Brown & Brown Inc (BRO) — Q4 2021 Earnings Call Transcript

Thank you, Serge. Good morning, everyone, and thank you for joining us for our fourth quarter 2021 earnings call. I wanted to begin with some overarching comments regarding our outstanding performance for the fourth quarter and the full year. 2021 was a year of milestones for Brown & Brown with revenue surpassing $3 billion, double-digit organic growth of 10.4%, EBITDAC exceeding $1 billion and cash flow from operations of approximately $950 million. Even with all the challenges that faced the economy during 2021, our team performed at a very high level. We are extremely pleased with our results, which are only possible through the incredible efforts of our nearly 12,000 teammates. The confidence that our customers entrust with us each day and the deep relationships with our carriers. Now let's transition to the results for the quarter and the full year. I'm on Slide 3. We delivered total revenue of $739 million, growing 15% in total and 9% organically. Our EBITDAC margin was 29.2%, which is an increase of 210 basis points from the fourth quarter of 2020. Net income per share for the fourth quarter was $0.36 on an as-reported basis and on an adjusted basis, which excludes the change in estimated acquisition earn-out payables, was $0.42, an increase of 31.3% over the prior quarter. During the quarter, we completed another 8 acquisitions with annual revenues of approximately $67 million. We welcome all of our new teammates that joined during the quarter and throughout 2021 and thank them for their contributions to our results. I'm on Slide 4. For the year, we delivered over $3 billion in revenue, growing 16.8% in total and 10.4% organically. This was the highest level of organic growth we've achieved since the early 2000s when we were much smaller and less diversified. Today, we're a highly diversified retail and wholesale broker, one of the largest operators of MGAs and operate several great claims businesses. Our geographical footprint is also expanding as we operate throughout the United States, Bermuda, Canada, the Cayman Islands, Ireland and the United Kingdom. We plan to grow and enhance our capabilities over the coming years and continue to deliver our industry-leading results. We improved our EBITDAC margin by 240 basis points to 33.5% compared to 2020 as we leverage the growth in organic revenue and manage our expenses, while we continue to make investments in our business to support long-term profitable growth. Our net income per share for the full year of 2021 increased 22.5% to $2.07. On an adjusted basis, which excludes the change in estimated acquisition earn-out payables, our net income per share increased 31.1% to $2.19. Lastly, we had another good year of M&A activity, completing 19 acquisitions with approximately $132 million of annualized revenue, continuing our disciplined strategy to acquire top quality businesses that fit culturally and make sense financially. Later in the presentation, Andy will discuss our financial results in more detail. I'm on Slide number 5. From a customer and market perspective, business confidence continues to improve slowly. Business leaders are cautious due to the emergence of the Omicron variant, which represents another hurdle in the overall growth of the economy. For many industries, challenges continue to be the ability to find and retain employees, supply chain constraints and inflationary pressures. Ultimately, these factors are impacting how quickly companies can grow. From a placement standpoint, the themes were pretty consistent as compared to previous quarters, which included heightened pricing sensitivity and coverage availability for cyber liability for customers with high losses. As a result, customers continue to modify their risk management programs to best control premium increases. Admitted market rates increased consistently with prior quarters and were up 3% to 8% across most lines, with the outlier being workers' compensation rates, which continue to be down 1% to 3%. From an E&S perspective, most rates continue to be up 10% to 20%. CAT property, both wind and quake, were up 10% to 30%, with some moderation experienced in earthquake rates. Professional liability for most accounts remains very challenging with rates up 10% to 15-plus percent or more. Regarding cyber, rates and deductibles in many instances have increased dramatically, with carriers requiring enhanced security protocols to obtain coverage. For professional liability, cyber and excess umbrella, we continue to see carriers reduce limits while seeking significant rate increases. Similar to previous quarters, California and Florida placements for personal lines remained challenging due to the losses or aggregate concentrations. We expect the appetite for personal lines in CAT areas to continue to be constrained into 2022, which will likely put pressure on state-sponsored programs and the cost of insurance for the customer. I'm now on Slide 6. Let's discuss the performance of our 4 segments. Our Retail segment had another very good quarter, delivering organic growth of 9.5%. The performance was fueled primarily by growth from most lines of business through a combination of new business, good retention, rate increases and modest exposure unit improvement. Retail organic revenue growth for the full year was a very stout 11%, which is the first time we've delivered double-digit full year organic growth in over 20 years. These outstanding results are reflective of the benefits from the multiyear investments we've made, our powerful decentralized sales and service model and our high performance-based culture that leverages our capabilities to provide innovative solutions to win and retain more customers. For the fifth consecutive quarter, our National Programs segment grew double digits, delivering excellent results and growing 10.4% organically in the fourth quarter. This performance was driven by strong new business, good retention, rate increases and increasing exposure units across many of our programs. For the full year, National Programs grew organically 12.4%. The team continues to fire on all cylinders, creating new capabilities and delivering best-in-class solutions for our customers. Our Wholesale Brokerage segment grew 8.3% organically for the quarter due to strong new business, good retention and continued rate increases despite ongoing headwinds in our personal lines business. For the full year, our Wholesale Brokerage segment grew 8.1% organically, delivering another good year. Our Services segment grew 1.2% organically for the quarter, with growth in property, auto and workers' compensation claims, which was partially offset by continued headwinds in our advocacy businesses. For the full year, organic revenue increased by 3%. Now, let me turn it over to Andy to discuss our financial performance in more detail.

Great. Thank you, Powell. Good morning, everybody. We're over on Slide #7. My previous quarters, we're going to begin with our GAAP results and then discuss certain non-GAAP financial highlights, which present additional meaningful year-over-year comparisons. For the fourth quarter, we delivered 15% total revenue growth and organic revenue growth of 9%. Our EBITDAC increased by 24%, which was driven by leveraging our revenues and the continued management of our expenses. During the quarter, we recognized gains on sales of certain businesses or books of business that benefited the growth in EBITDAC margins by approximately 50 basis points. Our income before income taxes increased by 7.6%, growing at a slower pace than EBITDAC due to the change in estimated acquisition earn-out payables. While these adjustments had a negative impact on income before income taxes and earnings per share, they highlight how recent acquisitions are performing better than our expectations. On an as-reported basis, our net income increased 4.5% and diluted net income per share increased by 5.9% to $0.36. Our effective tax rate for the fourth quarter was 27.8%, which was negatively impacted by the nondeductibility of a change in estimated acquisition earn-out payables associated with an acquisition where we purchased the shares of a business. Our weighted average number of shares were substantially flat compared to the prior year, and our dividends per share increased to $10.03 or 10.8% compared to the fourth quarter of 2020. We're over on Slide #8. This slide presents our results after removing the impact of the estimated acquisition earn-out payables for both years. The charge was $19.8 million in the fourth quarter of this year compared to a credit of $9.5 million for the same period in 2020. Excluding these amounts, which are substantially noncash in nature, income before income taxes and net income increased by 32.3% versus total revenues growing 15%. Our adjusted diluted net income per share was $0.42, which grew by 31.3%. In summary, it was another very strong quarter on the top and bottom line. We're over on to Slide #9. This slide presents the key components of our revenue performance. For the quarter, our total commissions and fees increased by 15.3%, and our contingent commissions and GSCs were up $5.3 million as we qualified for certain additional contingents and GSCs primarily in the National Programs segment. Our organic revenue, which excludes the net impact of M&A activity and foreign exchange, increased by 9% for the quarter. We're over on to Slide #10. Our Retail segment delivered total revenue growth of 19.1%, driven by acquisition activity over the last 12 months and organic revenue growth of 9.5% with strong growth across most lines of business. EBITDAC grew 25%, and the margin increased by 120 basis points for the quarter, which was driven by leveraging organic revenue growth and managing our expenses, even with increased variable operating costs. The change in income before income tax as compared to the change in EBITDAC is impacted by fluctuations in intercompany interest, amortization, depreciation and estimated acquisition earn-out payables, which is applicable for all segments. We're over on to Slide #11. Our National Programs segment increased total revenues by 12.6% and organic revenue by 10.4%. The increase in total revenue was driven by strong organic growth across many programs and increased contingent commissions. EBITDAC increased by 25.4%, with the margin improving 420 basis points as a result of strong organic revenue growth, managing our expenses, higher contingent commissions and a gain on the sale of one of our businesses. The gain on the sale benefited margin improvement by approximately 250 basis points. Over to Slide #12. Our Wholesale Brokerage segment delivered total revenue growth of 12.4%, driven by acquisitions in the past 12 months and organic revenue growth of 8.3%. EBITDAC increased by 14%, with the margin improving by 40 basis points as a result of good organic revenue growth, the impact of the foreign exchange charge recorded in the prior year managing our expenses despite higher variable costs. Over to Slide #13. Our Services segment increased total revenues by 0.5% and organic revenue by 1.2%. For the quarter, EBITDAC decreased by 18.3% due to the mix of revenue growth in the businesses, along with certain investments to support future growth. We're over on to Slide #14. This slide represents our GAAP results for both years. In 2021, we delivered revenues of over $3 billion, growing 16.8% and earnings per share of $2.07, growing 22.5%. EBITDAC increased by 25.5%, and the margin increased by 240 basis points. For the year, our share count increased slightly, and our dividends paid during 2021 increased by 9.2%. The results for 2021 were just simply outstanding. Over to Slide #15. This slide presents our results excluding the impact of the change in estimated acquisition earn-out payables for both years. For the full year of 2021, on an adjusted basis, our income before income taxes grew 29.6% and net income per share was $2.19, growing 31.1% as compared to total revenue growth of 16.8%. A few comments regarding liquidity and cash conversion. In addition to our strong revenue and income performance metrics, we also had another great year for cash generation, delivering $948 million of cash flow from operations. Among publicly traded brokers, Brown & Brown continues to deliver the highest cash flow conversion, which we define as cash flow from operations divided by total revenues. We also finished the year in a strong liquidity position. With this capital, the cash we will generate in 2022, as well as the capacity on our revolver, we are well positioned to fund continued investments in our company. We've got a few comments regarding outlook for 2022. First, regarding contingent commissions, we anticipate them to be relatively flat year-over-year. As it pertains to taxes, we expect our effective tax rate for 2022 to be in the range of 24% to 25%. This does not take into consideration any potential changes in federal or state tax rates. We anticipate interest expense may increase slightly depending upon the frequency and magnitude of Fed rate increases this year. For reference, our floating rate debt is less than $500 million. In the first quarter of 2022, we'll be transitioning to a fiduciary reporting model for cash, accounts receivable and payables held or owed in a fiduciary capacity. This change is to reflect the nature of the accounts more appropriately on our balance sheet and reduce volatility in the cash flow from operations. On the balance sheet, we'll label them fiduciary assets and fiduciary liabilities. In the cash flow statement, changes in fiduciary cash will be presented within financing activities. For 2021, our conversion ratio of revenues to cash flow from operations was 31%. Taking into consideration the upcoming change, it would have been approximately 27% to 28%. Starting in the first quarter of '22, we'll present the prior periods on the same basis. And then lastly, regarding EBITDAC margins, we've communicated in the past that we believe our margins should be in the 30% to 35% range. We feel good about our current profile after increasing margins by 350 basis points over the past 2 years. For 2022, while we'll have some headwinds from increasing variable costs, we are targeting margins to be relatively flat year-over-year, barring something unusual happening.

Thanks, Andy, great report. We had an outstanding 2021. We're well positioned to deliver profitable growth this year and are confident in our ability to execute. As economic growth starts to return to more normal levels, there are several issues that will influence business confidence in the economy, which include the availability of employees across all industries, the resolution of supply chain constraints, inflation, interest rate increases, resolution of global geopolitical matters and the continued management of COVID. How and when each of these play out over the coming quarters will influence the trajectory of the economy, how leaders invest in their businesses and exposure unit expansion. With that being said, we feel really good about our business and the ability for our team to perform well this year. From a rate perspective, we anticipate premium increases to remain relatively constant or may moderate downwards slightly in the first half as compared to the second half of '21. The main challenge for many E&S lines of coverage will be the availability of capacity, which may impact some of our growth in 2022. A few comments regarding the M&A market. Until interest rates increase materially and capital becomes constrained, we expect competition and valuations to remain at peak levels. We continue to feel good about our positioning and have a solid pipeline to attract great companies to join the Brown & Brown team. Our continued disciplined approach of focusing on culture and financial alignment will be the keys to our long-term success of delivering shareholder value. We think the market will further evolve in 2022 as it pertains to innovation and the experience for the customer. As a result, differentiated utilization of data, collaboration, and technology to attract and retain customers will be even more important. The combination of these will enhance the underwriting process, provide more tailored solutions, improve the delivery of insurance and how we engage with our customers and carriers. We have a very talented team that continues to be focused on the most important deliverables to enhance the solutions we provide for our customers. In closing, we feel great about our business, our capabilities, and most importantly, our team. We're making thoughtful investments in allocating capital to drive long-term profitable growth. With that, let me turn it back over to Serge for the Q&A.

Powell, on the organic growth front, I know you don't provide specific guidance, but you've had a very strong year in 2021, double digits. How do you think that impacts 2022? Does that make for a tougher comp? Or with still good pricing tailwinds too, does the organic outlook look a little bit better than your historical norm?

We consider a few factors, Mark. First, GDP was around 6.7% in 2021, and we anticipate a slight moderation in GDP as we return to more normal levels. Second, we examine inflation, third, interest rates, and fourth, the availability of employees for our customers. Combining all these elements, we expect it to be another good year. However, as you mentioned, we do not provide specific guidance for organic growth. We were very satisfied with last year's performance of 10.4%, but we recognize that there were some unusual factors that may influence how those conditions change this year, and we are uncertain about the timing and extent of those changes.

Understood. And then one other question. You had mentioned the appetite on the part of carriers for some of the CAT-exposed personal lines that maybe that is a constraint in 2022. When you think about your business, net-net, presumably you're getting rate increases, which would be a benefit, but maybe some shift into, say, citizens, which would be more of a headwind. How do you think about this, the CAT-exposed market? Is it incrementally better for you, all things considered?

Yes. I want to clarify that while we primarily discuss CAT personal lines, there are also admitted personal lines challenges in California and Florida. It's important to note that major companies you might have your personal lines with are taking significant actions in certain cases. This situation puts considerable pressure on our teams to offer acceptable products, especially for those in high-risk areas like burn zones or coastal regions in California and Florida, particularly if the homes are older or poorly constructed. This will likely remain a challenge in wholesale, as we've mentioned. In retail, it might be more balanced, but there could still be some negative pressure.

Yes, Mark, I think we're probably also within programs just because that's primarily where we really see the impact on the quake and the wind programs depending upon what the capacity looks like in '22, that could represent a little bit of a headwind. There's a lot of discussions going on right now.

My first question is about organic growth, acknowledging that you do not provide guidance. You began 2021 with significant growth in your Retail segment, which I believe was fueled by strong benefits results and new business wins. Can you discuss how we should view the growth in that business as you compare to some very strong prior performance, especially since you experienced robust growth at the beginning of 2021?

We do not provide specific growth breakdowns by line of business in our retail segment. However, I can share that we are pleased with the performance, and we believe that this line, along with others, can do quite well this year. I want to clarify that I am not steering you in any particular direction concerning retail or employee benefits. The key point is that I understand everyone on this call is eager for organic growth guidance, but we do not provide that. We were very satisfied with our performance last year, and we feel well positioned for this year, keeping in mind the factors I discussed regarding GDP growth, inflation, interest rates, and employee availability.

Maybe I’ll shift to the margin side. Andy, you mentioned that you are targeting flat margins in 2022, and acknowledged some headwinds from variable costs. Could you share your thought process behind achieving that flat margin while considering organic and revenue growth? It would be helpful to understand how you arrived at that figure, especially since greater growth in 2022 could lead to increased leverage.

I think you've hit on all of the key items that we evaluated. As we looked at '22 and trying to give the guidance for it, is based upon the overall growth of the business, the mix of the business inside, changes in variable costs, which will probably go up in 2022. And then just how we manage our costs through the year. I think we feel comfortable right now at this stage, as we mentioned, barring something unusual happening that we'll manage our way through increasing variable costs and should end up with margins around flat for 2022. Again, we think that will be a very, very good year, considering the 350 basis points of expansion that we did over the last 2 years.

But as you know, we're not going to answer your question. I like your backwards way of asking it, but we're not going to answer your growth question.

And then just one last quick one, Andy. I think you usually talk to noncash stock-based comp in like your outlook and guidance figures. Any sense you can give us on noncash stock-based comp in '22 relative to '21?

Yes, it will probably go up a little bit, but again, nothing overly material. Otherwise, we would have called it out.

I would like to start by asking about the guidance you provided regarding profit sharing and contingent being flat for 2022 in comparison to 2021. I'm interested in understanding the details behind that. As you know, the market has been quite challenging, particularly on the commercial side, and personal lines also seem to be facing difficulties. Why wouldn't profit sharing increase as the carriers' profitability improves? Could you provide some background on why you expect those line items to remain flat this year?

This past year was highly active with losses for the insurance industry, not limited to catastrophe-prone areas. While your reasoning makes sense, I believe it doesn't apply here because we are facing issues like social inflation and nuclear verdicts, which although I don't usually emphasize, are significant. The industry and carriers are improving, and if interest rates rise, it would enhance their performance, yet losses and loss costs are still increasing. Therefore, we anticipate that the results will likely remain flat unless there are unforeseen circumstances.

And Greg, when we made that comment, we try to look across the 3 segments that participate in contingents and GSCs. And we're still not seeing movement in the wholesale space yet. I think your comment is one of shouldn’t we already, but honestly, we would have thought that a couple of years ago, and we still are not seeing a move. So that's why we think at least flat for right now seems like a pretty reasonable approach.

Got it. I just had a follow-up on your answer. Can you give us like the split between what's personal lines and what's commercial lines just as a big picture percentage in terms of profit sharing and guaranteed supplements? And then, Powell, in your answer, you mentioned interest rates, I would have figured that these type of numbers would have been based on underwriting results, exclusive of investment income?

Let me address the last question first. The answer is yes, that's correct. However, I am referring to the overall results of the carriers, which could improve, and they are involved based on profit sharing, which relies on the underwriting results of the carrier rather than investment income. Andy, would you like to add anything to that?

Yes, Greg. On your first question, we just break out contingents and GSCs by each of the segments, which we do in the MD&A section. But we don't break it out by the different lines of business.

Yes, Greg. What we are trying to achieve is to manage the timing of receipts and disbursements from both our customers and carriers, which leads to fluctuations in our cash flow from operations. You can observe this volatility this year, particularly in the fourth quarter, just as we have experienced in the past. With the new fiduciary reporting, we will account for these changes in fiduciary assets and liabilities in the financing section. This means that cash flow from operations will accurately reflect our management of working capital. That is why we mentioned the conversion range of 27% to 28%, which we believe is a strong target moving forward. However, do not interpret the decrease from 31% to 27% or 28% as negative; it could easily shift back in Q1. That is the nature of the volatility associated with fiduciary.

And just to follow up, the 27% to 28%, is that a full year number? Or is that sort of the target range of expectation we should expect every quarter? I would imagine there would be some volatility going around that quarters?

Yes, definitely by the quarter. So that's a full year guidance. But if you look back, you'll be able to get an idea by the quarters when just based upon the EBITDAC that we deliver each quarter, you'll have a pretty good idea of how that will flow.

Okay. Great. Just for Andy, I think the '24 to '25 tax guides up a point or so from the previous tax guide, is this just kind of variability? Or like is it 24% to 25% the potential new normal?

When we examined our blended effective state tax rates, they are increasing by about 1% going into 2022. That's why for 2021, we provided a range of 23% to 24%. Based on our current outlook, we believe that 24% to 25% is a reasonable range, barring any changes at the Federal or State level.

Okay, great. I understand. There seems to be some pressure from certain states. The next question is about wage inflation, which is one of your main expenses. Could you discuss what Brown & Brown is experiencing in terms of wage inflation and the expense management strategies that have been mentioned in several of the prepared remarks? Can you elaborate on whether your expense management efforts are helping to mitigate any upward pressure on wage inflation?

Our goal is to grow our business profitably over the long term. We are not trying to reduce expenses significantly because we believe our expenses are already managed. That said, we are facing wage inflation, which affects not only larger cities but is pervasive across various areas. The impact of this inflation varies based on multiple factors. Our business operates on a localized sales and service model, where local leaders make decisions regarding compensation to reward and retain top talent for our customers. We won't quantify the impact since it varies by market, but we acknowledge the pressures that come with it, just like others in the industry. We're aware that we are experiencing a labor shortage not seen in decades, and while this affects our industry, it reflects a broader issue of underinvestment in workforce. We have confidence in our team and will continue to provide fair rewards. A key aspect of our business is promoting wealth creation for all teammates, allowing them to buy stock at a discount and benefit from equity appreciation, which supports their well-being and that of their families. This is a vital part of our total compensation strategy, beyond just cash compensation.

That's helpful. Finally, one last follow-up. I think it's a thank you for Andy, for moving out of fiduciary, some income impacts from the cash flow. Just curious, if U.S. Fed fund rates or overnight rates do rise over the coming year to 2 years, does BRO benefit a little bit from making a margin on fiduciary assets?

We do a little bit Mike, but honestly, probably by the time you take all of it together between the fiduciary, our other cash and then an increase in our borrowing, you're probably about to push anyway.

I want to stick with the theme of pressures on recruiting. And I guess, wage inflation as well there. I guess maybe 2 questions on that. Any impact on the current quarter because of that? In other words, organic would have been X were it not for that or margins would have been X if it were not for that? And then is there any impact on that on M&A multiples? Does this actually help the M&A multiples because folks that maybe otherwise would have sold are maybe more willing to sell because of their own pressures on wage inflation?

So no meaningful impact in Q4. And no, it doesn't impact purchase price multiples. And I'm not trying to be funny, but I'm saying the short answer is it's still frothy relative to the M&A market.

It seems there are still many private equity firms out there trying to pursue opportunities. This likely has a significant influence on maintaining high levels.

Yes. Short-term money, that's right.

The second question is related to the recruiting issue. How does that influence your priorities for investments in the upcoming year? You mentioned customer experience in technology; how do you balance those investments against potential hiring challenges due to recruiting? Could you elaborate on how you prioritize your investment strategies for the year?

Sure. Remember, we do 3 things with the money that we earn. One, we reinvest it in ourselves, meaning hiring new people and investing in technology that can help drive not only efficiency but experience both for teammates and customers to a higher and better level. Two, we acquire businesses; and three, we return it to shareholders in the form of dividend. And sometimes, if we believe the stock price is undervalued, we would buy some back. That said, we have and Andy and I have talked about making some concerted technology investments over the last several years, and we'll continue to do so, but it's not as though we're going to make one big investment. And we are going to do that in a very thoughtful way in how we do that because any organization can only withstand a certain amount of change from a technology standpoint. So nice way of saying it, we think it's all about people and the right firms. So we will probably do a mix depending on what becomes available. And if we find the right firms that fit culturally and make sense financially of hiring people, to add to our existing team and acquiring businesses that fit culturally and make sense financially.

Mike, just a couple of things for you to think about there also is inflation is going to move up and down over time, as you know well, right? The ability to just throw technology at things just doesn't happen overnight. So if you recall, I mean when we started on some of the investments back in ’16, one of the areas inside of there was about how do we improve the experience for our teammates and the work that they have to go through and do each day. So we've been on this journey for a number of years. I think those investments that we've made in the past have actually helped position us even better for working through times like this.

So my first question is, can you maybe spend a little more time discussing the impact of the pullback of insurers from the standard homeowners market in California on the various segments. I guess it's not intuitive to me that that would be a negative to the wholesale business. I would have thought that the pullback from standard markets into the E&S market would be positive for wholesale?

Yes. Let's discuss that. You're referring to an article from last week about several large insurance carriers that are reducing their exposure to thousands of personal lines accounts in California, especially those with high-end and super high-end home values. These generally include homes valued at 5, 10, and 15 million dollars or more. I see this situation affecting us in two main ways. First, in retail, this trend can hinder organic growth for personal lines if there isn't an ability to find replacements. If we shift to wholesale, it usually comes with lower commissions. Second, while the E&S market will feel some impact, some of that business will shift there as you mentioned, but there’s still significant pressure in high-risk areas like brush zones, leading to a decline in that segment for wholesale. I want to clarify that your initial assessment is correct; it might seem more favorable for wholesale. However, there is a larger negative impact in those two areas that I'm concerned about. I don't believe that the influx of homes into the market will counterbalance the number of homes that could end up needing to go to the fair plan. That's our current view. Changes could happen, though. If one of those major carriers takes more drastic measures, which I don't expect they will because the California insurance regulator imposes limits on what can be done, they could end up being restricted from writing policies in California, which they certainly want to avoid.

Got it. That's very helpful color. I appreciate that. And then my second question is going back to the prepared comments, I think what you had referenced there was that organic growth in '22 could be impacted by your clients' ability to hire. I guess what I'm trying to get to is what about Brown & Brown's ability to hire? And will the company be willing to forgo some organic growth because it's not willing to spend more on more expensive hires?

Well, let me make it clear. We're very focused on people that fit culturally with Brown & Brown. And so we are going to continue to invest in people that embellish our capabilities either existing or new capabilities and embody the characteristics of the team that we've assembled. And so having said that, that does not mean that we are not impacted by hiring and the impact of wage pressure, but we are going to continue to invest in the right people when the right people come along, because usually, I think of it as it's fairly simple. When you meet somebody that's so good that you can't afford not to hire them, then you just hire them, and we'll figure out how to make it work in the budget. And so that's the way we look at it, and we will continue to look at it that way.

Yes, Yaron. I mean you've heard us make comments in the past that while the quarterly results are important, we're not in this game for the 90-day sprint; we're in this for the long term. And so that would be extremely unusual that we would make a trade-off on a good investment just to try to make a number for the quarter. That's just not how we run our business. We think we've got good people or technology investments or whatever the case might be; we think that moves the ball forward over the long term, we're going to make those investments. That's a good thing for our company. That's out there. So again, we're not foreshadowing anything, just saying this is how we think about running the organization and how all of our leaders make investments in the businesses.

I want to start, I guess, with a follow-up on the last question. There's a fair amount of the compensation expense that Brown & Brown has is paying producers a percentage of the revenues that they bring in. Is that percentage being impacted by the sort of national workers orders that we keep hearing about?

No. Remember, that's part of the reward plan; producers receive commissions based on their performance, along with an equity component that contributes to long-term wealth creation. It's a combination of a cash and equity reward system, not solely a cash reward system.

Understood. I believe that should lessen the effect of rising wages on the overall income statement if that.

No, don't think of it that way, Meyer. Remember, there are many teammates who receive a salary along with a bonus or other forms of compensation. With approximately 12,000 teammates, a significant number are on a salary, so that would affect their income.

Thank you all very much, and have a great first quarter of the year. We'll talk to you next quarter. Good day.