Good morning, and welcome to the Brown & Brown, Incorporated Second 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 second quarter 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 second quarter, 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. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Thank you, Jennifer. Good morning, everyone. And thanks for joining us for our second quarter earnings call. I am on Slide 4. For the second quarter, we delivered $473.1 million of revenue, growing at 1.5% in total and 5.2% organically. Excluding the impact of the new revenue standard, our total revenues for the quarter grew 7.3%. As a diversified insurance broker, we're pleased that all four segments grew nicely for the quarter, and we're rapidly approaching our intermediate revenue goal of $2 billion. Our EBITDAC margin was 29.1%, which is down 320 basis points, with a 180 basis points of impact from the new revenue standard. Andy will discuss the movement of our margins in detail later. Our net income per share for the second quarter of ‘18 increased to $0.26 from $0.23 in the second quarter of the prior year, driven by our strong organic growth and the ongoing benefit of federal income tax reform, but was partially offset this quarter by the impact of the new revenue standard. As we've said in the past, there can be fluctuations quarter-to-quarter in our organic revenue or margin but over the year it all works out. We also completed six acquisitions with annual revenues of approximately $39 million for the quarter. We're pleased with the quarter. We had good organic revenue growth across the company and in each segment. Good earnings expanded our capabilities and increased our geographic footprint through six acquisitions. There is just a lot of positive momentum across the company. Later in the presentation, Andy will discuss in more detail our financial results, excluding the impact of the new revenue standard. I'm on Slide 5. Before we talk in more detail about our divisional performance, I want to make some overall comments about exposure units, rates, capital in…

Thank you, Powell. Good morning, everyone. I'm over on Slide number 7. On the following slides, we're going to discuss our GAAP results, then our adjusted results excluding the impacts of acquisition earn-outs and the impact of the new revenue standard. As a reminder, we've excluded the impact of the new revenue standard for the calculation of organic growth in order to provide a better comparison with the prior year. We'll use this format for the remainder of 2018; then, in 2019, we will be on a comparative basis. Slide 7 presents our GAAP and certain non-GAAP financial highlights. For the second quarter, we delivered total revenue growth of 1.5% and organic growth of 5.2%, driven by solid organic growth in all four segments. Our income before income tax decreased by 6.6% and our EBITDAC declined by 8.6%, both of which were materially impacted this quarter by the new revenue standard. Our net income grew by 11.8% and our diluted net income per share increased by 13% to $0.26 versus $0.23 in the second quarter of last year. The growth in our financial metrics, except for organic revenue, was impacted by the adoption of the new revenue standard this year, which we'll discuss more in detail in a few minutes. The growth in net income and diluted net income per share, in excess of revenue growth and income before income taxes, were primarily driven by our lower effective federal income tax rate that resulted from tax reform last year. For the quarter, our effective tax rate was 26.7% as compared to 38.8% last year with our effective tax rate benefiting from the 14% decrease in the statutory federal income tax rate. For the year, we've lowered the expectation for our effective tax rate to be in the 26.5% to 27%…

Thank you, Andy. Great report. In closing, we're pleased with our performance for the second quarter and where we're positioned at the midpoint of the year. I want to thank all of our teammates for their efforts delivering the results that we've talked about. I'd like to make several broad comments about the company. We believe the economy remains on a good path and that should help drive exposure unit growth. That's a positive for Brown & Brown. As it relates to the M&A landscape, we've started the third quarter with good momentum and have already closed five transactions with annual revenues of approximately $30 million. That is in that $83 million that we talked about. We remain actively engaged with many companies and are optimistic that we'll be able to close more transactions over the coming months. But, as we've stated before, nothing is done until it's signed. From a capital allocations standpoint, we've deployed all the cash we generated during the first half of the year and utilized some of the cash from our balance sheet. The first six months we've deployed over $140 million for acquisitions and prepaid $100 million of debt during the quarter. We're well positioned with our capital structure and have accessed sufficient capital through our $800 million revolver in cash on our balance sheet to fund our growth. We remain focused upon our investments in technology and evaluating the InsureTech landscape, as we believe these initiatives will help us provide the platforms and capabilities to support our growth and profitability in the future. As you know, our company is defined by our culture, our teammates, and our discipline. It is the combination of these three that delivers our consistent financial performance. With that, I'll turn it back over to Jennifer for the Q&A segment.

Thank you. [Operator Instructions] And we'll go first to Greg Peters with Raymond James.

Good morning. Thanks for the call. I've wanted to just -- if we could circle back to slide 10, where you go through your EBITDAC margin walk. One, it didn't really, there wasn't any significant mention of the five-for-five program. And two, as we think about just the year-to-date results, it seems to be the EBITDAC margin's running on an adjusted basis below your longer term 33%-35% range. So, as we think about the outlook for the next several quarters, can you talk about where we might get some tailwind, where some of the investments and expenses might work to benefit the margins going forward?

So, Greg, number one, if you're looking at Page 10 and you're specifically thinking about the other segment down there at 50 BPS, I would tell you about 40 BPS of that are what I would call one time in nature. There are some recurring BPS in there as well, but about 40 BPS of the 50 is non-recurring, that's number one. Number two, if would encourage you to know that if you think about the performance on a year-to-date basis. And if you remember, in the first quarter, we were talking about somebody had asked questions about organic growth in retail and how that should look long-term. If you look at our margins, actually year-to-date against last year, and you take out the 60 basis points for impact of Core Commercial, we're basically flat. I think we're within 20 basis points year-to-date. So having said that, we have talked about and we’ll continue to talk about making investments in our business. Five-for-five, we're very pleased with. And we're very pleased with the organic growth for retail in the quarter. But like I said, periodically and on quarter-over-quarter, we'll have some fluctuations in the organic growth and the earnings in each of those divisions. We have not revised our situation or our position on our targeted range. I will tell you this and I know you know this Greg, but when we make acquisitions, acquisitions are typically at margins that are lower than our company average, and many times they're lower than the divisional average or segment average. And so, over time, we try to bring those up to the average or in excess of the average. And so, I know that we haven't done as many acquisitions in the last couple of years, but I'm just saying that relative to the business that we've acquired and so all of that kind of rolls up into the impact on our numbers.

Okay, Greg, I wanted to add on the retail incentive program. Just as a reminder, how that program was designed and how it’s performing, the largest impact on our margin would be last year, then we are going to get a little bit of benefit in 2018 and then we get back to about breakeven by the end of ‘19. So, it's difficult to see it on any one individual quarter. It would be easier to probably measure it on a full year basis as we look through. But as what we can see underlying, last year performed right in line with our expectations, and at the half year mark it's doing the same. So, we feel really good with the program.

As just a point of clarification on the Arrowhead Core Commercial, will that be a margin headwind or tailwind in 2019?

That will actually be a tailwind in 2019. So let me just go back just to make sure we clarify this a little bit. So we started this in July of last year. So this is why we've had a benefit to the organic growth for the past four quarters, but it's also been a drag on the margins. As we make the lap here, July 1st is the organic will moderate down a little bit. We're going to have some additional expense in the third quarter, building up a platform. Then as we head to the fourth quarter, the margins start to increase a little bit and that will just continue every year thereafter. It's going to move around a little bit by quarter based upon some of the seasonality of the business underlined. So, you want to look at it on a full-year basis. But as we said before, by the time we get out to the end of ‘21, we should be at commensurate margins with National Programs. And again, it's performing right in line with expectations.

Great. Thanks for the clarity. My second question would be around organic revenue as we think about the next several quarters. It's clearly been doing very well. And -- but I know last year -- at the end of last year and the beginning of this year, you did benefit from some weather related activities. And I'm curious if we should be thinking about those unusual non-recurring type of activities as we think about organic in specifically the fourth quarter of this year and perhaps the first quarter of next year?

The answer to your question, Greg, is yes. In Q3 and Q4, you should be thinking about that. And remember, back on the Core Commercial program, that's not included -- I mean, it's inorganic growth going forward, but not the organic growth because we got that given to us. So, that represents about 100 basis points of organic growth. So, you need to be thinking about that in national programs and, or in other segments of the business that could have and specifically those that are adjusting claims if we don't have weather-related events in Q3 and Q4.

So Greg, it would be, when you look at programs -- if you go back to the earnings call for the third and fourth quarter of last year, and even look at Q1 of this year, we called out the incremental revenues on there. You try just, you probably will anyway, but just take those into consideration when doing your projections to get to an underlying.

We'll go next to Elyse Greenspan with Wells Fargo.

Hi. Good morning. My first question I guess, just going back to one of Greg's questions on margins. So you said 40 basis points was about one time in nature this quarter. Could we get a little bit of additional color on what was one time? And then, I'm just curious, are all of those one-time expenses showing up in the other operating expense line? Because, that looked a bit higher than where it had been running.

Yeah, good morning. It was a combination of one time -- both in salary related as well as down in other.

Can you just, given it's like, what would put something as one time in nature that you wouldn't necessarily expect to continue from here?

Someone leaving the company.

Okay. And then in terms of the retail growth, pretty strong in the quarter. And you guys called out commercial and employee benefit growth. Is it possible to get a little bit of color in terms of the growth that both of those businesses are running at on an organic basis?

We don't break out lines of business organic growth, as you know. But, we're very pleased with the performance of the retail segment across the country. And, so like I said, we don't break that out.

Okay. But, one wasn't significantly better than the other.

No. They both were positive. But, we didn't clarify. We just highlighted because they both were positive toward the organic growth.

Okay, great. As we think about margins from here. Andy, I believe you said that non-cash stock compensation might be a little bit higher in the back half? Is there any way that you can help us quantify the potential hit to margins. I guess as we're thinking through kind of the items that you called out? It seems like you did say the core commercial would be a hit in the third and then benefit in the fourth quarter. So, in terms of the non-stock compensation, it seems like that's the only hit in the back half of the year, if I guess, the tech investment will be a benefit to come to that full year net neutral. I just want to make sure I'm thinking through the three components correctly for the back half of the year margin impact.

Sure. I guess, so I think on the non-cash stock compensation, it was with the 20 basis point impact this quarter. That's probably a good proxy for right now. And then it may move around a little bit based upon ultimate performance.

Okay. And then in terms of the IT investment, am I thinking about that correctly? So you said it will be net neutral for the full year. Do you get a benefit in the second half of the year or is there still going to be a hit to margins in the second half of the year?

Elyse, there will be minimal impact in the third quarter, so it’s -- that's third quarter year-over-year. And then there will be a little bit of a benefit in the fourth quarter year-over-year. So, full year will be about flat. So just going back, first quarter, we were 20 basis points of impact, 10 basis points this quarter. That will start to reverse back out in the third and fourth.

Okay, great. And then one last quick question. You called out, sorry, go ahead.

Just make sure you keep in mind the impact of contingent commissions on a full year and the impact on margins. I know you probably look at the guide in there, I just want to remind you of it.

Okay. And then in terms of you guys called out it was a little bit surprise, you called out currency in your Wholesale segment. I wouldn't think that would've had a major impact on margins. Was it just calling it out because it was a slight impact I guess stemming from your UK business in the quarter?

Yes, if you remember, we called it out last year. So, this is kind of a flip back to the other side. That it’s not that it's a lot, but it’s just we had one that was a debit last year, we had a credit this year. So you’ve kind of got the inverse. Generally, not a lot.

We'll go next to Meyer Shields with KBW.

Thanks. Good morning. So on the M&A front, I guess two questions in terms of margins. One, does the pickup in deals being closed have any impact on quarterly expenses?

A little, but I would say it's not that material.

Yes, it just depends on the individual acquisition, Meyer, and what we have the way of integration costs, we have historically not broken any of those out. Just we leave them in our number coming through. So it just depends on the individual.

And can you give us a sense of the timeline, I know it varies by deal, but timeline for getting these lower margin acquisitions up to overall grow level or segment level margins?

Okay, so, I think it's different by business, and it's all about leadership and discipline over a long period of time. So think about what we've talked about in the past. Many of these are S-corporations, where there are a number of expenses in there that are being taken out and normalized shareholder or leader compensation. And so in doing so, as we said, many of those, the target is 25% operating margin. And over time, during an earn-out, they actually have an incentive to grow not only top-line but to grow the bottom-line. But going forward as well in the way our incentive -- our compensation plans work, there's a profit pool driven off the profit in that individual office. So, growing that can grow your compensation. So, it depends. There is no stated, this is how long it takes, Meyer. I know you want to be able to say okay three years, and there can be lots of different things that impact that. It could be geography, it could be classes of business that they write. It could be the economy. If you write a lot of construction and the economy turns down. If you are in the property space and rates have come down substantially over the last 3 years. There are a number of factors that go in there, but I would say multiple years and it's more than three. But, you can't say, here's the number.

Okay. So that's fair. That's helpful. I understand the complexity. And then one final question. When we used to have more dramatic hard and soft markets, there was some pushback from the carriers in terms of overall commission rates. I know we're talking about fairly modest rate changes now, but is there any of that pressure emerging?

Let me say this way. As you know, insurance carriers -- many of them are not models of efficiency. So, they're trying to look at expenses wherever they can. However, there is so much capital out there and so many carriers want the premium that that buffers that. And so I would tell you that, we have very little conversation with our trading partners about reductions in commissions. I think ultimately they're thinking about, excuse me, and particularly, the big standard carriers in the United States are thinking about how they can do more with fewer. And that means fewer and deeper relationships with their trading partners. So, as we continue to get bigger, and we are quite large in many of those instances, that bodes well for us. So, that's how we look at it. No, we haven't seen that.

[Operator Instructions] And at this time, there are no further questions.

Alright. I'd like to say thanks again, everybody. And we look forward to talking to you next quarter. Have a great day. Thank you very much.