo. Your line is open.

Elyse Greenspan, Analyst, Wells Fargo: Hi, thanks. Good morning. I wanted to come back to just the Retail segment, right? Prior guidance was for the full year to be about 1% better than the Q1. It does, from your commentary, sound right, like new business was slower and pricing got worse.

Powell, sorry, think you said right half of the change in the quarter was due to just the deceleration in property rates. I’m just trying to get a sense of how do you guys see, I guess, the full year relative to that prior guide based on your expectations for continued deceleration in property rates in the back half of the year?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: So I said that the deceleration or the downward pressure on rates was over half the discrepancy. And I believe that you and everyone else needs to factor that into your organic growth expectations in Q3 and Q4.

Elyse Greenspan, Analyst, Wells Fargo: Okay. And then did you see I mean, I know, right, Q2 is a heavy property quarter. Did the slowdown get worse like in June relative to the rest of the quarter? I’m just trying to get a sense of just kind of the pace of slowdown you saw during the quarter.

Andy, Chief Financial Officer, Brown and Brown Inc.: We go ahead, Andy. Yes. Good morning, Elyse. Yes, we saw during the quarter and then June definitely had a further trail off compared to what we were seeing in April and May.

Elyse Greenspan, Analyst, Wells Fargo: Okay. And then the programs, you called off some one off impact on margins in the slides. Can you just provide a little bit more detail on what that was in the quarter?

Andy, Chief Financial Officer, Brown and Brown Inc.: We had mentioned inside there we had a true up on contingent calculation for last year as we got all the final numbers completed. So that had some benefit to the margin for the quarter. That’s what we were talking about.

Elyse Greenspan, Analyst, Wells Fargo: Thank you.

Didi, Conference Call Moderator, Brown and Brown Inc.: Thank you. You. And our next question comes from Mike Zaremski of BMO. Your line is open.

Mike Zaremski, Analyst, BMO: Hey, good morning. Thanks. Sticking with organic from the top down level, if we look at the kind of the year over year deceleration trend line, I know you gave some color that some of it was just lower new business, which could be temporary. But are we if I mesh the desal trend line with your comments and color on the classic softening marketplace, I guess what is there any underlying causes that’s just causing the D cell to be so, so much faster than I think we’ve seen historically? Is it you know, I don’t some is there some kind of underlying trend we should better understand?

Because you you you named a lot of softening lines of business that some of them were somewhat surprising, like casualty, for example.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Yeah. I don’t wanna give you the impression that casualty is negative. I want you to keep in mind that we don’t believe casualty pricing will go up as quickly. So there’s an importance there. And I apologize if I gave you the impression otherwise.

But Mike, the thing that I would tell you. This is a classic cycle. And I’ve only been doing this for thirty five years. And I’ve seen this rodeo a couple times. And as you know, pricing, particularly in the case of property, typically goes up very rapidly.

This is E and S. I’m just using the E and S market as the example. And then it can come down rapidly. And so what you find is there are lots of people out there, carriers, who have made commitments in terms of their portfolios and bought reinsurance to support those portfolios. And they don’t want to not use that capacity.

And so what that does is on your existing book of business, they take a position typically that we would not like to lose our renewals. And then you have new underwriters that basically say or new markets to that account who basically say, we believe that the rates are more than adequate to do this. We’ve also purchased the reinsurance program. And we want to go and write enough business to support that program as well. And so what you have is you have more pressure today than we have seen.

And so there’s been a long period of upward pressure on property rates. And depending on your perspective, but if you look at it from our customers’ standpoint, this is very good for the customers. But it does put pressure on organic growth on any business in the industry. But if you have a lot of property, and we have a lot of property in the q two, there you see it more clearly. But but there’s not something, Mike, that is occurring that is out of the ordinary.

I don’t wanna give you the impression there’s some, oh, this is a weird thing. We’ve never seen this. Or absolutely not. This is exactly what we expected. I expected it to happen a year ago, personally.

But again, what you heard me say and my mistake, it it surprised us in the speed of decline in Q2, and particularly in the latter part of the quarter. That’s the difference that we’re talking about. Not that we were surprised by the decline, it was the speed of it.

Andy, Chief Financial Officer, Brown and Brown Inc.: Yeah. Hey, Mike. I think maybe one other thing. And, again, we’ve been we’ve been talking about this for almost two years where, you know, we’ve been saying we we expect things to be moderating back to more normal, right, on the back end of what happened through COVID. But in our our earlier comments, we said that admitted rates were up five to ten percent in the second quarter of last year.

That’s not normal to get that level of broad based increases. So, you know, we were two to seven in the first quarter, one to five. It’s now starting to get back to kinda more realistic ranges of what you would see historically. So part of it’s off of where was it coming from.

Mike Zaremski, Analyst, BMO: Got it. And that’s that’s good color. My my only follow-up is on the on a profit margins or cash flow margins, whatever which one you wanna speak to. But, you know, we you know, when when we if we think if we’re painting a picture of a more moderating back to normal kind of organic growth trajectory or, guess, you know, your ten year organics, I think, fives, but then during soft markets, you know, low singles. But, should we be thinking about it kind of a also, if we do go into a low singles organic environment about a moderating profit margin kind of, downward trajectory as well potentially, or or or is the business mix shift so different that, you know, we’re at a kind of a a much newer higher profit margin level if we think on kind of a a high level basis?

Andy, Chief Financial Officer, Brown and Brown Inc.: Yeah, Mike. One, we’re, I guess, we’re not giving any long term, changes to the guidance on our margins. Those continue to be the same for the business right now. But I think a couple of things to keep in mind is we’ve got a highly diversified business. And we have quarters where the growth can be higher or lower, and we have on an organic basis, and this is why our earlier comment, it’s not all about organic.

It’s a portion of the, the equation that comes through. But even if organic is down and we’ve got really good contingents, well, that’s probably gonna help in the margin profile for the organization. But I think as we’ve proven over time, we’ve been really successful, and that’s because of the great leaders that we have inside the organization on how do we grow profitably. Doesn’t mean that we might not have a quarter here and there over time that’ll bump up and down. But we’re focused on making sure that we invest in the business for the long term in appropriate fashion both in talent and technology, and then try to be able to make sure that we can expand our margins.

That, again, might not happen every quarter, but that’s our overall goal for the business.

Mike Zaremski, Analyst, BMO: Thank you.

Didi, Conference Call Moderator, Brown and Brown Inc.: Thank you. And our next question comes from Alex Scott of Barclays. Your line is open.

Alex Scott, Analyst, Barclays: Hi, good morning. I wanted to circle back on the comments on the lower new business and just wanted to see if you could give us a feel for how much of that this quarter was just timing and maybe you’d characterize as more random fluctuation as opposed to what’s going on in the market. And you talked a little bit here or there about some of the new markets that are competing and so forth. How much are those dynamics causing that versus things just felt one way or the other this quarter?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Well, don’t want to give you, Alex, the impression that there some unusual thing going on in the market that is impacting our ability to write new business or not. And I’m I’m trying to make it simple in the sense that we just didn’t write as much new business for the quarter. It’s that simple. And that means that sometimes you write more new business, and sometimes you don’t write as much new business as you think. But it’s not one quarter doesn’t make a trend.

And new business is the lifeblood of our company. We understand that. And you combine that with the importance of taking care of our existing customers through our teammates, and you kind of get that you know, life cycle or customer cycle at Brown and Brown. And so there there’s no there’s no I I know you’re looking for something, and there’s no something other than we just didn’t write as much new business. It’s that simple.

I mean, either we, you know, we didn’t win on some accounts or whatever the case may be, but it’s just simply we just didn’t write as much new business. And we anticipate writing more new business next quarter. And I’m not gonna say that there’s a delay or there’s a this or whatever. There’s always things that get pushed. So it’s not we’re not we’re not saying that.

That I would just leave it at that.

Alex Scott, Analyst, Barclays: Got it. That makes a lot of sense. Can I ask if if the E and S pricing and and competition you’re seeing, is is any of that affecting volume just in terms of admitted versus E and S? Like, is some of the competition from admitted taking business back at all?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Yeah. So please do not take this comment out of context. But we have seen some admitted markets take some business back in all size areas. And that what I mean by that is that could be binding authority in wholesale. It could be transactional wholesale.

And so we are, but it’s not enough, Alex, for us to call it out as a mover. That that’s not what I’m gonna say. But we have seen it in places that, kind of so I’ll give you an example. You’d say like, what? A year ago, the State of California was suffering horrific fires and all kinds of disruption, and their marketplace was in disarray.

And therefore, lots of business flowed into the E and S market. That does not mean that business isn’t flowing into the E and S market now. But what I’m saying is, is the insurance commissioner out there has figured out a way, and I don’t know how, because I’m not as close to it in that state, to get some admitted markets to come back in. And we’re seeing some admitted markets write some personal lines there. That is anecdotal.

That is not something that I want you to print. That is not something because there’s not enough data to support it. But if I hear that XYZ company is writing 15 homeowners and admitted where last year they didn’t want to touch anything, that is, you’re kind of like, So that’s what I would say relative to the admitted involvement and limited involvement with some non admitted accounts. Thank you.

Alex Scott, Analyst, Barclays: Okay. Thank you.

Didi, Conference Call Moderator, Brown and Brown Inc.: Thank you. And our next question comes from Andrew Anderson of Jefferies. Your line is open.

Rob Cox, Analyst, Goldman Sachs: Hey, good morning. I think you mentioned you expect to increase the margin of acquired businesses over time for for tuck in M and A. Can you maybe just touch on how long do you usually find it takes to get those acquired entities to target levels?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: It truly depends on the business, Andrew. And and, again, you made an assumption there. I think that may or may not be fair. I can I can see why you made the assumption? But the acquisition that we referred to is a stand alone business.

So I do wanna make a distinction there. So you would think, normally, that in a business that folds into an existing business, we would get to the margin the targeted margin more quickly. But the business that Andy referred to is a standalone business. So it takes a little longer, obviously.

Andy, Chief Financial Officer, Brown and Brown Inc.: Yeah. Andrew, our approach when we do the acquisitions, especially on the standalones, is we’re not going in and, like, ripping everything off the wall on day one. We think that’s a good approach. So, generally, you just kinda see as we work through it over quarters in different areas being able to benchmark different areas getting benefits of, you know, synergies, then the margins will come along. Same thing, and that’s all if you’re thinking about the expense side.

Same thing on the the revenues, though, just come along over time. So you’ll see it over twelve, twenty four, thirty six months.

Rob Cox, Analyst, Goldman Sachs: Thanks. And then maybe on professional liability or D and O more broadly, can you maybe just talk about what you’re seeing in terms of rate? Is there any bottoming going on there? And are you seeing any post pipeline of exposure units coming to market?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Well, I would say that, as we said, D and O and EPL continue to have rate pressure on them. And I think that that will continue. That’s my impression.

Rob Cox, Analyst, Goldman Sachs: Thank you.

Didi, Conference Call Moderator, Brown and Brown Inc.: Thank you. And our next question comes from Meyer Shields of KBW. Your line is open.

Meyer Shields, Analyst, KBW: Great. Thanks so much, and good morning. Powell, the past, you’ve talked about, sorry. Good morning. You’ve talked about economic growth explaining, call it, two thirds to three quarters of organic growth with the rest being from pricing.

That was a smaller different brown and brown. Was hoping you could update us on that split between economic growth and pricing in terms of driving organic.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Good morning, Meyer. So what I would say is this. And I have to be honest. I’m going have to spend some time on that response once we bring our friends from a session in to Brown and Brown, and specifically the one hundred eighty and how we’re thinking about it. But what I would tell you is you have sort of unique, We have three or four unique parts to our business.

So you have the core middle market and upper middle market brown and brown business and risk strategies business. That business right there in a steady state economy is I would not say would change those metrics. And unless you have an inordinate amount of cat property in a quarter or in a business or whatever the case may be. So I’d stick to the two thirds, one third. In large accounts, so you’re gonna have large benefits, large so it’s upper middle market and large accounts.

That business is, although rate driven, some of that’s in fees and some of that’s in commissions. So I might say it might be slightly different. In terms of programs and wholesale. And inside of wholesale, you have a binding authority business and a transactional piece. I would say that it’s I think because of the the makeup of our book in and remember, I have to go back and preface this statement by saying, before a session joins us.

But our programs business was more impacted by rate because of the CAT concentration. And that’s one of the reasons I’ve highlighted that the casualty a balance or a ballast to that. In the wholesale, I would say similar, but to a lesser degree. That’s how I would answer it. So you’ve asked a good question, I’d like to give it some thought.

But particularly in light of not not existing our existing business. But and I would say overseas, it’s it’s probably the same. It’s exposure units and rate, two thirds, one third.

Andy, Chief Financial Officer, Brown and Brown Inc.: Yeah. Mayor, keep in mind and I think our our comment still holds over the long term. Yeah. The one third, two thirds. Depending upon, you know, where we are in a cycle, either on the, you know, uptake or down take inside there.

Rates just gonna represent a larger portion. And so we’ve we’ve talked about that in the past that, you know, rate was making up more like 50%. And I think that’s similar to the comment that we said this quarter. When you have those bigger swings, it’s just gonna take a, a larger percentage of it on a waiting basis. But when you’re kind of in that normal market growth, normal pricing and everything else, generally, I think the the trend’s still pretty consistent with what we said.

Meyer Shields, Analyst, KBW: Okay. That was right, sir. Very helpful. Second question, and I’m asking this. When you’re looking at performance, is there a range or let’s say performance is slightly below, expectations.

Is there a number where you say, okay. We expect normal fluctuation to be 50 basis points of organic growth, and anything worse than that is is a problem? I’m asking this numerically, but I was hoping you could talk about it at least qualitatively.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Yeah. So so let let me, let me try to answer that. What Andy said earlier is we’ve always said, and and I know you know this, that our business is a low to mid single digit organic growth business in a steady state economy. You can have fluctuations in there because of events, I e rates, economics, things like that, that would potentially, in a near or shorter term, impact that range. But over a long period of time, that’s how we think about the business.

So I think it’s I know what you’re saying, but I wanna make sure that

Andy, Chief Financial Officer, Brown and Brown Inc.: you

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: understand that we don’t believe one quarter makes a trend. And so did we in our retail business, which is what you’re referring to, perform lower than we anticipated for the quarter? Yes, we did. And I told

Andy, Chief Financial Officer, Brown and Brown Inc.: you

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: why. But I don’t want you to get the feeling that we believe, or anybody out there should believe, that something’s wrong. Quite the contrary. I would tell you that I feel as good today about our business, and particularly with the addition of a session that I’ve ever felt about Brown and Brown and our capabilities to serve our customers. So it’s not like that, Mayor.

But nobody likes surprises. And one of the things that’s kind of interesting is when you have a shifting market, you’re going to have changes sometimes that like this, that is you might not have expected exactly. But over a long period of time, we’re going to continue to grow our business, and run it profitably, and reinvest that business in a thoughtful manner. So I feel good about it. Don’t feel meaning the future.

I feel good about the future. And there’s nothing that is a numeric, quantitative or qualitatively, that says, here’s the deal. Now, we have a bunch of talented people that put their shoulder to the wheel. I think it’s all about culture. And Andy does, and our senior leadership team does.

And so that emanates throughout our organization. And over a long period of time, it’s worked really well. So I feel good about it. But I don’t wanna give you the impression that there’s some range. Like, if you if you miss by a 100 bips, there’s you know, it’s red a red light goes off.

It’s not it’s not like that. You know? I look at it as saying yeah. I mean, I look at it as saying, hey. That that was last quarter.

We’re on to this quarter.

Andy, Chief Financial Officer, Brown and Brown Inc.: Yeah. Mayor, just on I mean, I think this is why, you know, we we never get too worked up about any one quarter that’s out there. We just kinda look how we’re progressing and moving the ball down the field on a year to date basis on on a annual basis. And we feel awesome about where we are at the half year mark. We’ve grown the top line over over 10%.

We’re over, you know, 5% on a organic basis. Our margins are over 37%. We’ve got double digit EPS growth. Our conversion is over 20%, which is outstanding. We’ve grown it 44% year over year.

We think we’re in really good shape at the half year mark, and quarters always move around. We don’t get too anxious about those things.

Meyer Shields, Analyst, KBW: Appreciate that. It just helps us reconcile. Thank you. Sure.

Didi, Conference Call Moderator, Brown and Brown Inc.: Thank you. And our next question comes from Josh Shanker of Bank of America. Your line is open.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.0: Yeah. Thank you for giving me some time today. You know, we’ve just come off a very interesting time economically in the country. The reopening post COVID and the huge growth period, prices were up for a number of years in a row. Underwriting profitability for the industry is very, very good.

You know, I’ve been looking at the stock for twenty years, and I think back when I first heard the term EBITDAC, the argument was that the c earn outs are gonna be both positive and negative and should net to zero over time. But most of the acquisitions that anyone has done in the past half decade have turned out to be wildly successful and maximize their earn outs in any ways. Is is is that the right impression? Should we think about that normalizing? And how much organic growth did earnouts contribute over the last couple of years?

Andy, Chief Financial Officer, Brown and Brown Inc.: Yeah. Hey. Good morning, Jack. Let me see if I can tackle a couple of those pieces. Is what we try to do and, again, the the change in the acquisition is the delta off of what we expect from the business based upon when we purchase it.

So we’ve already got expectations for growth or profitability or any sort of combination for the business. And most of our earn outs are generally over a three year period. We estimate all of that on the front end. If you look back over that ten year period, I’m gonna probably be off on these numbers a little bit. Excluding the, you know, the positive and negative adjustments we made around COVID because it’s

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: just the

Andy, Chief Financial Officer, Brown and Brown Inc.: unknowns. If you look back, our change in acquisition earn out’s pretty immaterial. So we do a pretty nice job of estimating the performance. Now that performance may already have incorporated expectations of really strong performance, but we already put them in the opening earn out. So wouldn’t want you to draw a conclusion that because of the the backdrop and the change in the acquisition that therefore the businesses were wildly successful by itself.

They may have been wildly successful anyway in in the process. So just there there’s a couple pieces just to think about inside of there on on how that that works. Okay.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.0: And do you expect that to normalize, I guess? Or or was was that that wild is an extreme word, but let’s just use it anyways. In terms of being wildly successful, should should the earn outs and and performance of acquired businesses be more moderately successful in the forward looking period?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: I don’t think you can make that Yeah. You can draw that conclusion. It’s highly dependent upon the business Right. And how the economic and operating environment impacts that individual business. So I wouldn’t draw that conclusion.

I think that what you’re saying, though, at a macro level is, do you think that growth rates in the brokerage space are moderating back towards more traditional levels? And the answer to that question is yes. Having said that, I don’t think you should try to point out acquisitions as one thing. And remember, acquisitions, depending on how you handle it, counts in organic growth after year two in our business. And so just something to think about.

So yeah. Yeah. It just

Andy, Chief Financial Officer, Brown and Brown Inc.: you could have a specialty business in there, Josh, that could be growing crazy percentage, and you have another business that’s growing modestly. It just really depends upon the profile of them.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.0: Yep. Thanks, Josh. I just want a quick thing. That that that specialty comment, a couple of carriers in the specialty market have said some disparaging things about MGAs on the recent conference calls, and you just there was just a very successful IPO in the MGA space. Can you talk about what you add your 2¢ about what you think is gonna happen over the next three years with MGAs and how that affects Brown and Brown’s business?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Sure. Well, I believe that MGAs ultimate success is based on trust and performance. And so there are lot and that’s based on an underwriting culture that delivers results for the carriers that support them. So we’ve worked really hard over a long period of time to earn that trust with our carrier partners. And actually, I believe that there are more carrier partners that want to do more with our organization in MGA facilities than ever before.

Having said that, I don’t know the specifics of what you’re referring to. However, I would say there can be a few bad apples. And over time, there’s been a lot of bad apples. And so if I take you back only thirteen short years ago, MGA, when we bought Arrowhead General Agency, was a bad word. And some of you thought, oh, Powell is changing the business.

This is a huge acquisition, and this is different. And the answer is, it is different. And yes, we did change the business. And we think it worked out pretty well. And so we’re still doing the same thing.

So I it does not surprise me, Josh. And there will always be people that go off the rails and do things that undermine or violate the trust and or authority that has been given. But that is not the organization that we have built or are building. We are a forever company, as you know. So we’ve only done it for eighty six years.

And so people do business with people they like and they trust. And so when carrier partners come to us and say, we want to write programs with you, and lots of them in big in big numbers, I would tell you that the support is as good as it’s ever been for us. So I think that’s wonderful. So that might be an opportunity for us to go and write something else. Yeah.

We’re gonna take one more question, please. Thank you, Josh.

Elyse Greenspan, Analyst, Wells Fargo: You.

Didi, Conference Call Moderator, Brown and Brown Inc.: And our last question is a follow-up from Mark Hughes of Truist Securities. Your line is open.

Mark Hughes, Analyst, Truist Securities: Powell, in the Florida excess and surplus data, you see a big jump in policy counts in the ENS market. At the same time, you’ve got a meaningful decline in premium per policy. So seems like a lot of more people are doing business in the E and S market, but at a lower price point. Do you think that’s accurate? And if so, is that a new phenomenon?

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: I don’t don’t think I it’s a new phenomenon, Mark. What I would tell you is, in a shifting market, typically you will see upticks in submission counts and policies that go into, let’s say, non admitted markets. That’s just normal, because people are attacking or trying to capture the savings. That’s the way I look at it. And so we’ve seen this before.

This is not something that’s new, meaning in terms of other cycles. I’m not talking about last quarter versus this quarter. I’m talking about historically. It’s interesting, because the ENS market, if you wanna think philosophically for just a moment, the ENS market, you can grow your business with lots of opportunities as the market is going up. And you can grow your business, although it’s harder as the rates are going down.

But when the markets are flat, which rarely it is, that’s the part where there’s a little bit of a I’m not gonna say pause, but sort of a that’s not the optimal time in the E and S space. And so I normally think of it being up or down as opposed to flat. And so you can see flattish in the standard markets, and you can see growth. And so that’s a long answer for your question.

Mark Hughes, Analyst, Truist Securities: Yeah. Appreciate that. Thank you.

Meyer Shields, Analyst, KBW: Thank you. And are we

Didi, Conference Call Moderator, Brown and Brown Inc.: I’d like to turn it back to Powell Brown for any closing remarks.

Powell Brown, President and Chief Executive Officer, Brown and Brown Inc.: Alright. Thank you, Didi. Thank you all very much, and we appreciate your interest today. As I said, we look to close at the end of the week with our new teammates from a session, and we believe that the opportunities together are very good. And we look forward to talking to you next quarter.

Have a nice day and a nice week. Thank you.

Didi, Conference Call Moderator, Brown and Brown Inc.: This concludes today’s conference call. Thank you for participating, and you may now disconnect.

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