Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion updates the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and the two discussions should be read together.

GENERAL

Company Overview — First Quarter of 2023

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, please see “Information Regarding Non-GAAP Financial Measures” below regarding important information on non-GAAP financial measures contained in our discussion and analysis.

We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquartered in Daytona Beach, Florida. As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, sales or payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control. We also participate in capitalized captive insurance facilities (the "Captives") for the purpose of having additional capacity to place coverage, drive additional revenues and to participate in underwriting. The Company has traditionally participated in underwriting profits through profit-sharing contingent commissions. These Captives give us another way to deliver incremental revenue growth and continue to participate in underwriting results while limiting exposure to claims expenses. The Captives focus on property insurance for earthquake and wind exposed properties underwritten by certain managing general agents. The Captives limit the Company's exposure to claims expenses either through reinsurance or by only participating in certain tranches of the underwriting.

The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, changes in general economic and competitive conditions, a health pandemic or a reduction of purchase limits the occurrence of catastrophic weather events all affect our revenues. For example, higher levels of inflation, which increase the value of insurable exposure units, or a general decline in economic activity, which could decrease the value of insurable exposure units. Conversely, increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance coverage. Historically, we have grown our revenues as a result of our focus on net new business and acquisitions. We foster a strong, decentralized sales and service culture, which enables responsiveness to changing business conditions and drives accountability for results.

The term “core commissions and fees” excludes profit-sharing contingent commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered. The net change in core commissions and fees reflects the aggregate changes attributable to: (i) net new and lost accounts; (ii) net changes in our customers’ exposure units; (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners; (iv) the net change in fees paid to us by our customers; and (v) any businesses acquired or disposed of.

We also earn profit-sharing contingent commissions, which are commissions based primarily on underwriting results, but in select situations may reflect additional considerations for volume, growth and/or retention. These commissions, which are included in our commissions and fees in the Condensed Consolidated Statements of Income, are accrued throughout the year based on actual premiums written and are primarily received in the first and second quarters of each subsequent year, based upon the aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 3.0% of commissions and fees revenue.

Fee revenues primarily relate to services other than securing coverage for our customers, and to a lesser extent as fees negotiated in lieu of commissions. Fee revenues are generated by: (i) our Services segment, which is primarily a fee-based business that provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services; (ii) our National Programs and Wholesale Brokerage segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and (iii) our Retail segment in our large-account customer base, where we primarily earn fees for securing insurance for our customers, and in our automobile dealer services (“F&I”) businesses where we earn fees for assisting our customers with creating and selling warranty and service risk management programs. Fee revenues as a percentage of our total commissions and fees, represented 25.8% in 2022 and 27.4% in 2021.

For the three months ended March 31, 2023, our total commissions and fees growth rate was 22.5%, and our consolidated Organic Revenue growth rate was 12.6%.

Historically, investment income has consisted primarily of interest earnings on operating cash and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy as it relates to the Company’s capital is to invest available funds in high-quality, short-term money-market funds and fixed income investment securities. Investment income also includes gains and losses realized from the sale of investments. Other income primarily reflects other miscellaneous revenues.

Income before income taxes for the three months ended March 31, 2023 increased from the first quarter of 2022 by $29.2 million or 11.0%, driven by net new business and acquisitions completed in the past 12 months, which were partially offset by increased amortization expense as a result of our recent acquisitions along with increased interest expense associated with higher average debt balances from debt issued and bank financing in the first quarter of 2022 to fund the acquisitions of GRP (Jersey) Holdco Limited and its businesses ("GRP"), Orchid Underwriters Agency and CrossCover Insurance Services ("Orchid") and BdB Limited companies ("BdB") as well as increases in the floating-rate benchmark used on our adjustable rate debt.

Information Regarding Non-GAAP Financial Measures

In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with generally accepted accounting principles (“GAAP”), we provide references to the following non-GAAP financial measures as defined in Regulation G of the SEC rules: Total Revenues - Adjusted, Organic Revenue, EBITDAC, EBITDAC Margin, EBITDAC - Adjusted and EBITDAC Margin - Adjusted. We present these measures because we believe such information is of interest to the investment community and because we believe it provides additional meaningful methods to evaluate the Company’s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis due to the impact of certain items that have a high degree of variability and that we believe are not indicative of ongoing performance. This non-GAAP financial information should be considered in addition to, not in lieu of, the Company’s consolidated income statements and balance sheets as of the relevant date. Consistent with Regulation G, a description of such information is provided below and tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q under “Results of Operations - Segment Information.”

We view Organic Revenue and Organic Revenue growth as important indicators when assessing and evaluating our performance on a consolidated basis and for each of our four segments, because it allows us to determine a comparable, but non-GAAP, measurement of revenue growth that is associated with the revenue sources that were a part of our business in both the current and prior year and that are expected to continue in the future. We also view Total Revenues - Adjusted, EBITDAC, EBITDAC - Adjusted, EBITDAC Margin and EBITDAC Margin - Adjusted as important indicators when assessing and evaluating our performance, as they present more comparable measurements of our operating margins in a meaningful and consistent manner. As disclosed in our most recent proxy statement, we use Organic Revenue, and EBITDAC Margin - Adjusted as key performance metrics for our short-term and long-term incentive compensation plans for executive officers and other key employees.

Non-GAAP Revenue Measures

Total Revenues - Adjusted is our total revenues, excluding Foreign Currency Translation (as defined below).

Organic Revenue is our core commissions and fees less: (i) the core commissions and fees earned for the first 12 months by newly acquired operations; (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period); and (iii) Foreign Currency Translation (as defined below). The term “core commissions and fees” excludes profit-sharing contingent commissions and therefore represents the revenues earned directly from specific insurance policies sold and specific fee-based services rendered. Organic Revenue can be expressed as a dollar amount or a percentage rate when describing Organic Revenue growth.

Non-GAAP Earnings Measures

EBITDAC is defined as income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables.

EBITDAC Margin is defined as EBITDAC divided by total revenues.

EBITDAC - Adjusted is defined as EBITDAC, excluding (i) (gain)/loss on disposal, (ii) Acquisition/Integration Costs (as defined below), (iii) for 2023, the 1Q23 Nonrecurring Cost (as defined below) and (iv) Foreign Currency Translation (as defined below).

EBITDAC Margin - Adjusted is defined as EBITDAC - Adjusted divided by Total Revenues - Adjusted.

Definitions Related to Certain Components of Non-GAAP Measures

“Acquisition/Integration Costs” means the acquisition and integration costs (e.g., costs associated with regulatory filings, legal/accounting services, due diligence and the costs of integrating our information technology systems) arising out of our acquisitions of GRP (Jersey) Holdco Limited and its business, Orchid Underwriters Agency and CrossCover Insurance Services, and BdB Limited companies, which are not considered to be normal, recurring or part of the ongoing operations.

“Foreign Currency Translation” means the period-over period impact of foreign currency translation, which is calculated by applying current-year foreign exchange rates to the various functional currencies in our business to our reporting currency of US dollars for the same period in the prior year.

“1Q23 Nonrecurring Cost” means approximately $11.0 million expensed and substantially paid in the first quarter of 2023 to resolve a business matter, which is not considered to be normal, recurring or part of the ongoing operations.

Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments and, therefore comparability may be limited. This supplemental non-GAAP financial information should be considered in addition to, and not in lieu of, the Company's Condensed Consolidated Financial Statements.

Acquisitions

Part of our continuing business strategy is to attract high-quality insurance intermediaries to join our operations. From 1993 through the first quarter of 2023, we acquired 618 insurance intermediary operations.

Critical Accounting Policies

We have had no changes to our Critical Accounting Policies as described in our most recent Form 10-K for the year ended December 31, 2022. We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business combinations and purchase price allocations including potential earn-out obligations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 in the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2022 for details regarding our critical and significant accounting policies.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Condensed Consolidated Financial Statements and related Notes.

Financial information relating to our condensed consolidated financial results for the three months ended March 31, 2023 and 2022 is as follows:

		Three months ended March 31,
(in millions, except percentages)		2023				2022				% Change
REVENUES
Core commissions and fees		$	1,081.2			$	875.7				23.5	%
Profit-sharing contingent commissions			26.8				28.6				(6.3	)%
Investment income			7.0				0.2			NMF
Other income, net			1.0				0.2			NMF
Total revenues			1,116.0				904.7				23.4	%
EXPENSES
Employee compensation and benefits			571.1				459.0				24.4	%
Other operating expenses			160.7				126.8				26.7	%
(Gain)/loss on disposal			(5.7	)			(0.2	)		NMF
Amortization			41.4				31.1				33.1	%
Depreciation			9.9				8.1				22.2	%
Interest			46.7				18.3				155.2	%
Change in estimated acquisition earn-out payables			(2.3	)			(3.4	)		NMF
Total expenses			821.8				639.7				28.5	%
Income before income taxes			294.2				265.0				11.0	%
Income taxes			58.7				44.7				31.3	%
NET INCOME		$	235.5			$	220.3				6.9	%
Income Before Income Taxes Margin (1)			26.4	%			29.3	%
EBITDAC - Adjusted (2)		$	398.2			$	323.1				23.2	%
EBITDAC Margin - Adjusted (2)			35.7	%			35.7	%
Organic Revenue growth rate (2)			12.6	%			7.8	%
Employee compensation and benefits relative to total revenues			51.2	%			50.7	%
Other operating expenses relative to total revenues			14.4	%			14.0	%
Capital expenditures		$	11.8			$	10.0				18.0	%
Total assets at March 31,		$	13,399.9			$	11,272.9

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

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

Commissions and Fees

Commissions and fees, including profit-sharing contingent commissions, for the three months ended March 31, 2023 increased $203.7 million to $1,108.0 million, or 22.5%, over the same period in 2022. Core commissions and fees revenue for the first quarter of 2023 increased $205.5 million, composed of : (i) approximately $107.0 million of net new and renewal business, which reflects an Organic Revenue growth rate of 12.6%; (ii) $113.9 million from acquisitions that had no comparable revenues in the same period of 2022; (iii) an offsetting decrease from the impact of Foreign Currency Translation of $0.7 million; and (iv) an offsetting decrease of $15.6 million related to commissions and fees revenue from business divested in the preceding 12 months. Profit-sharing contingent commissions for the first quarter of 2022 decreased by $1.8 million, or 6.3%, compared to the same period in 2022.

Investment Income

Investment income for the three months ended March 31, 2023 increased $6.8 million from the same period in 2022. This increase was primarily driven by higher average interest rates compared to the prior year.

Other Income

Other income for the three months ended March 31, 2023 increased $0.8 million to $1.0 million as compared to the same period in 2022.

Employee Compensation and Benefits

Employee compensation and benefits expense as a percentage of total revenues was 51.2% for the three months ended March 31, 2023 as compared to 50.7% for the three months ended March 31, 2022, and increased 24.4%, or $112.1 million. This increase included $56.0 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2022. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2023 and 2022 increased by $56.1 million, or 12.2%. This underlying employee compensation and benefits expense increase was primarily related to: (i) an increase in staff salaries attributable to salary inflation; (ii) an increase in producer compensation associated with revenue growth and (iii) the year-over-year increase of approximately $14.7 million in the value of deferred compensation liabilities driven by changes in the market prices of our employees' investment elections associated with our deferred compensation plan, with such amount substantially offset within other operating expenses as we hold assets to fund these liabilities that closely match the investment elections of our employees.

Other Operating Expenses

Other operating expenses represented 14.4% of total revenues for the first quarter of 2023 as compared to 14.0% for the first quarter of 2022. Other operating expenses for the first quarter of 2023 increased $33.9 million, or 26.7%, from the same period of 2022. The net increase included: (i) $27.0 million of other operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2022; (ii) expenses of approximately $11.0 million to resolve a business matter during the first quarter of 2023 which is not considered to be normal, recurring or part of the ongoing operations; (iii) increased variable costs with travel and entertainment being the largest driver, partially offset by; (iv) the year-over-year decrease of approximately $14.7 million in the value of assets held to fund the associated liabilities within our deferred compensation plan, which was substantially offset within employee compensation and benefits as noted above.

Gain or Loss on Disposal

Gain on disposal for the first quarter of 2023 increased $5.5 million from the first quarter of 2022. The gains on disposal were due to activity associated with book of business sales. Although we do not routinely sell businesses or customer accounts, we periodically sell an office or a book of business (one or more customer accounts) that we believe does not produce reasonable margins or demonstrate a potential for growth, or because doing so is in the Company’s best interest.

Amortization

Amortization expense for the first quarter of 2023 increased $10.3 million, or 33.1%, compared to the first quarter of 2022. These increases reflect the amortization of new intangibles from businesses acquired within the past 12 months, partially offset by certain intangible assets becoming fully amortized.

Depreciation

Depreciation expense for the first quarter of 2023 increased $1.8 million, or 22.2%, compared to the first quarter of 2022. Changes in depreciation expense reflect the addition of fixed assets resulting from business initiatives, and net additions of fixed assets resulting from businesses acquired in the past 12 months, which were partially offset by fixed assets that became fully depreciated.

Interest Expense

Interest expense for the first quarter of 2023 increased $28.4 million, or 155.2%, compared to the first quarter of 2022. These increases were due to higher average debt balances resulting from debt issuance and bank financing in the first quarter of 2022 to fund the acquisitions of Orchid, GRP, and BdB, as well as increases in the floating-rate benchmark used on our adjustable-rate debt.

Change in Estimated Acquisition Earn-Out Payables

Accounting Standards Codification (“ASC”) Topic 805-Business Combinations is the authoritative guidance requiring an acquirer to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase price arrangements) at the acquisition date must be included in the purchase price consideration. The recorded purchase price for acquisitions includes an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations are required to be recorded in the Condensed Consolidated Statements of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years.

The net charge or credit to the Condensed Consolidated Statements of Income for the period is the combination of the net change in the estimated acquisition earn-out payables balance, and the interest expense imputed on the outstanding balance of the estimated acquisition earn-out payables.

As of March 31, 2023 and 2022, the fair values of the estimated acquisition earn-out payables were re-evaluated based upon projected operating results and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the three months ended March 31, 2023 and 2022 were as follows:

		Three months ended March 31,
(in millions)		2023				2022
Change in fair value of estimated acquisition earn-out payables		$	(4.2	)		$	(4.8	)
Interest expense accretion			1.9				1.4
Net change in earnings from estimated acquisition earn-out payables		$	(2.3	)		$	(3.4	)

For the three months ending March 31, 2023, the fair value of estimated earn-out payables was re-evaluated and decreased by $4.2 million and decreased by $4.8 for the three months ending March 31, 2022, which resulted in credits to the Condensed Consolidated Statements of Income, respectively.

As of March 31, 2023, estimated acquisition earn-out payables totaled $254.2 million, of which $144.6 million was recorded as accounts payable and $109.6 million was recorded as other non-current liabilities.

Income Taxes

The effective tax rate on income from operations for the three months ended March 31, 2023 and 2022 was 20.0% and 16.9%. The increase was driven primarily by the lower tax benefit associated with incremental vesting of restricted stock awards in the first quarter 2023 as compared to the first quarter of 2022.

RESULTS OF OPERATIONS — SEGMENT INFORMATION

As discussed in Note 12 to the Condensed Consolidated Financial Statements, we operate four reportable segments: Retail, National Programs, Wholesale Brokerage, and Services. On a segmented basis, changes in amortization, depreciation and interest expenses generally result from activity associated with acquisitions. Likewise, other revenues in each segment reflects net gains from miscellaneous income. As such, in evaluating the operational efficiency of a segment, management focuses on the Organic Revenue growth rate and EBITDAC Margin.

The reconciliation of commissions and fees included in the Condensed Consolidated Statements of Income to Organic Revenue, a non-GAAP financial measure, and the growth rates for Organic Revenue for the three months ended March 31, 2023, including by segment, are as follows:

2023		Retail (1)								National Programs								Wholesale Brokerage								Services								Total
(in millions, except percentages)		2023				2022				2023				2022				2023				2022				2023				2022				2023				2022
Commissions and fees		$	712.2			$	595.9			$	228.4			$	162.1			$	123.1			$	102.7			$	44.3			$	43.6			$	1,108.0			$	904.3
Total change		$	116.3							$	66.3							$	20.4								0.7							$	203.7
Total growth %			19.5	%							40.9	%							19.9	%							1.6	%							22.5	%
Profit-sharing contingent commissions			(15.4	)			(17.9	)			(7.9	)			(8.0	)			(3.5	)			(2.7	)			—				—				(26.8	)			(28.6	)
Core commissions and fees		$	696.8			$	578.0			$	220.5			$	154.1			$	119.6			$	100.0			$	44.3			$	43.6			$	1,081.2			$	875.7
Acquisitions			(78.6	)			—				(20.0	)			—				(15.3	)			—				—				—				(113.9	)			—
Dispositions			—				(9.2	)			—				(3.9	)			—				(2.5	)			—				—				—				(15.6	)
Foreign currency translation			—				(0.4	)			—				(0.3	)			—				—				—				—				—				(0.7	)
Organic Revenue (2)		$	618.2			$	568.4			$	200.5			$	149.9			$	104.3			$	97.5			$	44.3			$	43.6			$	967.3			$	859.4
Organic Revenue growth (2)		$	49.8							$	50.6							$	6.8							$	0.7							$	107.9
Organic Revenue growth rate (2)			8.8	%							33.8	%							7.0	%							1.6	%							12.6	%

(1) The Retail segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of this 10-Q of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.

(2) A non-GAAP financial measure.

The reconciliation of commissions and fees included in the Condensed Consolidated Statements of Income to Organic Revenue, a non-GAAP financial measure, and the growth rates for Organic Revenue for the three months ended March 31, 2022, including by segment, are as follows:

2022		Retail (1)								National Programs								Wholesale Brokerage								Services								Total
(in millions, except percentages)		2022				2021				2022				2021				2022				2021				2022				2021				2022				2021
Commissions and fees		$	595.9			$	521.7			$	162.1			$	154.6			$	102.7			$	90.7			$	43.6			$	47.0			$	904.3			$	814.0
Total change		$	74.2							$	7.5							$	12.0							$	(3.4	)						$	90.3
Total growth %			14.2	%							4.9	%							13.2	%							(7.2	)%							11.1	%
Profit-sharing contingent commissions			(17.9	)			(15.7	)			(8.0	)			(8.3	)			(2.7	)			(1.9	)			—				—				(28.6	)			(25.9	)
Core commissions and fees			578.0				506.0				154.1				146.3				100.0				88.8				43.6				47.0				875.7				788.1
Acquisition revenues		$	(28.3	)		$	—			$	(0.1	)		$	—			$	(0.9	)		$	—			$	—			$	—			$	(29.3	)		$	—
Divested business			—				(0.7	)			—				(1.2	)			—				—				—				(0.5	)			—				(2.4	)
Foreign currency translation			—				(0.7	)			—				—				—				—				—				—				—				(0.7	)
Organic Revenue (2)		$	549.7			$	504.6			$	154.0			$	145.1			$	99.1			$	88.8			$	43.6			$	46.5			$	846.4			$	785.0
Organic Revenue growth (2)		$	45.1							$	8.9							$	10.3							$	(2.9	)						$	61.4
Organic Revenue growth rate (2)			8.9	%							6.1	%							11.6	%							(6.2	)%							7.8	%

(1) The Retail segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 12 of the Notes to the Condensed Consolidated Financial Statements, which includes corporate and consolidation items.

(2) A non-GAAP financial measure.

The reconciliation of total revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, and EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months ended March 31, 2023, including by segment, is as follows:

(in millions)		Retail				National Programs				Wholesale Brokerage				Services				Other				Total
Total Revenues		$	713.5			$	229.8			$	123.4			$	44.3			$	5.0			$	1,116.0
Total Revenues - Adjusted(2)			713.5				229.8				123.4				44.3				5.0				1,116.0
Income before income taxes			210.2				73.3				31.2				5.2				(25.7	)			294.2
Income Before Income Taxes Margin(1)			29.5	%			31.9	%			25.3	%			11.7	%		NMF					26.4	%
Amortization			27.4				10.0				2.7				1.3				—				41.4
Depreciation			4.3				3.0				0.7				0.4				1.5				9.9
Interest			21.8				9.8				2.7				0.4				12.0				46.7
Change in estimated acquisition earn-out payables			(2.7	)			(0.2	)			0.6				—				—				(2.3	)
EBITDAC(2)			261.0				95.9				37.9				7.3				(12.2	)			389.9
EBITDAC Margin(2)			36.6	%			41.7	%			30.7	%			16.5	%		NMF					34.9	%
(Gain)/loss on disposal			—				(5.7	)			—				—				—				(5.7	)
Acquisition/Integration Costs			2.8				0.1				0.1				—				—				3.0
1Q23 Nonrecurring Cost			—				—				—				—				11.0				11.0
EBITDAC - Adjusted(2)		$	263.8			$	90.3			$	38.0			$	7.3			$	(1.2	)		$	398.2
EBITDAC Margin - Adjusted(2)			37.0	%			39.3	%			30.8	%			16.5	%		NMF					35.7	%

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

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The reconciliation of total revenues to Total Revenues - Adjusted, a non-GAAP measure, income before incomes taxes, included in the Condensed Consolidated Statement of Income, to EBITDAC - Adjusted, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin - Adjusted, a non-GAAP measure, for the three months ended March 31, 2022, including by segment, is as follows:

(in millions)		Retail				National Programs				Wholesale Brokerage				Services				Other				Total
Total Revenues		$	596.4			$	162.2			$	102.9			$	43.6			$	(0.4	)		$	904.7
Foreign Currency Translation			(0.4	)			(0.3	)			—				—				—				(0.7	)
Total Revenues - Adjusted(2)			596.0				161.9				102.9				43.6				(0.4	)			904.0
Income before income taxes			184.1				41.7				25.6				6.6				7.0				265.0
Income Before Income Taxes Margin(1)			30.9	%			25.7	%			24.9	%			15.1	%		NMF					29.3	%
Amortization			21.1				6.7				2.0				1.3				—				31.1
Depreciation			2.5				2.8				0.7				0.4				1.7				8.1
Interest			23.6				2.2				3.5				0.6				(11.6	)			18.3
Change in estimated acquisition earn-out payables			(3.7	)			0.1				0.2				—				—				(3.4	)
EBITDAC(2)			227.6				53.5				32.0				8.9				(2.9	)			319.1
EBITDAC Margin(2)			38.2	%			33.0	%			31.1	%			20.4	%		NMF					35.3	%
(Gain)/loss on disposal			(0.2	)			—				—				—				—				(0.2	)
Acquisition/Integration Costs			2.3				0.3				0.4				—				1.4				4.4
Foreign Currency Translation			(0.1	)			(0.1	)			—				—				—				(0.2	)
EBITDAC - Adjusted(2)		$	229.6			$	53.7			$	32.4			$	8.9			$	(1.5	)		$	323.1
EBITDAC Margin - Adjusted(2)			38.5	%			33.2	%			31.5	%			20.4	%		NMF					35.7	%

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

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

Retail Segment

The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers, and non-insurance risk-mitigating products through our F&I businesses. Approximately 77.3% of the Retail segment’s commissions and fees revenue is commission based.

Financial information relating to our Retail segment for the three months ended March 31, 2023 and 2022 is as follows:

		Three months ended March 31,
(in millions, except percentages)		2023				2022				% Change
REVENUES
Core commissions and fees		$	697.4			$	578.4				20.6	%
Profit-sharing contingent commissions			15.4				17.9				(14.0	%)
Investment income			0.2				—			NMF
Other income, net			0.5				0.1			NMF
Total revenues			713.5				596.4				19.6	%
EXPENSES
Employee compensation and benefits			353.6				288.1				22.7	%
Other operating expenses			98.9				80.9				22.2	%
(Gain)/loss on disposal			—				(0.2	)		NMF
Amortization			27.4				21.1				29.9	%
Depreciation			4.3				2.5				72.0	%
Interest			21.8				23.6				(7.6	%)
Change in estimated acquisition earn-out payables			(2.7	)			(3.7	)		NMF
Total expenses			503.3				412.3				22.1	%
Income before income taxes		$	210.2			$	184.1				14.2	%
Income Before Income Taxes Margin (1)			29.5	%			30.9	%
EBITDAC - Adjusted (2)		$	263.8			$	229.6				14.9	%
EBITDAC Margin - Adjusted (2)			37.0	%			38.5	%
Organic Revenue growth rate (2)			8.8	%			8.9	%
Employee compensation and benefits relative to total revenues			49.6	%			48.3	%
Other operating expenses relative to total revenues			13.9	%			13.6	%
Capital expenditures		$	4.8			$	1.6				200.0	%
Total assets at March 31,		$	7,605.3			$	4,903.9

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

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Retail segment’s total revenues for the three months ended March 31, 2023 increased 19.6%, or $117.1 million, as compared to the same period in 2022, to $713.5 million. The $119.0 million increase in core commissions and fees revenue was driven by: (i) approximately $78.6 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in the same period of 2022; (ii) an increase of $49.8 million related to net new and renewal business; (iii) an offsetting decrease from the impact of Foreign Currency Translation of ($0.4) million; and (iv) an offsetting decrease of $9.2 million related to commissions and fees recorded in 2022 from businesses since divested. Profit-sharing contingent commissions for the first quarter of 2023 decreased 14.0%, or $2.5 million, as compared to the same period in 2022, to $15.4 million. The Retail segment’s total commissions and fees increased by 20.6%, and the Organic Revenue growth rate was 8.8% for the first quarter of 2023. The Organic Revenue growth rate was driven by net new business written during the preceding 12 months and growth on renewals of existing customers. Renewal business was impacted by rate increases in most lines of business with continued increases in commercial auto, personal lines home and auto, commercial and condo property, partially offset by continued premium rate reductions in workers’ compensation.

Income before income taxes for the three months ended March 31, 2023 increased 14.2%, or $26.1 million, as compared to the same period in 2022, to $210.2 million. The primary factors driving this increase were: (i) the profit associated with the net increase in revenue as described above, partially offset by (ii) amortization and depreciation expenses growing faster than total revenues.

EBITDAC - Adjusted for the three months ended March 31, 2023 increased 14.9%, or $34.2 million, as compared to the same period in 2022, to $263.8 million. EBITDAC Margin - Adjusted for the three months ended March 31, 2023 decreased to 37.0% from 38.5% in the same period in 2022. The decrease in EBITDAC Margin - Adjusted was driven by: (i) increased variable operating expenses, which are largely travel and meeting related; (ii) the seasonality of profit associated with recent acquisitions and (iii) lower year-over-year profit-sharing contingent commissions.

National Programs Segment

The National Programs segment manages over 40 programs supported by approximately 100 well-capitalized carrier partners. In most cases, the insurance carriers that support these programs have delegated underwriting and, in many instances, claims-handling authority to our programs operations. These programs are generally distributed through a nationwide network of independent agents and Brown & Brown retail agents, and offer targeted products and services designed for specific industries, trade groups, professions, public entities and market niches. Businesses within this segment also operate our write-your-own flood insurance carrier, WNFIC and participate in two Captives. WNFIC’s underwriting business consists of policies written under and fully ceded to the NFIP and excess flood and private flood policies which are fully reinsured in the private market. The Captives provide additional underwriting capacity and allow us to participate in underwriting results. The Company has traditionally participated in underwriting profits through profit-sharing contingent commissions. These Captives give us another way to continue to participate in underwriting results while limiting exposure to claims expenses. The Captives focus on property insurance for earthquake and wind exposed properties underwritten by certain managing general agents. The Captives limit the Company's exposure to claims expenses either through reinsurance or by participating in limited tranches of the underwriting risk.

The National Programs segment operations can be grouped into five broad categories: Professional Programs, Personal Lines Programs, Commercial Programs, Public Entity-Related Programs and Specialty Programs. Approximately 76.1% of the National Programs segment’s commissions and fees revenue is commission based.

Financial information relating to our National Programs segment for the three months ended March 31, 2023 and 2022 is as follows:

		Three months ended March 31,
(in millions, except percentages)		2023				2022				% Change
REVENUES
Core commissions and fees		$	220.5			$	154.1				43.1	%
Profit-sharing contingent commissions			7.9				8.0				(1.3	)%
Investment income			1.2				0.1			NMF
Other income, net			0.2				—			NMF
Total revenues			229.8				162.2				41.7	%
EXPENSES
Employee compensation and benefits			88.1				73.4				20.0	%
Other operating expenses			51.4				35.3				45.6	%
(Gain)/loss on disposal			(5.7	)			—			NMF
Amortization			10.0				6.7				49.3	%
Depreciation			3.0				2.8				7.1	%
Interest			9.8				2.2			NMF
Change in estimated acquisition earn-out payables			(0.1	)			0.1			NMF
Total expenses			156.5				120.5				29.9	%
Income before income taxes		$	73.3			$	41.7				75.8	%
Income Before Income Taxes Margin (1)			31.9	%			25.7	%
EBITDAC - Adjusted (2)		$	90.3			$	53.7				68.2	%
EBITDAC Margin - Adjusted (2)			39.3	%			33.2	%
Organic Revenue growth rate (2)			33.8	%			6.1	%
Employee compensation and benefits relative to total revenues			38.3	%			45.3	%
Other operating expenses relative to total revenues			22.4	%			21.8	%
Capital expenditures		$	4.9			$	5.6				(12.5	%)
Total assets at March 31,		$	3,675.2			$	3,338.8

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

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The National Programs segment’s total revenue for the three months ended March 31, 2023 increased 41.7%, or $67.6 million, as compared to the same period in 2022, to $229.8 million. The $66.4 million increased in core commissions and fees revenue was driven by: (i) approximately $50.6 million of net new, renewal business, and fee revenues; (ii) $20.0 million from acquisitions that had no comparable revenues in the same period of 2022; (iii) an offsetting decrease from the impact of Foreign Currency Translation of $0.3 million; and (iv) an

offsetting decrease of $3.9 million related to commissions and fees revenue from business divested in the preceding 12 months. Profit-sharing contingent commissions for the first quarter of 2023 decreased approximately $0.1 million or 1.3% as compared to the first quarter of 2022.

The National Programs segment’s total commissions and fees increased by 43.1%, and the Organic Revenue growth rate was 33.8% for the three months ended March 31, 2023. The Organic Revenue growth was driven by strong new business and rate increases, good retention and modest exposure unit expansion, as well as claims revenue associated with Hurricane Ian.

Income before income taxes for the three months ended March 31, 2023 increased 75.8%, or $31.6 million, as compared to the same period in 2022, to $73.3 million. Income before income taxes increased due to the drivers of EBITDAC described below.

EBITDAC - Adjusted for the three months ended March 31, 2023 increased 68.2%, or $36.6 million, from the same period in 2022, to $90.3 million. EBITDAC Margin - Adjusted for the three months ended March 31, 2023 increased to 39.3% from 33.2% in the same period in 2022. EBITDAC - Adjusted grew due to total revenue growth and leveraging our expense base.

Wholesale Brokerage Segment

The Wholesale Brokerage segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, including Brown & Brown retail agents. Approximately 84.9% of the Wholesale Brokerage segment’s commissions and fees revenue is commission based.

Financial information relating to our Wholesale Brokerage segment for the three months ended March 31, 2023 and 2022 is as follows:

		Three months ended March 31,
(in millions, except percentages)		2023				2022				% Change
REVENUES
Core commissions and fees		$	119.6			$	100.0				19.6	%
Profit-sharing contingent commissions			3.5				2.7				29.6	%
Investment income			0.2				0.1				100.0	%
Other income, net			0.1				0.1				—	%
Total revenues			123.4				102.9				19.9	%
EXPENSES
Employee compensation and benefits			67.3				55.1				22.1	%
Other operating expenses			18.2				15.8				15.2	%
(Gain)/loss on disposal			—				—				—	%
Amortization			2.7				2.0				35.0	%
Depreciation			0.7				0.7				—	%
Interest			2.7				3.5				(22.9	)%
Change in estimated acquisition earn-out payables			0.6				0.2				200.0	%
Total expenses			92.2				77.3				19.3	%
Income before income taxes		$	31.2			$	25.6				21.9	%
Income Before Income Taxes Margin (1)			25.3	%			24.9	%
EBITDAC - Adjusted (2)		$	38.0			$	32.4				17.3	%
EBITDAC Margin - Adjusted (2)			30.8	%			31.5	%
Organic Revenue growth rate (2)			7.0	%			11.6	%
Employee compensation and benefits relative to total revenues			54.5	%			53.5	%
Other operating expenses relative to total revenues			14.7	%			15.4	%
Capital expenditures		$	0.4			$	0.4				—	%
Total assets at March 31,		$	1,440.7			$	1,124.8

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

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Wholesale Brokerage segment’s total revenues for the three months ended March 31, 2023 increased 19.9%, or $20.5 million, as compared to the same period in 2022, to $123.4 million. The $19.6 million net increase in core commissions and fees revenue was driven primarily by: (i) $6.8 million related to net new and renewal business; and (ii) $15.3 million related to the core commissions and fees revenue

from acquisitions that had no comparable revenues in the same period of 2022; partially offset by (iii) a decrease of $2.5 million related to commissions and fees recorded in 2022 from a business since divested. Profit-sharing contingent commissions for the first quarter of 2023 increased $0.8 million compared to the first quarter of 2022. The Wholesale Brokerage segment’s growth rate for total commissions and fees was 19.6%, and the Organic Revenue growth rate was 7.0% for the first quarter of 2023. The Organic Revenue growth rate was driven by good new business and retention.

Income before income taxes for the three months ended March 31, 2023 increased 21.9%, or $5.6 million, as compared to the same period in 2022, to $31.2 million. The increase was due to: (i) the drivers of EBITDAC - Adjusted described below; (ii) lower intercompany interest expense and; (iii) decreased acquisition/integration costs; partially offset by (iv) higher amortization expenses; and (v) an increase in the change in estimated acquisition earn-out payables.

EBITDAC - Adjusted for the three months ended March 31, 2023 increased 17.3%, or $5.6 million, as compared to the same period in 2022, to $38.0 million. EBITDAC Margin - Adjusted for the three months ended March 31, 2023 decreased to 30.8% from 31.5%, as compared to the same period in 2022. EBITDAC Margin - Adjusted decreased due to: (i) increased salary and related costs from incremental hiring as well as salary inflation; partially offset by (ii) total revenue growth; and (iv) higher profit-sharing contingent commissions.

Services Segment

The Services segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas. The Services segment also provides Medicare Set-aside account services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services.

Unlike the other segments, nearly all of the Services segment’s revenue is generated from fees, which are not significantly affected by fluctuations in general insurance premiums.

Financial information relating to our Services segment for the three months ended March 31, 2023 and 2022 is as follows:

		Three months ended March 31,
(in millions, except percentages)		2023				2022				% Change
REVENUES
Core commissions and fees		$	44.3			$	43.6				1.6	%
Profit-sharing contingent commissions			—				—				—	%
Investment income			—				—				—	%
Other income, net			—				—				—	%
Total revenues			44.3				43.6				1.6	%
EXPENSES
Employee compensation and benefits			24.4				22.6				8.0	%
Other operating expenses			12.6				12.1				4.1	%
(Gain)/loss on disposal			—				—				—	%
Amortization			1.3				1.3				—	%
Depreciation			0.4				0.4				—	%
Interest			0.4				0.6				(33.3	)%
Change in estimated acquisition earn-out payables			—				—				—	%
Total expenses			39.1				37.0				5.7	%
Income before income taxes		$	5.2			$	6.6				(21.2	%)
Income Before Income Taxes Margin (1)			11.7	%			15.1	%
EBITDAC - Adjusted (2)		$	7.3			$	8.9				(18.0	%)
EBITDAC Margin - Adjusted (2)			16.5	%			20.4	%
Organic Revenue growth rate (2)			1.6	%			(6.2	)%
Employee compensation and benefits relative to total revenues			55.1	%			51.8	%
Other operating expenses relative to total revenues			28.4	%			27.8	%
Capital expenditures		$	0.3			$	0.2				50.0	%
Total assets at March 31,		$	285.0			$	290.5

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

(2) A non-GAAP financial measure.

NMF = Not a meaningful figure

The Services segment’s total revenues for the three months ended March 31, 2023 increased 1.6%, or $0.7 million, as compared to the same period in 2022, to $44.3 million. The Services segment’s Organic Revenue increased 1.6% for the first quarter of 2023 driven primarily by higher claims from winter storms as compared to the prior year.

Income before income taxes for the three months ended March 31, 2023 decreased 21.2%, or $1.4 million, as compared to the same period in 2022, to $5.2 million. Income before income taxes decreased due to the drivers of EBITDAC - Adjusted described below.

EBITDAC - Adjusted for the three months ended March 31, 2023 decreased 18.0%, or $1.6 million, from the same period in 2022, to $7.3 million. EBITDAC Margin - Adjusted for the three months ended March 31, 2023 decreased to 16.5% from 20.4% in the same period in 2022. The decrease in EBITDAC and EBITDAC Margin was driven primarily by the reduction in revenue, higher salary and related costs along with certain one-time expenses.

Other

As discussed in Note 12 of the Notes to Condensed Consolidated Financial Statements, the “Other” column in the Segment Information table includes any revenue and expenses not allocated to reportable segments, and corporate-related items, including the intercompany interest expense charges to reporting segments.

LIQUIDITY AND CAPITAL RESOURCES

The Company seeks to maintain a conservative balance sheet and strong liquidity profile. Our capital requirements to operate as an insurance intermediary are low and we have been able to grow and invest in our business principally through cash that has been generated from operations. We have the ability to utilize our Revolving Credit Facility, which as of March 31, 2023 provided up to $800.0 million in available cash. We believe that we have access to additional funds, if needed, through the capital markets or private placements to obtain further debt financing under the current market conditions. The Company believes that its existing cash, cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available under the Revolving Credit Facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next 12 months and thereafter.

The Revolving Credit Facility contains an expansion option for up to an additional $500.0 million of borrowing capacity, subject to the approval of participating lenders. In addition, under the Term Loan Credit Agreement, the unsecured term loan in the initial amount of $300.0 million may be increased by up to $150.0 million, subject to the approval of participating lenders. On March 31, 2022, the Company entered into a Loan Agreement (the “Loan Agreement") which provided term loan capacity of $800.0 million. Additionally, the Company may, subject to satisfaction of certain conditions, including receipt of additional term loan commitments by new or existing lenders, increase either Term Loan Commitment under the existing Loan Agreement or the term loans issued thereunder or issue new tranches of term loans in an aggregate additional amount of up to $400.0 million. Including the expansion options under all existing credit agreements, the Company has access to up to $1.9 billion of incremental borrowing capacity as of March 31, 2023.

Contractual Cash Obligations

As of March 31, 2023, our contractual cash obligations were as follows:

		Payments Due by Period
(in millions)		Total				Less than 1 year				1-3 years				4-5 years				After 5 years
Long-term debt		$	3,958.8			$	246.3			$	950.0			$	512.5			$	2,250.0
Other liabilities			168.8				4.4				18.8				15.3				130.3
Operating leases (1)			267.3				52.4				94.1				59.2				61.6
Interest obligations			1,541.8				181.3				282.2				202.7				875.6
Maximum future acquisition contingency payments (2)			535.9				289.5				240.2				6.2				—
Total contractual cash obligations (3)		$	6,472.6			$	773.9			$	1,585.3			$	795.9			$	3,317.5

(1)

Includes $6.6 million of future lease commitments expected to commence later in 2023.

(2)

Includes $254.2 million of current and non-current estimated acquisition earn-out payables. Earn-out payables for acquisitions not denominated in U.S. dollars are measured at the current foreign exchange rate. Four of the estimated acquisition earn-out payables assumed in connection with the acquisition of GRP included provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of March 31, 2023 is $3.6 million. The Company deems a significant increase to this amount to be unlikely.

(3)

Does not include approximately $32.6 million of current liability for a dividend of $0.1150 per share approved by the Board of Directors on April 24, 2023.

Debt

Total debt at March 31, 2023 was $3,926.3 million net of unamortized discount and debt issuance costs, which was a decrease of $15.8 million compared to December 31, 2022. The decrease includes: the scheduled principal payments related to our various existing floating-rate debt term notes in total of $16.9 million; offset by the amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of $1.0 million

During the three months ended March 31, 2023, the Company repaid $3.1 million of principal related to the Second Amended and Restated Credit Agreement term loan through the quarterly scheduled principal payments. The Second Amended and Restated Credit Agreement term loan had an outstanding balance of $231.3 million as of March 31, 2023. The Company's next scheduled principal payment is due June 30, 2023 and is equal to $3.1 million.

During the three months ended March 31, 2023, the Company repaid $7.5 million of principal related to the Term Loan Credit Agreement through quarterly scheduled principal payments. The Term Loan Credit Agreement had an outstanding balance of $202.5 million as of March 31, 2023. The Company’s next scheduled principal payment is due June 30, 2023 and is equal to $7.5 million.

During the three months ended March 31, 2023, the Company repaid $6.3 million of principal related to the Term Loans issued under the Term A-2 Loan Commitment (“Term A-2 Loans”) through quarterly scheduled principal payments. The Term A-2 Loans had an outstanding balance of $475.0 million as of March 31, 2023. The Company’s next scheduled principal payment is due June 30, 2023 and is equal to $6.3 million.

On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the Revolving Credit Facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. On February 10, 2023, the Company entered into Amendment No.1 ("Amendment") of the Second Amended and Restated Credit Agreement which provided that the overnight London Interbank Offered Rate (“LIBOR”) should be replaced with a successor rate. The amendment also included additional terms and conditions for the Secured Overnight Financing Rate (“SOFR”) loans and Risk-free Reference Rate ("RFR") loans.