April, if you could please read the forward-looking statement.

Yes, thank you. Good morning, and welcome to the Brown & Brown Incorporated Fourth 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 the connection with this call and including answers given in response to your questions may relate to the future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those related to the company’s anticipated financial results for the fourth quarter and the full year of 2017, 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 fourth quarter and the full year of 2017, and its financial results differ from the current preliminary unaudited numbers set forth for 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 the connection with this call and the company’s filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, there are certain non-GAAP financial measures used in the conference call. A reconciliation for any non-GAAP financial measures to most comparable GAAP financial measure can be found in the company’s earnings press release or in the investors presentation for this call on the company’s website at www.bbinsurance.com, by clicking on the Investor Relations and then Calendar of Events. With that said, I will now turn the conference over to Powell Brown, President and Chief Executive Officer. You may begin.

Thank you, April. Good morning, everybody, and thanks for joining us for our fourth quarter 2017 earnings call. I am on Slide 4. For the fourth quarter, we delivered $474.3 million of revenue, growing 9.4% in total and 9.3% organically. Our EBITDAC margin was 30.2%, which is down 70 basis points, reflecting the investments discussed in previous quarters and some improvement associated with claims processing revenue related to Hurricane Harvey and Irma. Later in the presentation, we’ll discuss the movements of our margins in more details. Our earnings per share for the fourth quarter of 2017 increased to $1.32 from $0.41 in the fourth quarter of 2016. This improvement includes a benefit of $0.85 associated with the recent tax reform, which was primarily driven by the revaluation of our deferred tax liabilities. Andy will discuss this more in detail later in the presentation. Our earnings per share excluding this onetime benefit was $0.47 for the quarter. Finally, we completed 5 acquisitions during the quarter. On Slide 5, we’re pleased with the full year performance as we deliver $1,881.3 million of revenue, growing 6.5% in total and 4.4% organically. Our EBITDAC margin was 32.2%, which is 60 basis points and reflects the investments we’ve been making in our business. Our earnings per share for the full year of 2017 increased to $2.81 from $1.82. When we remove the onetime benefit of the Tax Reform Act, our earnings per share improved $1.32. We also acquired 11 businesses during 2017. As we reflect on 2017, it was a really solid year. Each quarter we continued to build momentum and furthered our growth by investing in the business for our long-term success. During the year, we grew the top-line nicely and had good bottom-line expansion, while investing in multiple areas of the business, to…

Great, thank you, Powell, and good morning, everyone. I’m over on Slide #7. This presents our GAAP and certain non-GAAP financial highlights. For the fourth quarter, we delivered total revenue growth of 9.4% and organic growth of 9.3%, which benefitted 4.3 percentage points from the claims processing revenues that Powell discussed earlier. Excluding these revenues, our organic growth was 5% for the quarter. Our income before income tax increased by 11.9%, and our diluted earnings per share increased by 222% to $1.32 versus $0.41 in the fourth quarter of last year. As Powell mentioned, as part of the Tax Reform Act, we had to revalue our federal deferred tax liabilities down by approximately $123 million, and also, recorded a repatriation tax of approximately $3 million. These two combined resulted in the $0.85 benefit. We’ll discuss our expectation for 2018 effective tax rate later in the presentation. The effective tax rate for the fourth quarter, excluding the $0.85 benefit was 37.4%, which is slightly below recent quarters due to a couple of onetime discrete items along with the true-up of taxes associated with yearend state tax apportionment. Our weighted average number of shares outstanding was substantially flat as a result of our $75 million accelerated share repurchase program that we initiated during the fourth quarter. In a few slides, we’re going to walk through the primary drivers of our EBITDAC margins. Moving on, Slide #8. This slide presents certain GAAP and non-GAAP financial highlights after removing the impact of the change in acquisition earn-out payables for the fourth quarter of each year and the impact of the Tax Reform Act in the fourth quarter of 2017. Since these items are either non-cash and the earn-out payables can fluctuate by quarter, we believe it is helpful to evaluate the business excluding these…

Thanks, Andy, great report. In closing, we were very pleased with the performance for the fourth quarter and specifically for the full year. As we anticipated, rate increases for cat properties seem muted now by the existence of fresh capital seeking higher returns. However, having property rates flat to up 5% is a nice improvement over the past couple of years. On the acquisition front, we only closed 11 transactions with $17 million of annualized revenue in 2017. While we looked at many potential acquisitions, we would like to have closed more. However, I am very comfortable with our approach to analyzing and assessing potential acquisition candidates for cultural fit and financial returns. Our goal is to more than cover our cost of capital and appropriate period of time based on the strategic nature of the acquisition. As you know, we attract business owners that see the benefit of joining a larger organization that will provide them the opportunity to maximize our collective capabilities and enhance their entrepreneurial spirit. With 28 or so private equity firms trying to put their capital to work, the space is crowded. As many of you know, 60%-plus of all deals done last year were done by private equity, and we don’t expect this trend to change much in 2018. However, we believe there are still a number of firms out there that fit culturally and make sense financially for us. It’s now just a matter of timing. As mentioned earlier, our technology initiatives are to upgrade and standardize certain platforms across the company and specifically within our retail segment. These programs will give us platforms to support our growth and profitability in the future as well as to help us improve the experience for our teammates. As a reminder, we are a decentralized sales and service organization, and we are standardizing some support functions with the goal of benefiting our teammates, our customers, and engaging deeper with our carrier partners. Today, we are leveraging our data better to win more new business and create new products to the benefit of our customers. As it relates to additional money from tax reform that we’ll be able to invest, we’re focused upon current and future teammates, innovation both in technology and beyond as well as M&A. Our goal each year is to deploy as much capital as we can that will generate appropriate returns for shareholders. With that, let me turn it back over to April for the Q&A.

Thank you. [Operator Instructions] And we’ll take our first question from Kai Pan from Morgan Stanley. Please go ahead.

Thank you and good morning. And thank you so much for the comprehensive review of - especially on tax and the accounting changes. My first question is on the margins going forward. If you look at the different components, that the IT investment, the incremental margin impact probably will be minimal in 2018. And the 5 for 5 programs, the margin impact should be less than 2017. And I just wonder if you see that your organic growth now accelerating, will we see overall margin expansion in 2018?

Well, remember, Kai, Number one, we don’t give organic growth guidance. And so, as you know, we have been consistent in saying that, we believe that it is a low- to mid-single-digit organic growth business in a steady-state economy. That’s number one. Number two, we’ve outlined several things that we are doing, technology being one, 5 for 5 being another, and other things that we’re investing in the future. And so, we’ve tried to give an indication of sort of where we thought the margin or where we are. But we are looking to, obviously, improve that, but we’re making investments right now that would in the near term, as you saw this year, impact that. Fair enough, Andy?

And I think, Kai, the other two areas to maybe keep in mind is, with the decline in claims processing revenue associated with storms, that will have an impact on the margins year-over-year. And then, dependent upon exactly where we turn out on contingents and GSCs, our estimate is $6 million to $8 million down that will have some pressure there. But the rest of the business, we’re very focused on getting the best flow-through that we can.

Okay. That’s great. Then my second question, the tax rate. You mentioned that the tax benefit is going to be about $45 million to $50 million per year. And how much of that are going to flow through the bottom line versus reinvest in the business or sort of lower price for your customers?

Okay. So the answer is we continue to evaluate that as we speak. But I will tell you, we’ve been very specific. My closing comments about what we plan to do with it: one, being invested in current and future teammates; two, in innovation; and three, in M&A. And so we are continuing to evaluate that as we speak, Kai.

Okay.

And, Kai, the reason we also look at it is, that basically it increases our cash flow from operations by about 10%. And we never view that we were in a situation where we didn’t have the appropriate capital to fund the business as so needed in the past.

Okay. And then my last one if I may. On the acquisition front, you mentioned lot of competition. And do you think that, do you - do you see that dynamic change in the marketplace?

Not in the near-term. I don’t, Kai. I think that it’s going to continue to be competitive. And so, there’s a lot of people with financial backgrounds that are buying businesses, they’re not - many of them are not insurance people. And so, they’ve got their own view on it. And that’s typically a short-term time horizon, 3 to 5 to 7 years. And we’re playing for the long game, so it’s different, but it is - they’re closing a lot of deals, a number of them are.

Right, thank you so much for all the answers.

Thanks, Kai.

Thank you. Have a good day.

We will take our next question from Elyse Greenspan from Wells Fargo. Please go ahead.

Hi, good morning. My first question, if I back out the storm-related revenue in the quarter, it seems like your organic was running around 4%. Is that kind of how you see it? And I guess, I would like to make that a two-part question. You guys mentioned that maybe some producers were driving for growth in the fourth quarter towards that retail comp program. Do you think that we might see a sequential slowdown because of that? I know you don’t give guidance, but just some kind of color on the growth outlook just in context of the pickup you saw in the fourth quarter.

Okay. Elyse, let me see - I’ll tackle your first one pretty quickly. As we mentioned in our comments, we said that the total organic was 9.3% for the quarter. And if you isolate the flood impact, it’s about 430 basis points. So underlying is about 5% organic growth. Okay.

All right. So, Elyse, your second question, the answer to the question to me right now is, we don’t know. And you could say, well, the only experience we’ve had with this before, it was only a one-year or one-half-year program. This is an ongoing program. And so, I think that we - everybody is equally as motivated on January 23 of [indiscernible] business, 5% or more, than they were in the fourth quarter of 2017. And so they just have more months to hit the bell. And so, we don’t know actually. But I would say that, we feel good about the results on 5 for 5 for 2017. We believe that 5 for 5 will continue to drive desired outcomes and behaviors in the organization in 2018 and beyond. But we just don’t know to be specific on your question.

And, Elyse, we mentioned this on a couple of previous calls and we would just reiterate it now. The program is performing almost right in line with exactly what we expected on kind of estimated top-line contribution as well as the investment side. So there’s no real deviation to it.

Okay, great. And then, in terms of the retail comp-program is it correct that we should expect the impact on margins to be lower in 2018 than 2017?

Slightly.

Okay. And then in terms of the tax impact, the entertainment deduction that you guys called out that is going away, what kind of entertainment falls in that bucket that you are no longer going to be able to deduct under the new tax legislation?

Yes, this is still a gray area as it relates to the IRS and when working through these pieces. They’re supposed to come out in sometimes around the middle of March with additional guidance. But at least the areas that had at least been talked about right now, Elyse, is anything from sports tickets, golf, your country clubs that could be out there, any sort of events that you go to. So again, as backdrop, it is traditionally meals and entertainment were already 50% non-deductible. So what we really did for simplicity is we just took the other 50%. And we’re going to wait until we see additional guidance from the IRS exactly what they’ve included in there.

Okay, great. And then my last question on the tech-related investment, so it seems like the right way to think about this that you are seeing more of a margin hit, say, at the end of 2017 and maybe into 2018, but overall that’s why maybe less of a hit in the later years and that’s why the total potential investment has not changed?

That is correct, yes. So if you look back what we presented on Slide 19, and hopefully this graph helps with everybody, is we were a little bit slower starting the programs than originally anticipated but not unusual for all of these. And as we kind of continued on through 2017, we picked up momentum. We think, we are at kind of full spend right now, so the impact between 2017 and 2018 will be de minimis. Then what happens in 2019, 2020 and thereafter is we start gaining the benefits or the synergies out of the program. That’s how we capture our margin back and brings us back up to our original baseline.

Okay. So no - so there shouldn’t be an impact on margins in 2018 that’s what you just said?

Correct. Yes. We would not - on a full year, we would not expect a margin impact versus 2017. There might be a little bit in the first half of the year, but then we start our way back out of this.

Okay, great. Thank you very much. I appreciate the color.

Have a good day.

And we’ll take our next question from Arash Soleimani from KBW. Please go ahead.

Thanks. On the weather-related claims processing, I know you said that should be $2 million to $3 million now in 1Q 2018. So just to clarify, is the $2 million to $3 million higher year-over-year? Or would it imply that it should be about flat year-over-year?

Yes. It will be around flat year-over-year.

Okay. Thanks. And…

Thank you.

Yes - and can you - have you disclosed like what are the actual margins on the claims processing revenues? Is it basically pure margin?

The answer to the question is no. But it is better than the division average.

Yes. The reason why we don’t disclose it, Arash, is it all depends upon the storm and the nature of the claims. They definitely move around based upon complexity.

Okay. Thanks. And the $4 million to $8 million of expense benefit you mentioned in 2018 from the revenue recognition changes. Is that - so did you say that $4 million to $8 million in 2018 will then subsequently reverse? Just want to make sure I understood that correctly.

Yes, exactly. So we’ll defer it in 2018, then what we’ll do is we’re going to take 1/15 each year and amortize it back into the P&L. And so the 15 years matches with our estimated useful life of our customers, which we disclose in our 10-K every year.

Okay. Thanks. And just my final question, when you mentioned that part of the tax savings could be deployed into innovation, what exactly do you mean by that, just to give some more color?

We’re talking about it right now. And if we told you, it wouldn’t be a secret. And once we figure it out, we’ll tell everybody.

Okay. Fair enough. Thank you for the color.

I am not trying to be funny. I’m just saying that we are evaluating all kinds of things in that space with our senior leadership team as we speak, so more color on that in the future.

Okay, great. Thank you very much.

[Operator Instructions] We’ll take our next question from Josh Shanker from Deutsche Bank. Please go ahead.

Yeah, good morning, everyone. Congratulations on a great quarter.

Thanks.

Good morning.

I appreciate it.

I was looking at the updated information technology spend plan. Andy, I know this is like right in your wheelhouse; you’ve done a whole career. As you push this out, I think about technology, it changes quickly. As we get out to 2020, 2021, is there another technology update coming? I mean, what is being finished look like? And, how do you know that you can put a fine point on and say this is the end?

Yeah, so lot of this, Josh, is about doing a lot of our core infrastructure. And it doesn’t mean that we won’t have some refreshes like all companies out there in out years. But this is to catch up on a few areas, such as - look, we had way too many data centers running. We just need to shut them down and we need to get ourselves down to two or three. We wouldn’t see a reason why we would need to do that again in the future, building some of our core network, again, it’s not something that you would do over time. Generally, we’ll probably have some actual infrastructure or some technology refresh, but a lot of that is CapEx. So we don’t see that as - go ahead.

And between now and then three months ago, what was the incremental sort of decision making that went? Did you try to take on another project or just became more expensive? Or like what was the process in extending this out?

No, I think the only process in extending out is in - this is why we’re trying to give the update is, as we got through these things and just looking at them, sometimes they just take longer to get done than anticipated. Our total spend is not going to be different. But we think it might take about another year. And it’s really around just doing all the conversions within retail and upgrading on the agency management system. We’ll be probably doing anywhere from $25 million to $40 million per year. So you just kind of run that out. That’s going to take about three years to get through.

Hey, Josh, I’d like to make one other point, and I know you’re very familiar with this. But in terms of the Department of Financial Services in New York and compliance with Cyber, we as - and many other companies that do businesses in the State of New York, are having to attest. Our CIO will attest next month for the first part. And then we got another thing to attest to a year from February of 2019. So that has been big on this list, too. So that doesn’t mean we weren’t going to be doing these things, some of these things. But some of that spend has been accelerated because of that need.

Well, that makes perfect sense. Thank you. And I just want to follow-up on Kai’s question about private equity, and deal pipeline and whatnot. I mean, I’m not a tax pro. From what I understand, and maybe it’s incorrect, it seem like that the tax law is going to benefit you relative to private equity in trying to make these deals. Is there any truth in that? Or, you know, I mean can you help give us your outlook kind of what the tax plan does for strategic buyers as opposed to financial buyers?

I’m going to give you the just gut response as opposed to the technical response. And what I think it is, is this. At the end of the day, I think many of us think of private equity in the truest sense of seeking a 20% return annually. They put things out and it says 20% IRR and this and then blah, blah, blah. Well, in reality, that’s not happening in my mind. They are pricing deals at things that - or seeking returns of maybe 12% or 14%. And so, the answer to the question is, when you have new money in the market, with people that may not know about the insurance business, then they’re going to make some decisions to do some things that we wouldn’t do. And that’s not a criticism. It’s an observation. And so, I look at it this way. Could there be some benefits? Yeah, possibly. But, the gut instinct is this. If private equity wants to pay a big ugly number for a business, they will do it. And they have to be accountable to their investors over time. But I can assure you that if you think that their expectations for returns are the 20% that they’ve always said, that is absolutely not what we’re seeing in terms of the way they’re pricing their deals out there. So I don’t get uptight about it. I would say that we looked at a number of transactions last year. And, there were several that we would like to have done, that the chemistry was good. But some - in those instances, somebody else was willing to overlook something. And we weren’t willing to overlook that. And so, that’s okay. Remember, we’re doing this forever. They’re thinking about it just to flip it. And so, we’re thinking about our teammates, our customers, our carrier partners, our shareholders. And so, we’re all very focused on looking at numbers of acquisitions. But there’s lots of business brokers out there calling on agents, basically saying, we can get you a lot of money for your business and the prices are at an all-time high, you ought to look at it. So that sparked some conversations that maybe heretofore two or three years ago wouldn’t have occurred.

Well, thank you for the details and good luck in 2018.

Thanks, Josh.

Thank you.

That concludes today’s question-and-answer session Mr. Brown. At this time, I’d like to turn the conference back to you for any additional or closing remarks.

Thank you, April. We want to wish everybody a happy New Year. And we appreciate your time and look forward to talking to you at the end of our Q1. Have a nice day. Thank you.

This concludes today’s presentation. We thank you for your participation. You may now disconnect.