Good morning, and welcome to the Brown & Brown, Inc. Third Quarter Earnings Call. Today's call is being recorded.

Please note that personal 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 the future results and events or otherwise be forward-looking in nature.

Such statements reflect our current views with respect to future events, including those relating to the Company's anticipated financial results for the third quarter and are intended to fall within the Safe Harbor provisions of 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 third quarter and that is 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 discussions 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, further 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 measures 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.bbinsurance.com by clicking on the Investor Relations and then Calendar of Events.

With that said, I would now like to turn the call over to Powell Brown, President and Chief Executive Officer. You may begin..

Thank you, Cecilia. Good morning, everyone, and thank you for joining us for our third quarter 2021 earnings call. Q3 was another very good quarter for Brown & Brown. This was a result of our nearly 12,000 teammates delivering creative risk management solutions for our customers.

We delivered strong top line growth driven by a combination -- by the combination of robust new business, good retention, rate increases and some expansion of exposure units. At the same time, our team continued to drive profitable growth, resulting in impressive margin improvement and adjusted earnings per share expansion.

We're also very proud that last week, our Board of Directors authorized an increase of 10.8% in our quarterly dividend. Of note, we've now increased our dividend for the 28th year in a row. Now let's transition to the results for the quarter, I'm on Slide 3. We delivered $770 million of revenue, growing 14.3% in total and 8.5% organically.

I'll get into more detail in a few minutes about the performance of our segments. Our EBITDAC margin grew by 280 basis points to 35.6% versus the third quarter of 2020. Our net income per share for the third quarter was $0.52 on an as-reported basis and $0.58, excluding the change in estimated acquisition earn-out payables.

During the quarter, we completed another seven acquisitions and would like to extend a warm welcome to all of our new teammates that joined during the quarter.

In summary, we're really pleased with our strong performance for the third quarter and the first nine months as the year-to-date results are the best in our history, 10.8% internal growth year-to-date. Later in the presentation, Andy will discuss our financial results in more detail. I'm now on Slide 4.

We have customers that have done well throughout the pandemic and others that are struggling to fully reopen, mainly due to the inability to hire employees. We are seeing this challenge in a number of industries and geographies. And as a consequence, restricting how fast companies can become fully operational.

In addition to shortages of workers, supply chain issues and inflation are putting pressure on costs. From a placement standpoint, the themes are pretty consistent.

Customers with good loss experience are getting the best rates and coverage while those with tough loss experience are seeing material rate increases or reductions in available limits or both. As a result, customers continue to consider program modifications to manage their premium increases.

Rate increases remain relatively consistent with prior quarters. Admitted market rates continue to be up 3% to 8% across most lines. The outliers are workers' compensation rates, which are down 1% to 3% and commercial auto rates, which are up 5% to 10%. From an E&S perspective, most rates were up 10% to 20% with some outliers.

Coastal property, both wind and quake, are up 10% to 30% with this being a slightly broader range than we saw in the previous quarter. Professional liability for most accounts remains very challenging with rates up 10- to 15-plus percent. Cyber rates, in some instances, could increase dramatically depending on the security in place with the customer.

Security protocols that were viewed as nice to have in the past are now viewed as a minimum expectations to obtain coverage. Also, excess umbrella coverage remains very difficult to place. For professional liability, cyber and umbrella, we're seeing carriers reduce limits while seeking significant rate increases.

Florida and California placements in E&S for personal lines remain the most challenging due to losses or aggregate concentrations. We expect the appetite for personal lines and cat areas to continue to be constrained in 2022, which will likely put pressure on state-sponsored programs and the cost of insurance for the consumer.

From an M&A perspective, we were successful in closing seven transactions during the quarter with annual revenues of approximately $21 million. We've closed a total of 11 deals year-to-date with annual revenues of $65 million, and I've already announced a couple of additional acquisitions in October.

Our pipeline remains full, and we feel good about our level of activity and engagement with prospective sellers on Slide number 5. Let's discuss the performance of our four segments. Retail delivered great results with organic revenue growth of 8.3% for the third quarter.

The performance was driven by growth from all lines of business through a combination of strong new business good retention, rate increases and exposure unit expansion. We're leveraging our broad capabilities to benefit our customers and prospects. National Programs delivered another outstanding quarter, growing 13.2% organically.

Our growth was driven by the strong performance from most programs due to new business, good retention and rate increases. The Wholesale Brokerage segment delivered a 5.1% organic growth with commercial brokerage and binding performing well, driven by new business and continued rate increases for most lines of coverage.

Personal Lines and coastal states continues to be a headwind, as I mentioned earlier. The Services segment delivered organic revenue growth of 0.5%.

The performance for the quarter was driven by claims processing revenue associated with recent weather events, which was substantially offset by external factors continuing to impact our advocacy businesses. Overall, it was a great quarter across the board. Now, let me turn it over to Andy to discuss our financial performance in more detail..

Great. Thank you, Powell. Good morning, everybody. We're over on Slide number 6. Like previous quarters, we'll discuss our GAAP results and certain non-GAAP financial highlights. For the third quarter, we delivered total revenue growth of $96.3 million or 14.3% and organic revenue growth of 8.5%.

Income before income taxes and EBITDAC both increased by approximately 24%. EBITDAC margins expanded 280 basis points driven by strong organic revenue growth and managing our expenses. Net income increased by $12.4 million or 9.3%, and our diluted net income per share increased by 10.6% to $0.52.

The effective tax rate increased to 25.5% for the third quarter of this year as compared to 15.5% in the third quarter of last year. The tax rate for the current quarter is in line with previous guidance while the prior year was driven by the tax benefit associated with the vesting of restricted stock awards.

We continue to anticipate our full year effective tax rate for 2021 will be in the 23% to 24% range. Our weighted average number of shares increased slightly compared to the prior year, and our dividends per share increased to $0.093 and or 9.4% compared to the third quarter 2020. We're over on Slide number 7.

This slide presents our results after removing the change in estimated acquisition earn-out payables for both years, which we believe presents a more meaningful year-over-year comparison.

The change in estimated acquisition earn-out payables was a charge of $23.1 million in the third quarter of this year compared to $15.3 million for the same period last year. Excluding these non-cash items, income before income taxes on an adjusted basis increased by 26.4%.

Our net income on an adjusted basis increased by $16.7 million or 11.4%, and our adjusted diluted net income per share was $0.58, increasing 11.5%. The lower growth of earnings per share and net income for the quarter as compared to the growth of income before income taxes was driven by the change in the effective tax rate.

Overall, it was a very strong quarter on the top and bottom line. I'm going to move over to Slide number 8. This slide presents the key components of our revenue performance.

For the quarter, our total commissions and fees increased by 14.6%, and our contingent commissions and GSCs increased by 27.1% as we qualify for certain additional contingents and GSCs this year. Organic revenue, which excludes the net impact of M&A activity and changes in foreign exchange rates increased by 8.5%. Forward to Slide number 9.

The Retail segment delivered total revenue growth of 17.8%, driven by acquisition activity over the past 12 months and organic revenue growth of 8.3% with solid growth across all lines of business.

EBITDAC margin for the quarter increased by 180 basis points and EBITDAC grew 24.6% due to higher organic revenue growth, increased contingent commissions and GSCs and managing our expenses even with slightly higher variable cost.

The growth in income before income tax as compared to EBITDAC for all segments is impacted by changes in intercompany interest, amortization, depreciation, and estimated acquisition earn-out payables. Over to Slide number 10. Our National Programs segment increased total revenue by 13.7% and organic revenue by 13.2%.

In conjunction with the onboarding of a new customer, we recognized approximately $5 million of incremental revenue this quarter that represents timing. We expect the incremental revenue from this customer to more than likely be recognized within the first half of 2022.

EBITDAC increased by $18.7 million or 28.5% with the margin improving 510 basis points as a result of strong organic revenue growth, managing our expenses and the positive impact of the non-recurring write-off of certain receivables that occurred in the third quarter of last year. Over to Slide number 11.

The Wholesale Brokerage segment delivered total revenue growth of 11.2% driven by acquisitions in the past 12 months and organic revenue growth of 5.1%.

EBITDAC grew 4.7% and but the growth was impacted by incremental broker compensation driven by higher levels of performance, slightly higher variable costs and certain non-recurring intercompany IT charges. On Slide 12.

Our Services segment increased total revenue and organic revenue by 0.5% with EBITDAC growing 6.8%, driven by continued management of our expenses. Few comments regarding cash conversion and liquidity.

We experienced another strong quarter of cash flow generation and have delivered $628 million of cash flow from operations through the first nine months of this year, growing $88 million or 16% as compared to the first nine months of last year.

Our ratio of cash flow from operations as a percentage of total revenue remained strong at 27% for the first nine months of this year. With the combination of our cash generation and capital availability, we are well positioned to fund continued investments in our business. With that, let me turn it back over to Powell for closing comments..

one, the availability of employees across all industries; two, the resolution of supply chain constraints; three, inflation. Is it transitory, or is it sustained? And four, the continued management of COVID. How and when these play out over the coming quarters will influence the trajectory of the economy.

From an underwriting perspective, we anticipate premium increases will continue to moderate for many lines with the exception of cyber, professional excess and automobile. The M&A market will continue to be very active and valuations will remain at heightened levels as a result of many buyers with a lot of available capital.

We feel that we're well positioned with a good pipeline to attract great companies to join the Brown & Brown team. We will continue with our disciplined approach of focusing on culture and financial alignment as these have been key to our long-term success of delivering shareholder value.

From an innovation standpoint, our focus is to constantly and consistently deliver creative solutions for the benefit of our customers, prospects and teammates.

We're making good progress and are continuing to align on common operating platforms for each division, enhancing our customer-facing applications to make it easier to do business with Brown & Brown and leveraging our data to the benefit of our customers.

In summary, the results were outstanding for the third quarter and the first nine months of the year, and we are uniquely positioned to succeed in this ever-changing marketplace. With that, let me turn it back over to Cecilia for the Q&A session..

[Operator Instructions] We will now take our first question from Greg Peters from Raymond James. Please go ahead..

Congratulations on your quarter. I guess Powell and Andy, you talked about the outlook for -- you talked the economy, principally and obviously, that in pricing, which will lead to how the organic sits out over the course of the next year or two.

And I guess the biggest -- one of the bigger issues that we get questions about is just what should we be thinking about organic next year? And I know you don't project or comment on organic.

So when you talk about the supply chain constraints and then at the same time, you talked about improved business confidence, it's kind of seems like they're moving in opposite direction. So any other guideposts you can give us for organic as we think out next year would be helpful..

Yes, Greg, first of all, thanks for the comments. As you know, we don't give organic guidance. And it is interesting because you -- what you're referencing is true.

There's a little bit of kind of differences of opinions and things that are occurring out there in the economy where you can have -- let's just take construction is off the hook in many parts of the country. And yet in those same parts of the country, we have customers that are in the restaurant business that can't hire enough servers.

And so I'm sorry, we're not going to be able to give you an answer to your question specifically. But I can tell you, it is interesting because most of the people we talk to have a pretty positive outlook on the future. It's just that their cost of goods sold or services sold or whatever, is going up, and they don't know to how much.

So it's conceivable they will sell more of their product, whatever that is, but have a slightly lower margin next year..

Right. That, I guess, is effects of inflation. I guess in conjunction with your strong organic revenue results, I guess, one of the other areas, it would be for you, compensation. If you look at the margin improvement, substantial margin improvement and there's a lot to unpack there, whether it's T&E or lower comp.

But the -- it seems like you might have some pressure as we look forward just because of the organic revenue results that you're producing and the possibility of higher T&E. So maybe you can cover that as well..

Sure. So let's talk about -- first of all, we are in a very competitive environment for talent, and we have been. So this is not new, that's number one.

Number two, as you know, we're a pay-for-performance company, and we think we have great teammates, and we want to do everything to retain the teammates that are currently on the team, and then we want to optimistically and opportunistically acquire new talent to enhance growth opportunities in segments of our business.

And so I would say that we will constantly and consistently, whether it's now or three years ago or three years from now, are evaluating how we compensate our teammates, how we reward people, what that means in terms of long-term alignment with what we're trying to build. And I think the other thing that people sometimes confused the issue is.

It is not linear hiring necessarily. And so, it's not like you can say, well, we're going to hire three people and one person retired. We're going to hire three people. It's not like that. It's one of these things where we want the best athletes on the field.

So it's conceivable that next year, we hire a lot more people in certain segments of our business, either to service our customers or to produce new business or some combination thereof. So I look at it as our investment in salary and related is not just increasing cost on existing teammates.

It's actually building in and compensating for new hires that are not in our current budget that are so talented that we can't afford not to hire them..

Andy here. Hi, Greg. Just a couple of things, I think, on the question about T&E. You're at least thinking about in the right direction. I think we try to be really consistent on this topic, which is, we don't know exactly where the new levels of spend will end up for T&E. They will realistically go up over time.

I don't know if they'll get all the way back to where they were probably pre-COVID potentially, we'll see what that looks like. But we -- as you saw what we did last year and what we've done this year is, we're trying to focus the best we can on how do we deliver profitable growth.

That will move up and down over time based upon how our costs move back and forth inside of the organization. But we probably at least manage everybody's expectation. We've had a great 2021 already. The likelihood of that level of further expansion next year could be challenging with some of the items that you mentioned..

Great. Just a point of clarification around hiring because I know one of your competitors was out talking and promoting all the new hiring success they've had.

Powell, can you talk about your recruiting program and maybe a stat -- give us a status update on your retention versus new hires?.

Sure. So one of the things that I'm always interested in is, I think the big print give us and the small print take it away. And so when somebody comes out and says, we've hired x many people, I don't know if they countered that by saying how many people retired or did they have any turnover affiliated with that, I don't know.

But what I would say relative to us is, as you know, we're actively recruiting in all cycles of the business. And our retention today is at our historic levels. That does not mean that we don't have people trying to call our people and trying to spirit them away. But our retention levels are at historic levels. That's number one.

And number two, our hiring, I think, is good. We're not going to give you a number like that other firm because that's not the way we operate.

I would just tell you that we feel really good about how we bring people into the organization, how we continue to train and enhance our capabilities to deliver for our customers, and how we launch people to taking on more responsibility, whether it'd be in a leadership role in an existing office or in a different office.

So, I think of this as it is a busy time in terms of talent any -- for any business, anybody, and we're no different. But I feel really good about where we are in the recruiting process, the development process and the retention process..

We will now take our next question from Mike Zaremski from Wolfe Research. Please go ahead..

Maybe piggybacking off some of the color about what has been just excellent margin improvement and obviously organic growth.

So if I hear the commentary correctly from Andy, it sounds like if not to expect -- you kind of alluding to tougher comps, but it sounds like you're saying you can maybe maintain the current margin base when you said kind of not to expect this level of improvement next year.

So I just want to make sure I'm kind of directionally thinking about it correctly, and there weren't some kind of -- maybe some onetime items we should be or just tougher comps, we should be thinking about that could move the margins around a little bit within our models?.

Sure. So Mike, remember, first of all, we don't give organic growth guidance and we don't give margin guidance. We said over and over and over that we think we're a mid- to single-digit organic growth business in a steady-state economy. And our margin profile is 30% to 35%.

And having said that, we are going to -- I'm going to reiterate what Andy said, which is we're going to invest in the business as we see fit to grow and service our existing customer base and to write a lot of new business going forward. So having said that, we don't believe one quarter is a trend. That's important to note.

We had a very good quarter, and we feel really good about our year-to-date organic growth and our margin.

But again -- once again, it's there's -- we're not going to be able to say anything to anybody here today that's going to be able to get you to lock in on a number for your margin profile next year because we can't tell you, nor would we, but we can't tell you how many people we're going to hire, and how many opportunities we're going to have to build out capabilities or enhance current capabilities on our team.

So I'm not trying to be frustrating to you, Mike, but the answer is we're kind of consistent. I know that's boring, but we're consistent. And we continue to do what we say and say what we do..

Not at all boring. It's good in this business a lot of times. But I guess just as a follow-up to that question, a couple of peers, I guess, as the pandemic has played out, have kind of laid out some specific kind of efficiency measures that they think will persist beyond the pandemic that kind of lead to greater efficiencies.

Is Brown undergoing any of those kind of exercises that could be kind of permitting down and helping out the income statement?.

Yes. So let me address that. We're not doing something that says we're going to eliminate 40% or 30% of our real estate footprint and all that, we're not doing that. You got to understand that we were very efficient before. So I said earlier, we're kind of boring, we're kind of consistent. Well, we are boring and consistent.

The answer is we will continue to evaluate real estate in the manner that we've always evaluated it based upon the needs of specific offices. And in doing so, is there a potential scenario where there could be some reduction in some cases and expansion in other places? The answer is absolutely.

But we believe that the work or return to the office environment is going to continue to modify in the future. That doesn't mean that we can't have work from anywhere, which I think we're a work from anywhere company.

But I don't want to give you -- there's nothing that I'm aware of, and I'm looking at Andy now to see that there's -- I'm not aware of any permanent changes. The only thing that -- and we don't have visibility into it as how T&E responds back..

Yes, Michael, I guess I think if you go back to our comments last year, and there were a lot of questions everybody had of us of why we weren't putting mandates in place in order to drive all the cost out. And we said at that stage because we've got complete confidence in all of our leaders that they will know how to navigate through the process.

That's part of the reason why we have industry-leading margins that we've had for decades as an organization. So, we run a very profitable business. We're very proud of that.

So, we don't have a lot of just excess costs just sitting around that we just cut out one day just because we think we we're constantly looking at where we invest in our business where we need to put our chips, where we need to pull them back, et cetera, in order to make sure that we invest for the long term, but also deliver good shareholder value..

I think also, Mike, it's important, and I know you know this, that the industry-leading margins also go hand-in-hand with industry-leading cash conversion. So that's real in terms of our ability to invest dollars that we earn back into our business. That's equally as important and very -- we're really proud of that..

That's helpful. If I could sneak one last one in real quick. I noticed the press release about unifying the in the retail segment, the brand name Brown & Brown, among all the, I think, the branches.

Any significance to that? Or any -- to the thought process behind that decision?.

Yes. No, it's -- we've had the opportunity to acquire a number of really talented business teams and businesses over the last 5 to 10 years.

And unifying goes to -- in terms of going to market, it eliminates any potential confusion that a competitor could try to spin on us when we're talking to them about our large accounts, medium accounts, small account capabilities. So don't read too much into it. We're really pleased, and we're all Brown & Brown anyway.

But we're just calling everybody in retail Brown & Brown going forward. So don't read too much into it..

We will now take our next question from Elyse Greenspan from Wells Fargo. Please go ahead..

My first question on Retail. Do you guys have some strong growth throughout this year? Obviously, spot a little bit in the third quarter, but I think a bunch of that was just because the benefits business is very half year on heavy and that performed really well.

Can you give us a sense of the components of retail benefits versus your traditional brokerage business? And what you saw in organic growth in the third quarter relative to the first half of the year?.

Okay. So let me just unpack that, Elyse. So number one, we were pleased with the 8.3% organic growth in retail, which we call out. We don't give growth by line of business, as you know. And as it relates to benefits, what we have said is our benefits of about 1/3 of our retail business.

So I think that answered what you said, but did I hit what you wanted?.

Yes. I was just curious if like -- which just sounds like you're not going to provide this detail, which makes sense, but just how benefits did and the rest of the business in the third quarter relative to the growth that you saw at the start of the year, but it sounds that you're just not going to break out that left..

Yes. And you know my answer, Elyse, it's good. It was good in the first half, and it's good now. So we're pleased, but we're not going to disclose that -- like I said, that's part of the deal..

Elyse, just to go back to our prepared comments, one of the things we said in there is that all lines of business grew during the quarter, and we're pleased with the performance all the way across..

And then in terms of wholesale, you guys saw a slowdown in growth in that business. But you did point to personal lines being a headwind.

So is that really what drove the slowdown within wholesale? Can you just give us a sense of without giving us numbers within the businesses, but just the core trends, and what's going on to the wholesale business?.

So let me make one observation that I think is important. As I said earlier, we don't believe one quarter makes a trend. So remember, the business year-to-date is growing 8%, and we're very pleased with how wholesale is doing year-to-date, number one.

Number two, and I know you know this, but remember, our business is slightly more authority than brokerage. And some of the other firms that you would have transparency into are usually the reverse. So, there are more brokerage than binding.

And then on top of that, as I said, we have a component of that binding authority business, which is personal lines, which is being dramatically impacted in California and Florida.

In California, as you can tell, it's not just losses but it's actually people trying to get off of policies and the insurance commissions are not letting them in certain areas. And in Florida, it's a people being non-renewed in some instances, by standard markets and having to flow into Citizens.

So what you've got is you've got two environments, where it's, I don't even know if I'd say transitory because that's not the right term, it's a -- there are two personal lines markets that are huge that are influx. And so that has created a headwind for us. And so, that's what I can tell you about it. But that is what I would pretty much put that on..

That's helpful. And then one last one. Andy, you guys had spoken with the non-cash stock-based comp. I think the expectation was flat for the year. That trended up this quarter, probably reflective of the strong growth that you guys have seen this year.

So I'm assuming we'll probably end up seeing that up for the year, just given that there's one quarter last year.

Any kind of new commentary there about the non-cash stock based comp?.

Yes. No, that's correct. We're up about $3 million year-to-date versus the prior year, and that is all based upon incremental performance that we've been seeing both top line as well as on earnings per share. So we'd expect that to probably continue into the back end of the year, Elyse..

We will now take our next question from Mark Hughes from Truist. Please go ahead..

Your comment about margins, I think you said....

Hi, Mark, we can't hear you. Yes, you might be on a speaker phone or something. Can you pick up because you're breaking up..

Okay.

How about this?.

A better..

How about this? Sorry.

Can you hear me?.

Yes, yes..

Can you hear me now?.

Yes, go ahead..

Okay. Very good. Andy, you -- in talking about margins, just to clarify, I think you said you don't expect the magnitude of the margin improvement that you've seen this year to happen next year. That doesn't mean you won't get margin improvement or there isn't the potential for margin improvement next year.

Is that a fair reading?.

Yes, there is, I guess, probably just as much likelihood that we would have some upside we would have some downside next year. In the business just based upon we're investing, we're just trying to manage everybody's expectations..

Yes, exactly. Okay.

Then when we think about inflation, is there a reason not to think that, that will be a tailwind if you've got customers with higher revenue, higher asset values if carriers are seeing maybe some loss inflation, wouldn't that be a net benefit for you, maybe offset by some of your customers, seeing some impact from -- on their businesses from inflation.

Should we think about it as a net positive?.

Well, I think it depends on the industry, and that's -- I'm speculating when I say that a little bit because, as you know, inflation is a function of two things. It's a function of money supply, which there's a lot of money in the consumer's hands.

And number two, velocity of that money, and there are consumers that are spending a lot of that money in certain areas. So -- and at many customers' cases, if we just stay with our customers for a moment, their revenues may go up, but their cost of goods sold or cost of services sold may go up more quickly.

So, it could have a potential positive impact in the short term, but then there are other businesses that could be negatively impacted. So, I think my position right now is more of a neutral.

Andy, how would you respond to that?.

Yes. I think, Mark, the other piece to that is, if you look at it in isolation, that's probably a very fair comment.

The one thing that is a variable that happens is how does the buyer of insurance modify how they think about their total cost of insurance? Because if their costs are going up, et cetera, and they're trying to manage their way through they may evaluate their deductibles, their aggregates, et cetera, inside of this.

So there's just -- there's always a lot of moving factors just to kind of keep in mind.

There's just not one that's kind of linear that drives the organic?.

Okay. And then a final question. Andy, you mentioned National Programs, you got $5 million in incremental revenue from timing. And then I think you had suggested there would be more incremental revenue from that program in the first half.

Can you say anything about 4Q? And can you say anything about the magnitude of the incremental revenue in the first half?.

So assuming pull that apart a little bit. So in the case of the $5 million, that was a new customer that we onboarded, just we onboarded it quicker than anticipated. We would have thought it would have kind of been over the third and fourth quarter.

And what normally happens on some of those accounts is you're going to end up there's kind of a lag when you transition from a previous provider out there that's what represents the $5 million that will show up over the first half of next year. And then we haven't changed any of our commentary on the fourth quarter versus what we said last quarter.

And if you recall, we said there would be potentially $4 million to $6 million of revenue moving from the third quarter to the fourth quarter. We still stand behind that comment..

Our next question comes from Meyer Shields from KBW. Please go ahead..

If I can just tag on to Mark's question.

Is that $4 million to $6 million moving to the fourth quarter? Is that also onetime that will correct next year? Or is that now in the fourth quarter, now its new home?.

Yes. That will be the new home for it, May. So almost similar to the $5 million, that's kind of when, again, we onboard accounts we'll see that we'll pick up incremental revenue and then when it comes around to renewal cycle ends up in the appropriate period.

No, you keep on the -- just keep in mind on that one, the way that we were suggesting to everybody is, once you had your estimate for the third and fourth quarter, then you probably wanted to move or to $6 million. What you don't want to do now is now take $4 million to $6 million out of the third quarter and move it to the fourth.

So that would be incorrect..

Right. I'm sorry, moved out of the third quarter, if I understand correctly..

Exactly. So most you guys all have those in your models anyway. So don't do it again, you'll double count..

Got it. Okay.

Can you give us an update in terms of when the advocacy businesses within services should normalize?.

We wish we could tell you that, but if you could give us some insight about what's going on in Washington, we could answer that, and I'm not trying to be flipping Mayer.

I'm just saying that the processing of that type of business is greatly impacted, as you know, by the government working at full steam or whatever you want to call that, and that hasn't really been going on for a while. So you have backlog, and we don't have an answer. It's not like we can say, six months from now, we don't know yet.

So it's going to kind of plot along..

Yes. I mean the other thing we know on those, Meyer, is it does work itself out over time. If you just go back historically and look at that business, it goes through these cycles. We just don't know how long this cycle is going to last..

Okay. That's perfectly fair. Final question, if I can.

Are you guys seeing any increase in compensation expenses for non-client-facing folks?.

We're seeing -- as I said earlier, it's a competitive environment all the time. So, in our business, we think of that as all teammates. So, we wouldn't isolate it to one group of teammates. It's all teammates..

Yes to Powell's comment earlier, because we're in a competitive environment, salaries went up in 2019 versus 2018. They went up in 20%. So, we see that in the marketplace all the time..

Right, I guess the question was more because we hear more rumblings of, I don't want to call it the great resignation or things that seem unusual relative to past years instead of maybe the normal upward drift in compensation?.

So let's answer that. That is absolutely happening across lots of businesses. But what I've said is that our retention ratio is in line with what it has been historically. So, I think that the magnitude, of the last 18 months, has created lots of changes in many people's minds.

And some people are deciding to leave industries they've been in for long periods of time or make work life balance changes and things like that. And so having said that, we see that affecting our customers all over the place. So it's real. We're here to tell you it's real..

We will now take our next question from Michael Phillips from Morgan Stanley. Please go ahead..

Paul, in your opening comments, you talked about cost pressures for clients and went through a whole host of reasons why these pressures there, one of which obviously is insurance. I don't know the extent to which clients to pay attention to profitability levels of insurance companies or not, I have no idea, but maybe they do.

I guess to what extent is that conversation coming into play more than ever before and maybe impacting kind of how much they're willing to accept rate levels from carriers?.

Right. So generally speaking, clients are not focused on profitability of insurance companies. So that's the first thing.

The second thing that is important is depending on the conversation, there are sometimes discussions around loss cost increases where your losses are going up 5%, 6%, 7%, meaning the cost of the same loss year-over-year would be higher by, let's say, 7%.

And what's happening now, if you listen to the carriers, as they're talking about these very significant verdicts sometimes that would seem that would be outside the normal. I don't like the term, but it's a nuclear verdict or something like that.

And you start to see some of these where the settlement might be x and then all of a sudden, it's 15x, you expect. And so the short answer to the question is, the customer is not generally focused on or dialed into the performance of the insurance company.

What she or he is focused on is? One, controlling their cost; two, making sure they have the best -- not in this order, coverage is the best coverage they can get; and three, to the extent possible flexibility and options. Flexibility and options might be program designed.

So when you put all those together, that's kind of the course of the conversation. And in certain segments of the marketplace, as you may know, there are limited options so therefore, there might be more pricing pressure there than it would be on something that every insurance company really wants to write.

So therein lies the conundrum when we talk with our customers, but the key to that is making sure there's -- to the extent possible, there's no real surprises. So talking to our customers early and often about what we see in the marketplace, and how we come up with ideas to manage the process and their costs and coverage going forward..

Okay. That's helpful, Powell. Totally separate question. Another quarter of pretty severe weather again and again and again, and this time includes lots of flood losses, which are even occurring today.

So I guess in your service segment, are you seeing any change in, I guess, the competitive environment there for others that want to kind of do what you do in that space given the kind of on slide and continuation of frequency of floating?.

The answer to the question is. There are lots of people that are trying different things in the flood space. As a broad statement, I'm not aware of anything that is so new and different that it's earth shattering. However, you're starting to hear more and more, Michael, about the interest of people to write more private flood.

And that's great, but the private flood, they don't want to really write in the worst flood zones. So it's sort of like writing wind on a AAA construction building, where you have a low probability of loss, lots of carriers would like that, but sometimes they aren't willing to price it that way.

What we're seeing is we're not seeing -- we're not -- I'm not aware of a program that can model flood with any great statistical relevance and therein lies the challenge. So you know that we're going to risk rating 2.0 with NFIP. You have discussions around looking at flood maps and are they appropriate.

You have all kinds of things going on, and there's a lot of discussion around, hey, this is a growth opportunity. And yet, the private flood market is not writing an enormous amount of the segments that NFIP serves.

So long-winded answer, but I'm not aware of anything that's dramatically impacting the industry, but we're always trying to; one, be creative and; two, plugged in to what's going on in Washington as it impacts our business and our ability to service a broader customer base..

And Mike, keep in mind in our Services division, we do substantially no adjudication of flood claims. If you recall, we sold that business a number of years ago. We still work with that business that's out there. But if we're going to see claim activity, it's normally going to show up in our National Programs division..

We will now take our next question from Greg Peters from Raymond James. Please go ahead..

Thank you for allowing me to ask a follow-up. In your comments, and I know you've talked about the M&A market.

Can you give us an update on the multiples being paid and your appetite for expanding the bottom ground footprint beyond North America into Europe and other areas?.

Sure. So Greg, I would tell you that I think that it's always an interesting comment on a multiple of what? Because people -- our definition of EBITDA or EBITDAC is different than other people. And so what we might believe is a recurring expense they might try to take out.

And so, I would just -- I've kind of changed the way I refer to it, which basically says valuations continue to be high as I said in the remarks, which is, it continues to be at the very high end of the range. And I don't see that changing in the near to intermediate term, that's number one.

Number two, as we've talked about before, we bought a business in January, as you know, of 2020, called Special Risk. It's in Vancouver, British Columbia, and we do business across Canada. It's a wholesale operation with a bunch of great teammates, and we're very pleased about that.

And then we also bought in the beginning of this year, O'Leary Insurances in Ireland, based in Cork, which we're equally as pleased about. And so if you think about those two areas and our business in London, those are areas where there's a rule of law. There is something that we typically do business or have done and can do business there currently.

And we're always looking for opportunities that fit culturally and make sense financially. So lots of not you, Greg, but lots of investment people think that sounds sexy.

And I don't think that international expansion is sexy I think it is -- I don't sleep on airplanes, and it's not about me, but it's hard to do that when I fly to London, and I've got three hours of sleep, I'm going to a meeting.

So I say all that, trying to be a little tongue in cheek, but we look to partner with people that we think fit culturally makes sense financially, and we're really -- we think that there are some opportunities, but the question ultimately will be, can we make those work financially as well..

Got it. And the other area I just was looking for some additional comments on would be the free cash flow conversion. I know, Andy, you commented about that in your previous prepared remarks.

It seems like the free cash flow conversion rate is running at a slightly elevated rate relative to, say, the last five years, is there any reason why we should expect that conversion rate to come down? Or are we in a new normal type of environment in terms of what you -- looks like you're going to get this year?.

Yes. Thanks for the question, Greg. The -- we've talked about this in the past. We manage our working capital very closely and have for years. That's part of what drives our high conversion ratio. The other is the margins that we deliver as an organization, those two in combination.

And if you look back to how our margins have moved over the last few years, that's what pulls up in kind of that at least 27% on a year-to-date range. It will probably maybe move by a few points back and forth, up and down a little bit, but I wouldn't anticipate anything going down in the low 20s or anything of that nature.

We are very, very focused on making sure that we can grow our revenues into cash so that ultimately, we can take that cash and invest it back into our business..

Yes. And obviously, we encourage you to evaluate that in other firms because if you have an expense that's incurred that impacts cash. And so as I like to say, if you look at the cash that you earn, it's not really adjusted other than non-cash items like change in acquisition earn-out payables.

And you look at that as a comparator to those that you have access to, it might be enlightening. So we will take one more question.

We're going to wrap up at the top of the hour, and I had a couple -- do we have any other questions?.

There are no further questions over the phone at this time..

Perfect. Cecilia. Thank you very much for your help, and thank you all very much. We appreciate your time. We're very pleased with what's going on with the business. I'll stress again 10.8% organic growth year-to-date. We're at 11.5% in Retail, 13.2% for Programs, 8% in Wholesale and 3.6% in Services.

So we're very pleased with what's going on, and we look forward to talking to you next quarter. Have a great day. Thank you..

Thank you. And that will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..