Please standby, we are about to begin. Good morning and welcome to the Brown & Brown, Inc. First Quarter Earnings Call. This 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 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, that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission.

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

We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call.

All 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 Events.

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

Thank you, Jake. Good morning, everybody and thanks for joining us for our first quarter 2022 earnings call. We delivered another good quarter and are very pleased with our top and bottom line performance. Our consistently high level of performance is driven by our unique culture, whereby approximately 22% of our company is owned by teammates.

Since our call on March 8, we've made good progress and are very excited about GRP, BdB and Orchid becoming part of the Brown & Brown team. Their additional capabilities and talented teammates will enhance the solutions we deliver to our customers globally.

After that call on the 8th, Barrett Brown, Scott Penny and I spent two weeks traveling around the U.K. and Ireland and met with over 1,000 of our soon-to-be new teammates and visited over 20 locations.

After two weeks of engaging with the GRP and BdB teams, we are even more confident about the cultural alignment and are more optimistic about the future. As an update on closing the deals, we're very excited about the closing of Orchid at the end of March. For GRP and BdB, we continue to anticipate closing these acquisitions during the third quarter.

Lastly, we completed the financing for these transactions in March. In addition, we published our annual report, ESG report and proxy statement. We encourage everyone to review these documents as each report highlights key aspects of our strategy, our commitment to our ESG initiatives and our philosophies around executive compensation.

Now, let's transition to the results for the quarter. I'm on Slide 4. We delivered $905 million of revenue, growing 11% in total and 7.8% organically with good new business and solid retention. Our adjusted EBITDAC margin was strong and remained consistent with the first quarter of 2021.

Our net income per share for the first quarter was $0.77 on an as-reported basis and $0.78 on an adjusted basis. Later in the presentation, Andy will discuss our financial results in more detail. We completed two acquisitions during the quarter with annual revenues of approximately $65 million, with Orchid being the majority of that amount.

In summary, we're very pleased with our strong performance for the first quarter. I'm now on Slide 5. From a customer and market perspective, businesses continue to expand and the economy grew, albeit slow -- at a slower rate than last year.

We're seeing some customers beginning to realize initial relief in supply chain issues experienced over the last two years. The main challenges business leaders are managing today are the ability to find enough workers, inflation and rising interest rates.

These are putting pressure on margins for many companies across multiple industries and are influencing how leaders invest in their company.

From a carrier standpoint, the themes remain fairly consistent as compared to Q1 of '21 and previous quarters which includes the availability of limits for certain classes, heightened pricing sensitivity and increased underwriting rigor for cyber liability and customers with high losses.

Consequently, customers continue to modify their deductibles and limits to best manage their premium increases. Admitted market rate increases were similar to prior quarters and were up 3% to 7% across most lines with the outlier being workers' compensation rates which continue to be down 1% to 3%.

From an E&S perspective, rate increases continue to be in the range of 10% to 20%. Cat property, both wind and quake, were up 10% to 30%, with some year-over-year moderation experienced on earthquake rates.

A topic that's on the minds of many carriers is insurable values as property prices and replacement costs have increased materially over the past couple of years. Professional liability for most accounts remain very challenging with rates up 10% to 20%.

Regarding cyber, rates and deductibles continue to increase with carriers requiring effective security protocols in order to obtain coverage. For professional liability and excess umbrella, the themes are consistent with previous quarters.

California and Florida personal property placements are becoming even more challenging due to the past losses and aggregate concentrations and we expect the appetite for personal lines in those cat-prone areas will continue to be constrained this year. With that said, we are well positioned to help our customers find creative solutions.

I'm now on Page 6. Let's transition to discuss the performance of our four segments. Our Retail, National Programs and wholesale segments delivered another strong quarter with organic revenue growth of 8.9%, 6.1% and 11.6%, respectively.

The performance of these segments was fueled by a combination of new business, good retention, rate increases and modest exposure unit improvement. The organic revenue for our Services segment decreased 6.2% for the quarter with the main driver being fewer weather-related claims this year.

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 7. Like previous quarters, we're going to discuss our GAAP results and then certain non-GAAP financial highlights. For the first quarter, we delivered 11% total revenue growth and organic revenue growth of 7.8%.

Our net income grew 10.3% or $20.6 million and our diluted net income per share increased by 10% to $0.77. The effective tax rate increased to 16.9% for the first quarter of this year as compared to 16.5% in the first quarter of last year.

The higher rate was primarily impacted by the change in the tax benefit associated with shares vesting from our stock incentive plans. We continue to anticipate our full year effective tax rate will be in the 24% to 25% range.

Our weighted average number of shares increased slightly compared to the prior year and our dividends per share increased to $0.103 or 10.8% compared to the first quarter of 2021. We're over on Slide number 8. This slide presents our results on an adjusted basis. Previously, our adjusted measures only excluded the change in earn-out payables.

Beginning this quarter, we refined our adjusted measures to isolate the impact of movements in foreign currencies on both revenues and operating cost as well as to remove the net gain or loss on disposals.

In addition, we're removing the nonrecurring acquisition and integration costs associated with GRP, BdB and Orchid due to the materiality of these costs. We anticipate excluding the cost for these acquisitions for the next 18 to 24 months.

Please refer back to Slides 15 and 16 for the reconciliation of these amounts to our most comparable GAAP measures. On an adjusted basis, income before income taxes increased by 11.7%, EBITDAC grew by 11.1% with consistently strong year-over-year margins even with higher variable cost over the prior year and our net income increased by 11.3%.

From an expense standpoint, our first and second quarters are probably our toughest year-over-year comparisons as travel and entertainment were increasing in the second half of last year. Our adjusted diluted net income per share was $0.78 which grew by 11.4%. In summary, it was another great quarter on the top and bottom line.

We're over on Slide number 9. Our Retail segment delivered adjusted total revenue growth of 14.2%, driven by acquisition activity over the last 12 months and organic revenue growth of 8.9% with solid growth across all lines of business.

Adjusted EBITDAC grew 18.4% with the associated margin increasing by 130 basis points for the quarter which was driven by leveraging organic revenue growth and managing our expenses even with increased variable operating cost. Moving over to Slide number 10.

Our National Programs segment delivered adjusted total revenue growth of 4.7% and organic revenue growth of 6.1% with strong growth across many programs. The difference between adjusted total revenues and organic revenues was driven by slightly lower contingent commissions and the sale of a program in the prior year.

Adjusted EBITDAC was substantially in line with the prior year with the associated margin declining by 170 basis points to 33.2% as a result of increased variable expenses, higher noncash stock-based compensation and the timing associated with recognizing revenues and costs related to new customers. We're over on Slide number 11.

Our Wholesale Brokerage segment delivered adjusted total revenue growth of 13.2%, driven by acquisitions in the past 12 months and organic revenue growth of 11.6%.

Adjusted EBITDAC increased by 23.2% with the associated margin improving by 260 basis points as a result of strong organic revenue growth and higher contingent commissions despite increased variable cost. Moving on to Slide number 12.

Adjusted total revenues in our Services segment decreased by 7.2% and organic revenue declined by 6.2% due to fewer weather-related claims as compared to the prior year. For the quarter, adjusted EBITDAC decreased by $3 million or 25.2% due to variability in the volume of weather-related claims. A few comments regarding liquidity and cash conversion.

As discussed during our Q4 earnings call last year, we've transitioned to a fiduciary reporting model for cash, accounts receivable and payables held or owed in a fiduciary capacity. The change is to more appropriately reflect the cash flow from operations and the nature of the accounts on our balance sheet.

On the cash flow statement, changes in fiduciary receivables and liabilities are presented within financing activities. On the balance sheet, these accounts are labeled as fiduciary assets and liabilities.

After delivering another year of strong cash flow in 2021, we started 2022 with a solid performance and delivered cash flow from operations of $104 million. Our ratio of cash flow from operations as a percentage of total revenues was 11.5% for the first quarter of this year as compared to 16.9% in the prior year.

The ratio of cash flow from operations as a percentage of total revenues was lower than the prior year due to paying higher incentive bonuses to our teammates for their outstanding performance in 2021 and the payment of acquisition earn-outs as certain acquisitions have overperformed our original expectations.

As a reminder, the first quarter is normally our lowest conversion ratio of the year due to payments of prior year bonuses.

Consistent with our comments at year-end, post our transition to the fiduciary model, a good estimate of full year cash flow from operations as a percentage of total revenues should be in the range of 27% to 28%, barring anything unusual. As Powell mentioned earlier, we completed the financing for the acquisitions of GRP, BdB and Orchid.

The total deployed capital for these acquisitions will be approximately $2.5 billion. $2 billion of the purchase price will come from the $1.2 billion of new 10- and 30-year bonds we issued in mid-March which carry interest rates of 4.2% and 4.95%, respectively. $800 million will be sourced from a new bank facility we finalized at the end of March.

The remainder of the purchase price will come from cash on hand as well as cash generated during the first half of this year. Incremental interest expense for the first quarter was approximately $2 million and we expect interest expense to increase approximately $17 million per quarter going forward as a result of the bonds and bank facility.

Our excellent capital position and strong cash flow support our strategy to acquire great companies and also enables us to delever over the coming quarters as we've done in the past after larger acquisitions. With that, let me turn it back over to Powell for closing comments..

one, availability of employees across all industries; two, the resolution of supply chain constraints; and three, how current global geopolitical matters resolve themselves. How each of these areas play out over the coming quarters will drive the growth trajectory of the economy.

This will then influence how leaders invest in their businesses and corresponding exposure unit expansion. From a rate perspective, we anticipate premium increases for admitted markets will remain relatively constant for the next few quarters.

From an E&S perspective, we expect premium rate increases for the second quarter to be consistent with levels experienced in the first quarter. Depending on weather-related and other losses incurred over the next few months, rates for certain lines may increase further or moderate slightly in the months to follow.

In states like California and Florida, premiums are becoming very expensive for certain classes. As a result, customers are managing expenses by modifying deductibles or aggregate limits. On an M&A front, regulatory approval for the closing of GRP and BdB is progressing as expected and we anticipate closing during the third quarter.

More broadly, we expect competition and valuations to remain at peak levels until interest rates increase materially. We have a good pipeline. We are actively seeking firms that fit culturally and make sense financially and we're well positioned to deliver value for our stakeholders.

From an innovation standpoint, we're making good progress to leverage data in order to enhance the customer experience, streamline the placement of coverage and create new products. We're also working to implement efficiency tools that will enhance the experience for our teammates so they can spend more time delivering solutions for our customers.

In closing, we feel great about our business as we continue to expand our capabilities and most importantly, about our 12,000-plus teammates that will soon be nearly 15,000 teammates when GRP and BdB are closed.

We're focused on delivering for our customers, writing more new business and acquiring great companies as these will be the key drivers of our long-term growth. With that, let me turn it back over to Jake for the Q&A..

[Operator Instructions] We will begin with Elyse Greenspan with Wells Fargo..

Hi, thanks. Good morning. My first question is on the margin. You guys have pointed to flat margins for the year. I know, Andy, you guys pointed out that you had tougher year-over-year compares in the first and the second quarter as T&E started to increase in the back half of last year.

So since the margins were flat to start the year, does that position you guys to see margins come in better than you originally expected?.

Elyse, I think since we're at the end of the first quarter, similar to the comments last year, we'll probably stick with our current guidance for the full year and then let's see how the next quarter or two round up for us.

But the fact that we said flat, that could be up slightly, down slightly for the full year, still seems like a pretty good range at this stage. But we're very pleased with the first quarter..

Okay, great. And then my second question, in terms of organic. Retail, you pointed to broad-based growth across the different businesses. Can you give us a sense of how the core Retail business is doing versus benefits in the Q1? And I know last year, you guys showed pretty strong growth in the second quarter in benefits.

Should we think about the year-over-year compare being tough? Or would you expect to show good growth in benefits in the second quarter this year as well?.

So Elyse, we are very pleased with the performance of all segments of the business in Retail. And although we don't break out those segments, we're very pleased with how commercial, P&C and benefits and personal lines performed in the first quarter and we anticipate that they will perform well in the second quarter..

Okay. And then one last. When you guys announced the GRP deal, you were talking about potentially looking to use that platform to do some other bolt-on deals overseas. Since you announced the deal, do you have any kind of update just on the market that you guys are seeing in U.K.

and Ireland and how that could translate into additional M&A opportunities for Brown & Brown?.

What I would say, Elyse, is this, obviously, it's a smaller economy in the sense that there's 66 million people there and I think there's 330 million people in the United States. But there are lots of firms that are in the small and medium space.

And the key and GRP has been doing this but -- is to continue to identify firms that fit culturally and make sense financially. And so they are actively looking for opportunities and are actually doing transactions at the present time and we anticipate continuing to do that.

But from a standpoint of -- we don't give guidance, as you know, in terms of what we're going to buy or what's in the pipeline. We just -- we don't believe that until it's actually done.

But we do think there's going to be some nice opportunities for us there and we're very excited about it and very excited to welcome our soon-to-be new teammates once we get the approval by the FCA..

Okay. Thanks for the color..

Thanks, Elyse..

And next, we'll move to a question from Greg Peters, Raymond James..

Good morning, everyone. Powell, in your comments, you talked about inflation, supply constraints and a mild -- war on talent. There's definitely, it seems to be, within the insurance brokerage sector, a lot of attention to the war on talent. We see periodically teams going from one organization to another.

So maybe you could speak to us for a moment about how your producer retention -- teammate retention is holding up. And talk to us about the pressures you might be seeing from the wage inflation perspective as it relates to your teammates..

Sure, Greg. And I would tell you that several calls ago, I remember talking about the fact that our industry has done a pitiful job of recruiting and developing talent across the platform. Not one firm or one segment but just the industry as a whole has not done a very good job; that's number one.

Number two, we're seeing, as you are, lots of people -- particularly a lot of movement in the carrier side. In my years in the business, 30-plus years in the insurance industry, 32, I haven't ever seen it this active on the carrier side.

That said, yes, we are seeing people that are moving and sometimes teams are moving to other firms in the brokerage space. And what I would tell you is this, we talk about cultural fit in terms of acquisitions. We also -- that's embedded in the kind of people that we hire and we look for.

And so a fundamental core value at Brown & Brown is wealth creation for our teammates. And so as you know, all of our teammates have the opportunity to buy stock through an employee stock purchase plan or the equivalent plan at a discount.

And no one is required to do that but we have an ownership culture here where 22-plus percent of the company is owned by Brown & Brown teammates. And we know at least 65% of our teammates own shares at Brown & Brown. We think it's higher but we know that for a fact.

So you have an ownership culture which is very unusual particularly in a larger public company. And so the way we think about it is people like to be parts of winning teams. You would like to be a part of a winning team. I would like to be part of the winning team. Andy wants to be part of a winning team.

And ultimately, in a decentralized sales and service organization, we believe that we have tapped into something that appeals to a lot of very talented people which is there's a lot of independents at a local level and the kinds of business they go after.

But there's a way for them to grow wealth through, one, if you're a producer and hitting certain revenue targets and getting grants and leaders are the same and teammates through discounted share purchases. So do we have turnover and have we had turnover? Yes, we have. Is that turnover more pronounced today than it was two years ago? No, it's not.

And that doesn't mean that we're diminishing the impact of it because we don't like to lose teammates. There are talented teammates that sometimes leave Brown & Brown and that's a bummer.

But we are always looking for people that want to be part of a winning team at Brown & Brown and we believe that we have the right mix of rewards to drive desired behavior that are aligned with our overall company goals..

Got it. Just a point of clarification in your answer. You talked about the churn of talent at the carrier level.

I'm wondering, are you seeing any disruptive consequence of that with renewals as you think about your total book of business?.

Well, let me put it this way. There's two ways to answer that. The answer at a local office level is when you have change like that, if your underwriter leaves, there's a disruption. It doesn't mean you can't work through it.

It just means that they -- somebody may try to re-underwrite the account or something like that or ask more questions that if -- the person that had put the account on the books, they know the account; that's an example. At a higher level, no, I would say we kind of work through it. But at a desk level, the answer is it depends.

And in some instances, it can be bumpy. In some instances, it can be more of a smoother transition. It just depends..

Got it. Thanks for the color on that point. I know this is probably getting out a little bit in front of the process but you reported to us that you spent a bunch of time meeting all the colleagues with GRP and BdB. I'm wondering if you can give us -- you're also observing their results.

Give us some perspective of how they performed in the first quarter based on what you've been able to see. And I guess what I'm zeroing in on which isn't surprising, is how their organic, how their margin profile, how their free cash flow conversion is going to mesh with you.

And I know you've provided some big picture comments on it before but maybe you could use this opportunity to give us another update..

So, let me thank you for the question. And I'm going to touch -- I'll try to touch on that in a very diplomatic way. And the reason I say that is, number one, we haven't closed the transaction. So it's subject to approval by the FCA. And as we've said, we believe that would occur in the third quarter.

They did have a nice first quarter and I'm not going to go into specifics because I don't know all the specifics, I know enough. But this is what I think is important and more important to you but you can't put this in your model. When I go into the offices in these communities around England and Ireland, it reminds me of Brown & Brown 20 years ago.

And so for those people that are on the call that understood what we were like 20 years ago, we were a very effective sales and service organization but we continued just add to our capabilities and improve and grow more organically. And we've done some cool things since in the last 20 years.

And so I can tell you this, I went in a lot of offices and met a lot of teammates in England and Ireland and they are pumped. And so you know we have a different story than pretty much anybody else out there.

And relative to a public company, there aren't many public companies, let alone in the brokerage space but any public company that's got 23%, 22% insider ownership by teammates. So again, we talk about culture.

Part of our culture is an ownership culture where we put the interest of the customer first and it's based on a foundation of honesty and integrity. And when you do that, it will always work out for Brown & Brown long term. So I could go on and on about Mike Bruce and his team in England and Silvestro and his team at BdB in London.

I'm going to tell you we are very pleased with the teams and are -- can't wait for them to become officially teammates sometime in the third quarter..

And Greg, to your question about organic and margins, we'll address the organic once the businesses have been in with us. But no change in our previous commentary regarding overall profitability and cash flow conversion for the businesses.

As we said back in the early part of March, that has a very similar profile, those businesses and the divisions in which they're going to be part of. So nothing has changed on that front. We're very, very excited about having them be part of the team and adding their capabilities..

So Andy, on that point, like cash bonuses and the expenses that go through your cash flow in the first quarter, that's similar to what's going on at GRP and BdB, correct?.

For the most part, yes, there is some different phasing but nothing substantially different..

Got it. Thank you for the answers, guys..

Thank you..

We'll now move to Mark Hughes with Truist..

Yes, thank you. Good morning. Just curious on your latest thoughts on the net impact of this volatility. Let's say, in California, in Florida, you're getting these meaningful rate increases but customers are shifting their deductibles and you've got some moving over to, say, Citizens in Florida.

Is this -- when we think about the organic growth impact of that kind of dislocation, is this a good organic growth environment? Are you getting faster growth in these markets because of that dynamic?.

So let's back up and first say, in California and Florida and you kind of alluded to this, Mark, that there will continue to be pressure on the state funds or the state-backed alternatives.

In the State of Florida, I believe the number as of today is there are four take-out companies that have been downgraded by Demotech and/or wiped out, one or the other. And when I say downgraded, meaning they're saying in filings, they don't believe they can continue on, so that means they're going down.

And so what you've got is you've got a lot of turnover in certain sized homes in the State of Florida. And so the governor had a special session and that -- they've got several items on the special session but insurance was one of those topics.

And so what our governor is trying to do and our CFO is to make Florida a very -- have choice for consumers and be consumer-friendly, understanding that there are some hurdles that the carriers have had to jump over or through regarding past losses and/or development of losses and/or the future and aggregation of things here in the State of Florida.

So what I would say is as it relates to our teammates that work in the personal lines area which is very important, it's going to create more work for them. That's number one.

Number two, it becomes sometimes a little bit challenging because you have a very fine customer who's been with a carrier where they probably, in the case of the ones that went down, maybe underpriced the account a little bit.

So they're experiencing, that customer, higher-than-expected increases on their insurance, sometimes that leads to them potentially looking at other locations for insurance but not exclusively. We think we can get to every market, so we try to bring all the options to those customers.

Does that create some organic growth opportunities? Yes, with a caveat. So I would basically say it's a neutral. I don't want to give you a thing that it's negative, although it's harder on our team. But I also don't want to tell you it's like a bonanza either because it's not.

It's sort of -- it's a neutral to slight positive but there's stuff that goes with that..

Yes. Mark, keep a couple of other things in mind on this. I know you just put out a big research report on the cat properties and everything. There's a number of different factors that go into ultimately what comes out as our commission revenue.

And so while the rate online in many cases is, in fact, going up, as we mentioned in our commentary, you've got customers that are looking at deductibles and taking those up. They've got -- they're looking at their total limits that they're purchasing in order to adjust.

In the case of Citizens, we're paid a different commission rate than what we are through the other carriers. So there's a lot of factors that go into it. So just because the rate online might go up 15%, it doesn't mean that our commission revenue goes up 15% inside of there.

So just try to keep all of those in consideration when thinking about the opportunity in the marketplace..

You mentioned on the National Programs, one of the EBITDA impact was from timing of revenue.

Does that become more favorable at some point in the near term here?.

Yes. I think over the year, that works out -- one of the comments in there that we made, Mark, was just the onboarding of customers. And we've talked about this in previous calls, is that generally, when we bring on new customers, we're hiring teammates in advance to get them trained and start to prepare to get the account onboard.

And then as the revenues start to come into the P&L, then it catches up. So nothing unusual but when you -- sometimes when you look at individual quarters, they can move around..

So this was more of a negative quarter, likely to balance out and be more positive at some point in the future?.

That's probably a fair comment, yes..

Thank you very much..

Thank you, sir..

Moving on to Weston Bloomer with UBS..

Hi, good morning. One of the things you guys touched on in the prepared remarks was on the geopolitical matters and the impact that could have on growth. I was hoping you could provide additional context on that in context to your guidance around the March '22 M&A.

Maybe expand on any potential indirect or direct exposures and just help frame the conservatism that was maybe built into that. I understand you can't get into specifics but have you noticed any slowdown in the U.K.

or eurozone and related exposures?.

Right. So to the best of our knowledge, we don't have any exposures in Ukraine or Russia, whether that be currently or anticipated with the announced acquisition subject to approval by FCA; that's number one.

Number two, what we would say is the impact that we've seen at least through the first quarter is what I would call general inflationary pressure, maybe even consumer pressure, not unlike what we see here west in the United States. So that could be increases on food prices, increases on gas prices, things like that.

From an exposure unit standpoint, we have not seen a slowdown in the first quarter. And so -- we believe that will continue. And so remember, there's a balance with what I call general inflationary pressure. The negative is your cost of goods go up, gas, food, clothing, whatever the case may be.

The flip side of that is your insureds, if their exposure units are based on payrolls or sales, if the sales price goes up, that could offset slightly the premium paid. If the payrolls go up, that could impact the premium paid when you have wage inflation.

So based on what we've seen so far, we think that as I've said, it would be similar to what we've seen here in the United States from an inflationary standpoint. That's how we would answer that question..

Great. That's super helpful. My follow-up is, I guess, on the broader pace of M&A across your portfolio. In the past, you've done around 20-ish deals per year. Just curious on the pipeline you're seeing from here.

Is that roughly around the same level that we should expect for 2022? Or could it potentially be lighter given the recent large-scale M&A? Just curious on what you're seeing by size, multiple type of deal..

Yes. So Weston, I wouldn't get focused so much on the number of transactions. I think that might -- I don't know if that's going to yield the outcome you want. What I would tell you is we generally -- well, not generally, we focus on cultural fit. And when and why people sell is different.

And so what I would tell you, you can go back and look at our five year average or 10 year average on revenue acquired. I think that number is somewhere around $135 million a year.

But there's going to be certain years, this year would be one of them, that it will be higher than that, subject to the approval and closing of those transactions that we've talked about. But I want you to understand that each deal stands on its own.

So the fact that we have done or announced a large transaction, does that dramatically impact our ability or interest in acquiring a nice firm, sized firm here in the United States? And the answer is no, it doesn't. Those are two totally separate decisions about how we invest in the business and we like to think we can do both.

So I wouldn't want to focus you on number of transactions. And we don't know how much we're going to do when we start the year. Obviously, what we've announced is much more than $135 million so far, subject to those being approved. But we have lots of opportunities that we're talking with but we don't know when and if those close.

And we don't talk about the pipeline because the pipeline isn't what we buy. The pipeline are the opportunities to buy. And so it's ultimately what we close and you'll know about those when we close them..

Weston, it's Andy. Weston, I think maybe other side of the question that you might be asking is are we out of the M&A market. And can we just say definitive, we're not out of the M&A market. We do have -- and we had this in our prepared comments. We do have adequate capital to continue to buy really good businesses this year.

We also anticipate that we'll be able to delever the organization after these transactions. So we feel really good with where we are. Question is just when do the businesses kind of line up for the sale. And they're just -- they're not consistent by quarter for us because of that cultural alignment..

Great, thank you. I really appreciate all the color..

Thank you, Weston..

[Operator Instructions] We'll now move to Yaron Kinar with Jefferies..

Thank you. Good morning. Maybe a continuation on this M&A front. So if valuations remain elevated at this point, how are you thinking about team hires as another option to bring people in as opposed to outright M&A? Maybe you can help us think about the pros and cons of it and when you prefer a team hire over just purchasing a business..

Well, I think the way I would articulate that, Yaron, is any time that we find good people, we would consider hiring them. It doesn't have to be at this type of cycle. So we have not done a number of what you might call team lift-outs. That is not how we've built our business.

And so that doesn't mean that there aren't people that we would consider hiring. And if the right people wanted to do something, we would consider a way to structure it. But we don't want -- we have contracts that we want our people -- we abide by the contracts and we don't ask somebody to violate contracts when they come to Brown & Brown.

And so we expect others to abide by those contracts. So if people want to come or people want to leave, then they can. We -- and so we're really mindful around that. We don't take the actions of we go into it with a legal mindset where it's going to be a legal battle. That's not the way we build our business. We try to do it on up and up.

And we basically -- if somebody wants to come, honor the contract that you had with your prior employer and let's go forth and write new business. And then if, in fact, you have covenants, then once those covenants expire, then if you want to go back after that business, you can..

Okay, that's helpful. And then on a totally different topic, going back to Elyse's question in the beginning of the Q&A. You had flat margins in the first quarter.

It sounds like you're saying second half of the year, you could see a little bit of alleviating pressure on the margin side and yet, you're maintaining the overall full year guidance as kind of flattish margins.

What are the headwinds that you're seeing or that you were potentially seeing that could offset some of the margin expansion in the second half of the year? Is it just slower growth?.

Have you flown on an airplane lately? Have you flown on an airplane lately? I know you have.

So the point is did you see how much you had to pay for that ticket?.

Yes..

Okay. So the cost of a hotel room, the cost of a rental car, the cost of an airline ticket, the cost of the gas to put in the rental car, particularly if you go to a place like California where it's $5 and $6 a gallon -- and I'm not trying to be flippant. I'm basically trying to say that there are -- there's pressure on all these inputs.

And so I think, quite honestly, that our margins are really good and we're really pleased about where our margins are. And if we deliver flat margins, as we said, at the end of the year, I think that'd be pretty darn good under the circumstances. But there's a lot of variability in terms of costs that are beyond our control.

That does not mean, Yaron, that we're saying that we're going to have everybody back traveling exactly like they do. But if you took six people to see a client and now you take two but if it costs two or 3x as much to get the two people there, that kind of offsets a little bit. So that's what I would say relative to the margin profile.

And by the way, if we exceed -- if we overperform the flat, that's great. If we underperform slightly, that's all right too. The thing is we are growing our business organically and profitably and more importantly, we're converting that into cash and reinvesting it into our business. So cash conversion, we've talked about this for a long time.

We think it's important, I know you do. But I think it's -- we think it's really important, particularly the amount that we convert relative to others convert and our ability to use that cash and invest in our company..

Got it. Thanks so much for the comments..

Yes. Thanks, Yaron..

We'll now move to Derek Han with KBW..

Good morning. Thanks. Just looking at the investment income. Can you just talk about what interest rates matter the most? I would have expected an increase but it looks like it didn't change all that much. And that's why I'm asking..

Yes. Derek, Andy here. Probably two ways maybe for you to think about that. Let's talk about on the interest income side. As you probably saw, for the quarter, we generated about $100,000 of net interest income.

So the movement in interest rates will probably not have a material upside on interest income because there's a lot of factors that go into the net earnings of that because of restricted accounts and bank fees, et cetera, inside of there. So I think maybe that's one way to park it.

And then when you look at the debt side of things, is we'll have in the range of about $1.2 billion, $1.25 billion of floating-rate debt out there. So you can get a pretty good idea of kind of what every 1% increase does on there. We think we're well positioned between fixed and floating in order to optimize the interest rates that are out there.

And as it relates to the guidance that we gave on the $17 million, we've incorporated our thoughts in there as to probably what will happen with rates over the coming year..

Got it. That was really helpful. And I just had another question on contingents. It looks like the programs contingents were down a little bit, only modestly but the wholesale contingents were actually up.

Can you just talk about what's driving that? Why the different directions year-over-year?.

Yes. So let's talk about programs first and those are the ones that can be more volatile in nature. And thus -- to explain the reason why on that, it's because they're tied to individual programs and profitability in volumes. Those can just move up and down and we've seen that over time. So nothing unusual inside of there.

Nothing that's changed from a fundamental standpoint in the business. And then on the wholesale side, it's good to see that they're up a little bit but we don't think that we're "out of the woods" and that contingents are going to start going up. They've been down for quite a few years because of overall profitability at the carriers.

So good to see up a little bit but that's only one quarter and some of that's just some true-ups from the accruals that we made in the previous year. So nothing real unusual there at this stage..

Got it. Thank you for all the answers..

Thank you..

And we have a follow-up from Mark Hughes, Truist..

Yes, thank you.

Any update on the social security advocacy business?.

The answer is yes, Mark. What I would tell you is there continues to be -- it seems to be slowing down or continuing to be slow in the processing of those claims. And I don't -- we don't see in the near term, near term meaning the next quarter or two, that changing at all.

So as I like to say, there continues to be a backup but -- of things and claims to be processed but I don't see the way to clear the pipe efficiently in the near term. So we don't have a significant update on that.

Do you have anything else on that, Andy?.

Yes. Maybe think about it in two ways, Mark. One is the inflow into the business and we mentioned this on some previous calls. We're very, very pleased with the volume of potential claims coming to us and the relationships that we have with all of our customers. So inbound is good. So that's an important thing for us as to how we look at the business.

Then the question is the number that ultimately get processed by the Social Security Administration and that's kind of the other end of the funnel that just has a constraint on it with the number of employees that they have there at the administration. So it's kind of at a -- we'll call it, somewhat level as to where it was about a year ago.

But at least right now, we don't see anything that's going to cause us to believe that they're going to add more resources in the SSA in order to increase the volume. But we've seen this in the past though. We really have. And it goes in a cycle and then there's a backlog there.

And then all of a sudden, there'll be some sort of noise that will happen and lo and behold, they'll put additional resources in that it clears out. So it does kind of come in waves but the overall health of the business is very good. We just wait for it to come out on the back end. And it's a cycle..

Yes. And then one final question. I don't think you've addressed this directly on this call but the duration of the P&C cycle. You described your outlook for rates to be largely steady, it sounds like, at least for the near term; steady as in steady increases. And that may be a little more optimistic than some of these calls in the past.

Any thoughts on the duration of the cycle, what you might have seen here recently that influences your view on the durability of the cycle?.

Okay. So let me clarify ranges and what you just said so we're clear.

If you say the rate increases range from 3% to 7% and all of a sudden, the majority of them are 6% and then in the next quarter, the majority of them are 5% or 4.5%, that's a slight moderation in rates, okay? So do we anticipate the rates being in the similar range to what we said? Yes, we do.

But I want to make sure that you understand that there's a range there. So I actually say in most classes of business, we're seeing slight moderation in rates but in the same range; that's number one. Number two, Mark, I've only been in the business 32 years. And so in my 32 years, I've not seen anything like what we're in today.

So you've read all the other reports on the carriers and they start talking about loss costs are up. Their profitability is up but you have the involvement of significant claims awards outside the so-called normal, if you want to call that, whatever you want to call those huge verdicts.

You're also seeing just in terms of juries, particularly in certain areas of the country, being very sympathetic to claimants. And so the carriers are looking at all of that. And I think the carriers are also doing a better job in disciplined underwriting. That does not mean that's going to go on forever.

But there is that -- at a certain point, we're going to get to what a friend of ours calls the cheating phase and the cheating phase is where people start undercutting pricing. And so I don't think that's going to happen tomorrow but that's coming. Now there's one caveat that we touched on but I'd like to expand on for a moment.

You put a big hurricane into Florida, that makes the market here in Florida significantly different and it's not easy today. So that's number one. Number two, you put a big earthquake into California. That changes the dynamic of earthquake insurance and particularly not only the people that buy it but the rates that are charged.

So what I would say is, in the event that there are no major natural disasters -- I'm not talking about windstorms and tornadoes which are tragic and things like that. I'm talking about a big hurricane coming into Texas, Florida, Louisiana, big earthquake. Without that, you will continue to see pricing moderation.

If you do see that in any one of those areas, any one of those areas could go into a very chaotic insurance market.

So I don't know if that exactly helps you or hurts you but I hope it clarifies our view on -- and by the way, I think that we're going to be -- if you ask me which you didn't exactly, what's it look like for the rest of the year; I think it's slight moderations, subject to any big natural losses..

Yes. I appreciate the clarity. Thanks, Powell..

Thank you. All right. I think we have one -- do we have one more question or more than that.

What do we have Jake?.

We have a couple in the queue. We have a question from Michael Phillips, Morgan Stanley..

Hey, thanks for taking me in. Just one for me, guys. Specifically on the national program, you've been pretty clear that replicating the prior two years of 12% to 13% organic is just not in the cards obviously.

But can you -- without trying to give specific numbers, just help us -- remind us of things to think about for how the rest of the year could play out as we compare the rest of the year to kind of the 6% that you did in this quarter..

All right. So Michael, it's Powell. Think about National Programs as a couple of buckets. One of those buckets is, let's say, catastrophic exposure, quake, wind, the like. So your ability to grow in that market is going to be dictated by the availability of capacity.

So if you don't get new capacity, you will have potentially slight increases on your existing book but you will not write new business. And if some of that moves to another market, then that moderates your growth. So what I want you to think about is a component of National Programs is dependent on capacity, one.

Two, think about what Andy said earlier in our loan tracking business. You have a business where you have several portfolios that were sold in a quarter. We didn't know when the portfolios are going to be sold, just like we don't know when the portfolios are being purchased. So that can go both ways. It was a little bit of a negative this quarter.

If one of our clients bought a bunch of portfolios in the second quarter, then -- or the third quarter, we could have a slight uptick. Then I want you to think about a big part of our National Programs is flood, okay? Flood just went through a re-rating. It's 2.0. So that's a nice way of saying certain flood zones were remapped.

There were certain things that were charged that maybe weren't charged before or they are charging less for them now. So in the event that nothing has changed and your flood insurance goes up significantly, some people might, might, living in a flood zone, consciously decide not to buy flood.

Now I know that sounds hard to believe but the answer is they might. So the rest of our National Programs would be those that are, let's say, casualty-driven. So we have a dental program, as an example and we write dentists through administrators around the country and that's the professional liability on dentists.

So is there a lot of rate pressure on dentists? Well, I'm not aware of that. I mean your professional liability exposure is did you pull the wrong tooth, did you -- did someone get infection in their mouth, something of that, or did somebody slip in the hallway on the way to the dental chair.

But the performance of that program has been pretty good over time but there are lots of other people that want to write that class of business. So that's a long-winded answer, Michael, on saying that the portfolio of businesses in National Programs is very indicative of an insurance company that we don't bear risk in. That's how you think about it.

So remember, we are underwriting on behalf of our carrier partners and we have to make them money. So depending on whichever bucket you are referring to that I just outlined, they each have different pros and cons going into the year -- the rest of the year; that's how I describe it..

Okay. Thank you, Powell. That’s very helpful. I appreciate your time..

Yes. Have a nice day. This will be our last question, Jake..

We have one final question in the queue. We'll hear from Elyse Greenspan for a follow-up from Wells Fargo..

Thank you. Andy, my question, on -- when you guys announced the GRP deal, right, you gave us a low and a high case on the financials. The interest expense seems just modestly higher.

I'm assuming everything else stays in place and that you guys will kind of update that when the deal's closed but any kind of update you can give us now?.

Not at this stage. I think you're spot on, Elyse. Once we get the deal closed which, again, we're anticipating for both GRP as well as BdB in -- sometime during the third quarter, then what we'll do is applicable updates for projections once we just have more information. Again, we can only get so far since we don't own the businesses yet.

So we'll adjust accordingly. And the interest rate, it is up a little bit but probably still within the overall ranges that we gave..

And then for the integration costs, I know -- I think they were in corporate this quarter.

Will they continue -- I know you backed them out of adjusted in the margin but will they remain within corporate even after the deal closed? Or when will they shift to the Retail segment?.

Yes. If you look in the back of the earnings deck, we've actually got a schedule in there that breaks them down by each of the divisions. So we did have costs in more than other or corporate. And going forward, they may be in different places but the schedule will be able to break that right out for you nice and clearly..

Okay, great. Thanks for the color..

Yes, thank you..

That would be it. Thank you all very much. I want to let you know that we're very excited about our performance in Q1 and look forward to another good performance in Q2. We're very pleased with the outlook on the business, the margin profile of the business, the M&A opportunities and most importantly, all of our teammates.

As I said, we have just over 12,000 teammates today going to just under 15,000 when we close the BdB and the GRP deals. So we look forward to talking to you at the end of next quarter. You all have a nice day and thank you for your time..

And with that, ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation and you may now disconnect..