BROWN & BROWN, INC. Q1 FY2025 earnings call

• Brown & Brown delivered revenues of $1.4 billion, growing 11.6% total and 6.5% organically. Adjusted EBITDAC margin improved to 38.1% and adjusted earnings per share grew over 13% to $1.29.
• Discussed insurance market uncertainties like tariffs, inflation, and interest rates, with some business leaders more cautious but stable economies overall. Completed 13 acquisitions with $36 million annual revenue.
• Quintes segment: ~60% revenues in Q1 impacted Retail margin, but full-year expected to perform as communicated. Programs had strong quarter with 13.6% organic growth and EBITDAC margin up 220 basis points. Wholesale Brokerage had 6.7% organic growth, EBITDAC margin down 30 basis points but underlying margin up due to expense management.

Retail delivered 4.1% organic growth, with total revenues growing 12.5% and EBITDAC margin expanding by 120 basis points to 37.3%. Programs had organic growth of 13.6%, total revenues increased 10.1%, and EBITDAC margin expanded by 220 basis points to 44.5%. Wholesale Brokerage had organic revenue growth of 6.7%, total revenues increased 12%, and EBITDAC margin decreased by 30 basis points to 32.1%.

• Quintes expected to perform within previously communicated revenue and EBITDAC ranges.
• CAT property rates expected to continue decreasing in Q2, 10%-30% range.
• Retail organic growth anticipated to be higher later in the year.
• Full-year margin outlook remains as described in Q4 call, with Q1 in line with expectations.

• Uncertainties in tariffs, inflation, and interest rates affecting economic expansion and business investment.
• Volatility in insurance pricing, especially CAT property rate decreases impacting segments.
• Dependence on hurricane seasons affecting Programs revenue.
• Regulatory/legislative uncertainties like flood program reauthorization.

Q: Andy, the Quintes impact on the Retail margin and this timing shift on organic also in Retail, any specific numbers you might be able to share with us about what the effect was in the first quarter and then kind of what that means for the balance of the year?

A: Mark, if you utilize the guidance that we provided before on Quintes, about 60% of those revenues came in the first quarter. So again, think about the margin again has a pretty similar profile of what employee benefits does in the first quarter. So it's just naturally going to be higher. So that will serve as a bit of a drag in the out quarters for Retail. But on a full year basis, it will work out. It should be right in line with where we were thinking originally on the Quintes acquisition that's in there. And then the other piece you had asked about was just kind of the shifting in renewals and some of the onetime business. As we mentioned before, we anticipated that the first quarter would be about 1% below the other quarters. The first quarter for Retail was pretty much right on exactly what we thought it was going to be. So we continue to have good confidence in the out quarters for the year, kind of tied back to the comments that we made earlier about just economic backdrop and where buyers are right now. So we feel really good about the business.

Q: What do you anticipate for earned premium in the captives this year?

A: It will probably be up a little bit over last year on it, Mark. The piece is, I think you picked up on it in your research notes, and we talked about this in a couple of previous calls, is we're writing up to a specific amount of premium and that's our way of capitating the risk profile inside of them. And we pretty much hit that in the first quarter. We've been kind of climbing that over the past few years. So we would not anticipate much incremental organic growth in the following quarters in the captives. Now that might move around a little bit dependent upon what happens with CAT property pricing back and forth. But wouldn't anticipate anything material plus or minus versus last year, second through the fourth quarter.

Q: Powell, in your closing comments, you talked about growth returning to a more normal level. And I'm reminded of a comment you used to make about the impact or weighting of economic growth versus the impact from rate increases. And I think in the last couple of years, you seem to -- and I don't want to put words in your mouth, but you seem to indicate that you're getting a little bit heavier weighting from rate increases versus economic versus the traditional averages. Maybe you can update us because in the slide presentation, there's a couple of slides there where you talk about property CAT being down affecting -- having an offset on organic. And you talk about the other rate environment. So just can you provide us some updated perspective on how you're thinking about that?

A: Sure. So first of all, what Greg is referring to is historically, I would say, that our business is 2/3 to 3 quarters exposure unit and the remaining would be rate. That's how I've always sort of said that. And we've alluded to the fact that with the transition, particularly in CAT property, but it could be in some heavy casualty lines into unusual umbrellas and other things. It has gone up or had a little bit higher impact on rate in the growth. So that's the first thing. The second thing that I'd like to sort of clarify for everybody is I find it very interesting how you all are sort of surprised by the rate decreases in CAT property. I would have said I thought this was going to happen a year ago. And so CAT property historically goes up faster than you anticipate, and it comes down faster than you anticipate. And so it's all about the availability of limits out there, whether it be through a traditional insurance company or through an MGA or some combination thereof. So I think from a standpoint of our Retail business, but it affects the whole business, we are writing a lot of new business, Greg. And our goal is to get the best program, that's the most competitive program with the most comprehensive coverage for our customers. And so today, I do believe that what -- if you believe what I just said, which I do, is that it would go back more closer to the 2/3, 1/3 or 3 quarters, 1 quarter, but I usually use 2/3, 1/3. And again, as I said, I believe that if you talk to people, just the person on the street, they have a little bit more negative view of the economy than people that run and own businesses. I believe that depending on the industry that you're in, depending on your supply chain, some of these other things, your view is slightly different and maybe more moderated. So we feel good about Retail. And as I said, that's a long-winded answer on 2/3, 1/3.