Brown & Brown, Inc. (NYSE:BRO) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Wholesale Brokerage Segment
Michael Nannizzi – Goldman Sachs: Just quick question on the Wholesale Brokerage segment. Can you talk little bit about organic growth here, I think last quarter you had mentioned some rate increases in (mass) affected areas that helped contribute to the organic growth. Was that relevant again this quarter or was there something else there.
J. Powell Brown – President & CEO: No, I’d say, Michael, the way I would focus on the wholesale arena is, as you know, you can have sometimes a little bit more violent swings in rates, up or down. But I would tell you that at this point in the cycle, it’s more of a function of one, there are accounts that sometimes are in the standard market and sometimes they’re in the E&S market. I would tell you that we call those tweeners. Those tweener accounts are starting to move back towards – away from standard market into E&S carriers and the wholesale markets. They are typically looked like a wholesale account, I would acknowledge that upfront. Number two, we’re just aggressively out looking for and soliciting and getting a lot of new business. So the fact that you have a lot of new business, you have accounts that are moving across somewhat from standard markets that are typically E&S markets moving back to the E&S market and we are getting a little help with the rate. But I would say that it’s more just a function of that market expanding slightly and our ability to get more new business. Tony Strianese and his team has done a great job, they’ve done a really good job, a number of quarters. So, we’re really pleased with that 10.8%.
Michael Nannizzi – Goldman Sachs: Then in the National Programs business, just let me get a little bit more color. So you saw margins expand even with the contributions, it sounds like Arrowhead and ESIC contributed nicely to premiums. Can you talk about just the margins there and if you were to peel those two out, what were the legacy margins in that segment? Then maybe just give us a little more color on Arrowhead and ESIC in particular.
Cory Walker – SVP, Treasurer and CFO: So, in the programs market we have been able to enjoy 35% plus margins historically. If you remember, when we acquired Arrowhead, they had $40 million of EBITDA on $107 million of revenue. They have, obviously, grown a lot organically, which we are very pleased about Chris Walker and his team. The automobile aftermarket program that came in effective October 1 of last year, we said it is going to be $20 million to $25 million of revenue in the first year, and it was going to be about 10% margin for the first two years and then it will move towards our historic margins. As it relates to the Everest program that we picked up on 5-1, we said that that $7 million of revenue and haven’t given any color around the margins, but ultimately we would expect that to be in the traditional operating range of the rest of our programs…
J. Powell Brown – President & CEO: Now, one other item just to clarify. On the National Programs, we did receive $5.7 million of profit sharing contingencies, and so that’s obviously high margins. When you extract that that probably added about $4.7 million of EBITDA. So because of the automobile aftermarket that Powell was talking about, and that’s considered net new business since it was like selling a brand new account, those margins are lower than what historically Arrowhead or the National Programs had. So, when you extract the EBITDA impact of the profit sharing contingencies, the margins on the rest of the business did actually shrink a little bit, primarily because of this lower margin business on the aftermarket but we believe it will continue to grow over time to the segments?
Cory Walker – SVP, Treasurer and CFO: Key point, Michael, two years. So, October 1 of ’12 that started, so two years from then we think that business will start going up but we are going to have some expansion just by growing the business organically. So, we think there is embedded positive – two embedded positives.
Mark Hughes – SunTrust: On the expense front, Cory, the reserve and then the software licensing increase. Are those going to persist in the Q3 or thereafter?
Cory Walker – SVP, Treasurer and CFO: No, I think, first of all on the E&O reserve that’s an item that can’t fluctuate each quarter and it depends on how the whole legal environment works in the cases we have outstanding. So, looking at that at the net increase is really kind of not the right way to look at, it really came about just because an unusual quarter last year in 2012 where we had that $800,000 credit balance. So, clearly, it’s not what we saw this quarter is probably on average, it’s only above because of that credit. From a standpoint of software licensing that is a combination of some of the roll-in acquisitions that we – the fold-ins that we had and some increase in some of the software cost. So, I don’t think that would continue at that same level each quarter but it will be overall up a little bit…
Mark Hughes – SunTrust: Then the $0.06 a share in the stock comp. How much of that is for Beecher, which I assume you would have incorporated into your guidance when you provided it? And then how much of the legacy plan expenses might be dropping off?
J. Powell Brown – President & CEO: I can answer Mark the first one. About $0.013 on the first part of the question with Beecher and that’s meeting certain growth and profitability hurdles, which we feel good about, number one. Number two, Cory, are you referring to the expenses dropping off on old PSP?
Cory Walker – SVP, Treasurer and CFO: Right.
J. Powell Brown – President & CEO: Yes. Can you answer that?
Cory Walker – SVP, Treasurer and CFO: That would just be a gradual amount. No big drop-offs in the foreseeable future.