Brown & Brown, Inc. (BRO) Q3 2015 Earnings Report, Transcript and Summary

Please standby, we're about to begin. Good morning and welcome to the Brown & Brown Incorporated 2015 Third Quarter Earnings Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call, and including answers given in response to your questions may relate to future results and events, or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the third quarter of 2015, and are intended to fall within the Safe Harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated, or desired, or referenced in any forward-looking statements made as a result of a number of factors. Such factors include the company's determination as it finalizes its financial results for the third quarter of 2015 that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin. J. Powell Brown - President, Chief Executive Officer & Director: Thank you, Tracy, and good morning, everybody, and thanks for joining us for our third quarter earnings call. We'll start on slide four. For the quarter, we delivered $432 million of revenue, growing at 2.6% in total and 2.4% organically. Each of our four divisions delivered organic growth again this quarter. Contingent commissions were down approximately $3 million compared to prior year due to higher loss ratios, which had the effect of compressing our margins slightly. We'll discuss the effect of this later in the presentation. Even with this headwind, we were able to deliver $0.47 per share for the quarter, which was flat with the prior year. Andy will talk more about the detail for the quarter in a few minutes. So far this year, we've acquired nine agencies with the annual revenues of approximately $33 million. The pipeline continues to be good and we're engaged with a number of acquisition prospects. With the current valuations, we continue to exercise discipline as we want to pay a fair price for our acquisitions. During the quarter, we completed $100 million ASR announced earlier this year in Q1. Also, we're pleased that our Board of Directors has authorized an 11.4% increase on our quarterly dividend, which will be effective beginning with our Q4 payments. This is our 22nd year of consecutive dividend increases. As it relates stock buybacks and dividends, they both continue to be key parts of our capital allocation strategy and are subjects we discuss with our board on a regular basis. On to slide five, and before we get into market performance, let me shift gears and talk about the realignment of our Retail Division. Retail is now divided into six regions, each led by a regional president that individual owns his P&L and has the responsibility to grow, invest and modify as he sees fit for their offices. In addition, each of the regional presidents leads a business initiative. In conjunction with a number of teammates across the country, the regional presidents develop a strategy for their initiative and then drive it across our platform. For clarity, this is not a matrix organization. Each regional president has the last word regarding what and how their offices implement each business initiative. It's important to highlight that the new strategy and structure will leverage our capabilities across the National platform, while continuing to foster our decentralized sales and service culture. On slide six, we continue to see the overall market conditions improve in certain areas of the country, which is good. However, there are some questions regarding potential outlook due to the recent news about companies reducing their workforces and cutting costs. We've seen some slight impact already and will continue to monitor our customer base closely. While the year isn't over, 2015 appears to be another year without a major hurricane hitting the United States. This lack of weather events along with excess capital in the market continues to drive rates down. We expect this trend to continue for the remainder of the year and into 2016, unless there's a material change in one or both of these factors. We don't think a slight increase in the fed rate will have much, if any, impact on insurance rates. Admitted market rates are generally flat to down 5%, and this has been the trend for the last four to five quarters. The only real exception is for commercial auto that is flat to up 5%, but this really depends on loss experience for the account. We continue to see excess and surplus rates down with cat property being down the most. Pre-tax income increased year-over-year by 30-basis points. This slower growth as compared to revenue was primarily driven by lower income from contingents and the incremental interest expense associated with our bonds we issued in Q – I'm sorry, I apologize – cat property down, staying on slide six, the new federal law that has put the determination of community rating of small group under 100 back to each state is expected to cause increased complexity regarding implementation of ACA. This will more than likely create additional confusion for companies and carriers as the community rating will more than likely be different by state and potentially by size of employer. With this increased complexity, we see this as an opportunity for Brown & Brown to provide incremental value to our clients. In summary, we consider the changes made in the quarter related to Retail as building blocks. And we're optimistic about how the company is positioned for increasing profitable growth in future quarters. Now, let me turn it over to Andy, who'll discuss our financial performance in more detail. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Great. Thank you, Powell, and good morning, everyone. Let me first discuss our overall financial results and the key metrics for the quarter. I'm on slide seven, which shows our consolidated results for the third quarter. We had a relatively quiet quarter in terms of one-time items or adjustments, and the numbers presented on this slide reflect unadjusted GAAP results. For the quarter, we delivered 2.6% revenue growth and grew organically in all four of our divisions with a total organic growth rate of 2.4%. In the quarter, our contingent commissions are down about $3 million as compared to the third quarter of last year. This decrease was primarily in our Wholesale Division as a result of increased loss ratios with our carrier partners. For comparability, if contingents were flat with the prior year, our revenue would have grown 3.3%. Pre-tax income increased year-over-year by 30 basis points. This slower growth as compared to revenue was primarily driven by the lower income from contingents and incremental interest expense associated with our bonds we issued in the third quarter of last year. We'll be on a more comparative basis in the fourth quarter as it pertains to year-on-year interest. For clarity, the run rate in the fourth quarter should be that about what we had in the third quarter. EBITDAC for the third quarter was $150.7 million compared to $147.7 million last year, an increase of 2%. Our EBITDAC margin decreased by 20 basis points over the prior year, primarily driven by the lower contingent commissions we described earlier. If contingents were flat for the quarter on a year-over-year basis, our EBITDAC margins would improve slightly versus the prior year and our EBITDAC dollars would have grown 3.8% versus a 3.3% revenue growth, I mentioned earlier. Net income decreased by 1%, which is driven by our 40.2% effective tax rate this quarter versus 39.4% in the third quarter of last year. As we've mentioned previously, the increase in our effective tax rate is primarily being driven by state tax law changes regarding consolidated returns and the apportionment of income to higher tax states. Both of these are primarily in the State of New York. At this point in the year, we're now expecting our overall effective tax rate to be in the range of 39.8% for the full year. Our earnings per share remained flat and our weighted average number of shares outstanding decreased by 2% year-over-year, driven by $150 million of share repurchases over the last 12 months. As a reminder, we initiated $100 million accelerated share repurchase program during the first quarter of this year and this was completed in the third quarter. The final settlement during the third quarter was just under 400,000 shares. As of today, we have $450 million of authorization from our Board of Directors for share buybacks, with $50 million remaining from the $200 million authorization in July of last year, and $400 million from the approval in July of this year. With these approvals, we continue to evaluate share repurchases to drive shareholder returns. Moving over to slide eight, I'd like to highlight the key components of our revenue performance for the quarter. The decrease in contingents described earlier is presented here. The driver of year-over-year growth of commissions and fees is about equally split between net acquisitions delivering $9.7 million of growth, followed by organic growth of $9.4 million. The drivers of this growth within the divisions will be discussed next. Moving from our global view of the company, we'd like to discuss each of our divisions in a little more detail. We'll start by looking at the Retail Division, which is on slide nine. Over the last three months, our Retail Division has delivered 4.7% revenue growth. The organic revenue growth for the quarter was 1.5%. Retail's year-over-year EBITDAC margins decreased by 50 basis points. And here are a few of the key items that drive or that is driving Retail's results for the quarter. As we noted, during our Q1 and Q2 calls, there have been changes in the State of Washington's regulation related to bona fide associations that resulted in several of our association health plans terminating as they were determined to be non-qualified. The changes continue to impact our revenue growth and margins, with the revenue loss impacting overall Retail organic growth by approximately 40 basis points. As mentioned previously, we expect there will be about a $1 million year-over-year revenue impact for the fourth quarter of this year and also decrease total margins by about 20 basis points. We were also impacted by the timing associated with our life insurance businesses. Please note that these businesses can be a little bit lumpy at times. And for Q3, the timing negatively affected our organic growth by 40 basis points. Although life insurance revenue is difficult to forecast quarter-on-quarter, we don't expect this to be a trend for the fourth quarter of this year. Adjusting for these two items, our organic revenues for the quarter would have grown about 2.3%, with this growth being driven primarily from year-on-year new business. In our small employer benefit space, which we define as employers with fewer than 100 employees, we are continuing to see companies be very focused on managing their cost and trying to understand the implementation complexities of ACA. These factors have put downward pressure on our revenues. As a reminder, our small employee benefits business represents about $90 million of annualized revenue of our total employee benefits business of approximately $260 million. For the quarter, our large employee benefits business grew nicely again on an organic basis, while our small group declined. Shifting over to property rates, coastal or cat property renewal rates are continuing to decline 15% to 25%. As Powell noted earlier, we don't expect this trend to materially change over the next year. Property renewal rates continued downward for admitted markets and are generally flat to down 5%. The declines are primarily caused by reductions in premium, which are being driven by the lack of weather-related events, low interest rates, and additional capital of insurers. And lastly, commercial auto rates are generally showing premium increases due to a rise in overall claims experienced. Moving over to slide 10 and our National Program. This division's total revenues decreased by 80 basis points and organic revenues increased by 80 basis points. The decrease in total revenue is related to the divestiture of ICG that we completed in the fourth quarter of last year. We continue to experience good growth in Arrowhead aftermarket, Wright Specialty and the Arrowhead non-standard auto businesses. However, a lot of this growth was offset by certain programs that are being impacted by significant rate decreases, including our Florida coastal property programs and our California earthquake and workers' compensation programs. Lastly, the Programs Division, EBITDAC margins benefited from the disposal of ICG last year. Moving over to slide 11, our Wholesale Division had another really good quarter, reporting organic growth of 5.5%. The differential between organic revenue and total revenue is related to the sale of Axiom Re that we completed in the fourth quarter of last year. Also, our total revenue growth was impacted by lower contingent commissions, which we've previously discussed. Of the total decrease of $3 million, approximately $2 million affected the Wholesale Division. If contingents were flat year-over-year, total revenues would have grown 2.9% versus the as reported decline of 30 basis points. Our binding authority and brokerage businesses both contributed to the positive results for the third quarter and we continue to see growth across most business lines. We're seeing more net new business and are leveraging our deep carrier relationships to help provide innovative solutions for our customers. Even while facing major downward pressure on coastal property rates in the range of 15% to 25%, our brokerage business still grew nicely for the quarter. We think this is a really impressive performance as it shows the amount of new business the team is binding each and every month. The Wholesale Division delivered EBITDAC margin improvement of 30 basis points. The primary driver of this expansion is due to the sale of Axiom Re in the fourth quarter of last year. Please remember that the $2 million decline in contingents this quarter also affected margin, so the year-over-year improvement, excluding the lower contingents, is very good. Moving to our Services Division on slide 12, we delivered impressive organic growth of 7.8% for the quarter. This growth is driven primarily by our Social Security advocacy business and one of our claims processing offices. As it relates to Hurricane Joaquin, we have realized very little claims revenue. Even with the significant media coverage of this storm, we are not expecting material claims processing revenue. This is due to the fact that most of the flooding occurred inland where few flood policies were purchased as they are generally not required. Our policy base is primarily along the coastline. For the third quarter, our EBITDAC margin declined by 80 basis points. The main reason for this decrease – or the main reasons for this decrease are decline in our referrals to one of our Medicare set-aside businesses and lower property claims submitted to one of our claims processing businesses. Since both of these entities have some fixed cost, the margins can fluctuate on a quarterly basis depending upon volumes. We generally evaluate our claims processing businesses on a rolling 12-month basis to assess performance and reduce quarterly fluctuations. With that, let me turn it back over to Powell for closing comments. J. Powell Brown - President, Chief Executive Officer & Director: Thank you, Andy. Great report. In closing, we're optimistic about the current trajectory of the business with many businesses performing well and other businesses improving over previous quarters. We do expect rates to remain under pressure due to historically low weather events and low interest rates. We feel the realignment of our Retail Division strategically positions us for incremental profitable organic growth in future quarters. From an M&A perspective, we remain actively engaged in discussions with many acquisition candidates. As I've mentioned before, closing an acquisition depends on when the seller is ready and if we can come to an appropriate financial transaction. I can tell you that we continue to be quite active in the space, but are being prudent as pricing and terms continue to be aggressive. Lastly, our disciplined capital deployment strategy across internal investments, acquisitions and returns to shareholders remains a key focus to help us drive long-term shareholder value. Now, with that, I'd like to turn it back over to Tracy so we can open it up for questions on the call.

Thank you. And we'll go first to Kai Pan with Morgan Stanley. Kai Pan - Morgan Stanley & Co. LLC: Good morning. J. Powell Brown - President, Chief Executive Officer & Director: Good morning. Morning, Kai. Kai Pan - Morgan Stanley & Co. LLC: First question is on the realignments in the Retail segments, and you said it's a restructuring program, but it doesn't change a lot. And I just wonder what's thought process behind it? And also, if you could talk about those regional present, like compensation structure that what incentivized them to produce a good growth going forward? J. Powell Brown - President, Chief Executive Officer & Director: Okay. So, number one, we had a number of years ago a regional structure. And then we went into a single leader structure for a period of time and we decided to go back to the regional structure to enable us to grow the business more rapidly and profitably. So, that's number one. Number two, the compensation of those leaders will be directly tied to the performance of their division or region and the overall company performance as well. So, they will be incented to grow organically and profitably, make acquisitions, and help us drive the company forward. I will also say that each one of those regional presidents has a key or a business initiative, which he is responsible for. And so, they are developing the strategy with a group of teammates across the organization and will be helping drive that across the platform going forward. So, that's an increased focus on those particular areas, all of which we believe have growth opportunities in the future. Kai Pan - Morgan Stanley & Co. LLC: Okay. That's great. And then shifting gear to the public exchange, that have been drag to your – especially on the small employee site, like employee benefits business. I just wonder, how do you see that business evolve going forward? Are we going to continue to experience headwinds from that site, or are you think we're probably closer to a steady state that your comp will be coming easier going forward? J. Powell Brown - President, Chief Executive Officer & Director: Okay. So, two parts. Number one, as you know, with the new law, which puts community rating in the hands of the state, I think that's going to continue to create complexities and challenges and opportunities for us and the prepared brokerage firms out there. So, I think more to come as that's implemented at a state-by-state basis, number one. Number two, as it relates to exchanges in general, our private exchange has about 4,600 lives up from about 4,000 last quarter. As I've said before, that is an option, it is not the solution. It is an option or a solution. So, what I believe we're going to see in the state exchanges is there will continue to be upward pressure on rates because of the mix of business or the populations in those pools. And what at one time might have looked very compelling financially may change, if, in fact, the performance of that pool starts to not perform as expected. Kai Pan - Morgan Stanley & Co. LLC: Okay. And then my last question is on the investment you're talking about you're making in the business for the past several quarters. I just wonder, given the economic outlook now seems like improving, but you're cautious on the outlook. Are you – so what kind of pace of investment you're making in brokers, producers, as well as the system? Like, do you expect that will have a – given the organic outlook, would that have a meaningful impact on your margin going forward? J. Powell Brown - President, Chief Executive Officer & Director: So, number one, we always have a certain level of investment in people throughout all business cycles, as you now. I have said before that we have made some strategic investments along the way, which has helped increase our organic growth in areas in Retail and other segments of our business. And we will continue to do that strategically and opportunistically when we find the right people that fit culturally. So, as you know, our strategy has historically been to hire people either out of college or from other industries and train them, also make acquisitions where we have a very high quality teammates join us from other organizations. And then, on a selective basis, hire from other firms with experience either some or a lot of insurance experience. And we'll continue to do all of the above in the future. And when certain opportunities present themselves, we will make those additional investments on top of the normal investment. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: And then, Kai, I probably referenced back to what we've talked about in previous calls. We said we believe we should be able to operate in a 33% to 35% operating margin. And, again, that's still a good range for us. And based upon how we make investments on a quarterly basis, that can float up and down as well as revenues back and forth. So just kind of keep that in mind when you're modeling things out. Kai Pan - Morgan Stanley & Co. LLC: Great. Thank you so much for all the answers.

And we'll go next to Elyse Greenspan with Wells Fargo.

Yes. Good morning. I was hoping to also spend a little bit more time on the Retail segment. One of your competitors has pointed to some seasonality in their organic reverence growth figures. Did you see any seasonality in the third quarter there? And then, looking forward to the fourth quarter, do you expect that growth might pick up resulting from the realignment that you had mentioned? J. Powell Brown - President, Chief Executive Officer & Director: Hey, Elyse, can you – you sound very far away. I got the first part on the seasonality. But I'm going to ask you to repeat the other part of the question, if you wouldn't mind, if you could get either closer to the phone or just repeat it?

Sure. The second part of the question. I was wondering if you could kind of look forward to the fourth quarter, if you expect sequential growth within the Retail segment to pick up in relation to some of the realignments that you mentioned, or is that more of something we'll start to see more significantly in 2016? J. Powell Brown - President, Chief Executive Officer & Director: Okay. So the first comment about seasonality. No, we haven't seen some marked change or seasonality in our business. We see our businesses impacted and they fluctuate on any given quarter, but no dramatic seasonality or shift in Q3, number one. Number two, I don't want anybody to think that the realignment of Retail is going to have an immediate impact on internal growth, but over a long – intermediate and long-term, we believe that will, and that is our goal. I have said before and I will say it again that we believe Retail is a low to mid single-digit organic growth business in a steady state economy. As you saw in this quarter, we had slight improvement in terms of that Retail organic growth and it's our goal and intention to continue to drive that forward and up. So I think it's going to take a little time, but I'm very pleased with all of our teammates and the outlook going forward.

Okay, great. And then, in terms of contingent commissions, in the past, you had also pointed to a slowdown in the fourth quarter. Any additional commentary on just kind of the level of decline we might see in contingents this coming next quarter just to kind of get that into our models? R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Yeah. Hi. Good morning, Elyse. It's Andy here. As we talked about on previous calls, we are expecting the fourth quarter to be down probably somewhere in the range of about $4 million. It would be our best guess right now, but don't know exactly. It's primarily going to be within Programs. And if you remember, we talked about the fact that Proctor had got notification from one of their carrier partners that contingents would probably be down materially year-over-year on loss experience. And then, our Florida coastal property business is down just because of lower premiums. So that's kind of a ballpark as to where we are. We won't know until we close out the quarter, but probably a pretty good marker for you.

Okay. And then, in terms of expectations for share repurchases going forward, just how do you think about the fourth quarter? I mean, I know the preference has been on to use accelerated share repurchase programs to complete – to repurchase shares. Is that still how you guys think that would be done going forward, and just timing on future share repurchases now that the last ASR has been completed? J. Powell Brown - President, Chief Executive Officer & Director: Elyse, first, I think it depends on the size of the repurchase, the amount. So, depending on what that is, then we'll evaluate what's the best vehicle on which to purchase the shares. And number two, as you know, we have not taken a position to say that we will categorically buy said amount of shares in any quarter. It's something that we talk with our board about actively. We're actually having a board meeting after this call and we'll continue to talk to them about that as well, but we will look at that as an investment as we do in all the other options, both internal and acquisitions, as we've talked about in the system.

Okay. And then one last question, on the – the non-cash stock-based compensation has been a bit lower this year than kind of where you guys had pegged it. Just in terms of the fourth quarter, where do you think that might end up? R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Yeah, probably in the $6 million to $7 million range, Elyse, on it. And it always – it does fluctuate based upon participation during the quarter. But that would be our best estimate right now.

Okay. Thank you very much. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Have a great day.

And we'll go next to Mark Hughes with SunTrust.

Thank you. Good morning. J. Powell Brown - President, Chief Executive Officer & Director: Morning. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Morning.

Just to clarify on the margin outlook with respect to potential investment spending. You named a lot of specific items, the Washington impact, et cetera. But if you look at kind of your underlying business, would you expect the margin to be steady to improved? So you're not in a period of kind of extra investment spending, but more likely to think, adjusted for contingents, and these other one timers, that it's sort of a flat to improved outlook? J. Powell Brown - President, Chief Executive Officer & Director: Mark, what I would tell you is, we plan on continuing to invest as we have historically, but what I can't say and I know this may frustrate you and others, because you can't model this, it is how and when we see opportunities for people that fit culturally will we be opportunistic in those investments. So, there's not an easy answer to your question.

Right. So, you may be opportunistic, but as a general matter, it ought to be more steady to up? J. Powell Brown - President, Chief Executive Officer & Director: I think it's fair to say that it should probably be more steady and there's a good likelihood that we will make opportunistic investments, but it's not something that we don't look very carefully at and think about the overall impact on all fronts every quarter.

Right. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Hey, Mark, let me see if I can give some real life examples. So in the earnings call for the second quarter of last year, we talked about our investments in our M&A practice, cyber, ZOOM, those were some of the opportunistic. So if you think about what had to occur is that was a year burnt in through our P&L. In order to get there, they're now starting to be revenue producing, but we're continuing to add incremental teammates each and every day through – to the organization.

Okay. And then, the – likewise on the organic growth outlook, I think you've described a generally upbeat view. Any kind of one-timers that you might expect in the fourth quarter that would lead to organic growth decelerating or should it be steady or improved in the fourth quarter relative to the third quarter level? J. Powell Brown - President, Chief Executive Officer & Director: We're not aware of anything in Retail. I would tell you that, as you saw and have seen, there's been a little pressure on Programs, that Programs pressure is driven primarily by the catastrophic property declines and the competitive nature of that business, so it's affecting both coasts, not only the East Coast, but the West Coast. So, if I were to speculate, I think that Programs in Q4 would probably be flattish to maybe down very slightly. The Wholesale segment, as you know, had a nice quarter again at 5.5%. They still have a lot of business that's under pressure, but I anticipate them to have a good quarter, not too dissimilar, maybe up a little, but probably down a little, maybe flat to down a little bit, but in that range. But overall, we're not aware of anything that would be one-time in nature, some unusual action of a governmental entity that would impact our business or anything like that.

When you say Wholesale flat to down, is that off of the kind of the 5% level they did this quarter? J. Powell Brown - President, Chief Executive Officer & Director: Yes.

Yeah... J. Powell Brown - President, Chief Executive Officer & Director: And the reason I can't be more specific, Mark, as you know, is when you have rates down 15% and 20% and 25%, particularly if it's year-on-year, if you renew the account, it's dramatic decrease in your revenue, and if you lose the account, you got to fill that hole in.

Got you. And then, one final question. You had mentioned the claims processing office did well. Can you elaborate on that a little bit? And then, is that recurring? Is that going to be a little bit of a help next quarter and the quarter after? R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Yeah. Mark, it's one of our businesses out on the West Coast and it was really driven by them picking up some new customers. So presuming that we continue to get good claim flow from the customers, then it continue on, but again, we always have a little bit of ebb and flow inside of there. Some of our East Coast businesses did not experience the same claim performance.

Thank you.

And we'll go next to Josh Shanker with Deutsche Bank.

Yes. Thank you. I just wanted to ask a couple of questions. In the prepared remarks, you might have misstated something you said. So long as there's not a lot of property events and interest rates stay low, we should expect pressure on pricing. What's the relationship between interest rates and pricing? J. Powell Brown - President, Chief Executive Officer & Director: Well, like I said, I just think that we're just making a general statement. We're not correlating – you can draw any conclusions you want. We are not trying to draw a correlation between the two. We're just basically saying, in an environment where you have low interest rates and a lot of capital, I don't think we're going to have rates going up.

Okay. The only reason why I asked is I wonder if you can dig in a little bit between the relationship between your commission volume and pricing. I mean, the extent (37:18) some of your business is fee driven, some is commission driven. Can we talk a little bit on how much pressure you can see on the pricing side before you see a material headwind on your top line? J. Powell Brown - President, Chief Executive Officer & Director: Okay. Well, number one, we can't give you an exact. Meaning, if, in fact, rates are down this much, then this happens, because there's a whole bunch of factors in there in addition to rates that impact the business, exposure units, competitive pressures, retention rates and the like. What I have said in the past, as you recall, Josh, is that you can have a rate environment where rates are down as we are today, 0% to 5%, and you can grow your business organically in a steady state environment. The last time we were in an environment like this that I recall was in the late 1990s. So, I'm talking about 1998 and 1999. So rates were down in a similar fashion, property – coastal property was not down like it is today, but we were growing organically then as a kind of a benchmark. So, that's where -

And the economy was probably helping back in 1998 and 1999 I imagine? J. Powell Brown - President, Chief Executive Officer & Director: That's correct.

Yeah. As I look year-over-year on EBITDAC margins, I mean, I wouldn't notice headwinds in your numbers looking at them. It looks like it'd be almost in line with a year ago. Can you talk about Washington? Last quarter, we talked a lot about significant hiring of new producers in a college recruitment program. Has that subsided? I thought that might be more of a headwind coming into this quarter, we didn't see it? J. Powell Brown - President, Chief Executive Officer & Director: No, no. That has not subsided or changed. We continue to invest in. But the cost of those, let's call it, incremental talent investments are going to kind of go up and down in the quarter. So, we didn't call it out not because we're not doing it, we just were trying to give you a good flavor across the platform.

So, one year from now after you've taught these people how to produce, should we see a margin positive impact from their contribution? J. Powell Brown - President, Chief Executive Officer & Director: Well, let's make sure we're clear on that. Everybody's development is different. When you hire somebody right out of college, you are teaching them not only insurance, but about life. And so it takes several years for them to get into the production mode, but they're being very successful in adding value to our team and learning the business in other ways, but they may not be a producer right away. So, depending on that person's background, knowledge of insurance or lack thereof, impacts that. It's not as easy as saying, we hire somebody and one year later you have X. It's not that easy. And I know you'd like that, there'd be more like manufacturing, but it's not like that. You hire a new person and some people are successful more quickly, some people, it takes a little longer for them to launch in their career. But we can tell you that we're looking for a certain type of person and that person, when we find them has a high probability of success in our system over a long period time, if they continue to do all the desired outputs and actions that make us a producer successful.

Do you have a target for full employee count at year end 2015 compared to where it was in the K last year? J. Powell Brown - President, Chief Executive Officer & Director: No.

No. Okay. And thank you for your answers. J. Powell Brown - President, Chief Executive Officer & Director: Thanks, Josh.

And we'll take our next question from Charles Sebaski from BMO Capital Markets.

Good morning. Thanks. J. Powell Brown - President, Chief Executive Officer & Director: Good morning, Charles.

Good morning. First question on contingents, I guess what I'm curious about is kind of 2016 outlook. If we look kind of some of the contingent come down this quarter due to profitability and we look at the industry and pricing down, should we think that 2016 should have a lower profile relative to how 2015 is shaking out, is that directionally how you guys would lead us to think or - R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Yeah, Charles, let me see if I can give a little bit of backdrop is, one, we never give outlook on contingents and it's due to a couple of reasons is, it's got, one, an impact of what happens with loss experience. And that's something that we never can project a year out, and the other is what's going on with underlying rates in both of them. And so, if you were to take the current environment where there's rate pressure out there today, and I think if you were going to forecast up, that might not be a good bet in all of it, but we do not actually estimate anything. I think most of you guys go out there and just use our year-over-year in all of it. The fourth quarter is a good example, as of where we're seeing pressure down on some of our Florida coastal property programs, because it's just premium shrinkage. So, if that was going to continue, you'd expect for it to continue to be down a little bit.

Okay. I guess next would be on the Retail segment and the re-org. Is there – should we think that there's any kind of additional expense? You setup these regional heads. Do they sort of have some expense of kind of putting their team in place on how they want hiring and firing? Should we think that there's some new leadership that they might have some people that they might not think are as good a fit for their units and kind of a standard corporate re-org that there's some near-term expense increase? J. Powell Brown - President, Chief Executive Officer & Director: Charles, the way I would think about it is, could there be some incremental expense over time? Yes, possibly, but the way you describe that is sort of a big corporate re-org. And I don't want you to think of it that way. I want you to think of it as basically these leaders, all of them, were senior leaders of the company before. And they have all – these six individuals now have a region of responsibility that varies in size, but they have a number of high quality teammates already in place in those regions. So, I would just say that as they see fit to hire additional people to help grow the business, that's the way I think of it, as opposed to layers of people that don't sell insurance. I don't want you to think that way.

Yeah. No, I understand you guys are a flatter organization. I would just think that this change of structure is in theory to lead to better growth in the Retail Division. And if there isn't going to be change of some size, how does change get enacted? I mean, if it's the same people doing the same jobs without changes, which change means money, how do you get there? J. Powell Brown - President, Chief Executive Officer & Director: Well, let me maybe address that a little differently. If you look at the business initiatives and the fact that each one of those regional presidents has a business initiative, which they are going to be responsible for driving that strategy across our platform, if, in fact, that means that's a different concept, we haven't done that before in this form or fashion, number one. Number two, I want you to understand that we're not doing it the same way as that we did it because we want to have a different outcome. And the last time I checked, if you do the same thing over and over again and expect a different outcome, I think Albert Einstein said that's the definition of insanity. So we are definitely going to be doing some things differently, which I'm excited about, and we believe we'll deliver the desired results. But like I said, in our system, expense is typically driven around production and service talent. They are directly aligned with the customer experience. So that's how we think about it. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: And, Charles, I'd probably add to that is, Powell mentioned that each of the regional presidents also lead one of the business initiatives. And one of the ways that we structured this in order to not put a lot of cost inside of here is the teammates that sit inside of the business initiative come right out of the regions. What better way to actually solve a problem is solve it yourself. And so therefore, they've got representations. So, we didn't go in and go create all these new groups with all kinds of extra cost and then they get to go tell a region what to do, they're going to do it for themselves, it's about really coming together and collaborating. So it is a different approach.

Okay. And then just finally, in some of the investments you guys have made, I'm thinking back to last quarter and how you're seeing the business opportunities today and new team, how much of it is large account versus your more traditional small middle account? And I'm just wondering if there's been any expansion of kind of the larger account business from Beecher Carlson that came through, and if those – if there is some kind of difference in view between the types of business there? J. Powell Brown - President, Chief Executive Officer & Director: Okay. So, let's think about just over the last year plus. Remember, we acquired last year in the spring Pacific Resources, which is large account capability in the ancillary markets, typically clients approximately 8,000 lives and up. Also, this year, we acquired Strategic Benefits outside of Boston, which also focuses on large employee benefits, both health and ancillaries. And those two businesses are very complementary with the Beecher Carlson business in terms of the same client base and the ability to call on clients either simultaneously or existing clients of one might be a potential opportunity of another. We have made investments over time in Beecher Carlson. As Andy early alluded to, the M&A practice and the cyber liability practice, we've made some additional production and placement capability investments there. But what I would say is our investment appetite in Retail, in middle market Retail, I would say has been very similar. That does not mean that periodically we come across a couple of people that we just realized we got to a higher. But what I would say is the more strategic investment or opportunistic investment hires have probably been more in the large account area. If you were going to make a broad statement and in middle market Retail, it's been more traditional investment over time. That's the way I would describe it.

Thank you very much for the answers. J. Powell Brown - President, Chief Executive Officer & Director: Yeah. Thank you.

And we'll go next to Ryan Byrnes with Janney.

Thanks. Good morning, guys. Just a question again following with kind of the Retail realignment, does that have any impact to the M&A process at all? Are they out there trying to maybe source some of those smaller Retail deals as well? J. Powell Brown - President, Chief Executive Officer & Director: So, the short answer is, all of these individuals have been involved with acquisitions prior to the realignment. And so, as you know, when and why people do acquisitions is different for every person. And so, remember, we have 195 leaders of business units or profit centers, all of which have the ability to engage in a discussion around an acquisition either a fold-in or on a standalone basis, number one. Number two, each of those regional leaders or regional presidents or other senior leaders, do have – there's an expectation for them to try to continue to bring in investment or acquisition opportunities as well. So I don't want to give you the impression that it's going to do something dramatically differently because these people were already doing that.

Got you. Okay. Thanks for that. And then quickly, kind of in the press there's been some kind of noise that you guys maybe looking to do a new win Program, so kind of Program business kind of heading into next year. Should we think about that as any sort of a positive driver for organic growth kind of within the Program segment heading into 2016? J. Powell Brown - President, Chief Executive Officer & Director: Well, we'd like to think that it'll be a positive opportunity for growth. But once again, remember, we continue to see pressure as I've alluded to on property around the country. That's a East Coast, West Coast, everywhere and between situation. And so I would say that that may offset some of the down draft in some of our existing Programs that are impacting that growth in Q3 and Q4 and end of the first quarter of – the first part of next year. We do think that there's a lot of opportunity, but we're very cautious in terms of how to translate that to organic growth yet until we see the Program up and running for a couple of quarters.

Okay, great. And then just my last one, just kind of a more numbers questions. But the – the life business within the Retail segment, how big is that in general? Again, I'm really not sure I know that number and just wanted to, I guess, talk about what kind of lumpiness really goes on, on a quarter-to-quarter basis there? R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Yeah, Ryan, it's Andy here. We don't disclose the individual businesses underneath on it, but like I said, it had about a 40 basis point impact on organic growth when we kind of look at all them together. And as I mentioned, it is kind of lumpy. We can kind of – it just depends on when business gets closed during the quarters, back and forth. J. Powell Brown - President, Chief Executive Officer & Director: And, Ryan, just as a additional comment there, remember, when we're talking about life insurance, that's generally speaking a one-time event. So that's a non-recurring revenue stream. So, that doesn't mean that that's bad. It just means that we could have – it can be peaks and valleys or lumpy, as Andy said. And so you could have a number of large cases sold in a quarter or in a year and then, in the following year, you just don't sell as many or you sell more. So I just want to make sure, that's a one-time only. It's like a builders risk policy or a project policy or anything that is one-time in nature, there's a non-recurring revenue component.

Great. Thanks for the color there, guys. J. Powell Brown - President, Chief Executive Officer & Director: Yeah. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Thank you.

And we'll take our next question from Jeff Schmitt from William Blair & Company. Jeff Schmitt - William Blair & Co. LLC: Hi. Good morning, everyone. J. Powell Brown - President, Chief Executive Officer & Director: Good morning. Jeff Schmitt - William Blair & Co. LLC: In the Program business, what are you seeing going on with workers' comp rates? And could we get a sense maybe at the degree the downdraft you're seeing in California, specifically? J. Powell Brown - President, Chief Executive Officer & Director: Okay. So I think we talked about this the last time, whereas as it's – although rates are down and they can be up in certain classes, the issue in California that we experienced in the second quarter and in the third quarter was a change of one of the risk bearers' appetites in certain classes of business. So, what I would tell you is, as you know, Southern California, like Southeast Florida and Southeast – really, South Texas, are very interesting legal environments. So, you want to have your risk bearers to be not only comfortable, but in a position where they feel like they can make money over time in those areas. So, I know that's a long winded answer to say that I believe it's more risk appetite than rate impact in the State of California. Jeff Schmitt - William Blair & Co. LLC: Okay. Got you. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: And, Jeff, we're going to expect that's probably going to be – unless there's a change there with the carrier around risk, that's going to probably be a headwind for the next few quarters. Jeff Schmitt - William Blair & Co. LLC: Yeah. Okay. And then just on Wright, was there any cat activity at all? And I mean, if – did that help margins at all there? R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Yeah, it was minimal. The only thing that we really picked up was a little bit on the tail end of the storms from the second quarter in Oklahoma and Texas, but honestly, it was a really small amount. The number of claims, Jeff, that we've got so far submitted in for Joaquin is really, really small. I mean, we're talking about in the hundreds on number of claims that have come in so far and they're already slowing down. So... Jeff Schmitt - William Blair & Co. LLC: Okay, so not enough to affect overall margin? R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: No, not at all, not at all. Jeff Schmitt - William Blair & Co. LLC: Got you. And then just real quick on the contingents, which they're down $3 million, I know you guys talked about this. How much of that would you say was just from the impact of Florida versus other drivers? J. Powell Brown - President, Chief Executive Officer & Director: That's not a Florida specific thing. Remember, Andy said that, of the contingent downdraft, $2 million of the $3 million was in Wholesale, and the Wholesale footprint is all over the country with those risk bearers. So it's – I know that piece frustrates you because it's very hard to model and so we understand that, but it truly is based upon the loss experience of the entire book around the country. Jeff Schmitt - William Blair & Co. LLC: Okay. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Jeff, that's what makes it difficult for us to really give any sort of direction on these things because we just don't know. Jeff Schmitt - William Blair & Co. LLC: Yeah, absolutely. Okay. Thank you. J. Powell Brown - President, Chief Executive Officer & Director: Thank you, Jeff.

And we'll go next to Meyer Shields with KBW Equity Research. Meyer Shields - Keefe, Bruyette & Woods, Inc.: Thanks. Good morning, guys. J. Powell Brown - President, Chief Executive Officer & Director: Good morning. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Good morning. Meyer Shields - Keefe, Bruyette & Woods, Inc.: Two quick questions. One, I think, Powell, you mentioned that most of the improvement in Retail organic growth was from new business. Can you give us an update on what's happening with renewal retentions? J. Powell Brown - President, Chief Executive Officer & Director: Yeah. The renewal retention is generally the – in the same historic levels, and we've talked about this before. Other than the piece in Washington, which is a very unusual circumstance, I would say, generally speaking, our renewal retention in most offices is in line with our expectations. Meyer Shields - Keefe, Bruyette & Woods, Inc.: Okay. And could you give us a little bit more color on – you talked about the Retail realignment leaders having responsibility for specific business initiatives. I'm not really sure what that refers to? J. Powell Brown - President, Chief Executive Officer & Director: Okay. So, let me give you an example. We have one leader who is charged with the strategy on small commercial and personal lines. So in that, there are similarities in the way the carriers treat that, and those are two important businesses for us. So an individual, who is one of the regional presidents, helps develop that strategy and drive that strategy across the entire Retail platform. We have one person in charge of employee benefits. We have one person in charge of large accounts, and we kind of go on down. So, each one of those is a higher level of focus in specific areas in the business. So, for example, in employee benefits, you've heard us we're impacted substantially this year by the situation in the State of Washington, but our large group in many instances is growing nicely and our small group is underperforming. And so, we're looking at ways to obviously grow overall employee benefits more quickly and have more solutions for our clients. So think of it as a senior leader, a regional president, who owns a segment of the business and he's thinking about it all the time and helping drive that strategy across the platform. Furthermore, we have additional measures and metrics that we're going to be looking at on all of those segments of business a little differently, which will highlight performance or lack of performance. Meyer Shields - Keefe, Bruyette & Woods, Inc.: Okay. That helps a lot. Thank you very much. J. Powell Brown - President, Chief Executive Officer & Director: Yeah.

And we'll go next to Mark Hughes with SunTrust.

Yeah, just one quick follow-up. The Advocator Group, any observations you might have regarding the Social Security Administration's willingness to approve disability applications? J. Powell Brown - President, Chief Executive Officer & Director: Well, the answer is, I think that business as usual in the last several quarters. Obviously, one thing that could impact that business would be, if our government decided to shut down again. Now, we don't anticipate that and I know no one hopes for that, but I would just say, how people think about hiring or freezing in that segment of government can impact the way those approval processes – or the approval process occurs, but we are not seeing something materially different this quarter or anticipating in Q4 that we have been seeing in the past.

Thank you.

And we'll go next to Dan Farrell with Piper Jaffray. Daniel D. Farrell - Piper Jaffray & Co (Broker): Hi. Good morning. I was wondering if you're seeing any differences in organic growth trend by account size within commercial Retail business, large account versus your small, middle book? J. Powell Brown - President, Chief Executive Officer & Director: I think it's a good question. As you know, in the large account space, when you get an account, it can be very positive for your organic growth, but when you lose one, it's a real bummer. Having said that, so you have a little bit more lumpiness in an individual office on a companywide basis that moderates that impacts slightly, but I would tell you that each of our businesses are growing. What I would say is at the present time, small accounts is probably growing generally slightly slower but steadier over time. Daniel D. Farrell - Piper Jaffray & Co (Broker): That's helpful. And then, I was wondering if you could just comment on what your expectations might be for capital expenditure looking ahead to 2016 relative to what we've been seeing this year? J. Powell Brown - President, Chief Executive Officer & Director: So, can I take a wag at? R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Yeah. J. Powell Brown - President, Chief Executive Officer & Director: What I wanted to do is say this, and I'm going to let Andy articulate it relative to numbers, you've heard us say that we are looking to continue to invest or improve our technology platform. And so we are currently doing with our CIO, we are evaluating, one, a financial package, number one, for our financial program across the system, and two, our agency management systems. So, once again, I'm going to reiterate, this is not something that the new CFO, who is not new anymore, is going to come in and spend $50 million or $100 million, but we're going to be able to better address that come January in terms of the expected expenses for CapEx in 2016. Did you have something you wanted to add on that? R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Yeah. And one of the things that we're looking at on it, Dan, is getting the split between what we think capital will be and historically, again, our capital runs kind of around $20 million to $25 million. So, how much incremental CapEx will there be in 2016 and then also how much will be OpEx, and combination of the OpEx is what is ongoing running versus in the one-time upgrade cost. So we're going through that right now. We should have a good feel when we talk to you guys in January. We just need to get kind of the – through the next 90 days. We're getting pretty close. And again, for clarity, when Powell mentions the agency management system, that's primarily all in Retail just so that we're not changing our agency management systems in the other divisions. Daniel D. Farrell - Piper Jaffray & Co (Broker): Okay, great. Thank you very much. R. Andrew Watts - Chief Financial Officer, Treasurer & Executive VP: Sure.

And it appears there are no further questions at this time. I'd like to turn the conference back to our moderators for any additional or closing remarks. J. Powell Brown - President, Chief Executive Officer & Director: No. Thank you, Tracy. We'd like to wish everybody a great day and we look forward to talking to you again in January. Have a wonderful day. Good bye.

This does conclude today's conference. We thank you for your participation. You may now disconnect.