Powell Brown - President and CEO Andy Watts - Chief Financial Officer.

Sarah DeWitt - Barclays Michael Nannizzi - Goldman Sachs Elyse Greenspan - Wells Fargo Adam Klauber - William Blair Mark Hughes - SunTrust Dan Farrell - Sterne Agee John Campbell - Stephens Incorporated Ryan Byrnes - Janney Capital Josh Shanker - Deutsche Bank.

Good morning and welcome to the Brown & Brown 2014 First 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 first quarter of 2014 and are intended to fall within the Safe Harbor provisions of the security 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 first quarter of 2014 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. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin..

Thanks, Joseph. Good morning, everybody. And thanks for joining us this morning on our earnings call. And before I get started, I wanted to formally introduce our new CFO, Andy Watts.

Andy joined us, as you know in early March when Cory retired, and although he has only been on board for a short period of time, he is quickly getting up the speed regarding Brown & Brown, our businesses and the financials. So you might go easy on him a little today, but we will have hopefully all of your answers.

Andy and I have talked quite a bit about how we present our financial performance. And as you will see this quarter and going forward, we will be using an earnings deck in order to layout our performance and make it easier for everyone to understand our numbers. Let’s get into that performance for the first quarter.

Once we walk through how each of the divisions performed and you see how we adjusted for comparability of certain items, I hope you will find our results are really solid for that quarter. I am very pleased and we are pleased with our top line and bottom line performance in Q1.

Looking at slide 4, we delivered $363.6 million of revenue for the quarter and growth of 8.5%. When we back out the impact of Colonial Claims and Beecher large accounts, our revenues grew by 10.1% and organically grew by 3.9%.

We think this is a really solid performance for the quarter as the markets are still a bit choppy and rates are under pressure. In spite of this, we are growing across each one of our four divisions.

From an earnings per share standpoint on an as reported basis, we decreased 12% versus prior year/ However, when you remove the impact of net income associated with the hurricane Sandy that we realized in our Colonial Claims business and removed the adjustment for earn-outs related to acquisitions then last year’s EPS would be $0.36.

As we noted previously, there is a cyclical nature to the Beecher Carlson large accounts business therefore we believe it is appropriate to adjust for this impact plus the acquisition earn-out adjustment in order to arrive at a pro forma EPS of $0.40 which is an improvement of 11.1%.

When compared to the 10.1% growth in adjusted revenues noted earlier, we think we had a solid financial performance in the first quarter. So let me hit the Beecher Carlson matter right out of the box. First, I want to say how pleased we are with the performance of the business in the fourth quarter and in the first quarter.

Steve Denton, Dan Donovan and all of our team mates at Beecher Carlson, we believe are doing a great job and we are seeing good growth. I mentioned previously that our revenues are lower in Q1 and Q3 and higher in Q2 and Q4. I also stated that Q1 was budgeted to be $12 million in revenue and Q2 was projected to be $21 million.

With a cost base that’s relatively stable, this means our margin profile for this business is lumpy. So while it was a drag of $0.02 this quarter, there will probably be some upward mobility in the second quarter, which we would breakout as well.

We will breakout Beecher Carlson, the entire results for one more quarter for the first full year and report those to you after Q2. From a cash flow perspective, our margins remained solid, we delivered strong cash conversion both on which our industry leading versus our public competitors.

We’re very proud of these metrics as they speak to the power of our business model. Lastly I mentioned that we’re targeting 4% organic growth this year excluding the impact of Hurricane Sandy revenues within our Colonial Claims business. We are reconfirming this target.

If you now go to slide 5, now I’d like to talk about the overall performance of each of our divisions and specifically the market performance driving each. Let me start by saying how pleased we are to deliver as reported an organic revenue growth within each of our divisions.

We believe our diversification helps us balance market risks and also capitalize on market opportunities. I want to give you a flavor of what we’re seeing regarding rates and exposures across the United States and our businesses. In our retail businesses rates are typically flat to up for 5% in all lines.

We’re [compassing] moderate upward pressure in certain states like California and the Midwest. Those rates could be up more than 5% in some of those areas. Middle market exposure units are flat to up slightly. Employee benefits rates depending on the size, the plan design and loss experience can be up anywhere between 5% and 15%.

Cat property is under pressure and we’re seeing rate reductions in most areas. From a wholesale standpoint, liability and professional rates are flat to up 10%. Large cat property is softening due to extra surplus. Rates are typically down 5% to 10%, large accounts over $250 million in premium may be down more.

Non-cap property is typically flat to up slightly and binding authority business that’s property and liabilities flat up several points. Services had a good quarter specifically USIS as Ron [Werbel] and his team and NuQuest, the Medicare set-aside business, Tracy Lazipina and her team.

Programs, the aftermarket business is growing nicely, ICG had a really good year. And so now I’d like to turn it over to Andy who will walk through more detail regarding the financials’ performance..

Great, thank you Powell and good morning to everyone. Before I get started, I want to reemphasize the importance we see in utilizing the debt to present our financial performance. Since we're close to the business every day, we know it well. It does have a lot of moving parts as any large organization does.

However, our goal is to present the numbers in a clear and understandable fashion so each of you can model our business in your investment thesis. We hope you will find that this is the case. Let me get started with our financial highlights and talk about some of the key metrics. I’m on page 6 right now.

Our total revenues grew by 8.5%, but when you remove the $16.2 million of additional revenue related to Hurricane Sandy within our Colonial Claims business, we grew the top-line by 14%. We believe the infrequent nature of a storm, of the size and impact of Hurricane Sandy [warrants] adjustment and we're the best present comparable numbers.

As you can see removing Hurricane Sandy impact, our organic revenues increased by 540 basis points and grew 3.9% year-over-year. From an EBITDAC perspective, these revenues were very profitable and increased our EBITDAC from a decline of $5.8 million to an increase of $7.6 million. Our underlying EBITDAC margins were relatively flat at 35%.

From an EPS perspective, these revenues had a $0.04 impact and improved our EPS from a $0.05 decline to only a $0.01 decline. As Powell noted, once you adjust for the Beecher large account acquisition and the adjustment for our acquisition earnouts, our EPS actually increases $0.04 or to 11.1% year-over-year.

Moving over to page 7, let me highlight the key components of our revenue performance for the quarter. Our core commissions and fees increased by $28.2 million year-over-year or 8.5%. $25.7 million of this growth came from the net acquisitions and dispositions that we did. The largest component was the Beecher Carlson acquisition in July of last year.

We also realized $7.4 million of increase related to contingents and guaranteed supplemental commissions noted as GSCs. $5 million of this was related to our FIU business. Last year, this was realized in Q2.

So I wanted to note that during the past four years, we've realized these in three different quarters, but there is some definite variability of when we know the exact amount. The other $2.4 million was recognized across the Board and was driven by lower loss claims.

This was not [near the] office, as some offices realized a positive contingent recovery and others realized a loss. As you know, it really depends upon the loss experienced of the policies being written in that single location.

So in summary, when we removed the $16.2 of Colonial Claims, we delivered 3.9% organic growth for the quarter from an expense standpoint. We believe it’s important to present the underlying performance, similar to the organic revenue analysis; we adjusted for a few items in order to arrive at comparative numbers.

Our total expenses increased by 17.5%, but then when the impact of net acquisitions and dispositions are removed, our expenses only increased by 6.5%. Then removing the effect of the adjustment for acquisition earn-outs, our underlying expenses increased by 4.5%, which is on a comparative basis with our organic revenues.

The main driver of the increase is compensation as this is our primary cost base. However, it was partially offset by savings and other expense categories. Let me talk in a little more detail about this. Compensation increased with our annual merit and the flow through of stock compensation that was granted last year.

During the quarter, we also recognized about $1 million of cost associated with Cory’s retirement and dual running cost with myself during the quarter. Taking all of these into account, our underlying compensation cost only increased slightly at about 3.5%.

This really demonstrates that we continue to be focused on growing the business profitably and running efficiently. Moving over to slide 8, let me now talk about each of our divisions.

Starting with the retail division, which represents about 55% of our total business, we had a really good quarter and rebounded well off the fourth quarter We posted 16% growth, primarily driven by the addition of Beecher Carlson and our underlying organic growth was 2.5%.

When we exclude the seasonality of the Beecher Carlson large accounts business, our margin improved by 150 basis points or 4.2%. So, we are getting some margin expansion as the revenues grow. Moving over to slide number 9, our National Programs division, we had another good quarter with total revenues growing 7.7% or 1.6% organically.

We are continuing to see improvements in the marketplace, and more carriers are interested in our niche programs as an alternative approach to addressing market needs. Last year we discussed the aftermarket program related to Zurich and Everest auto program.

Those programs continue to grow very nicely and we also realized good margin expansion within the programs division with growth of 4.9%. Moving over to slide number 10, our wholesale division had another great quarter, reporting revenue growth of just shy of 13% and organic growth of almost 12%.

This is very impressive performance as this division is being faced with downward pressure on rates on cap property placements in the range of 5% to 10%. This is being offset partially by some recovery within construction.

The performance for the quarter really comes down to the team that Tony Strianese has assembled and their focus on growing the business. With the revenue growth we also delivered strong flow through and increased margins by 6.3% up to 33.6%. Moving over to page 11, our Services division.

When you normalize for the Colonial Claims impact, specifically around hurricane Sandy, the division delivered solid organic growth of 4.9%. This was primarily delivered through our USIS and NuQuest businesses.

Please remember, this division does have some lumpiness in revenues and margins like last year with Colonial Claims driving the margins up materially. However, we believe this division will continue to deliver solid margins and cash flow for the organization.

Moving over to page 12, let me shift gears now so that we discuss our financial performance and talk about our new credit facility. The objective of this new facility is to put more maturity into our capital structure and give us the financial flexibility to support our growth.

While with our strong track record of delivering solid financial performance, we had significant interest by many banks. We ended up closing the facility at $1,350 million, which was an upsizing of $100 million from our original target. So, we are very pleased with the outcome and to have such a strong backing of 17 participating banks.

The structure of the facility gives us good flexibility with a Term A loan of $550 million and a revolver of $800 million. This revolver can fluctuate as we need funds for acquisitions or can be paid down as we generate cash from operations. We previously said we’re comfortable with a debt to EBITDA ratio of 1.5 to 2.5.

With this facility, we’re right in that range. Culturally on a long-term basis, we would like to be on the lower end of the range. We believe that we have secured favorable covenants and interest rates within this facility, which will lower our average cost of debt from about 3.5% to about 2%.

We closed the facility last Thursday we’ll not draw upon it until the right acquisition closes in the second quarter. With that said, let me turn back over to Powell, who will give us an update on Wright and provide closing comments..

Great thanks Andy great report.

If you go to page 13, I wanted to talk a little bit about the anticipate closing of Wright in the second quarter and wanted to just take a moment to remind everybody as we talked about earlier in the year, this is comprised of three businesses, the largest business being the flood business that the NFIP and that is where we had, this is a Wright Your Own Flood Company.

That’s roughly $71.5 million of revenues in 2013 you’ve read a lot about flood and Biggert-Waters specifically and rates either going up down or sideways more specifically up and then coming down. I’d like to just take couple of moments and make a couple of comments about that arena.

As a whole if you look at the flood business in America; 70% of those flood policies have a mortgage on them, 20% of all total policies written are subsidized somewhat and 2% of all of the policies outstanding are what I call super subsidized.

Having said that Biggert-Waters, as you know was in an account to move the rates to actuarially sound levels over a several year period.

What they have done is limited the ability to move those increases up and in the budgets for our estimations, nothing was incorporated into the plan going forward about the repeal of Biggert-Waters or Biggert-Waters when it was passed. So, we believe the projections for the first year acquisition are still reasonable.

I'd also say that we have two other divisions, one being a public entity and program services arena as we talked about it, primarily works with insurance reciprocal administration and then the specialty division which develops national programs very similar to our National Programs inside of Brown & Brown distributes them across a network of agents across the country.

Aqualine is currently awaiting approval from the New York State Insurance Department relative to the closure of this transaction. Having said that, I'd like to call on Andy to just review the revenues and earnings flow projected for the first year for Wright..

Great, thanks Powell. Yes, we want to take just a couple of minutes and talk about this. So, that hopefully you guys can better understand how the business will flow and again you can model it in. This business also has some seasonality to it, based upon the renewals of a lot of the policies.

And we want to make sure you guys get that right in your models or at least closure. We had said that the revenues on the 12 months post acquisition would be a $121 million.

If we were to close this acquisition May 1st the revenues for 2014 would be in the range of a $105 million to $110 million, if we close the acquisition on June 1st they would be in the range of $95 million to $100 million. The lowest quarter of the year is the first quarter and the highest is the third quarter.

And to give you an idea of that, the second quarter would be probably around about $28 million and then will springboard up during the third quarter to a range of about $34 million to $35 million and then come back down. So again, you guys can get an idea kind of how this works and that’s just how policies are renewed.

The EBITDA margins do move underneath of this business. Let me give you the full year on this one and we are not going to break this down by quarter right now, because we do not have complete access to all of these numbers at this stage, but at least give you an idea and you can work from there or refine them.

If we were to close on June 1st and again I am referencing the $58.8 million on a 12 month basis, if we close on May 1st the EBITDA would be in the range of $42 million to $45 million, if we close on June 1st it would be $38 million to $40 million.

And again the margins do move around on this business so please don’t straight line them all the way through. And so it will flow somewhat similar to the revenues but not exactly on there.

So hopefully that helps give everybody some direction as we -- once we close the acquisition, we are able to get further in the detail, we can provide more refinement. Powell, that could be it..

Thanks, Andy. To summarize the quarter, we believe we are well positioned to grow organically but continue to face the market that’s under pressure or moderating rates. That means it really come down at selling new business and continuing to retaining all of our existing clients. I am very pleased with our new credit facility and the capacity offers.

As you notice Andy started on the first part of March and we got him right into it. So we has been busy with a lot of other team mates here at Brown & Brown. This facility it’s going to help us capitalize upon good acquisition candidates when they present themselves.

I know you will ask me about our acquisition pipeline, so let me address that too as I like to say the acquisition pipeline is good and we don’t believe that it’s done until it’s done. So until we announce transactions and close on them, don’t believe that but we have lots of activity.

And I also want to reaffirm our outlook for organic growth excluding the impact of Colonial Claims for the year to be 4%. So Joseph I would like to now turn it back over to you to open it up for Q&A..

Certainly, thank you. (Operator Instructions). And we have our first question from Sarah DeWitt with Barclays. Please go ahead, your line is open..

Hi, good morning..

Good morning..

First on the organic growth, what gives you confidence that you can still achieve the 4% target given you were slightly below that this quarter?.

Well, like I said it isn’t done until it’s done Sarah, but we feel good about the business and the team mates that we have in place the new business that we are working on and the relationships that we have with our existing clients.

And so we did give that at some usual as you know last quarter as a guidance for the year but we do believe that that is still our growth target for the year..

Okay.

And what caused the slowdown this quarter on the core organic versus the prior and what gives you confidence that that trend won’t continue?.

I am sorry.

Can you repeat that again? When you said the core organic are you talking about 3.9%?.

Yes.

It’s [low] to 3.9 versus 4.5 last quarter on a core basis, so what drove that?.

Actually if you think about it the slowdown really is in programs because programs had a higher growth rate and I don’t have it right here in front of me but it was double-digits in Q4.

And so as you know we’ve gotten and we’ve had some programs come on and doing well, some of those have a little bit lower margin than we ultimately would like and those are improving as well. But we had a great quarter in wholesale and we had a good quarter in services ex-Colonial and we had a good quarter in retail.

So, like I said as you have heard me say before organic growth is lumpy I think and it’s -- we're trying to operate in a range and that range we believe is continuing to trend in a positive direction.

And as evidenced by what we did this quarter, I know that there were number of people on this call last quarter that had some concern about our retail internal growth and so we grew 2.5% that excludes any acquisitions. If you put in any acquisitions it would be higher..

Okay, great.

And if I can just ask one more the organic expense growth of 4.5% in the quarter, is that the [way] run rate to be thinking about? And if so, can you still expand the margins given that’s mostly inline with your targeted organic revenue growth?.

Yes. Sarah, it’s Andy here. The 4.5%; again that has the incremental million in here for the compensation, so it’s probably, it’s actually closer to 4% that’s probably a pretty good run rate on the expenses, but obviously all we’ve continuing to look for areas where we can standardize more and pull more margin out of the business..

Okay.

So, can you expand the margin then given that’s mostly inline with organic revenue growth?.

Sarah, as you’ve heard me say, as we as an organization continue to evolve we're trying to grow the business organically and profitability. And as you saw this quarter and Andy broke it out, we have some seasonality in the expenses incurred in one of our retail areas.

And so we're going to do everything that we can to expand our margins, but do it by growing our business. We want to grow our business organically and profitability. So, we are endeavoring to do so. But like I said, in the past it was said that overnight or what’s going to happen, we're going to drive the margins up to historic levels.

I have been more cautious in saying that as we continue to acquire businesses strategically and add them to Brown & Brown that we're going to maintain and try to expand slowly the margins going forward..

Okay, great. Thanks for the answers..

Thank you. (Operator Instructions). We'll take our next question from Michael Nannizzi from Goldman Sachs..

Thanks. I guess one question was maybe Andy looking at the retail segment, looks like adjusting for Beecher Carlson margins improved 150 basis points; you had 2.5% organic growth there.

Just can you help us understand what is, is there a growth bogey in order for you to see margin expansion there or were there other tailwinds that allowed you to achieve that much margin improvement just given the very low organic growth? Thanks..

Yes. Michael, probably let me clarify a couple of things inside up here..

Sure..

If you look at the margins down below, we talked about excluding the Beecher Carlson large accounts. If we were to pull out all of the acquisitions, the margins actually increase up to 37.9% for that. So that would take us probably just a little over a 5% actual growth on it.

And that’s just continued focus on growing the business in a profitable fashion [through] all of it. No guarantee that it’s going to have that exact same margin expansion every quarter all the way through, but there is some expectation that will slowly move up overtime..

Yes. And Michael if I could elaborate a little on that, as you've heard us say before, I believe that when we grow the business organically there are opportunities to expand our margin. However, there are also equal opportunities for us to invest in our business to grow the business organically. So, we're not trying to operate in a steady state.

So there might be expenses that would be incurred in an individual office, the higher more people, producers and otherwise that would enable us to grow the business further in the future. So it's always a balancing act, as you know.

But we have said historically we standby that is when you have organic growth, you can have margin expansion, it just depends on what kind of investments we made in that quarter or that part of the year..

So that would implied maybe this quarter you have fewer investments, so you were able to achieve….

No, no. Don’t read into that, that’s just me making a broad statement, that’s not a correlation between this quarter or otherwise. I am just basically saying that that could be one of the reasons..

Got you, okay. And then would it be possible to breakout a bit more just things Beecher you have created some because of the seasonality, we had some distortion to 1Q, it seems like we are going to see that flip the other way potentially in the second quarter.

Could we maybe just get a better look at what that should be just because -- so we got 1Q, we are going to get 2Q, 4Q we had last year, but we didn’t get the breakout.

Would it be possible to either maybe find out what that impact would have been 4Q last year or just get some idea notion of what the rest of the calendar year should like top and bottom from Beecher? Thanks..

Well remember Michael; number one, I want you to know that Beecher is, as you remember, three components. There is the programs component, which was on point. There is the middle market retail component, which is predominantly in the states of Oregon and Arizona and operation in Mississippi. And then there is a large accounts area.

So that’s kind of the three parts of the business. We did specifically try to breakout for everybody, the seasonality of the revenues and large accounts because there is not such seasonality in the rest of the business.

And so what we’ve tried to say is that on a somewhat steady state expense level throughout the year when you have $12 million of revenues in Q1 and you have $21 million in Q2, you do have an earnings variation or lumpiness to it.

Having said that, as I said earlier, we are going to go through and make sure that everybody understands what we’ve bought and what we’ve said we were going to do and how that all worked out after Q2 and then that’s going to be part of the business. So it will be just part of retail just like everything else.

But to the extent that we need to give further definition around something that’s lumpy, we are going to need to give a little -- we’d like to give a little thought to that and maybe get back to you..

Got it, okay. Thank you..

Our next question comes from Elyse Greenspan with Wells Fargo..

Hi, good morning.

I was hoping to spend a little bit more time on the retail organic growth just I know it did pick-up in the quarter and just a little bit more on your expectations in light of the other quarters this year in terms of if we should expect to see improvement from the 2.5% growth level that we saw this quarter?.

Hey Elyse good morning. And what I would say is, as you know, we don’t typically give internal growth guidance. Although we did give an overall guidance from a budget standpoint of the 4% that 4% was not broken out by division.

And I’ve said before and I’ll, I know I’ll say it again in the future is that we believe that each of our businesses operate in a band and that band can typically be trending up or trending down. And we have been in an upward trend baring the performance last quarter.

And as we’ve said, we thought that that was a one-off situation, which as I said, we did improve or rebound from that nicely. So we have said historically that we think that retail, the business in retail is a low to mid single-digit organic growth business.

So that’s the guidance if there is such a thing that we would give you, but we don’t give specific guidance by quarter.

And some of that as you know is driven by the economy in the middle market and our ability to right lock the new business, which we’re very capable of doing and I am very pleased with what we’re doing and specifically retaining the existing clients that we have, which is so important..

Okay. Thank you. And then just a couple of numbers questions; I know you in terms of the contingents and supplementals pointed out that there was a shift in FIU program from the second quarter to the first quarter.

Any more numbers you want to provide in terms of the outlook for contingents or supplementals for the balance of 2014?.

Yes. I mean, Elyse to think on this one here, we don’t budget for contingents and GSCs because they can’t be quite lumpy in nature and they can move up and down quite a bit. So we don’t really have a view to the back-end of the year at this stage..

Last year Andy do you have right there what we did in Q2?.

Yes, hold on one second. Last year; one second guys. We did, in the second quarter, just looks like, just contingent, hold on, just let me show you a total quoted number. Elyse, why don’t you do this, if you got any other question, do that. Just I want to make sure we got a good number here, before we respond, if not, we’ll follow-up after the call.

Okay?.

Okay. That’s fine.

And then also on the acquisition earn-out expense in the quarter, what transactions did that stem from?.

Perfect. Yes, so we had 3 different ones that we did on, the 3 big ones that came through on earn-outs, as we had Texas Security and that was the largest of it. That business is performing really, really well for us by now, so we’re very pleased with that.

We also had Rowlands & Barranca again also performing well for us and then our Edgren Hecker & Lemmon acquisition. Those were kind of the 3 big ones that came through, all of them were seeing really solid performance and indications that the go forward performance will be good.

As you probably remember, underneath of FAS 141(R), this is based upon a forward projection of revenues. And therefore, we have to book the expense now. So, we will see those revenues coming forward in the future, but we have to take the charge now.

So while we never enjoy taking the charge in the P&L, we think it’s actually very positive thing that the underlying assets are performing well for us..

Okay. Thanks so much. And then just one last quick question in terms of your private healthcare exchange offering.

I know you guys are partnered with Liazon; and just in light of the Towers Watson transaction there, has your view on that arrangement or anything that you are doing under private healthcare exchange front changed at all in the past few months?.

Yes. No, Elyse. Thank you for the question. I would tell you that we continue to put clients on to our exchange, we have roughly 20 clients on the exchange and maybe 2,100 roughly people on to that exchange.

The transaction in our business as you know, there is lots of firms that could be in the space, which could be deemed the competitor on one segment and a trading partner in another segment.

We obviously watch those very carefully and they have assured us that the information that is in the exchange will be kept private as you would expect for a whole bunch of reasons. But at the present time, we’re comfortable with that relationship. We also as we’ve said, think that the exchange is an option, it is not the option.

And so as we go forward and we look at the exchanges as an option for all of our clients, some of them could be small, some of them could be large. We’re going to continue to look at ways to invest in that type of -- those type of capabilities to continue to prepare us and better prepare us going forward.

But we think that we’re going in the right direction. I’m very pleased with it..

Okay. Thanks Powell and Thanks Andy. And thanks for taking questions..

Absolutely, Elyse..

Hey Elyse, can I close off on your question here? So, second quarter of last year, we did just under $8 million in contingents and that included the FIU. So, if you pull that out, a range for last year would have been about $3 million, $3.5 million excluding FIU.

Okay?.

Okay..

That was last year..

Yes..

Okay. Thank you..

Sure. Thank you..

We’ll take our next question from Adam Klauber with William Blair..

Thanks. Good morning everyone..

Good morning..

The program business, I mean that’s always a volatile business, but clearly the quarter was lower than the range that’s been in the last couple of quarters.

Were there couple 1 or 2 areas that just been used well during the quarter?.

No. Well, let me back up for just a second. We had a couple of businesses, Adam; it’s just like anything else. We had a couple of businesses that didn’t hit their budget for the quarter, and we had some that exceeded their budget substantially.

So remember what you have seen and the organic growth and programs over the past couple, let’s say 18 months as you’ve had the impact, a very positive impact of one, the automobile after market program coming and to two, the Everest program coming in..

Sure, okay.

So, as we think about going into summer, let’s think of June, July renewals being pretty big for property, particularly southeast wind, is that pretty significant for both the program and also the wholesale business for you?.

The answer is, that’s a fair assumption, I think that if you are going to put it by industry type, I think you would say, think about it, quarters or big dates. So July is a big date. Number two, a lot of public entity business renews in July, either July or December actually.

But as it relates to cat property, if you are asking on a seasonality of business and programs and wholesale, I am not going to tell you that there is some huge like bell curve lump in the bottom of the summer because a lot of people want to move their ex-dates out of wind season.

So, if you think about it, when is the awareness the highest in the underwriting community, it starts in about May 1st and it goes until November. So, you could make the argument that you would want to move your effective date if possible outside of wind season, so they would look at it slightly differently.

But there is a lot of business that renews in the summer anyway. So, there is not a huge lump like if you are looking for a lump in there, that’s not the case..

Right, okay. That’s helpful.

And then how is Arrowhead doing?.

Arrowhead is doing great, we are really happy. We are really pleased with the team Chris Walker, Steve Boyd and Steve Bouker and all the rest of the team out there. So we have got some good stuff going. So we have been very pleased with the investment, it’s grown nicely, and we expect there to continue to be other opportunities in that operation.

So we are very pleased with it..

Okay. And then finally on retail, obviously it’s coming up again, even a range came up this quarter from what it’s been over the last couple of quarters.

Is it -- are we starting to see more of a bump from exposures on audit premiums than we saw say a couple of quarters ago?.

The answer Adam is depending on the part of the country, you might see that, yes. So I have always -- I was reading in the Wall Street Journal last week, there was an article about the development in Miami. So anybody that’s been to Miami recently, sees a lot of towers being constructed.

I didn’t realize, there is 50 new towers going up, that’s just mind boggling. And so now, there is a boom in bust cycle that has always occurred in Miami as we all know as well. You take that and you compare that with Naples and Naples is still very slow, we’ve talked about that before.

And so depending on where you are in the country, we are seeing flat to slight upticks in audit premiums, particularly on contractors. And so whether you did it in Phoenix or you did it in Northern California or you did it in upstate New York, you are seeing a little of that. But it depends on the region specifically..

Okay. Thanks a lot..

Thanks Adam..

We’ll take our next question from Mark Hughes with SunTrust..

Thank you. Good morning..

Good morning Mark..

Good morning. .

Could you give us an idea how Beecher Carlson did year-over-year at the top-line in the first quarter and then what is your expectation for full year top-line at that unit, maybe year-over-year?.

Let me let Andy; we’re going to pull it up and get the exact number for you..

Well that’s I think maybe the first piece that Mark we would talk about inside of there is the Beecher large accounts, they grew just a bit over 10% year-over-year in the quarter. So that underlying part of the business is performing very well. On a full year basis, I would tell you that was 115 that’s what we gave guidance on.

And we’re still targeting for that number right now, should be right in that range. Also if you remember, we gave guidance of $0.05 to $0.07 on EPS. We still believe that we’re right in that range at this stage..

The impact on 3Q I think if I remember correctly there was a seasonal weakness in Q3 for future, would that be comparable to the $0.02 that you saw in Q1?.

No…...

Remember, just let’s talk about that. The issue in Q3 that we talked about was the senior leadership of this organization are sales people that’s good, we are sales people, and they were very focused consummating a transaction with the right party, right party being us.

So they were not able to dedicate as much time and energy to the new business production, so that was where that miss was on the topline and the resulting bottom line miss in Q3.

Every quarter since then, I mean in Q4 and Q1, they have met or exceeded the topline revenue targets and bottom line for that matter for the most part in Q4 and Q5, I mean Q4 and Q1..

Right so there is not an underlying seasonality at future that is less favorable in Q3 is that what you are saying?.

No, remember the only thing if you want to call a seasonality component is remember their big quarters are two and four and their smaller quarters are -- and that’s simply when the business has been written, that doesn’t mean that in a year from now, we couldn’t write more business in Q1 and Q3, I don’t know that, but I’m just saying if there is nothing more than the fact that the two big quarters are two and four..

Yes, I was just curious whether if that’s the case if Q3 is not a big quarter, then does it have a little bit of the drag like you might have seen in Q1?.

Yes, it would probably Mark it would be to the same extent, but it would definitely be a drag in the business..

Okay..

It was this last year. I mean in last year in Q3…..

Correct..

But that’s because we missed the revenue. So, but I think because the expense base is relatively flat, the margins and correspondingly the EPS impacts..

Okay. And then final question, Powell you had suggested that there were National Program opportunities that you're looking at.

Is there a, are there some that are perhaps closer to fruition than others, are there….?.

No, no. the implication was not an acquisition standpoint. What I'm saying is that we feel really good about the partnerships that we have with our carrier partners and programs. And what that opportunity exists is to either expand an existing program or create new programs of which we are always evaluating and talking to our carrier partners about.

So, remember Mark if you think of us as a virtual insurance company for a moment, we are not the risk bearer, we never ever knowingly or unknowingly want to bear risk.

Knowing that then, there are scenarios where carriers think that we can do it and we can prove to them that we can do it more efficiently in some instances than they may or in a segment we may have more expertise than they.

And so we're very, very pleased with the entire platform, it's not an arrowhead comment, it's an entire Brown & Brown programs comment. So, everything in Brown & Brown programs in Tampa, everything in the Midwest, all over the country, all of our programs put together we feel really good about..

If we think about over the next few quarters, are we likely to hear about another auto after market or Everest program?.

Okay, that’s a great question, Mark. And the answer is, I don’t know. And so, I don’t mean to be funny, but I am going to say this, those two scenarios were both very unusual, very pleasantly unusual, but very unusual. And they are working out nicely for us and nicely for the risk-bearer.

That does not mean that we won’t talk to other people about that possibility, but I would want you to budget anything or expect it.

It is sort of like the question that we have got in several quarters in a row that should we budget for another large acquisition; one a year because apparently we have got, now we are trying to close the third one, and it would be three and three years.

And the answer is, you can't budget that, we are just outlooking to do traditional transactions that fit culturally and strategically add to our capabilities.

If you take that in mind some of those, many of those are going to be in that $5 million to $10 million to $15 million to $20 million range and every once in a while there is going to be one that’s bigger that we think that is culturally; so, no..

Very good. Thank you..

And we will take our next question from Dan Farrell with Sterne Agee..

Hi, good morning. I just want to dig into the expenses a little bit more and a couple of things.

In your 4.5% growth that you show for this quarter, that does include the step up in the non-cash stock compensation which would seem to be about a percent impact and that continues for another quarter, but would, I am guessing would level off in third and fourth quarter.

So, if you adjust for that and adjust for the $1 million, it looks like core expense growth might be closer to sub 3%. So, I just want to compare that to your comments the sort of 4% going forward if you think it can actually come down a bit more or if there might be other expenses that might be offsetting that as we go forward? Thank you..

All right, Dan so you did a good job with your math overnight. So, let me hit the first part of it is, yes there will be continued flow through of the non-cash stock that was part of it. You’re right that will therefore be on comparative basis in Q3 at that stage. We did have some incremental in Q1, but it was nothing that was material in nature.

And just to give you an idea, it was less than $300,000 of impact, so it’s actually pretty small inside of there. The reason why I would say on the expenses is we’re going to continue to try to manage those, but should not expect that there is going to be an immediate bump in any of those.

As Powell mentioned, we are going to continue to make sure that we are making appropriate investments in the business and scaling it as we need to as we go forward..

Okay. And then if you look at the margin improvement within your segments, it actually seems like there is probably even more healthy expense control there on an underlying basis.

I am just wondering in corporate, could you talk about the expenses there, is there anything else maybe driving that besides sort of the $1 million that you called out for departure of Cory?.

Yes. Dan, this is Powell. I would tell you that the answer is there is not one thing that screams out at it, that’s the first question or comment.

However, what I would tell you is that as we are evolving from $1 billion to $2 billion company, we are continuing to look at how we build not only our financial and accounting capabilities, but our other capabilities of setting the platform up to be ready when we’re $2 billion and beyond.

And so, I think there will be some continued investment there, but I can’t lay it all out right now because we’re continuing to look for the right people, remember it. We’re always looking for the most talented athlete or the best person as opposed to we’re just trying to fill this position.

We are actually trying to fill some positions, but we’re always looking for talented people. And so, there is a little of that in there and there will be a little of that in the future, yes..

Okay. Thank you.

And just one last question, the change in, the increase in the change in the acquisition or no payable this quarter, is there one particular deal that’s driving it more than others or is it just overall performance of acquisitions that’s moving that?.

Yes, there is. There is one business, a binding authority business in Texas that’s done really well. That’s the Texas security, but yes..

Okay, okay. Thank you very much..

And by the way, we’re really pleased about that. So, they’re doing well and we’re happy for them. So, that’s good..

No, I understand that, that’s a good indicator of the underlying trend. Okay. Thank you very much..

Thank you..

We’ll take our next question from John Campbell with Stephens Incorporated..

Hey guys. Good morning..

Good morning..

So, I know you guys, I know the Beecher has started to shift [us] a bit, but could you guys just give maybe a rough breakdown of fee versus commission rev kind of as it stand today? And then as you factor in right just expectations for next several quarters?.

Wait a minute.

When you say that, are you talking about as an organization or a comment around Beecher?.

Just overall fee versus commission..

Yes.

Well, I would tell you this, I’d like to confirm that number; Andy you don’t have that number right there?.

No, we don’t. Listen we’ll take that in the follow-up..

Yes. But I can tell you this, as you remember, inside of the Beecher comments we add, in large accounts we had $50 million of fee and $20 million of commissions that I know a fact off of top of my head. As it relates to the fee business right off the top of my head internally at Brown & Brown I would have to go back and I’d want to confirm that.

In the middle market retail that number prior to our teammates joining at Beecher, it was roughly around 95% I thought, 96% commission. So, I’d want to go back and check that so it wouldn’t [poke] on that yet, but I’m pretty confident. So, we have to think through that and we’ll follow-up with you..

Sounds good.

And then just two quick housekeeping items just one, just the annualized acquired rev in the quarter? And then two, I do not see that there is $60 million in the Sandy rev in 1Q ‘13, but if you guys can just remind us if there was any of that Sandy related rev that kind of rolled into 2Q ‘13?.

Yes, there is a little bit, we have that number right there..

Not on the Sandy piece in Q2. Again, we can do a follow-up, but the number was pretty small in the second quarter. But we’ll come back and reconfirm it..

Okay.

And then the annualized acquired rev in the quarter?.

Yes, zero. We basically didn’t do any acquisitions. We are waiting to try to close, as you know Wright and we continue to talk with lots of other people about the possibility of investing in their business..

Got it. Thanks for taking the question..

Thank you..

And our next question is from Ryan Byrnes with Janney Capital..

Yes, great. Thanks for taking my question guys. Just had a quick question on the acquisition expenses, they were kind of inline with the acquired revenues.

Just want to see if there any, just dig a little deeper, what's in there? And obviously is there a run rate going forward, just wanted to get your thoughts on that?.

Yes, let me take that one, because I think it’s at first blush. It would, it definitely looks like it is, the revenues basically the $27 million and expenses are $27 million. Just to give you an idea of that $27 million of expenses, $17 million of that is related to Beecher large, $10 million is non-Beecher large.

So, the rest of the acquisitions during the quarter are actually performing quite well. Again that will move back around, but that's kind of the dynamics. So, don't read into it that they are not performing..

Got you. Perfect. And then again, just trying to get a little granularity on the Beecher large and just how it impacts kind of underlying margins there within the retail segment. That means clearly it had a negative or a down draft in the third quarter ‘13. You guys said that there was some seasonality as well, some closing issues.

But then in the fourth quarter, we kind of were expecting it to spring forward a little bit, but it’d be retail EBITDA margins didn't really move much.

And just trying to think about maybe you guys can help us get a little more granularity as to what those revenues were for the third and fourth quarter for Beecher large account business?.

Wait a minute. I want to make sure that I remember; I think we are mixing apples and oranges there. As you know Ryan, the growth, the internal growth of Beecher as an organization is not contemplated in the first 12 months.

So, their performance which was very good in Q4 and in Q1 and obviously, we wait to see in Q2 is not involved and that Andy alluded to the fact they had over double digit growth organically in that segment for the quarter. And so from a standpoint of the seasonality -- maybe, can you just repeat the question? I apologize..

Yes, sure. I’m sorry. So, the EBITDA margins in the retail segment they were year-over-year in third quarter of last year were lighter than third quarter ‘12, again that was because the Beecher deal, again I guess it closed little late and there were some large account concerns.

And then you mentioned there the seasonality in the second quarter and the fourth quarter, but the fourth quarter, the retail EBITDA margins didn’t really improve much.

So I’m just trying to figure out, how we should look at, what the large account business was and I know that the fourth quarter of ‘13 overall retail organic was little light, but just trying to get a little more granularity on what Beecher large account business was in the third and fourth quarters of ‘13..

Okay. So, let me attempt to address that. You are asking the question about margin expansion in Q4, where we affectively had 20 big dips of organic growth in the retail segment..

Correct..

So the answer is, we had very nice results at Beecher. But having said that, I am talking about the core retail business. That said, from a standpoint of the EBITDA as Andy referred to earlier, expanded in Q1 nicely. And I would have to go back and look, I don’t have Q3. Do you have Q3….

No we don’t have Q3 because I think similar to this one, there is some moving parts underneath, so we’d have to look at that one. We don’t want to quote a number without being exact on it..

Okay, great..

Yes..

Alright. And then moving on, do you guys have any -- obviously you did earn-outs, were elevated, I guess it seemed like they were some of the highest I have seen in quite some time looking at my model.

Should we be expecting that going forward, or is that just again a one-time issue? I know we’ve talked about this before, but just wanted to clarify that..

Yes. Ryan, as you know due to -- from a GAAP standpoint, our accounts and everybody else, wants us to estimate the ultimate cost to the best of our ability on a quarterly basis. And so I don’t think you should draw a parallel between the performance of some businesses versus the performance of other businesses.

What we try to do every quarter is based on the information in hand, it definitely -- every time we get to this, I always sort of scratch my head because of how this works but I understand why and so from a standpoint of a non-cash item, and this adjustment in earn-out liabilities, but don’t read into the performance of what happened with let’s say 3 businesses, particularly that that is -- can be imputed across to a bunch of other acquisitions that are currently in the mix, don’t do that..

Okay, great. Thanks for the answers guys..

Yes, sure..

We’ll take our next question from Josh Shanker. Go ahead..

Thank you. We’ve been around this every which way and I’ll ask it again in a different way, maybe ask about revenues what not, can we get the EPS impact in seasonality terms for 3Q and 4Q due to Beecher Carlson, so that was an imprint.

Obviously one year from day won’t matter because that will be the basis of how we think about 3Q ‘14, 4Q ‘14 and 1Q ‘15?.

Well, Josh we’ll have to look into that, because we don’t have that right here..

Okay.

And so I mean I’d say that the disclosure in the 1Q ‘14 release is great, if we can just get as a supplement that information back dated for last couple of quarters, I think everyone there should be happy result?.

Okay..

Thank you all. Good luck..

All right, thanks Josh..

(Operator Instructions). It appears there are no further questions at this time..

Yes. Joseph, we wanted to have -- Andy wanted to make one other comment before we wrap up. Go ahead Andy..

I wanted to just circle back on the rate and re-clarify the revenue ranges on there, just to make sure that we’re on the same page. And we said 121 for the full year? If we were to close on a May 1st, the range would be 82 to 86; I know I told you a different number. Sorry, we pulled it from a wrong column.

I just want to clarify that, 82 to 86; if it’s on June 1st, it’s 74 to 77. On the rest of my comments regarding EBITDA hold..

Okay Joseph, thank you very much. And we want to say thank you to everybody and we’ll talk to you next quarter..

That concludes today’s conference. Thank you for your participation..