BROWN & BROWN, INC. 10-Q

ITEM 2 — Management’s Discussion and Analysis o f Financial Condition and Results of Operations The following discussion updates the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and the two discussions should be read together. GENERAL Company Overview — First Quarter of 2024 The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, please see “Information Regarding Non-GAAP Financial Measures” below concerning important information on non-GAAP financial measures contained in our discussion and analysis. We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquartered in Daytona Beach, Florida. As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, sales or payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control. We also operate capitalized captive insurance facilities (the "Captives") for the purpose of having additional capacity to place coverage, drive additional revenues and to participate in underwriting results. The Captives focus on property insurance for earthquake and wind exposed properties underwritten by certain of our MGUs and limit the Company's exposure to claims expenses through reinsurance or by only participating in certain tranches of the underwriting. The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, changes in general economic and competitive conditions, a reduction of purchased limits, or the occurrence of catastrophic weather events all affect our revenues. For example, higher levels of inflation, generally increase the value of insurable exposure units, or a decline in economic activity, could decrease the value or amount of insurable exposure units. Conversely, increasing costs of litigation settlements and/or awards could cause some customers to seek higher levels of insurance coverage. Historically, we have grown our revenues as a result of our focus on new business, customer retention and acquisitions. We foster a strong, decentralized sales and service culture, which enables responsiveness to changing business conditions and drives accountability for results. The term “core commissions and fees” excludes profit-sharing contingent commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered. The net change in core commissions and fees reflects the aggregate changes attributable to: (i) net new and lost accounts; (ii) net changes in our customers’ exposure units, deductibles or insured limits; (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners; (iv) the net change in fees paid to us by our customers; and (v) any businesses acquired or disposed of. We also earn profit-sharing contingent commissions, which are commissions based primarily on underwriting results, but in select situations may reflect additional considerations for volume, growth and/or retention. These commissions, which are included in our commissions and fees in the Consolidated Statements of Income, are estimated and accrued throughout the year based on actual premiums written and knowledge, to the extent it is available, of losses incurred. Payments are primarily received in the first and second quarters of each subsequent year, based upon the aforementioned considerations for the prior year(s), but may differ from the amount estimated and accrued due to the lack of complete visibility regarding loss information until they are received. Over the last three years, profit-sharing contingent commissions have averaged approximately 3.3% of commissions and fees revenue. Fee revenues primarily relate to services other than securing coverage for our customers, and for fees negotiated in lieu of commissions. Fee revenues are generated by: (i) our Programs and Wholesale Brokerage segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and (ii) our Retail segment in our large-account customer base, where we primarily earn fees for securing insurance for our customers, in our automobile dealer services (“F&I”) businesses where we earn fees for assisting our customers with creating and selling warranty and service risk management programs, and fees for Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services. Fee revenues as a percentage of our total commissions and fees, were 23.9% in 2023 and 25.8% in 2022. For the three months ended March 31, 2024, our total commissions and fees growth rate was 11.6%, and our consolidated Organic Revenue growth rate was 8.6%. Historically, investment income has consisted primarily of interest earnings on operating cash and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy as it relates to the Company’s capital is to invest available funds in high-quality, short-term money-market funds and fixed income investment securities. Investment income also includes gains and losses realized from the sale of investments. Other income primarily reflects other miscellaneous revenues. 23 Income before income taxes for the three months ended March 31, 2024 increased from the first quarter of 2023 by $70 million or 23.8%, driven by net new business, increased profit-sharing contingent commissions and acquisitions completed in the past twelve months. Effective for fiscal year 2024, in conjunction with the divestiture of certain businesses within our Services segment in the fourth quarter of 2023, we aligned our business from four to three segments, and we now report our financial results in the following three reportable segments: Retail, Programs (formerly National Programs) and Wholesale Brokerage. See Note 12 of the Notes to Condensed Consolidated Financial Statements for further information. Information Regarding Non-GAAP Financial Measures In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with generally accepted accounting principles (“GAAP”), we provide references to the following non-GAAP financial measures as defined in Regulation G of the SEC rules: Organic Revenue, EBITDAC, EBITDAC Margin, EBITDAC - Adjusted and EBITDAC Margin - Adjusted. We present these measures because we believe such information is of interest to the investment community and because we believe it provides additional meaningful methods to evaluate the Company’s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis due to the impact of certain items that have a high degree of variability, that we believe are not indicative of ongoing performance and that are not easily comparable from period to period. This non-GAAP financial information should be considered in addition to, not in lieu of, the Company’s consolidated income statements and balance sheets as of the relevant date. Consistent with Regulation G, a description of such information is provided below and tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q under “Results of Operations - Segment Information. We view Organic Revenue and Organic Revenue growth as important indicators when assessing and evaluating our performance on a consolidated basis and for each of our three segments, because they allow us to determine a comparable, but non-GAAP, measurement of revenue growth that is associated with the revenue sources that were a part of our business in both the current and prior year and that are expected to continue in the future. We also view EBITDAC, EBITDAC - Adjusted, EBITDAC Margin and EBITDAC Margin - Adjusted as important indicators when assessing and evaluating our performance, as they present more comparable measurements of our operating margins in a meaningful and consistent manner. As disclosed in our most recent proxy statement, we use Organic Revenue growth, and EBITDAC Margin - Adjusted as key performance metrics for our short-term and long-term incentive compensation plans for executive officers and other key employees. Beginning January 1, 2024, we no longer exclude Foreign Currency Translation from the calculation of EBITDAC - Adjusted and EBITDAC Margin - Adjusted. Prior periods are presented accordingly on the same basis so that the calculations of EBITDAC - Adjusted and EBITDAC Margin - Adjusted are comparable for both periods. We no longer exclude Foreign Currency Translation from the calculation of these earnings measures because fluctuations in Foreign Currency Translation affect both our revenues and expenses, largely offsetting each other. Therefore, excluding Foreign Currency Translation from these earnings measures provides no meaningful incremental value in evaluating our financial performance. Non-GAAP Revenue Measures • Organic Revenue is our core commissions and fees less: (i) the core commissions and fees earned for the first twelve months by newly acquired operations; (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period); and (iii) Foreign Currency Translation (as defined below). The term “core commissions and fees” excludes profit-sharing contingent commissions and therefore represents the revenues earned directly from specific insurance policies sold and specific fee-based services rendered. Organic Revenue can be expressed as a dollar amount or a percentage rate when describing Organic Revenue growth. Non-GAAP Earnings Measures • EBITDAC is defined as income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables. • EBITDAC Margin is defined as EBITDAC divided by total revenues. • EBITDAC - Adjusted is defined as EBITDAC, excluding (i) (gain)/loss on disposal, (ii) for 2022 and 2023, Acquisition/Integration Costs (as defined below) and (iii) for 2023, the 1Q23 Nonrecurring Cost (as defined below). • EBITDAC Margin - Adjusted is defined as EBITDAC - Adjusted divided by total revenues. Definitions Related to Certain Components of Non-GAAP Measures • “Acquisition/Integration Costs” means the acquisition and integration costs (e.g., costs associated with regulatory filings, legal/accounting services, due diligence and the costs of integrating our information technology systems) arising out of our acquisitions of GRP (Jersey) Holdco Limited and its business ("GRP"), Orchid Underwriters Agency and CrossCover Insurance Services, and BdB Limited companies, which are not considered to be normal, recurring or part of the ongoing operations. 24 • “Foreign Currency Translation” means the period-over-period impact of foreign currency translation, which is calculated by applying current-year foreign exchange rates to the various functional currencies in our business to our reporting currency of U.S. dollars for the same period in the prior year. • “1Q23 Nonrecurring Cost” means approximately $11 million expensed and substantially paid in the first quarter of 2023 to resolve a business matter, which is not considered to be normal, recurring or part of the ongoing operations. • “(Gain)/loss on disposal” a caption on our consolidated statements of income which reflects net proceeds received as compared to net book value related to sales of books of business and other divestiture transactions, such as the disposal of a business through sale or closure. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments and, therefore comparability may be limited. This supplemental non-GAAP financial information should be considered in addition to, and not in lieu of, the Company ' s Condensed Consolidated Financial Statements. Acquisitions Part of our continuing business strategy is to attract high-quality insurance intermediaries and service organizations to join our operations. From 1993 through the first quarter of 2024, we acquired 650 insurance intermediary operations. Critical Accounting Policies We have had no changes to our Critical Accounting Policies as described in our most recent Form 10-K for the year ended December 31, 2023. We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business combinations and purchase price allocations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas is subject to uncertainty because it requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 in the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2023 for details regarding our critical and significant accounting policies. 25 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Condensed Consolidated Financial Statements and related Notes. Financial information relating to our condensed consolidated financial results is as follows: Three months ended March 31, (in millions, except percentages) 2024 2023 % Change REVENUES Core commissions and fees $ 1,191 $ 1,081 10.2 % Profit-sharing contingent commissions 46 27 70.4 % Investment income 18 7 157.1 % Other income, net 3 1 200.0 % Total revenues 1,258 1,116 12.7 % EXPENSES Employee compensation and benefits 631 571 10.5 % Other operating expenses 161 161 — % (Gain)/loss on disposal 2 (6 ) (133.3 %) Amortization 43 41 4.9 % Depreciation 11 10 10.0 % Interest 48 47 2.1 % Change in estimated acquisition earn-out payables (2 ) (2 ) — % Total expenses 894 822 8.8 % Income before income taxes 364 294 23.8 % Income taxes 71 58 22.4 % Net income before non-controlling interests 293 236 24.2 % Less: Net income attributable to non-controlling interests — — Net income attributable to the Company $ 293 $ 236 24.2 % Income Before Income Taxes Margin (1) 28.9 % 26.3 % EBITDAC - Adjusted (2) $ 466 $ 398 17.1 % EBITDAC Margin - Adjusted (2) 37.0 % 35.7 % Organic Revenue growth rate (2) 8.6 % 12.6 % Employee compensation and benefits relative to total revenues 50.2 % 51.2 % Other operating expenses relative to total revenues 12.8 % 14.4 % Capital expenditures $ 13 $ 12 8.3 % Total assets at March 31, $ 14,806 $ 13,400 10.5 % (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure Commissions and Fees Commissions and fees, including profit-sharing contingent commissions and earned premiums, for the three months ended March 31, 2024 increased $129 million to $1,237 million, or 11.6%, over the same period in 2023. Core commissions and fees revenue for the first quarter of 2024 increased $110 million or 10.2%, composed of: (i) approximately $91 million of net new and renewal business, which reflects an Organic Revenue growth rate of 8.6%; (ii) $41 million from acquisitions that had no comparable revenues in the same period of 2023; (iii) an increase from the impact of Foreign Currency Translation of $5 million; and (iv) an offsetting decrease of $27 million related to commissions and fees revenue from businesses or books of business divested in the preceding twelve months. Profit-sharing contingent commissions for the first quarter of 2024 increased by $19 million, compared to the same period in 2023. This increase was driven primarily by (i) improved underwriting results and qualifying for certain profit-sharing contingent commissions in 2023 that had not been accrued as we did not qualify for them in the prior year and (ii) recent acquisitions. 26 Investment Income Investment income for the three months ended March 31, 2024 increased $11 million, from the same period in 2023. The increase was primarily driven by higher average interest rates compared to the prior year. Other Income Other income for the three months ended March 31, 2024 increased $2 million to $3 million as compared to the same period in 2023. Other income consists primarily of miscellaneous income and therefore can fluctuate between comparable periods. Employee Compensation and Benefits Employee compensation and benefits expense as a percentage of total revenues was 50.2% for the three months ended March 31, 2024 as compared to 51.2% for the three months ended March 31, 2023, and increased 10.5%, or $60 million. This increase included $24 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2023. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2024 and 2023 increased by $36 million, or 6.3%. This underlying employee compensation and benefits expense increase was primarily related to: (i) an increase in staff salaries and bonuses attributable to new hires; (ii) an increase in producer compensation associated with revenue growth and (iii) an increase in non-cash stock-based compensation driven by the strong financial performance of the Company, partially offset by (iv) employee compensation and benefits associated with businesses divested in the fourth quarter of 2023. Other Operating Expenses Other operating expenses represented 12.8% of total revenues for the first quarter of 2024 as compared to 14.4% for the first quarter of 2023. Other operating expenses for the first quarter of 2024 were flat compared to the same period of 2023. This includes: (i) $11 million of other operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2023; (ii) increased information technology related costs; (iii) and to a lesser extent, increased variable costs associated with revenue growth, offset by (iv) expenses of approximately $11 million recorded in the first quarter of 2023 to resolve a business matter which was not considered to be normal or a recurring part of ongoing operations and (v) other operating expenses associated with businesses divested in the first quarter of 2023. (Gain)/Loss on Disposal Gain on disposal for the first quarter of 2024 decreased $8 million from the first quarter of 2023. Activity for (Gain)/Loss on disposal is associated with book of business sales or sales of entire businesses. Although we do not routinely sell businesses or customer accounts, we periodically sell an office or a book of business (one or more customer accounts) that we believe does not produce reasonable margins or demonstrate a potential for adequate growth, or because doing so is in the Company’s best interest. Amortization Amortization expense for the first quarter of 2024 increased $2 million, or 4.9%, compared to the first quarter of 2023. This change reflects the amortization of new intangibles from businesses acquired within the past twelve months, net of certain intangible assets becoming fully amortized or written off in the (Gain)/Loss on disposal. Depreciation Depreciation expense for the first quarter of 2024 increased $1 million, or 10.0%, compared to the first quarter of 2023. Changes in depreciation expense reflect net additions of fixed assets resulting from businesses acquired in the past twelve months and the addition of fixed assets resulting from business initiatives, net of the impact of fixed assets that became fully depreciated or written off in the gain or loss on disposal. Interest Expense Interest expense for the first quarter of 2024 increased $1 million, or 2.1%, compared to the first quarter of 2023. Change in Estimated Acquisition Earn-Out Payables Accounting Standards Codification (“ASC”) Topic 805-Business Combinations is the authoritative guidance requiring an acquirer to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase price arrangements) at the acquisition date must be included in the purchase price consideration. The recorded purchase price for acquisitions includes an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations are required to be recorded in the Condensed Consolidated Statements of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years. The net charge or credit to the Consolidated Statements of Income for the period is the combination of the net change in the estimated acquisition earn-out payables liability, and the accretion of the present value discount on those liabilities. 27 As of March 31, 2024 and 2023, the fair values of the estimated acquisition earn-out payables were reevaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the three months ended March 31, 2024 and 2023 were as follows: Three months ended March 31, (in millions) 2024 2023 Change in fair value of estimated acquisition earn-out payables $ (4 ) $ (4 ) Interest expense accretion 2 2 Net change in earnings from estimated acquisition earn-out payables $ (2 ) $ (2 ) For the three months ended March 31, 2024 and 2023, the fair value of estimated earn-out payables was re-evaluated. The result was a decrease of $4 million in both periods which are credits, exclusive of interest accretion, in the Condensed Consolidated Statements of Income. As of March 31, 2024, estimated acquisition earn-out payables totaled $203 million, of which $118 million was recorded as accounts payable and $85 million was recorded as other non-current liabilities. Income Taxes The effective tax rate on income from operations for the three months ended March 31, 2024 and 2023 was 19.5% and 19.7% respectively. 28 RESULTS OF OPERATIONS — SEGMENT INFORMATION As discussed in Note 12 to the Condensed Consolidated Financial Statements, we operate three reportable segments: Retail, Programs, and Wholesale Brokerage. On a segmented basis, changes in amortization, depreciation and interest expenses generally result from activity associated with acquisitions. Likewise, other income consists primarily of miscellaneous income and therefore can fluctuate between comparable periods. As such, in evaluating the operational efficiency of a segment, management focuses on the Organic Revenue growth rate and EBITDAC Margin. The reconciliation of commissions and fees included in the Condensed Consolidated Statements of Income to Organic Revenue, a non-GAAP financial measure, for the three months ended March 31, 2024, and the growth rates for Organic Revenue for the three months ended March 31, 2024, including by segment, are as follows: 2024 Retail (1) Programs Wholesale Brokerage Total (in millions, except percentages) 2024 2023 2024 2023 2024 2023 2024 2023 Commissions and fees $ 804 $ 731 $ 292 $ 254 $ 141 $ 123 $ 1,237 $ 1,108 Total change $ 73 $ 38 $ 18 $ 129 Total growth % 10.0 % 15.0 % 14.6 % 11.6 % Profit-sharing contingent commissions (14 ) (15 ) (26 ) (8 ) (6 ) (4 ) (46 ) (27 ) Core commissions and fees $ 790 $ 716 $ 266 $ 246 $ 135 $ 119 $ 1,191 $ 1,081 Acquisitions (19 ) — (20 ) — (2 ) — (41 ) — Dispositions — (1 ) — (26 ) — — — (27 ) Foreign Currency Translation 4 — 1 5 Organic Revenue (2) $ 771 $ 719 $ 246 $ 220 $ 133 $ 120 $ 1,150 $ 1,059 Organic Revenue growth (2) $ 52 $ 26 $ 13 $ 91 Organic Revenue growth rate (2) 7.2 % 11.8 % 10.8 % 8.6 % (1) The Retail segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of this 10-Q of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items. (2) A non-GAAP financial measure. The reconciliation of commissions and fees included in the Condensed Consolidated Statements of Income to Organic Revenue, a non-GAAP financial measure, for the three months ended March 31, 2023, including by segment, and the growth rates for Organic Revenue for the three months ended March 31, 2023, including by segment, are as follows: 2023 Retail (1) Programs Wholesale Brokerage Total (in millions, except percentages) 2023 2022 2023 2022 2023 2022 2023 2022 Commissions and fees $ 731 $ 615 $ 254 $ 186 $ 123 $ 103 $ 1,108 $ 904 Total change $ 116 $ 68 $ 20 $ 204 Total growth % 18.9 % 36.6 % 19.4 % 22.6 % Profit-sharing contingent commissions (15 ) (18 ) (8 ) (8 ) (4 ) (3 ) (27 ) (29 ) Core commissions and fees 716 597 246 178 119 100 1,081 875 Acquisition revenues $ (79 ) $ — $ (20 ) $ — $ (15 ) $ — $ (114 ) $ — Dispositions (9 ) — (4 ) — (3 ) — (16 ) Foreign Currency Translation — — — — Organic Revenue (2) $ 637 $ 588 $ 226 $ 174 $ 104 $ 97 $ 967 $ 859 Organic Revenue growth (2) $ 49 $ 52 $ 7 $ 108 Organic Revenue growth rate (2) 8.3 % 29.9 % 7.2 % 12.6 % (1) The Retail segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items. (2) A non-GAAP financial measure. 29 The reconciliation of income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, and EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months ended March 31, 2024, including by segment, is as follows: (in millions) Retail Programs Wholesale Brokerage Other Total Total Revenues $ 806 $ 298 $ 142 $ 12 $ 1,258 Income before income taxes 238 101 41 (16 ) 364 Income Before Income Taxes Margin (1) 29.5 % 33.9 % 28.9 % NMF 28.9 % Amortization 29 11 3 — 43 Depreciation 5 4 1 1 11 Interest 19 8 3 18 48 Change in estimated acquisition earn-out payables (1 ) 1 (2 ) — (2 ) EBITDAC (2) 290 125 46 3 464 EBITDAC Margin (2) 36.0 % 41.9 % 32.4 % NMF 36.9 % (Gain)/loss on disposal 1 1 — — 2 EBITDAC - Adjusted (2) $ 291 $ 126 $ 46 $ 3 $ 466 EBITDAC Margin - Adjusted (2) 36.1 % 42.3 % 32.4 % NMF 37.0 % (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure The reconciliation of income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months ended March 31, 2023, including by segment, is as follows: (in millions) Retail Programs Wholesale Brokerage Other Total Total Revenues $ 733 $ 255 $ 123 $ 5 $ 1,116 Income before income taxes 214 75 31 (26 ) 294 Income Before Income Taxes Margin (1) 29.2 % 29.4 % 25.2 % NMF 26.3 % Amortization 28 11 3 (1 ) 41 Depreciation 5 3 1 1 10 Interest 22 10 3 12 47 Change in estimated acquisition earn-out payables (3 ) — — 1 (2 ) EBITDAC (2) 266 99 38 (13 ) 390 EBITDAC Margin (2) 36.3 % 38.8 % 30.9 % NMF 34.9 % (Gain)/loss on disposal — (6 ) — — (6 ) Acquisition/Integration Costs 3 — — — 3 1Q23 Nonrecurring Cost — — — 11 11 EBITDAC - Adjusted (2) $ 269 $ 93 $ 38 $ (2 ) $ 398 EBITDAC Margin - Adjusted (2) 36.7 % 36.5 % 30.9 % NMF 35.7 % (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure Retail Segment The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers, and non-insurance risk-mitigating products through our F&I businesses. Approximately 78% of the Retail segment’s commissions and fees revenue is commission based. 30 Financial information relating to our Retail segment for the three months ended March 31, 2024 and 2023 is as follows: Three months ended March 31, (in millions, except percentages) 2024 2023 % Change REVENUES Core commissions and fees $ 789 $ 717 10.0 % Profit-sharing contingent commissions 14 15 (6.7 %) Investment income 1 — NMF Other income, net 2 1 100.0 % Total revenues 806 733 10.0 % EXPENSES Employee compensation and benefits 400 363 10.2 % Other operating expenses 115 104 10.6 % (Gain)/loss on disposal 1 — NMF Amortization 29 28 3.6 % Depreciation 5 5 — % Interest 19 22 (13.6 %) Change in estimated acquisition earn-out payables (1 ) (3 ) (66.7 %) Total expenses 568 519 9.4 % Income before income taxes $ 238 $ 214 11.2 % Income Before Income Taxes Margin (1) 29.5 % 29.2 % EBITDAC - Adjusted (2) $ 291 $ 269 8.2 % EBITDAC Margin - Adjusted (2) 36.1 % 36.7 % Organic Revenue growth rate (2) 7.2 % 8.3 % Employee compensation and benefits relative to total revenues 49.6 % 49.5 % Other operating expenses relative to total revenues 14.3 % 14.2 % Capital expenditures $ 7 $ 5 40.0 % Total assets at March 31, $ 8,557 $ 7,913 8.1 % (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure The Retail segment’s total revenues for the three months ended March 31, 2024 increased 10.0%, or $73 million, as compared to the same period in 2023, to $806 million. The $72 million increase in core commissions and fees revenue was driven by: (i) approximately $19 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2023; (ii) an increase of $52 million related to net new and renewal business; (iii) an increase from the impact of Foreign Currency Translation of $4 million; and (iv) a decrease of $1 million related to commissions and fees recorded in 2023 from businesses since divested. Profit-sharing contingent commissions for the first quarter of 2024 decreased 6.7%, or $1 million, as compared to the same period in 2023, to $14 million. This decrease was primarily the result of not qualifying for certain profit-sharing contingent commissions in 2024 that we qualified for in the prior year. The Retail segment’s total commissions and fees increased by 10.0%, and the Organic Revenue growth rate was 7.2% for the first quarter of 2024. The Organic Revenue growth rate was driven by net new business written during the preceding twelve months and growth on renewals of existing customers. Renewal business was impacted by rate increases with continued increases in property and casualty, employee benefits and auto. Income before income taxes for the three months ended March 31, 2024 increased 11.2%, or $24 million, as compared to the same period in 2023, to $238 million. The primary factors driving this increase were: (i) a decrease in intercompany interest expense and (ii) the profit associated with the net increase in revenue as described above. EBITDAC - Adjusted for the three months ended March 31, 2024 increased 8.2%, or $22 million, as compared to the same period in 2023, to $291 million. EBITDAC Margin - Adjusted for the three months ended March 31, 2024 decreased to 36.1% from 36.7% in the same period in 2023. The decrease in EBITDAC Margin - Adjusted was driven by: (i) higher non-cash stock-based compensation; (ii) higher performance-based compensation associated with increased level of Organic Revenue growth and (iii) a decrease in profit-sharing contingent commissions which was partially offset by, (iv) the net increase in revenue as described above. 31 Programs Segment The Programs segment manages over 60 programs supported by over 100 well-capitalized carrier partners. In most cases, the insurance carriers that support these programs have delegated underwriting and, in many instances, claims-handling authority to our programs operations. These programs are generally distributed through a nationwide network of independent agents and Brown & Brown retail agents, and offer targeted products and services designed for specific industries, trade groups, professions, public entities and market niches. This segment also operates our write-your-own flood insurance carrier, WNFIC and operates two Captives. WNFIC’s underwriting business consists of policies written on behalf of and fully ceded to the NFIP, as well as excess flood policies, which are fully reinsured in the private market. The Captives provide additional underwriting capacity that enable growth in core commissions and fees, and allow us to participate in underwriting results with limited exposure to claims expenses. The Company has traditionally participated in underwriting profits through profit-sharing contingent commissions. These Captives give us another way to continue to participate in underwriting results while limiting exposure to claims expenses. The Captives focus on property insurance for earthquake and wind exposed properties underwritten by certain of our MGUs. The Captives limit the Company's exposure to claims expenses either through reinsurance or by participating in limited tranches of the underwriting risk. The Programs segment operations can be grouped into five broad categories: Professional Programs, Personal Lines Programs, Commercial Programs, Public Entity-Related Programs and Specialty Programs. Approximately 76% of the Programs segment’s commissions and fees revenue is commission based. Financial information relating to our Programs segment for the three months ended March 31, 2024 and 2023 is as follows: Three months ended March 31, (in millions, except percentages) 2024 2023 % Change REVENUES Core commissions and fees $ 266 $ 246 8.1 % Profit-sharing contingent commissions 26 8 NMF Investment income 5 1 NMF Other income, net 1 — NMF Total revenues 298 255 16.9 % EXPENSES Employee compensation and benefits 109 103 5.8 % Other operating expenses 63 59 6.8 % (Gain)/loss on disposal 1 (6 ) (116.7 )% Amortization 11 11 — % Depreciation 4 3 33.3 % Interest 8 10 (20.0 )% Change in estimated acquisition earn-out payables 1 — NMF Total expenses 197 180 9.4 % Income before income taxes $ 101 $ 75 34.7 % Income Before Income Taxes Margin (1) 33.9 % 29.4 % EBITDAC - Adjusted (2) $ 126 $ 93 35.5 % EBITDAC Margin - Adjusted (2) 42.3 % 36.5 % Organic Revenue growth rate (2) 11.8 % 29.9 % Employee compensation and benefits relative to total revenues 36.6 % 40.4 % Other operating expenses relative to total revenues 21.1 % 23.1 % Capital expenditures $ 5 $ 5 — % Total assets at March 31, $ 4,221 $ 3,652 15.6 % (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. NMF = Not a meaningful figure The Programs segment’s total revenue for the three months ended March 31, 2024 increased 16.9%, or $43 million, as compared to the same period in 2023, to $298 million. The $20 million increased in core commissions and fees revenue was driven by: (i) approximately $20 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2023; (ii) approximately $26 million of new business, net renewal business, and fee revenues; and (iii) an offsetting decrease of $26 million related to commissions and fees revenue from businesses divested in the preceding twelve months. Profit-sharing contingent commissions for the first 32 quarter of 2024 increased approximately $18 million as compared to the first quarter of 2023. This increase was driven by improved underwriting results, an increase of $7 million resulting from the finalization of the calculation of profit-sharing contingent commissions that were estimated and accrued in 2023 and for which a similar increase is not expected to recur in the first quarter of 2025, and acquisitions completed in the past twelve months. The Programs segment’s total commissions and fees increased by 8.1%, and the Organic Revenue growth rate was 11.8% for the three months ended March 31, 2024. The Organic Revenue growth was driven by strong new business and good retention, which was partially offset by lower claims revenue in the current year. Income before income taxes for the three months ended March 31, 2024 increased 34.7%, or $26 million, as compared to the same period in 2023, to $101 million. Income before income taxes increased due to the drivers of EBITDAC - Adjusted described below along with an increase in depreciation, a decrease in intercompany interest expense, and an increase in estimated acquisition earn-out payables. EBITDAC - Adjusted for the three months ended March 31, 2024 increased 35.5%, or $33 million, from the same period in 2023, to $126 million. EBITDAC Margin - Adjusted for the three months ended March 31, 2024 increased to 42.3% from 36.5% in the same period in 2023. EBITDAC - Adjusted grew due to higher profit-sharing contingent commissions, strong Organic Revenue growth, leveraging our expense base, and the sale of certain third-party claims administration and adjusting services businesses in the fourth quarter of 2023. Wholesale Brokerage Segment The Wholesale Brokerage segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, including Brown & Brown retail agents. Approximately 86% of the Wholesale Brokerage segment’s commissions and fees revenue is commission based. Financial information relating to our Wholesale Brokerage segment for the three months ended March 31, 2024 and 2023 is as follows: Three months ended March 31, (in millions, except percentages) 2024 2023 % Change REVENUES Core commissions and fees $ 135 $ 119 13.4 % Profit-sharing contingent commissions 6 4 50.0 % Investment income 1 — NMF Other income, net — — — % Total revenues 142 123 15.4 % EXPENSES Employee compensation and benefits 77 67 14.9 % Other operating expenses 19 18 5.6 % (Gain)/loss on disposal — — — % Amortization 3 3 — % Depreciation 1 1 — % Interest 3 3 — % Change in estimated acquisition earn-out payables (2 ) — NMF Total expenses 101 92 9.8 % Income before income taxes $ 41 $ 31 32.3 % Income Before Income Taxes Margin (1) 28.9 % 25.2 % EBITDAC - Adjusted (2) $ 46 $ 38 21.1 % EBITDAC Margin - Adjusted (2) 32.4 % 30.9 % Organic Revenue growth rate (2) 10.8 % 7.2 % Employee compensation and benefits relative to total revenues 54.2 % 54.5 % Other operating expenses relative to total revenues 13.4 % 14.6 % Capital expenditures $ 1 $ — NMF Total assets at March 31, $ 1,617 $ 1,441 12.2 % (1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues. (2) A non-GAAP financial measure. 33 NMF = Not a meaningful figure The Wholesale Brokerage segment’s total revenues for the three months ended March 31, 2024 increased 15.4%, or $19 million, as compared to the same period in 2023, to $142 million. The $16 million net increase in core commissions and fees revenue was driven primarily by: (i) $13 million related to new business and net renewal business; and (ii) $2 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2023 and ; (iii) an increase from the impact of Foreign Currency Translation of $1 million. Profit-sharing contingent commissions for the first quarter of 2024 increased $2 million compared to the first quarter of 2023, primarily driven by qualifying for certain profit-sharing contingent commissions in 2023 that we did not qualify for in the prior year so therefore were not accrued and, to a lesser extent, by acquired businesses in the last year. The Wholesale Brokerage segment’s growth rate for total commissions and fees was 13.4%, and the Organic Revenue growth rate was 10.8% for the first quarter of 2024. The Organic Revenue growth rate was driven by strong new business and good retention, as well as modest rate increases for most lines of coverage, except for professional liability which continued to generally see rate decreases. Income before income taxes for the three months ended March 31, 2024 increased 32.3%, or $10 million, as compared to the same period in 2023, to $41 million. The increase was due to: (i) the growth of EBITDAC - Adjusted described below; and (ii) a decrease in the change in estimated acquisition earn-out payables. EBITDAC - Adjusted for the three months ended March 31, 2024 increased 21.1%, or $8 million, as compared to the same period in 2023, to $46 million. EBITDAC Margin - Adjusted for the three months ended March 31, 2024 increased to 32.4% from 30.9%, as compared to the same period in 2023. EBITDAC Margin - Adjusted increased due to: (i) total revenue growth; (ii) leveraging our expense base; and (iii) higher profit sharing contingent commissions, but partially offset by higher non-cash stock-based compensation. Other As discussed in Note 12 of the Notes to Condensed Consolidated Financial Statements, the “Other” column in the Segment Information table includes any revenue and expenses not allocated to reportable segments, and corporate-related items, including the intercompany interest expense charges to reporting segments. LIQUIDITY AND CAPITAL RESOURCES The Company seeks to maintain a conservative balance sheet and strong liquidity profile. Our capital requirements to operate as an insurance intermediary are low and we have been able to grow and invest in our business through a combination of cash that has been generated from operations, the disciplined use of debt and the issuance of equity as part of the purchase price consideration to acquire certain businesses. We have the ability to utilize our Revolving Credit Facility, which as of March 31, 2024 provided up to $600 million in additional available cash. The Revolving Credit Facility contains an expansion option for up to an additional $500 million of borrowing capacity, subject to the approval of participating lenders. On March 31, 2022, the Company entered into a Loan Agreement (the “Loan Agreement”) which provided term loan capacity of $800 million. Additionally, the Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment under the existing Loan Agreement or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400 million. Including the expansion options under all existing credit agreements, the Company has access to up to $1,500 million of incremental borrowing capacity as of March 31, 2024. We believe that we have access to additional funds, if needed, through the capital markets or private placements to obtain further debt financing under the current market conditions. The Company believes that its existing cash, cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available under the Revolving Credit Facility, will be sufficient to satisfy its normal liquidity needs, including principal payments on our long-term debt, for at least the next twelve months and in the long term. Contractual Cash Obligations As of March 31, 2024, our contractual cash obligations were as follows: Payments Due by Period (in millions) Total Less than 1 year 1-3 years 4-5 years After 5 years Long-term debt $ 3,912 $ 875 $ 487 $ 650 $ 1,900 Other liabilities 227 14 20 17 176 Operating leases (1) 249 51 88 56 54 Interest obligations 1,403 176 264 174 789 Maximum future acquisition contingent payments (2) 566 259 307 — — Total contractual cash obligations (3) $ 6,357 $ 1,375 $ 1,166 $ 897 $ 2,919 (1) Includes $1 million of future lease commitments expected to commence later in 2024. 34 (2) Includes $203 million of current and non-current estimated acquisition earn-out payables. Earn-out payables for acquisitions not denominated in U.S. dollars are measured at the current foreign exchange rate. Three of the estimated acquisition earn-out payables assumed in connection with the acquisition of GRP included provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of March 31, 2024 is $5 million. The Company deems a significant increase to this amount to be unlikely. (3) Does not include approximately $37 million of current liability for a dividend of $0.1300 per share approved by the Board of Directors on April 22, 2024. Debt Total debt as of March 31, 2024 was $3,884 million net of unamortized discount and debt issuance costs, which was an increase of $88 million compared to December 31, 2023. The increase includes: a net drawdown on the Revolving Credit Facility of $100 million, offset by; the scheduled principal payments related to our various existing floating-rate debt term notes in total of $12 million. During the three months ended March 31, 2024, the Company repaid $6 million of principal related to the Second Amended and Restated Credit Agreement term loan through quarterly scheduled principal payments. The Second Amended and Restated Credit Agreement term loan had an outstanding balance of $213 million as of March 31, 2024. The Company's next scheduled principal payment is due June 30, 2024 and is equal to $6 million. During the three months ended March 31, 2024, the Company repaid $6 million of principal related to the Term Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) through quarterly scheduled principal payments. The Term A-2 Loans had an outstanding balance of $450 million as of March 31, 2024. The Company’s next scheduled principal payment is due June 30, 2024 and is equal to $13 million. On February 13, 2024, the Company drew down on the Revolving Credit Facility $150 million and the proceeds were used for general corporate purposes. During the three months ended March 31, 2024, the Company repaid $50 million of the outstanding balance on Revolving Credit Facility. The Revolving Credit Facility balance outstanding is $200 million as of March 31, 2024. 35 ITEM 3. Quantitative and Qualita tive Disclosures About Market Risk Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates and equity prices. We are exposed to market risk through our investments, revolving credit line, term loan agreements and international operations. Our invested assets are held primarily as cash and cash equivalents, restricted cash, available-for-sale marketable debt securities, non-marketable debt securities, certificates of deposit, U.S. Treasury securities, and professionally managed short-term duration fixed income funds. These investments are subject to interest rate risk. The fair value of our invested assets at March 31, 2024 and December 31, 2023 approximated their respective carrying values due to their short-term duration and therefore, such market risk is not considered to be material. We do not actively invest or trade in equity securities. In addition, we generally dispose of any significant equity securities received in conjunction with an acquisition shortly after the acquisition date. As of March 31, 2024, we had $1,162 million outstanding under the Second Amended and Restated Credit Agreement and the Loan Agreement tied to the Secured Overnight Financing Rate (“SOFR”). These agreements bear interest on a floating basis and are therefore subject to changes in the associated interest expense. The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on our Condensed Consolidated Financial Statements. The majority of our international operations do not have material transactions in currencies other than their functional currency which would expose the Company to transactional currency rate risk. We are subject to translational exchange rate risk having businesses operating outside of the U.S. in the following functional currencies, British pounds, Canadian dollar, and euros. Based upon our foreign currency rate exposure as of March 31, 2024, an immediate 10% hypothetical change of foreign currency exchange rates would not have a material effect on our Condensed Consolidated Financial Statements.