What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-22 compared with 2024-04-24 · 251 added, 123 removed, 327 unchanged (53% of the section changed)

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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.

Company Overview — First Quarter of 2024

Company Overview — Second 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.

We are a diversified insurance agency, wholesale brokerage and insurance programs 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.

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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.

For example, higher levels of inflation, an increase the value of insurable exposure units or a general 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.

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(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.

(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.

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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.

(i) our Programs and Wholesale Brokerage segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance carriers 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 services 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%.

For the three months ended June 30, 2024, our total commissions and fees growth rate was 11.4%, and our consolidated Organic Revenue growth rate was 10.0%.

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.

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Other income primarily reflects other miscellaneous revenues.

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.

Income before income taxes for the three months ended June 30, 2024 increased from the second quarter of 2023 by $92 million or 36.2%, driven by net new business, increased investment income and profit-sharing contingent commissions, acquisitions completed in the past twelve months and the gain on disposal of certain businesses.

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:

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(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).

(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.

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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.

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.

• “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.

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This supplemental non-GAAP financial information should be considered in addition to, and not in lieu of, the Company ' s Condensed Consolidated Financial Statements.

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.

Part of our business strategy is to attract high-quality insurance intermediaries and service organizations to join our operations.

From 1993 through the second quarter of 2024, we acquired 660 insurance intermediary operations.

Critical Accounting Policies

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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.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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,

Three months ended June 30,

Six months ended June 30,

(in millions, except percentages)

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Other operating expenses

(Gain)/loss on disposal

Gain on disposal

Change in estimated acquisition

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Capital expenditures

Total assets at March 31,

Total assets at June 30,

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

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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:

Commissions and fees, including profit-sharing contingent commissions and earned premiums, for the three months ended June 30, 2024 increased $118 million to $1,154 million, or 11.4%, over the same period in 2023.

Core commissions and fees revenue for the second quarter of 2024 increased $115 million or 11.5%, composed of:

(i) approximately $98 million of net new and renewal business, which reflects an Organic Revenue growth rate of 10.0%;

(ii) $44 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.

(iii) an increase from the impact of Foreign Currency Translation of $1 million and (iv) an offsetting decrease of $28 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 second quarter of 2024 increased by $3 million, compared to the same period in 2023.

Commissions and fees, including profit-sharing contingent commissions and earned premiums, for the six months ended June 30, 2024, increased $246 million to $2,390 million, or 11.5%, over the same period in 2023.

Core commissions and fees revenue for the six months ended June 30, 2024 increased $224 million or 10.7%, composed of:

(i) approximately $189 million of net new and renewal business, which reflects an Organic Revenue growth rate of 9.3%;

(ii) $85 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 $55 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 six months ended June 30, 2024 increased by $22 million, or 36.7%, compared to the same period in 2023.

This increase was driven primarily by (i) improved underwriting results and qualifying for certain prior year profit-sharing contingent commissions in excess of estimates that we did not qualify for in the prior year and (ii) recent acquisitions.

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 for the three months ended March 31, 2024 increased $2 million to $3 million as compared to the same period in 2023.

Investment income for the three months ended June 30, 2024 increased $12 million, from the same period in 2023.

Investment income for the six months ended June 30, 2024 increased $23 million, from the same period in 2023.

The increases were primarily driven by higher average interest rates compared to the prior year.

Other income for the three months ended June 30, 2024 increased $1 million to $2 million as compared to the same period in 2023 and other income for the six months ended June 30, 2024 increased by $3 million, or 150.0%, 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.

Employee compensation and benefits expense as a percentage of total revenues was 49.7% for the three months ended June 30, 2024 as compared to 50.6% for the three months ended June 30, 2023, and increased 10.4%, or $55 million.

This increase included $20 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2023.

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(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.

Employee compensation and benefits expense as a percentage of total revenues was 49.9% for the six months ended June 30, 2024 as compared to 50.9% for the six months ended June 30, 2023, and increased 10.4%, or $115 million.

This increase included $41 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 $74 million, or 6.7%.

This underlying employee compensation and benefits expense increase was primarily related to:

(i) an increase in staff salaries and bonuses attributable to new hires;

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:

Other operating expenses represented 14.7% of total revenues for the second quarter of 2024, as compared to 15.5% for the second quarter of 2023.

Other operating expenses for the second quarter of 2024 increased $11 million, or 6.8%, from the same period of 2023.

This increase includes:

(i) $8 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.

(iii) and to a lesser extent, increased variable costs associated with revenue growth, offset by (iv) other operating expenses associated with businesses divested in the fourth quarter of 2023.

Other operating expenses represented 13.7% of total revenues for the six months ended June 30, 2024, as compared to 14.9% for the six months ended June 30, 2023.

Other operating expenses for the first six months of 2024 increased $12 million, or 3.7%, from the same period of 2023.

This increase includes:

(i) $17 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) the 1Q23 Nonrecurring Cost and (v) other operating expenses associated with businesses divested in the fourth 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.

Gain on disposal for the second quarter of 2024 increased $31 million from the second quarter of 2023.

Gain on disposal for the six months ended June 30, 2024 increased $23 million from the six months ended June 30, 2023.

Activity for (Gain)/Loss on disposal for the three and six months ended June 30, 2024 was primarily attributable to finalization of the gain associated with selling certain third-party claims administration and adjusting services businesses in the fourth quarter of 2023.

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 expense for the first quarter of 2024 increased $2 million, or 4.9%, compared to the first quarter of 2023.

Amortization expense for the second quarter of 2024 increased $3 million, or 7.3%, compared to the second quarter of 2023.

Amortization expense for the six months ended June 30, 2024 increased $3 million, or 3.6%, compared to the six months ended June 30, 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 expense for the first quarter of 2024 increased $1 million, or 10.0%, compared to the first quarter of 2023.

Depreciation expense for the second quarter of 2024 increased $1 million, or 10.0%, compared to the second quarter of 2023.

Depreciation expense for the six months ended June 30, 2024 increased $1 million, or 5.0%, compared to the six months ended June 30, 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.

Interest expense for the second quarter of 2024 increased $1 million, or 2.1%, compared to the second quarter of 2023.

Interest expense for the six months ended June 30, 2024 increased $2 million, or 2.1%, compared to the first six months of 2023.

Change in Estimated Acquisition Earn-Out Payables

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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.

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,

As of June 30, 2024 and 2023, the fair values of the estimated acquisition earn-out payables were re-evaluated based upon projected operating results 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 were as follows:

Three months ended June 30,

Six months ended June 30,

(in millions)

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Net change in earnings from estimated acquisition earn-out payables

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.

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.

For the three months and six months ended June 30, 2024, the fair value of estimated earn-out payables was re-evaluated and resulted in decreases of $2 million and $7 million, respectively, which resulted in credits to the Condensed Consolidated Statements of Income.

As of June 30, 2024, estimated acquisition earn-out payables totaled $169 million, of which $93 million was recorded as accounts payable and $76 million was recorded as other non-current liabilities.

The effective tax rate on income from operations for the three months ended June 30, 2024 and 2023 was 25.1% and 25.2%, respectively.

The effective tax rate on income from operations for the six months ended June 30, 2024 and 2023 was 22.3% and 22.4%, respectively.

RESULTS OF OPERATIONS — SEGMENT INFORMATION

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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:

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 primarily 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 June 30, 2024 and 2023, and the growth rates for Organic Revenue for the three months ended June 30, 2024, including by segment, are as follows:

Wholesale Brokerage

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(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:

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 June 30, 2023 and 2022, including by segment, and the growth rates for Organic Revenue for the three months ended June 30, 2023, including by segment, are as follows:

Wholesale Brokerage

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(2) A non-GAAP financial measure.

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:

The reconciliation of commissions and fees included in the Condensed Consolidated Statements of Income to Organic Revenue, a non-GAAP financial measure, for the six months ended June 30, 2024 and 2023, including by segment, and the growth rates for Organic Revenue for the six months ended June 30, 2024, including by segment, are as follows:

Wholesale Brokerage

(in millions, except percentages)

Commissions and fees

Total growth %

Profit-sharing contingent

Core commissions and fees

Foreign Currency Translation

Organic Revenue (2)

Organic Revenue growth (2)

Organic Revenue growth % (2)

(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.

The reconciliation of commissions and fees included in the Condensed Consolidated Statements of Income to Organic Revenue, a non-GAAP financial measure, for the six months ended June 30, 2023 and 2022, including by segment, and the growth rates for Organic Revenue for the six months ended June 30, 2023, including by segment, are as follows:

Wholesale Brokerage

(in millions, except percentages)

Commissions and fees

Total growth %

Profit-sharing contingent

Core commissions and fees

Acquisition revenues

Foreign Currency Translation

Organic Revenue (2)

Organic Revenue growth (2)

Organic Revenue growth % (2)

(2) A non-GAAP financial measure.

The reconciliation of income before income taxes, included in the Condensed Consolidated Statements 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 June 30, 2024, including by segment, is as follows:

(in millions)

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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)

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NMF = Not a meaningful figure

The reconciliation of income before income taxes, included in the Condensed Consolidated Statements 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 six months ended June 30, 2024, including by segment, is as follows:

(in millions)

Wholesale Brokerage

Total Revenues

Income before income taxes

Income Before Income Taxes Margin (1)

Change in estimated acquisition

earn-out payables

EBITDAC Margin (2)

(Gain)/loss on disposal

EBITDAC - Adjusted (2)

EBITDAC Margin - Adjusted (2)

(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 income taxes, included in the Condensed Consolidated Statements 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 six months ended June 30, 2023, including by segment, is as follows:

(in millions)

Wholesale Brokerage

Total Revenues

Income before income taxes

Income Before Income Taxes Margin (1)

Change in estimated acquisition

earn-out payables

EBITDAC Margin (2)

(Gain)/loss on disposal

Acquisition/Integration Costs

1Q23 Nonrecurring Cost

EBITDAC - Adjusted (2)

EBITDAC Margin - Adjusted (2)

(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

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Approximately 78% of the Retail segment’s commissions and fees revenue is commission based.

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,

Financial information relating to our Retail segment is as follows:

Three months ended June 30,

Six months ended June 30,

(in millions, except percentages)

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Capital expenditures

Total assets at March 31,

Total assets at June 30,

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

1 unchanged sentence

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 Retail segment’s total revenues for the three months ended June 30, 2024 increased 9.3%, or $55 million, as compared to the same period in 2023, to $646 million.

The $62 million increase in core commissions and fees revenue was driven by:

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(ii) an increase of $42 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.

(iii) an increase from the impact of Foreign Currency Translation of $1 million and (iv) a decrease of $2 million related to commissions and fees recorded in 2023 from businesses since divested.

Profit-sharing contingent commissions for the second quarter of 2024 decreased 53.3%, or $8 million, as compared to the same period in 2023, to $7 million.

This decrease was primarily the result of not qualifying for certain profit-sharing contingent commissions in 2024, due to higher loss ratios experienced by our insurance carrier partners, that we qualified for in the prior year.

The Retail segment’s total commissions and fees increased by 10.8%, and the Organic Revenue growth rate was 7.3% for the second 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 increases in exposure units, as well as continued rate increases for property and casualty, employee benefits and auto.

Income before income taxes for the three months ended June 30, 2024 increased 21.7%, or $23 million, as compared to the same period in 2023, to $129 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 June 30, 2024 increased 9.0%, or $15 million, as compared to the same period in 2023, to $181 million.

EBITDAC Margin - Adjusted for the three months ended June 30, 2024 decreased to 28.0% from 28.1% in the same period in 2023.

The decrease in EBITDAC Margin - Adjusted was primarily driven by:

(i) a decrease in profit-sharing contingent commissions and, to a lesser extent, (ii) higher non-cash stock-based compensation and (iii) higher performance-based compensation associated with the increased level of Organic Revenue growth which was partially offset by (iv) the net increase in revenue as described above and (v) leveraging our expense base.

The Retail segment’s total revenues for the six months ended June 30, 2024 increased 9.7%, or $128 million, as compared to the same period in 2023, to $1,452 million.

The $135 million increase in core commissions and fees revenue was driven by:

(i) approximately $39 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 $95 million related to net new and renewal business;

(iii) an increase from the impact of Foreign Currency Translation of $4 million and (iv) an offsetting decrease of $3 million related to commissions and fees recorded in 2023 from businesses since divested.

Profit-sharing contingent commissions for the six months of 2024 decreased 30.0%, or $9 million, as compared to the same period in 2023, to $21 million.

The Retail segment’s total commissions and fees increased by 10.4%, and the Organic Revenue growth rate was 7.4% for the first six months of 2024.

The Organic Revenue growth rate was driven by net new business written during the preceding 12 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.

Income before income taxes for the six months ended June 30, 2024 increased 14.7%, or $47 million, as compared to the same period in 2023, to $367 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.

EBITDAC - Adjusted for the six months ended June 30, 2024 increased 8.5%, or $37 million, as compared to the same period in 2023, to $472 million.

EBITDAC Margin - Adjusted for the six months ended June 30, 2024 decreased to 32.5% from 32.9% in the same period in 2023.

The decrease in EBITDAC Margin - Adjusted was primarily driven by:

(i) a decrease in profit-sharing contingent commissions and, to a lesser extent, (ii) higher non-cash stock-based compensation and (iii) higher performance-based compensation associated with increased level of Organic Revenue growth, which was partially offset by, (iv) the net increase in revenue as described above and (v) leveraging our expense base.

Programs Segment

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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,

Financial information relating to our Programs segment is as follows:

Three months ended June 30,

Six months ended June 30,

(in millions, except percentages)

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Capital expenditures

Total assets at March 31,

Total assets at June 30,

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

1 unchanged sentence

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:

The Programs segment’s total revenues for the three months ended June 30, 2024 increased 15.8%, or $49 million, as compared to the same period in 2023, to $359 million.

The $35 million increase 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

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.

(ii) approximately $41 million of net new business, 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 second quarter of 2024 increased approximately $10 million as compared to the second quarter of 2023.

This increase was driven by improved underwriting results, qualifying for certain contingent commissions that we did not qualify for in the prior year, increased written premium and acquisitions completed in the past twelve months.

The Programs segment’s total commissions and fees increased by 11.9%, and the Organic Revenue growth rate was 15.4% for the three months ended June 30, 2024.

The Organic Revenue growth was driven by strong new business, good retention and a growth incentive received for one of our programs.

Income before income taxes for the three months ended June 30, 2024 increased 47.6%, or $59 million, as compared to the same period in 2023, to $183 million.

Income before income taxes increased due to the drivers of EBITDAC - Adjusted described below along with the gain on disposal of certain businesses.

EBITDAC - Adjusted for the three months ended June 30, 2024 increased 21.1%, or $31 million, from the same period in 2023, to $178 million.

EBITDAC Margin - Adjusted for the three months ended June 30, 2024 increased to 49.6% from 47.4% in the same period in 2023.

EBITDAC - Adjusted grew due to the sale of certain third-party claims administration and adjusting services businesses in the fourth quarter of 2023, higher profit-sharing contingent commissions, and leveraging our expense base.

The Programs segment’s total revenues for the six months ended June 30, 2024 increased 16.3%, or $92 million, as compared to the same period in 2023, to $657 million.

The $55 million increase in core commissions and fees revenue was driven by:

(i) approximately $66 million of net new renewal business and fee revenues;

(ii) an offsetting decrease of $51 million related to commissions and fees revenue from business divested in the preceding 12 months and (iii) $40 million from acquisitions that had no comparable revenues in the same period of 2023.

Profit-sharing contingent commissions for the six months ended June 30, 2023 increased approximately $28 million, or by 121.7%, as compared to the same period in 2023.

This increase was driven by qualifying for certain contingent commissions that we did not qualify for in the prior year from greater written premium, favorable loss ratios, prior year adjustments and acquisitions.

The Programs segment’s total commissions and fees increased by 10.2%, and the Organic Revenue growth rate was 13.5%, for the six months ended June 30, 2024.

The Organic Revenue growth was driven primarily by strong net new business across most of our Programs and good retention, a growth incentive received for one of our programs and offset by nonrecurring claims revenue in the prior year.

Income before income taxes for the six months ended June 30, 2024 increased 43.2%, or $86 million, from the same period in 2023, to $285 million.

Income before income taxes increased due to the drivers of EBITDAC - Adjusted described below along with the gain on disposal of certain businesses.

EBITDAC - Adjusted for the six months ended June 30, 2024 increased 27.1%, or $65 million, as compared to the same period in 2023, to $305 million.

EBITDAC Margin - Adjusted for the six months ended June 30, 2024 increased to 46.4% from 42.5% in the same period in 2023.

EBITDAC - Adjusted increased due the sale of certain third-party claims administration and adjusting services businesses in the fourth quarter of 2023, higher profit-sharing contingent commissions, and leveraging our expense base.

Wholesale Brokerage Segment

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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,

Financial information relating to our Wholesale Brokerage segment is as follows:

Three months ended June 30,

Six months ended June 30,

(in millions, except percentages)

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Capital expenditures

Total assets at March 31,

Total assets at June 30,

(1) "Income Before Income Taxes Margin" is defined as income before income taxes divided by total revenues.

1 unchanged sentence

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 Wholesale Brokerage segment’s total revenues for the three months ended June 30, 2024 increased 14.4%, or $20 million, as compared to the same period in 2023, to $159 million.

The $18 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.

(i) $15 million related to net new and renewal business and (ii) $3 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2023.

Profit-sharing contingent commissions for the second quarter of 2024 increased $1 million compared to the second quarter of 2023, driven by acquired businesses in the last year.

The Wholesale Brokerage segment’s growth rate for total commissions and fees was 13.2%, and the Organic Revenue growth rate was 11.0% for the second quarter of 2024.

The Organic Revenue growth rate was driven by strong new business and good retention, as well as a combination of rate and exposure unit increases.

Income before income taxes for the three months ended June 30, 2024 increased 23.7%, or $9 million, as compared to the same period in 2023, to $47 million 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 June 30, 2024 increased 23.3%, or $10 million, as compared to the same period in 2023, to $53 million.

EBITDAC Margin - Adjusted for the three months ended June 30, 2024 increased to 33.3% 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.

(i) certain nonrecurring operating expenses in the prior year;

(ii) total revenues growth and (iii) leveraging our expense base.

The Wholesale Brokerage segment’s total revenues for the six months ended June 30, 2024 increased 14.9%, or $39 million, as compared to the same period in 2023, to $301 million.

The $34 million net increase in core commissions and fees revenue was driven primarily by:

(i) $28 million related to net new and renewal business and (ii) $6 million related to core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2023.

Profit-sharing contingent commissions for the first six months of 2024 increased approximately $3 million compared to the same period of 2023.

The Wholesale Brokerage segment’s growth rate for total commissions and fees was 13.3%, and the Organic Revenue growth rate was 11.0% for the first six months of 2024.

The Organic Revenue growth rate was driven by strong new business and good retention, as well as a combination of rate and exposure unit increases.

Income before income taxes for the six months ended June 30, 2024 increased 27.5%, or $19 million, as compared to the same period in 2023, to $88 million 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 six months ended June 30, 2024 increased 22.2%, or $18 million, as compared to the same period in 2023, to $99 million.

EBITDAC Margin - Adjusted for the six months ended June 30, 2024 increased to 32.9% from 30.9% in the same period in 2023 due to:

(i) certain nonrecurring operating expenses in the prior year;

(ii) total revenues growth and (iii) leveraging our expense base.

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.

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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.

We have the ability to utilize our Revolving Credit Facility, which as of June 30, 2024 provided up to $800 million in 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.

1 unchanged sentence

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.

Including the expansion options under all existing credit agreements, the Company has access to up to $1,700 million of incremental borrowing capacity as of June 30, 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.

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:

As of June 30, 2024, our contractual cash obligations were as follows:

Payments Due by Period

10 unchanged sentences

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.

Six of the estimated acquisition earn-out payables assumed in connection with the acquisitions of GRP (Jersey) Holdco Limited and Kentro Capital Limited included provisions with no maximum potential earn-out amount.

The amount recorded for these acquisitions as of June 30, 2024 is $4 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.

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.

(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 July 17, 2024.

Total debt at June 30, 2024 was $4,116 million net of unamortized discount and debt issuance costs, which was an increase of $320 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.

the issuance of $600 million senior notes and the amortization of discounted debt related to our various unsecured senior notes, and debt issuance cost amortization of $2 million;

offset by the repayment of $275 million in floating rate debt balances and the addition of deferred financing costs and discount on debt of $7 million.

During the six months ended June 30, 2024, the Company repaid $13 million of principal related to the Second Amended and Restated Credit Agreement term loan through the quarterly scheduled principal payments.

The Second Amended and Restated Credit Agreement term loan had an outstanding balance of $206 million as of June 30, 2024.

The Company's next scheduled principal payment is due September 30, 2024 and is equal to $6 million.

During the six months ended June 30, 2024, the Company repaid $13 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 $444 million as of June 30, 2024.

The Company’s next scheduled principal payment is due September 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.

During the six months ended June 30, 2024, the Company repaid $250 million of the outstanding balance on the Revolving Credit Facility.

The Revolving Credit Facility had no outstanding balance as of June 30, 2024.

On June 11, 2024, the Company completed the issuance of $600 million aggregate principal amount of 5.650% senior notes due 2034 (the “2034 Senior Notes”).

The net proceeds to the Company from the issuance of the 2034 Senior Notes, after deducting underwriting discounts and estimated offering expenses, were approximately $593 million.

The 2034 Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook.

The 2034 Senior Notes will mature in June 2034.

Interest on the 2034 Senior Notes will be payable semi-annually in arrears.

The 2034 Senior Notes are senior unsecured obligations of the Company and will rank equal in right of payment to all of the Company’s existing and future senior unsecured indebtedness.

The Company may redeem the 2034 Senior Notes in whole or in part at any time and from time to time, at the “make whole” redemption prices specified in the prospectus supplement for the 2034 Senior Notes being redeemed, plus accrued and unpaid interest thereon.

The Company intends to use the net proceeds from the offering of the 2034 Senior Notes to redeem its 4.200% senior notes due September 2024, and for general corporate purposes.

As of June 30, 2024 there was a total outstanding debt balance of $600 million exclusive of the associated discount balance on the 2034 Senior Notes.

During the six months ended June 30, 2024, the Company repaid $150 million of principal related to the Term Loans issued under the Term A-1 Loan Commitment (“Term A-1 Loans”).

The Term A-1 Loans had an outstanding balance of $150 million as of June 30, 2024.

Quantitative and Qualita tive Disclosures About Market Risk

4 unchanged sentences

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.

The fair value of our invested assets at June 30, 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”).

As of June 30, 2024, we had $800 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.

3 unchanged sentences

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.

Based upon our foreign currency rate exposure as of June 30, 2024, an immediate 10% hypothetical change of foreign currency exchange rates would not have a material effect on our Condensed Consolidated Financial Statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis