Brown & Brown's (BRO) CEO Powell Brown on Q2 2016 Results - Earnings Call Transcript

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Brown & Brown Insurance (NYSE:BRO)

Q2 2016 Earnings Conference Call

July 19, 2016, 8:00 am ET

Executives

Powell Brown - President & CEO

Andy Watts - EVP & CFO

Analysts

Elyse Greenspan - Wells Fargo

Charles Sebaski - BMO Capital Markets

Sarah DeWitt - JPMorgan

Quentin McMillan - KBW

Josh Shanker - Deutsche Bank

Greg Peters - Raymond James

Ken Billingsley - Compass Point

Ryan Byrnes - Janney

Kai Pan - Morgan Stanley

Mark Hughes - SunTrust

Presentation

Operator

Good morning everyone and welcome to the Brown & Brown, Inc. 2016 Second Quarter Earnings Call. Today's call is being recorded.

Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call, and including answers given in response to your questions may relate to future results and events, or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the second quarter of 2016 and are intended to fall within the Safe Harbor provisions of the Securities Laws.

Actual results and events in the future are subject to the number of risks and uncertainties and may differ materially from those currently anticipated and desired, or referenced in any forward-looking statement made as a result of a number of factors. Such factors including the company's determination as it finalizes its financial results for the second quarter of 2016 that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from the time-to-time in the company's reports filed with the Securities and Exchange Commission.

Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with the call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

With this said, I would now like to turn the conference over to Mr. Powell Brown, President and Chief Executive Officer. Please go ahead.

Powell Brown

Thank you, Shirlon. Good morning everyone and thank you for joining us for our second quarter 2016 earnings call.

I'm starting on Slide Four. For the second quarter, we delivered $446.5 million of revenue, growing 6.5% in total and 2.6% organically. We also realized organic growth in each of our four divisions, with incremental improvement seen in all divisions compared to Q1. For the quarter, our EBITDAC margins remained steady compared to the prior year. Our earnings per share for the quarter increased 9.3% over the second quarter of 2015 to $0.47 per share.

Andy will provide more details about our financial performance in a few moments.

During the quarter, we acquired two companies with annual revenues of approximately $34.5 million. I can tell you that we continue to talk with a number of prospects about joining Brown & Brown. However, we continue to see the marketplace is very active with valuations remaining high, even increasing a bit, and seeing some more creative terms and conditions.

We remain vigilant in our commitment to find organizations that fit culturally and transactions that make sense financially. Overall, we're pleased with the top and bottom-line results for the quarter and it's a good improvement from the first quarter. Our teammates delivered these results through a lot of hard work.

On Slide Five, we would characterize the second quarter as another quarter that is moderating upward, but inconsistency in the middle market does remain. These inconsistencies can be seen in certain geographies or industries or a combination of both. During the quarter, our customers continue with modest hiring and exposure units are increasing.

As a general comment, we continue to see a tremendous amount of capital in the market and risk bearers want to put it to work with some being more aggressive than others either with their pricing or terms and conditions or both.

Rates for the admitted market remain under pressure and are generally flat to down 5%. The exceptions to this are commercial auto where rates are generally flat to up 5% and then coastal properties and commercial DIC that continues to see rate declines of 10% to 25% which we've experienced for a number of renewal cycles.

We expect this to continue for the remainder of this year and the rates in 2017 will depend on the occurrence of a major weather-related event or events this Hurricane season. However, we are starting to see some standard carriers begin to draw the line with their underwriting guidelines in coastal property. The continued increase in overall exposure units has helped offset some of this decline but these rate decreases are putting pressure on all of our property business in retail, wholesale, and national programs. Professional liability rates are generally flat except in certain lines.

From a retail perspective, it was a good quarter and nice improvement over the first quarter. We continue to see improved new business during the quarter across most geographies and industries versus the prior year and with some offset by the impact of declining property rates and some aggressive pricing in certain areas around the country.

Similar to previous quarters management of healthcare cost remains front and center for our customers, as small employers are generally experiencing rate increases of 8% to 12% while larger employers are seeing rates, rates that are generally flat up slightly. While these rate increases in small employer groups do not have a direct impact on our revenues as many of those carriers have moved to a per employee, per month, compensation model it does drive planned design. Companies are focused on how to best manage health and pharmacy cost and have their employees proactively share in managing these costs.

Many of you also might have seen that we had the departure of two senior leaders during the quarter both chose to leave the company in order to pursue other opportunities. We parted ways as friends and wished them both well in their new endeavors. As with all the change, these changes it creates new opportunities and during the quarter we promoted four new senior leaders that are taking on boarder leadership roles will help us further grow our business.

We continue to have a lot of interest from our risk barriers and the programs businesses to create new program, but we are also experiencing certain programs being impacted by changes in carrier risk appetite. During the quarter, we had continued growth in forward momentum across many programs, specifically lead by our lender placed coverage program and Wright Flood to name of few.

While we have a number of programs performing well, we have a number of programs that continue to face material headwinds such as our property and auto programs that are being impacted by either declines in pricing or changes in risk barrier appetite or a combination of both. As you know carriers continuously evaluate the risk appetite for programs, this will probably have some impact on our growth rate for the national programs in the second half of the year.

Our goal is to have a diverse offering of national programs that will deliver balanced growth as some programs will perform better than others at certain times.

In our wholesale business rates are flat to down several points except for CAT property brokerage. This line remains under the most consistent pressure and we continue to experience 10% to 25% declines in renewal rates which we've experienced for the last three plus years. As I mentioned before we expect this to continue for the remainder of the year and put downward pressure on organic growth.

The big story though in wholesale this quarter was the acquisition in June of Morstan General Agency located in Manhasset, New York, and other locations in New York, New Jersey, and Florida. Morstan is primarily a binding authority agency that's been in operation since 1964 in places of wide range of commercial lines, personal lines, employee benefits, and life insurance products. It has annual revenues of approximately $34 million. This acquisition positions Brown & Brown as one of the leading wholesale brokers in the tri state area. We welcome all of our new teammates and are excited about the potential for growth.

For our services division the main story is about the claims revenue we realize in the second quarter. Our Social Security Advocacy claims businesses performed well during the quarter and the integration of Social Security Advocacy for the disabled business which we were refer to SSAD that we acquired in the first quarter of this year continues to go well.

We're watching some of our claims processing businesses closely as certain carriers are starting to take claims back in-house due to low volumes and the federal government continues to have some delays in reviewing and approving claims. This is not unusual during times like this but may cause some short-term volatility in the services division revenues. As of now we do not see any long-term impact to the growth opportunities.

In summary, we are pleased to see the continued growth in all of our divisions. As we discussed before rate impacts our organic growth by one quarter to one-third with exposure units making up two-thirds to three quarters of the impact. We view the second quarter as a good quarter both financially and operationally.

Now let me turn it over to Andy to discuss our financial performance in more detail.

Andy Watts

Thank you, Powell, and good morning everybody. Let's look at our financial results and some of the key metrics for the quarter. I'm on Slide Six which presents our GAAP reported results.

For the second quarter we delivered 6.5% revenue growth and an organic growth of 2.6%. Our income before income taxes grew by 8% and increased by 30 basis points as a percentage of revenues. Our income before income tax growth was impacted by a charge for the change in estimated acquisition earn-outs. I will talk more about this in a few minutes.

From an EBITDAC performance perspective, which we define as income before interest, income taxes, depreciation, amortization, and a change in estimated acquisition earn-outs, our EBITDAC margin increased 60 basis points to 33.5% when compared to the prior year. Our EBITDAC margin improvement was primarily impacted by a premium tax credit of approximately $2.8 million in our national programs division.

During the quarter, we realized about 25 basis point impact associated with our technology investment programs which are continuing to gain momentum. We're managing the financial impact of these programs through some strategic purchasing opportunities that are delivering some savings to help fund the program. As a result for the full-year, we're expecting the impact to be about 30 to 40 basis points rather than the 40 to 50 basis point impact we mentioned during our previous calls.

Our net income improved by 8.5% as compared to the prior year and is slightly higher than pretax growth due to a modest decrease in our effective tax rate of 39.3% this quarter versus 39.5% last year. As of now, we see 39.4% to 39.6% as a good estimate for the full-year effective tax rate.

Our earnings per share for the quarter increased over the prior year by 9.3%. This increase outpaced revenue growth of 6.5% and was driven by the improvement in EBITDAC margin, our lower outstanding share count versus the prior year of 1.6% through our repurchases, and then the lower effective tax rate.

I'm going to move over to Slide Seven, I want to point out some of our adjusted income and earnings per share. This adjusted view excludes the impact of the change in estimated earn-out payables. These payables represent additional consideration to be paid to acquisitions based upon their performance. Since the adjustments can be lumpy on a quarterly basis, we exclude them from this view to provide another look at our operating performance for the business.

For the quarter, we recognized an incremental $3.6 million of expense versus the prior year. On an adjusted basis, our pretax income grew 11.5% net income grew by 12.3%, and our earnings our share grew by 14% to $0.49.

I'm going to move to Slide Number Eight. I'll walk through the key components of our revenue performance for the quarter. Our contingent commissions and guaranteed supplemental commissions are up about $4.4 million as compared to the second quarter of last year. The increase in contingents is primarily in national programs related to a program that became eligible for a contingent commission this quarter.

We continue to expect contingent commissions to decrease in the second half of the year as they will be impacted by lower written premium by our coastal property programs. As we've noted before, other revenues do fluctuate on a quarterly basis. In the second quarter of 2015, we received $2.2 million for a legal settlement. In the second quarter of this year, there were no material other income items. We also disposed businesses or books of business in the past 12 months which represented $2.5 million of revenue in the second quarter of last year. For the second quarter of this year, we recognized $15.9 million of revenue associated with acquisitions we completed over the last 12 months. We isolate these four categories in order to determine our organic revenue growth which was 2.6% for the quarter.

I'm going to move to Slide Number Nine. We'll look at each of our divisions in a little more detail; I want to start with retail. For the first quarter our retail division delivered 5.3% revenue growth with organic revenue growth of 1.8%. Retail's year-over-year income before income taxes as a percentage of revenues declined by 80 basis points which was driven by the incremental cost associated with the changes in acquisition earn-out that I mentioned earlier. The EBITDAC margin for the quarter was substantially flat with the prior year.

Moving to Slide Number 10, for the quarter total revenues for our national programs division increased by 5.5% in total driven by our acquisitions in the last 12 months and grew organically by 2.2%. For the quarter, income before income taxes as a percentage of revenue increased by 700 basis points and our EBITDAC margin increased by 380 basis points.

Our income before income taxes was driven by lower intercompany interest expense charges. And then both income before income taxes and EBITDA were impacted by higher contingents, the premium tax credit I mentioned earlier, along with continued expense management across all programs.

I'm going to move on to Slide Number 11. The wholesale division had another good quarter reporting total revenue growth of 10.6% driven by the Morstan acquisition and delivered organic revenue growth of 3.9%. Our EBITDAC margins were 32.8% which is a decline of 280 basis points from the prior year. This was driven by the previously noted rate decreases primarily in brokerage and a higher number of transactions across the business. While rates are down, we are seeing an increased number of transactions that results in our need to add incremental resources to handle the volumes.

During the quarter, as Powell mentioned, we acquired Morstan which has margins lower than our average. But over the coming years we are seeking increased productivity and expanded carrier relationships that will enable margin improvement. We expect our margins to be down for at least the next few quarters based upon the above. We'll provide more information once we have additional insight on the trajectory of these areas.

Moving over to Slide Number 12, service division we delivered a good quarter with total revenue growth of 8.9% and organic growth of 6.3% for the quarter. With the difference being driven by the SSAD acquisition that we completed in the first quarter of this year, the organic growth was driven primarily by increased claim to revenue.

For the quarter, income before income taxes as a percentage of revenue increased by 220 basis points with about half of the improvement driven by lower intercompany interest charges and the remainder by operating leverage. Our EBITDAC margin increased by a 100 basis points in the quarter primarily related to claims activity.

With that let me turn it back over to Powell for closing comments.

Powell Brown

Thank you, Andy. Great report. In summary we continued to remain optimistic about the remainder of the year and the outlook for our company. We're focused upon attracting and renewing customers, hiring and rewarding great teammates, and investing in our business for the long-term.

Our technology initiatives are moving forward nicely and we look forward to these gaining momentum in the future. As I mentioned earlier we do expect rates for 2016 to remain under pressure, the significant decline in CAT property rates will continue to impact segments of retail, wholesale, and national programs growth in the second half of the year.

From an M&A perspective the activity and valuations are continuing to heat up. We remain focused on finding companies that fit culturally and make sense financially. As we've said before we're patient and disciplined operators. We're focused on the long-term and how to best invest our capital that will help us drive long-term shareholder value.

With that I'd like to turn it back over to you, Shirlon, so we can open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions].

We'll have our first question from Elyse Greenspan, Wells Fargo.

Elyse Greenspan

Hi, good morning. First question, in terms of the retail organic growth, just wondering if you can kind of talk to your outlook for the balance of the year just do you expect growth to kind of pick up sequentially? Just any kind of view on new business trends from here? And then also just in terms of some of the recent employee departures, have you guys thought about any kind of retention plan in place just to prevent any potential further departures within that retail segment?

Powell Brown

Okay, Elyse good morning. First, as you know, we don't give organic growth guidance but as you know our goal is to continue to improve. We were pleased with the performance this quarter and we told you a little bit about some of the headwinds that we faced relative to rates specifically in CAT property being down although that's not an enormous part of our business it still does impact many of our coastal offices in Florida and up to East Coast and into Texas.

That said relative to departures, the recent departures we're very focused on keeping all of our teammates and we are looking at all kinds of things in order to maintain the right people on our team. However as it relates to some retention strategy that would be different than what we've been doing, we're not looking at something outside of the normal. We always review how people are rewarded and we believe that we reward people fairly and for those that take on more responsibility, they will have the opportunity to earn more. So that's kind of how we've looked at it. We do not; I don't want to diminish the fact that we have had two senior leaders leave that's not what I'm not diminishing that at all. I'm just saying that at the end of the day sometimes people choose to do other things and we're going to continue to move on focused on our business.

Elyse Greenspan

Okay, thank you. And then in terms of the tax spend and the impact on the margins, you mentioned some purchasing some savings that went into effect in the quarter. Can you just elaborate on that? And then, also was the majority of the tax spend; did that impact the retail segment in the quarter?

Andy Watts

Good morning, Elyse, it's Andy. Let me on the comment that we made about strategic purchasing, one of the things that we've been trying to focus upon is how to utilize a number of purchasing capabilities that we have across the organization through enterprise agreements in order to obtain more favorable pricing in certain areas. So we're using some of those savings to help fund the program. We will continue to seek out those opportunities as they arise going forward.

And then the cost for the program itself, most of it is sitting up in corporate and we are trying to isolate it right there unless there is something specific to a division.

Elyse Greenspan

Okay, that makes sense. And then in terms of just on capital, you guys, it seems like there was no share repurchase in the quarter. I know you guys have historically looked to repurchase stock under an accelerated program which one is not currently in effect. Can you just comment on just kind of views on capital and on share repurchase in your mind how you look for that to come into play for the balance of the year?

Powell Brown

Sure. Elyse, as you've heard us say before we continue to evaluate share repurchase as a potential way in which we would invest our capital. That does not mean we're going to say, we're going to purchase X amount of shares or X amount of value on a quarterly basis. We'll continue to evaluate it and when we think that that's a good investment for us, we will do it.

But it is conceivable that through the remainder of the year, we might not buy any shares back. So like I said we look at it as investment an option, so it is not something that we are saying, we are going to categorically do each and every quarter for said amount, we're going to look at the valuation of the stock if it makes sense and we will consider that with the other investment opportunities that are in front of us.

Operator

We will go next to Charles Sebaski, BMO Capital Markets.

Charles Sebaski

First question is on the retail segment and the earn-out adjustment and the pressure that that had on margin. And I guess just conceptually, I guess I think about earn-outs increasing because the operations of acquired businesses have been improving and why that would be a contra to margins I guess if you could conceptually help me understand that, I would appreciate it.

Powell Brown

Yes good morning, Charles. The way to think about the earn-outs in the adjustments that we make, when we acquire a business we'll project over the applicable earn-out period, what we believe the performance to be. And then based upon how that business is performing either higher or lower than original expectations we will make true-ups to that charge-out or to that reserve for payout purposes. And the reason why what happens is been on the outlook for the backend, you could end up with taking either a charge or a credit in one period, but it doesn't mean that there is a direct correlation to the amount of expense with the amount of revenue recorded because again you're truing up for the remaining period. And then within the EBITDAC, as we described, as we exclude changes in there to show underlying margins.

Charles Sebaski

Yes, okay that makes sense. On the national programs and the $2.8 million tax credit did that just hit the bottom line; did that flow through top-line as well? I guess just I'm trying to understand where that's flowing through the numbers for the national programs?

Andy Watts

Just bottom line it was a credit within expenses.

Charles Sebaski

And that had a not effect on the overall tax rate for the business.

Andy Watts

No, it's not. It's a premium tax so it shows up in other income it's not an income tax, it's like a sales tax equivalent.

Charles Sebaski

Okay. And then I guess overall in wholesale and I guess I don't know if this is from the recent acquisition that you mentioned have got lower margins but I guess when I think of the wholesale business and organic growth nearly 4%, that it, would be generally I would think, margin accretive as opposed to margin contracting at that level of organic. And then you've got this acquisition which I believe is all going to roll through wholesale going forward that you said is lower margin. So going forward what is the expectation of wholesale brokerage margins on a run rate I mean so may be not next quarter but for 2017 is this new acquisition pretty sizable to the wholesale operation going to have a material contraction on EBITDAC margins next year?

Powell Brown

Let me Charles let's start by saying the impact is really the compression in rates and the number of transactions. So you have some additional people that are involved that's a bigger impact on the margins as opposed to the impact of the new acquisition. So you heard us say that historically what we try to do is have acquisitions the 20%, 25% minimum type margins when we make that acquisition and overtime we try to increase those overtime. But specifically if you look at and then you've heard us talk about this in the property brokerage area, we've had rates go down for three plus years in a row 10% to 25% that's number one.

Number two in the binding authority business we are seeing more and more transactions yet the price on those transactions are down slightly. So it means we have additional cost incurred. So what we said in the commentary was that as we get into it a little bit more and when I say that going forward we'll be able to give you that but today we're are not going to give any speculation or guidance on margins for next year.

Charles Sebaski

Okay. But there is two components I guess, I just don't have the timing of the acquisition in my head and the effect that had on --

Powell Brown

The timing of the acquisition was 6/1 so very minimal impact in this quarter, what I’m trying to say is it will be part of the go-forward. What I think we want you to think about is this when you have business particularly where you have it under a lot of pressure in terms of rates that like I said they're running faster to keep up if they can or fill in the whole and so that's a unique distinction there.

Charles Sebaski

Okay so, but nothing in the market environment I guess from what I heard from you guys leads me to think that that's going to abate, right? That the pressure seen in the wholesale brokerage because of how binding authority is doing, more transactions, compressed rate is not something that's changing for the positive at least as the signs say right now; is that fair?

Powell Brown

I think that the fair statement I would just say let me back up and say the investment community and my question is you don't have as much clarity into the wholesale space in terms of all of them that are owned by private firms. But I would tell you that we're number one very, very pleased with the organic growth that we've had in our business number one.

Number two, we're very pleased with the margins that our wholesale division delivers, Anthony Strianese and his team has done an exceptional job. So I know that that sounds kind of like interesting but it is a statement because we believe that we are one of the best run wholesale operations out there. So it's a relative statement but I believe what you just said is fair.

Charles Sebaski

Okay. And then finally just last on the contingents, you mentioned that the uptick this quarter was due to a new national programs business that took effect this quarter but that the second half contingents are likely to be down, does that mean that the second quarter is kind of a -- this program is going to have a potential contingent every second quarter. I guess the extent of the bump was material and yet we're still talking about the back half being down. I'm just trying to understand how that works?

Andy Watts

Let me see, if I can explain on that, Charles. So it wasn't a new program, it was an existing program but based upon the performance of the program they became eligible for a contingent this quarter. Would we be able to save, if they will get that in the future? Wouldn't know because again all based upon how the program performs.

And our comments about the back end of the year that was really focused around coastal property programs and that is primarily going to be driven by the fact there is just lower written premium. So we have every expectation that those program which they normally earn in the second half of the year will more than likely be down.

Charles Sebaski

Thank you very much for the answers guys. Have a great morning.

Powell Brown

Yes, thank you.

Operator

We'll go next to Sarah DeWitt, JPMorgan.

Sarah DeWitt

I think I heard you mention that program wholesale and services organic growth will be lower in the next few quarters. Can you just elaborate on what's driving that and quantify if you can?

Powell Brown

Sure. The answer is specifically what we're referring to was property rates and specifically coastal property rates and commercial DIC rates across the board. So when you hear that, there is an impact in retail, there is a significant impact in wholesale which you're already seeing, what you have seen, and there is an impact in our programs division specifically with our property related programs.

We also alluded to some in a couple of our automobile related programs that are under a little bit of pressure as well. But once again we don't give organic guidance as you know, Sarah, and you will appreciate that. But what we have said is we're just trying to give you an indication that we continue to face a headwind that I would say that three years particularly in coastal property, some of the pricing that we're seeing surprises us now. So that's the way it is and so we just continue to work through it.

Sarah DeWitt

And how was that different versus this quarter is it just that you have more coastal premium renewing in the second half?

Powell Brown

No, no, no, no. It's not different, it's just the fact that it's -- let's just say three years in a row a 25% decrease on pricing. What I'm saying is there is got to be a point usually where you hit the bottom. And so what I'm saying is, is if you compare it to the quarter last year in 2015, we might have thought that the rate decreases on certain properties would be not as great. And so what I'm trying to say is we're just continuing to see more of the same and we're trying to give you a clear path or a clear understanding of what we're seeing and how that impacts our business.

Sarah DeWitt

Okay, great. Thank you. And then just on the contingent commission, can you quantify how much it will be down in the second half. I think in the past you've given guidance on that line item?

Andy Watts

Hi Sarah, it's Andy. No we wouldn't be able to give that exactly because there is calculations that need to be done by the carriers. All indications that they will be down but we do not know approximately how much.

Operator

We will go next to Quentin McMillan, KBW.

Quentin McMillan

Hi good morning. Thanks very much guys. Could you just help us -- there was an increase in the claims activity in the services segment, how much did that benefit organic growth by in the quarter in the services segment kind of based upon impact that you guys have? And additionally in the first quarter you had sort of highlighted that this was going to be up from the Texas claims activity is there anything that you are seeing so far in the back half of the second quarter or early in the third quarter that might indicate that services would be sort of up or above or below normal in the third quarter.

Andy Watts

Hi, good morning Quentin, Andy here. The benefit for the second quarter was primarily related to claims. One of the things that we've talked about on previous calls is that we do look at our claims businesses over a longer-term horizon only for the fact that the claims kind of come back and forth. And I think as we had talked about previously what we were seen during the end of the first quarter and end of the second quarter is that the volumes were not unusual though. What the volumes really represented was more kind of in line with our 10-year average so it's not like we had this significant top all of a sudden.

There was a lot of noise in the press and a lot of coverage but the volumes were consistent with or fairly consistent with the volumes that we saw last year. And then as it relates to outlook no nothing that we see right now would be able to give any guidance on.

Quentin McMillan

Okay, so just a close that thought I mean the 1-2 that you had in the fourth quarter and the first quarter in the organic was really more the outlier on the low side and the 7 is more of a normal course of business in terms of claims activity; is that what you are kind of saying?

Powell Brown

Yes, the Q1 was definitely down there was very, very little claim activity because of almost no storms in the backend of the fourth quarter during the first quarter. And then second quarter may be more on an average don't know that I would call it a standard level but.

Quentin McMillan

In the first quarter as well you guys had mentioned just an overall sort of retention like issue where you were losing some contracts and some business there was a little bit may be concerning to you at that time. Can you just talk about whether that trend is continued at all whether that's reversed or whether what has happened there?

Powell Brown

We are always Quentin focused on retaining our existing clients. And as I said in the first quarter I think I don't remember exactly how I said it but I was pleased with the new business that we have written but I thought we had a little more lost business that we would have liked, that was in the first quarter.

This quarter we've done better and I think that is reflected in our organic growth which we're pleased with and we're making progress. And so, it's a very competitive marketplace out there. And so as you know many times the reason you lose business, there is a lot of reasons why you lose business but most of the time it's loss of relationship with the buyer both the economic buyer and/or the user buyer. Having said that there in a market like this where you can see carriers do some really squirrely things in terms of pricing sometimes you just see crazy things, they just -- right they do pricing that just doesn't make sense where they blow something out of the water and we don't know how long that's going to last or if its real or whatever the case may be but sometimes you lose a little bit of business like that.

But we are continuing to work through it and I would tell you that I didn't see some trend in Q2 that would be similar to Q1. I think it was just periodically things like that happen.

Quentin McMillan

Okay. So more positive and nothing -- it sort of has reversed itself. Okay, great. And the last question just in terms of the IT spending thanks for giving us the update in terms of the impact, the 30 to 40 basis points you spoke about versus 40 to 50 basis points of drag previously in 2016. But you also mentioned in there, there was about a 25 basis point impact I believe from the technology investments in the second quarter. Can you just talk about what the overall impact has been in the first quarter? And then obviously related to how much impact there might be in the back half because it feels like we have done a little bit better in the first quarter so maybe there will be a little bit higher impact in the back half?

Andy Watts

Yes, our comments during the Q1 earnings release is that there was not an material impact during Q1. The 25 basis points was about the impact that we had in the second quarter but again that was benefited little bit by our strategic purchasing, and then utilized the 30 to 40 for a full-year on it Quentin. So again if it continues to grow the way that it is and our momentum is picking up that probably a pretty good range for us right now which will mean arithmetically more expense in the back end of the year.

Operator

We'll go next to Josh Shanker, Deutsche Bank.

Josh Shanker

Yes thank you. Just a quick numbers question first, how much do you guys spend on acquisitions for the quarter?

Andy Watts

We're little over $70 million, $80 million, Josh.

Josh Shanker

Thank you. That is for my note. And so I know you are not going to give guidance on the quarter but I'm trying to understand all the moving pieces. With the IT spend, where does it show up and in which segments you really feel that in the margin?

Andy Watts

Right now, it's primarily in our corporate segment but depending upon the individual components of the program over time, Josh, some of it will show up in the individual segments the one primarily that it may show up in will be retail. And again if there is a material impact in any of those, we will talk to you guys about it.

Josh Shanker

And even it's also I guess overall you're pleased and I mean I'm surprised and happy about it that margins have been better than you thought. Can you talk about let's go -- skipping to wholesale for a second what's been improving the margin trend I guess in the retail and national programs?

Powell Brown

Well I just think that we had a good quarter and you told me, you heard us say that we wrote a lot of new business. I believe our retention was appropriate, it can always be better. In national programs, we continue to work through challenges and in some of our programs as we've said are doing really well and some of them are under pressure i.e. property both CAT and/or commercial DIC. And so I just think it was a good quarter overall, we just executed well that's how it is.

Josh Shanker

You would say you reached a new plateau of efficiency or anything like that, some quarters will be better than others I guess is where we're at right now?

Powell Brown

Correct.

Andy Watts

And Josh make sure you take in to consideration our comments about the drivers of margins in national programs because those do have, they did benefit the margins for the quarter.

Josh Shanker

That makes sense. And can you give a little color on this revenues per transaction sort of relationship in wholesale. I'm trying to understand how that works exactly and the extent to which is that a permanent feature going forward of the way the wholesale business will operate and therefore margin erosion over the long-term.

Powell Brown

So let's this is a hypothetical example, so in binding authority business, the average premium size is around $3,000. So let's say that generate $300 of commission and in a market like this, there is lot of marketing of individual accounts. So if the underwriter normally that's -- I'm going to pull a number out of the air 100 commissions in a week hypothetically and in light of the changes in the rates and/or terms and conditions that 100 goes to 150 for the week. There is still, they have to process 150, so the question is do they have to have another person not only help that production underwriter but let's say two or three other production underwriters. That's example number one.

Example number two would be if you have accounts that generate X amount of commission whatever that is and that this is brokerage now and all of a sudden your rates are down 25%. So your commissions are down 25% and you're actively trying to fill that hole in and so are you the broker out more on the road and you have to have somebody help back at the office depending on how you have it structured in the past or not.

Like I said the wholesale business, as you know, usually has higher extremes on both ends, when the market hardens typically it goes up quicker, higher, faster, and when the market slows it typically in the slowest parts it goes down the quickest and it has the most drag. Having said that, it's been our best performing organic growth business over the last several years. So it's hard -- it's hard other than to speculate and how that is going to play out because as we continue to see the market change it impacts the number of submissions that we get either in binding authority or brokerage or both.

Josh Shanker

And one final question given about this issue of you needing new heads, we talked I think last year about a significant desire on your part to hire from college campuses and create new young teammates. Where are we in that training program and when would you expect these new teammates to be revenue accretive?

Powell Brown

Okay, so Josh, I know that you and the other people on the call would like to have a linear map which talks about investments and people and it doesn't really work like that. And what I mean by that is you could hire a young person or a new person and when you say young it could be somebody that's been in the industry somewhere else or in a different industry and come in and depending on the job that they come into, they may be able to impact revenue sooner than in other segments of the business or we may have hired somebody in, in a production role and as they get in there is another opportunity presented to them and we need them in a marketing or service or a placement type role.

So what I would say is I think it's going to be very difficult for you, for us to give you a clear linear path on okay, if we hire this person right out of college, how many years does it take at their salary in order to be accretive and then at what point does that really starting kicking in.

It's different with different people. That's why it has been difficult to describe on the earnings calls in the past because at the end of the day our greatest asset, as you know, we are a people business. So our people go home every night and then come back to the office every day to take care of our clients and solicit new ones. So we're going to be continue to be opportunistic in terms of our hires we have done that.

We have hired people and you heard us talk about in Beecher and around the system not just Beecher but that are seasoned people that we expect to come in and have a revenue impact more quickly. And then we hire people right out of college where we only have to teach them insurance but we teach them about life, as you can appreciate. And so we, that's kind of the way we view and it's going to be hard for us to say okay, we're not going to say we hired 100 people and this is where there are, the answer is we understand about recruiting and developing talent.

And it is not a, it's not a science it's an art, and some people develop quicker or not as quickly as others.

Josh Shanker

Okay, I'll take that and good luck in the next quarter. Thank you.

Powell Brown

Thank you. All right.

Operator

We'll go next to Greg Peters, Raymond James.

Greg Peters

Good morning and thank you for hosting the call. I just wanted to circle back on the technology investment, and sort of I'm looking for an update on what this means to Brown & Brown. And I guess when I think about it, I was struck by your hypothetical example in wholesale where you have gone from 100 submissions to 150 submissions, so there is an increased expenses. It seems like there is something to be said for technology playing a role to help improve efficiencies there. So I'm just looking for some additional color on how this rollout of the technology is improving the operations of your company.

Andy Watts

So, Josh -- Greg morning as when we talked about the areas in which we're going to invest in technology as we talk about the -- this next phase which is around optimization and the number of the areas that we were looking at were around a financial reporting and analysis systems, we are looking at core infrastructure, and then we were looking at updates to our retail agency management systems.

The specifically on wholesale is that business has a lot of automation already today and I think what Powell was really just trying to tell you he wasn't saying that they actually went from 100 to 150, he was just trying to give some perspective more and more submission come in even while there is a lot of automation inside of there either interaction between ourselves and the retailer or back to the risk bearer. There is a point where just you need a number of hands on the pump just to be able to get all the volumes but you just still have to look at it.

We're always looking wherever we can to continue to drive automation through the business.

Greg Peters

And Andy, how are you measuring the return on investment for these projects, in the context of all the money that is being spent?

Andy Watts

When -- so our previous commentary on this one is we said that we would spend around $30 million to $40 million and the payback would be somewhere in the range of five to six years. We know exactly where the savings are going to come from, Greg.

Greg Peters

Okay, perfect.

Andy Watts

So we're quite comfortable with that.

Greg Peters

Okay. And Powell, it seems every quarter during your remarks, you talk about upward pressure on M&A multiples. And in this quarter you mentioned it again and then you talked about or you highlighted there is some different type of structures that are popping up on top of that. I mean where does this end, what do you mean by different types of structures, how high are the multiples and in the context of what you're continually telling us about market conditions, should we expect less M&A going forward?

Powell Brown

Okay. So Greg as you know it's interesting what people or who says how much they paid or how much they got in terms of a multiple. And I always say a multiple of what. So if we're talking about a multiple of 2018 pro forma earnings that's much different than a trailing 12 or true vetted pro forma over the last 12 months or the forward-looking 12 months.

So what I would say is as you know there continues to be a lot of activity in the PE space and there continues to be more money it seems to either flood into it or they want to put more money to work. And so like I said remember we just sell and service insurance at Brown & Brown and those guys are doing their financial modeling relative to shorter-term things that include a flip with a terminal value. What we look at is does it make sense financially? And the answer is a number of the ones that we've seen don't make them financially. And when I refer to terms and conditions that could mean that guaranteed amounts down or up for kickers or unusual things that are just creative, I'm not. But I think you should just take it as things. The minimums continue to be pushed up meaning the amount earned all these different things.

And so having said we continue to evaluate all of our investment options, as you know we talked about one hiring new teammates or additional teammates; two, it could be acquisitions which we did two last quarter of which one was of size, Morstan, excuse me; or three, the potential of returning it to shareholders in some form or fashion and we have said that we continue to evaluate that but we obviously are paying a dividend, our dividend again as of August, I believe it's 17th is that right, Andy on the payment?

Andy Watts

Yes.

Powell Brown

Yes, sorry. And but we will continue to evaluate on share repurchases. I would tell you Greg, what I would say is this, I think that evaluations are going to continue to remain high for the near-terms and near to intermediate term is let's just make it easy, let's say that 18 months. I don't know if I can speculate out further than that relative to how those multiples will continue after that. But I would say that I don't believe that it continue like this forever. And so we're continuing to operate in an environment that maybe we don't do as many acquisitions.

That does not mean we don't want to, that means that they got to make sense financially and fit culturally, cultural fit is a most important thing, you heard me say that over and over and over again. And so I'm really pleased that the acquisitions that have joined our team this year not only this quarter, this year over the last several years because I think we continue to have lots of high quality people and additional capabilities join the team.

We're not going to do some stupid, I get a kick out of the fact that I made a comment several quarters ago that lit up Andy's phone which I said in an order to get the $2 billion of revenue we're going to have to, I think I said higher or acquire 2,500 people and everybody on the call got nervous that we're going to go out and just hire all these people. Well we're at 8,474 people as of 6/30 and we're pleased with our quarter.

And if we wanted to be our intermediate goal of $2 billion of revenue we could have been there two years ago. But it wouldn't have made sense and so we're not going to do that and so we're not in it for growth sake. We're in it for growth and profitability and like I said it is really important, we walk away from deals that don't make sense; we are not deal jockeys that's an important distinction as we're going to do this forever.

Operator

We'll go next to Ken Billingsley, Compass Point.

Ken Billingsley

Good morning. I just want to follow up and get some clarification on some comments you made. One, on the organic growth. I know you've talked about the different segments and some volumes but I just wanted to get some may be a little clarity. The majority of the organic growth, was it just new customers, were you expanding any of the products, expanding the business that you are writing with your existing customers? And I am sure it is a mix of everything but what really drove the organic growth primarily?

Powell Brown

Well, Ken and you're not going to like this question but it is all of the above. That means we number one start with do we retain our existing clients. And in retaining our existing clients our clients can actually shrink if their business has gone down or they can go up. So that's going to start the baseline.

Then the question is what about our retention, we talked a little bit about that and retaining those existing customers. And then new business could be defined as new-new where we didn't have the customer before or a new line of business on existing client were let's say we wrote the employee benefit and then we wrote the property and casualty or vice versa or whatever the case may be. So it's a combination of everyone executing well in the quarter. It's not -- there is not some magic thing that we just started doing this quarter versus another quarter it's just we executed well in Q2.

Ken Billingsley

With rates being down in general, are your customers buying more coverage than they have or are they continuing to buy more coverage than may be they did two or three years ago because the prices are attractive or are they looking to increase coverage in other areas that they may be didn't have?

Powell Brown

I think it could be -- I think it could be either with a customer but let me back up and clarify something. The way we look at is we are in the solutions business. A solution might be transferring it to a risk bearer, it might be self insuring it or identifying a exposure that you don't know that you may not realized you did you had before when we weren't working with you. We knowledge something like a contingent business interruption exposure or a hired non-owned auto exposure or something out there that may be someone has never talked to you about or maybe you just never thought of it but that's our job.

So having said that we try to bring solutions that involve transfer of risk but that doesn't mean all of our clients think that would be the best decision to do so. And we have those conversations with them. So every client is different. I don't want to make a broad general statement that said okay, every contractor is buying more umbrella coverage or everybody in the wholesale food business is buying employment practice of liability coverage now or cyber liability. I would tell you that we quote a lot of cyber liability but the uptake is not nearly as high as I would think it should be. Having said that it's not just to similar to what it was an employee -- I mean an employment practices liability coverage 10 years ago. We quoted a lot of it and there wasn't a lot of uptake then there started to be more claims and people started and started to register and then more and more people are started to buy it. I think that cyber is the same exact scenario and as you have the high profile instances where businesses are violated if you want to call that, then all of a sudden other people say well may be that can happen to us.

Ken Billingsley

Okay. And on the earn-out, the earn-out was significantly little bit higher this quarter and obviously I would, obviously expect that you believe the business is doing better than you had initially expected and then there is going to be a payout, what was -- what conditions changed though may be from last quarter to this quarter where you identified that the conditions had changed then you're going to have a higher payout on those prior acquisitions?

Powell Brown

Okay. So as you know the acquisition earn-out estimation or from a GAAP standpoint, we have to give our best estimate on a quarterly basis. And so what can happen is a business can write a bunch of new business that would come in to the pipe, so that doesn't mean necessarily all of it is booked in that quarter but we have more clarity with certainly that we believe that that's going to come either in this quarter or quarters in the future.

And so this is one of those things that Andy and I talk about in the sense that it has a tendency to cloud, I wouldn't say cloud that is maybe strong; it has an impact on how people view the earnings that it's a non-cash charge, right.

Ken Billingsley

Sure.

Powell Brown

And so having said that, it's interesting because the fact that our businesses are doing better is a good thing. And so we don't want to have these adjustments but we much rather have that adjustments than the opposite and even though the opposite would actually non-cash charge again benefit earning it's still the business isn't performing as well and in some instances as we anticipated in, sometimes we have that.

That's a thing that is kind of unusual because GAAP, the SEC is actually asking us to estimate that the ultimate value of a business when we don't know how much new business they're going to write and how their retention will fully flush out over the earn-out period.

Ken Billingsley

And I agree, I view this as a positive long-term, so but it sounds like this is they're writing more business than you expected or is it on what you purchased or is it an increase in them adding on ancillary products?

Powell Brown

So Ken this is what I call a high quality problem, okay. That means they're doing a great job at growing their business. So it's a combination of existing clients may be growing, they may be purchasing more lines of coverage and we're writing a bunch of new business. Remember in some of those businesses in this particular incidence this quarter those businesses have long sales cycles and many of them are larger accounts. So you have better transparency in that at a set time, hey we wrote these four accounts, these are going to come in over the next 12 months.

That's going to impact our acquisition which is good. We want our the people who have joined our team to hit the maximum they just have to perform and that's a good thing for all of us.

Andy Watts

Hey, Ken, and we spend a lot of time upfront trying to do a lot of work to determine kind of where we think the business is going to turn out. You are not allowed by GAAP to book the maximum nor can you book the minimum that you got to book your best estimate and then so what we do over the earn-out period is we're monitoring how they're performing on a quarterly basis.

And then once we see a trend as this, I think our assumptions need to be adjusted up and down, then we will do what we don't go in every quarter and make adjustments, otherwise we have kind of whipsaw effect at times, so we monitor these pretty closely.

Ken Billingsley

Sure. But again it’s more of a volume as opposed to may be a margin, it is not like the margin efficiency changed dramatically from when you purchased on, it's more about volume of business and?

Powell Brown

Well it could be yes but I think I don't want to give you the impression that's the reason, it is -- it could be either or both.

Ken Billingsley

Right. Okay.

Powell Brown

Most times it is both.

Operator

We will go next to Ryan Byrnes, Janney.

Ryan Byrnes

Great, thanks for taking my questions guys. Obviously, you guys noted that you are surprised by the pricing environment for coastal property right now. Just wanted to may be take us back to may be historical, where are these rates currently as compared to where you guys have seen in the past? Are we in the mid to late 90s pre-Andrew days? I just want to get an idea of where your book rates currently are.

Powell Brown

Okay. So what I would tell you is we're starting to see rates in the pre-Hurricane Andrew levels. That would be 1992 for those that may not remember the exact year. But remember you've had enormous and I wouldn't -- I don't want to say Ryan that we're surprised like all of a sudden we're just surprised. That's I think it has been we've continued to sort of scratch our head at the continued rate decrease or pressure.

So it's not like second quarter we woke up one day and said well we're surprised wasn't that kind of deal. It has been, if you look at it for the last three years and I'm just using Southeast Florida because I live here in Florida and know that areas well and you look at these very nice high rise condominiums and Dade, Broward, Palm Beach County and all of a sudden, the rates have come down let's just say 20%, 20%, 25% those are big cuts.

Now that's great for our customers but it's hard to fill in the hole from an organic standpoint when you have that much pressure in an office like for an office specific. I'm not talking about the hire business, I'm talking about in the office or in a region or in a division depending on how much it is connected to that coastal property.

Ryan Byrnes

Great. And then can you just remind us how those rates responded after Andrew? Again I realize that we are in a completely different environment with liquidity these days but I just want to get a precedent for what happened to rates after Andrew for your I guess coastal property books just --?

Powell Brown

Okay. So let me back up I actually joined Brown & Brown in July of 1995. I worked for an insurance company then. And so I saw rates go up in admitted markets as much as were permissible by rate filings however here is what I would say remember in Hurricane Andrew it was much different because the modeling for insurance companies was not nearly as sophisticated, it was more like a map and there would be people in Kansas City riding hotels and in Miami Beach and the people in Florida with the same insurance company didn't even know that they were riding the hotel in Miami Beach.

So there was the aggregation of exposure units that was substantial which most insurance standard carriers realize that had it been a direct hit in Hurricane Andrew on Miami Beach that we might had some very significantly impaired insurance company because they didn't realize how much they had.

I think a better example would be to go to 2001 and 2002 and 2003. So you had a constricting in the property market. You had post 09/11 event, you had lots of other things and rates started going up and up and up and up.

The amount that, I don't think you can say, this is how much they are going up in the event of a loss because the loss, the size of the loss is going to be a significant impact. The number and the losses by individual carrier will impacted and it depends on if how opportunistic certain carriers will feel on the way in, if the market places bearing on making this up 25% increase and all of a sudden you have a capital provider which is not taken a bunch of losses and may be didn't participate in that segment and says that this level we might do that.

They might come in and right at 15% so there is not going to be a linear relationship. I can just tell you when you have a big event that goes into Florida which is not a question of if, it's a question of when we have another storm hit Florida, there will be upward pressure on rate. The size, the magnitude of the loss would dictate the rate pressure.

If you had a $40 billion loss then may be the pressure is not nearly as much if it’s the 100 and its – speculation on mine Ryan I wish I can give you a little more color but book, here is what I want you to know I've been in Florida for 48 years and I can tell you that Hurricanes happen usually every 10 to 14 years. We're l1 years in since it struck land the last time. So I could be wrong but since I came to the earth, on this earth, I can remember the first storm that was in the late 70s. And so I can remember each one distinctly and so it will be and we don't wish that to happen but it's going to happen somewhere sometime.

Ryan Byrnes

Okay great, I really appreciate all that color and if I could just one more just kind of numbers based question obviously kind of lowered the tax spending impact on margins for 2016 but is there any change to 2017 or is that range I think of 35 to 60 basis points still there.

Andy Watts

Good morning, Ryan. That's still a good range for right now, if information changes or the outlook changes, we will let everybody know that. So that's good for right now.

Operator

We will go next to Kai Pan, Morgan Stanley.

Kai Pan

Good morning and thank you for keeping me in, first just pull off of the recent departure and how long is there sort of non-compete or non-solicitation period?

Powell Brown

As you know we have traditional covenants with people that are on our team which are typically two years. And as it relates to certain convents there were in improved or enhanced covenants which will last for a year as well.

Kai Pan

Okay thanks. And then on the assorted properties like coastal property raise, I remembered last few quarters, you are talking about a strong 15 to 25, now you say 10 to 25. Are we seeing any signs of probably early signs of stabilization or am I reading too much into it?

Andy Watts

You're reading too much into it.

Kai Pan

Okay. Thanks and lastly on margins. So if you take out the $2.8 million of premium tax refund, the EBITDAC margin roughly stable year-over-year and but you have sort of benefit of probably $4.4 million for contingent commission that’s roughly about 100 basis points of margin. So I just wonder if that is the right way to think about it. And then secondly so you talked about 30 to 40 basis point impact from the IT investments and I just wonder is that the overall like margin impacts or just IT not including anything like you're hiring additional brokers or the other impacts?

Powell Brown

So I'm going to let Andy touch on that in a moment but I do want to make one comment because this is my favorite, I'm being suspicious 141R you didn't mention that, Kai. That is the change in acquisition earn-out payable.

Well remember there is some offset to some of the things that you raised that's number one, number two that as it relates to and we haven't and we are not going to by the way, we haven't broken out the cost of our strategic hires or opportunistic hires or whatever the case may be, the answer is we just make those investments because when we have the right leaders in the right places and they feel like, they have the right opportunity we're going to back them.

So the answer is, it's not I know you want something that you can put in to your spread sheet and unfortunately it's not simple, if we find four people that we feel like we got to have and they're not so called in the budget, we just make it work because at the end of the day long-term that will those capabilities and those people if we feel that strongly about them, will make us a better organization. So Andy you want to respond or comment on the other stuff.

Andy Watts

Kai good morning let me touch on a couple of the points there. Keep in mind I made mention about the other income last year, why would call that out for the quarter, just always when you're kind of going through look at those line items because those movements do have impacts okay. So that's part of back and forth.

And then on the technology when we said 30 to 40 basis points that is what we would estimate right now on a full-year impact to our EBITDAC margins, it may move around little bit, may be impacted by how well we do on some of our strategic purchasing initiatives et cetera.

Kai Pan

That's just related to the net IT investment impact.

Andy Watts

Yes only IT not any investments and that's what we talk about that when we did the year-end results over the ranges that we had given before.

Operator

We will go next Mark Hughes, SunTrust.

Mark Hughes

Thank you. Good morning. The strategic purchasing, it has always been my impression that you have a little bit more of a decentralized model. Is this something that you can repeat in future quarters, is this something there is going to be more of or conversely was this kind of a one quarter benefit? Would we see a similar benefit in coming quarters?

Powell Brown

Yes, well good morning Mark. Let me clarify, when we're doing our definition of strategic purchasing does not mean that we're doing centralized purchasing, we're not going away from our decentralized model. That is core to how we operate but what we're trying to be able to do is leverage our purchasing power as an organization for the benefit of all of our individual offices they still determine, what they buy and when they want to buy it. But we try to get the full power of Brown & Brown. Hopefully those will all continue as we keep going forward, we've been working on in for a while and we'll seek more opportunities in the future.

Mark Hughes

Okay. And then in the claims area, I think you had suggested you are getting some good new clients but may be some of the volume from existing clients was slow and they are bringing some more that in-house. Could you kind of clarify what is happening there? Is it just a lower underlying level of claims because of the better economy perhaps?

Powell Brown

Yes, that's the right way to think about it Mark, yes. So the answer is think about a standard insurance company who has a large infrastructure that's already built in their claims management system, and in some instances, we're outsourcing on their behalf and if their claims activity in-house is down, then they may want to bring some of that back in-house until on which time the claims activity kind of bounce back up to more than normal levels for them.

Mark Hughes

Right. So new business is sort of offsetting that other underlying impact? Is that the right way to think about it?

Powell Brown

I think that's the right way to think about it.

Operator

And we'll have a follow-up from Quentin McMillan, KBW.

Powell Brown

Hello Quint?

Quentin McMillan

Sorry to have a follow-up. Can you guys just tell us what the CapEx number was in the quarter?

Andy Watts

I apologize; I don't have that right here in front of me, Quint. But will circle back and then I'll tell you what the number was so I don't have right here in front of me.

Quentin McMillan

No problem. I will shoot you a quick email. I just wanted to follow up on that. Thanks very much.

Andy Watts

Yes again let me just clarify for full-year purposes though, we have been saying somewhere around about $25 million and that kind of is our average over time $20 million to $25 million that's a good full-year estimate.

Operator

And Mr. Powell and Mr. Watts we have no further question in the queue at this time. I'll turn the conference back over to you for closing remarks.

Powell Brown

Thank you very much, Shirlon, and thank you all very much. We look forward to talking to you next quarter and have a wonderful day. Good bye.

Operator

That does conclude today's conference. Thank you for your participation. You may now disconnect.