Brown & Brown, Inc.
Q1 2021 Earnings Call Transcript

Published: 27 Apr 2021

[Operator:]

Good morning, and welcome to the Brown & Brown, Inc. First 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 first quarter and are intended to fall within the safe harbor provisions of the securities laws.

[Powell Brown:]

Thank you, Holly. Good morning, everyone, and thank you for joining us for our first quarter 2021 earnings call. We had an outstanding quarter, probably one of the best in Brown & Brown's 82-year history. The results of the quarter are the outcome of the incredible efforts from our team, not only during the quarter, but over the last several years. Each of our segments had great performance, growing significantly on an organic basis and expanding margins due to more new business, good customer retention and increased premium rates across most lines of coverage. These results demonstrate how we are focused on enhancing our capabilities, improving the experience for our customers and delivering creative risk management solutions. From a customer segment standpoint, our large and middle market customers, which represent a significant portion of our revenue, recovered much quicker. However, smaller businesses are generally recovering at a slower pace. During the quarter, we released our first ESG report and are pleased to provide a view into our values as a company. We believe this report provides a comprehensive assessment of where we are in our evolution, but also lays out how we're thinking about the future. Hopefully, our current and future teammates, customers, carrier partners and investors will find the report demonstrates our commitment to these important topics.

[Andy Watts:]

Great. Thank you, Powell. Good morning, everybody. We're over on to Slide 6. Like previous quarters, we'll discuss our GAAP results and certain non-GAAP financial highlights. For the first quarter, we delivered total revenue growth of $116.8 million or 16.7% and organic revenue growth of 9.8% or $65.4 million. Our EBITDAC increased by 20.5%, growing faster than revenue as we were able to leverage our expense base and further manage our costs in response to COVID-19. Both of these factors were able to offset increased noncash stock-based compensation and lower margins associated with certain acquisitions completed in the past few quarters. Quick comment regarding our employee compensation and benefits and other operating expenses as a percentage of revenue. The ratio of employee compensation and benefits to total revenue increased as compared to the prior year, driven by approximately $10 million of higher noncash stock-based compensation cost. As a reminder, in the first quarter of 2016, we started issuing annual equity grants, which have a 5-year vesting period. For the full year, we are expecting noncash stock-based compensation expense to be similar to 2020. In addition, with the continued market recovery during the first quarter of 2021, there was an increase in the value of deferred compensation liabilities as compared to a decrease in the first quarter of 2020. This represents a negative year-over-year impact to the compensation margin of nearly 200 basis points. The ratio of other operating expenses to total revenue decreased due to the continued management of our variable expenses in response to COVID, along with the benefit from the aforementioned change in deferred compensation costs. Please remember the impact on the EBITDAC margin associated with deferred compensation costs is substantially zero. Our income before income taxes increased by 16.5%, growing at a slightly slower pace than EBITDAC. This was driven primarily by the $10 million year-over-year increase in the change in estimated acquisition earn-out payables. Our net income increased by $47.3 million or 31%, and our diluted net income per share increased by 29.6% to $0.70. Our effective tax rate for the first quarter was 16.5% compared to 25.8% in the first quarter of 2020. The lower effective tax rate was driven by the benefit associated with the vesting of restricted stock awards. Please note the vesting of our stock awards will generally occur in the first quarter of each year. We continue to anticipate our full year effective tax rate for 2020 will be in the 23% to 24% range. Our weighted average number of shares increased slightly compared to the prior year and our dividends per share increased to $0.093 or 9.4% compared to the first quarter 2020.

[Powell Brown:]

Thanks, Andy, for a great report. From an economic standpoint, we believe the speed of vaccine rollouts, the overall vaccination rate, the pace of state reopenings and any additional stimulus will ultimately influence business confidence and drive economic expansion. We believe there should be further economic improvement through the remainder of 2021. As we talk with our carrier partners, we expect premium rates to increase at similar levels through most of '21, but may moderate slightly in the second half of the year. Please remember, we're starting to see a gap between renewal increases and new business pricing. While M&A in the first quarter was a bit slow for the overall industry, we believe the acquisition space will remain very active and competitive between long-term strategics and temporary private equity sponsors. This will result in continued aggressive pricing for deals. However, we remain well positioned with our low leverage to capital on our balance sheet and access to additional capital to fund our M&A activity. Our pipeline remains good, and we're talking with lots of companies. We're very pleased with the progress of our technology and data initiatives. Our investments in technology continue to focus on the following areas

[Operator:]

We'll now take our first question from Elyse Greenspan from Wells Fargo.

[Elyse Greenspan:]

My first question is on organic revenue growth. Powell, you mentioned in your closing comments that the economic improvement should continue during the remainder of the year. You also alluded to still healthy price increases, maybe some level of moderation. But if we combine that with, what looks like a pretty impressive Q1 organic number, should we think about the back 3 quarters to just continuing to accelerate, given that the comps, right, will get much easier given COVID compressed organic in the back 3 quarters of last year?

[Powell Brown:]

Yes. Well, thanks for the question, Elyse, and we thought it was a really good quarter. So I would say a couple of things. Number one, why did we -- as we stated, why did we have such a good quarter? Number one, we wrote a lot of new business. We did get rate on most of our book and our retention was good. That's the first thing. The second thing you need to understand in Retail is -- and we've talked about this before, but there is a heavy weighting on employee benefits in Q1 of the year. So we don't give, as you know, organic growth guidance. But based on what you have said, those are positive things against the comps in the next 3 quarters. But I don't want you to get ahead of yourself, too.

[Andy Watts:]

Elyse, a couple other things. Elyse, it's Andy. A couple other things to keep in mind is -- and probably important. Look at -- you need to look at the 4 segments independently and don't just kind of throw a blanket over the entire company because the segments are going to perform differently in the back end of the year, more than likely the remainder of the year. Specifically, if you look at National Programs, we had an incredible year for our lender-placed business in 2020. We are expecting growth in 2021, but not at the level that we saw last year. So that will dampen some of the growth in the back end of the year. Again, still have growth, probably just not the level that we experienced in National Programs last year, even in Q1.

[Powell Brown:]

And in services, we don't -- we had the winter storms. So if we have more storms, then that could -- but those are the 2 that jump out.

[Andy Watts:]

That's why there's going to be puts and takes in the different segments.

[Elyse Greenspan:]

Okay. That's helpful. But there's no -- other than the employee benefits, when we're thinking just about Retail, we can think about the employee benefits concentration in the Q1? And then my comment of -- we can think about that segment benefiting from easier comps as we move through the year?

[Powell Brown:]

Yes. Probably easier comp in the second quarter. The question, I guess, that we're at least thinking about is as it relates to the third and fourth quarter, the benefit of rate increase year-over-year, we do think will probably moderate in the back end of the year.

[Elyse Greenspan:]

Okay. That's helpful. And then my second question is on the margins. You guys had pointed to flat to modest improvement in your margins for the year. You came in better than that in the first quarter. But you also, to my earlier question, right, saw a pretty impressive organic growth. So approaching almost double-digit organic. Thought maybe the -- could you pull out more margin improvement than we saw in the Q1 as we think about going through the rest of the year? Can you just update us on that full year margin view?

[Powell Brown:]

Andy?

[Andy Watts:]

Yes. When we made our commentary at year-end, we said that we anticipated full year '21 to be flat to slightly positive. It was a great Q1 on top and bottom line. We still think that we'll have some margin expansion in '21. We're not going to change any specific guidance for the full year. We got another 3 quarters to go, but we feel good about the business and where we're positioned.

[Operator:]

And we'll now move to our next question from Greg Peters from Raymond James.

[Greg Peters:]

I'll limit it to 2 questions. So I guess I'm going to follow-up on the organic questions that Elyse asked. If I go back to the first quarter of last year, you specifically called out an impact to revenue from ASC 606 of about $10.5 million. And also, you called out a benefit to guaranteed -- GSCs of almost $9 million. And I'm not hearing any similar commentary this -- for this first quarter. So I was wondering if you could sort of update us on some of the moving parts that you commented on in the first quarter last year and how they performed in the first quarter this year?

[Andy Watts:]

Perfect. Greg, the -- let's see, on the first one regarding the adjustment that we took in Q1 of last year, again, that adjustment was to reflect what we believe would be the impact to our revenues for the policies that were in effect last year. So as we make it around to Q1 of this year, we're now on a comparative basis with that adjustment. So you would not want to take that $10 million and somehow put it into the equation for Q1 of this year. That would not be an appropriate comparative. Okay. And then at least as to how we're thinking about the contingents and GSCs, we had a good Q1. We did -- as we've talked about before, if there's normally going to be noise in any quarter, it will normally be the first quarter because that's when we generally receive a lot of our cash for what we accrued in the prior year. So you could either have ups or downs. We had a little bit of year-over-year benefit in Q1, not a tremendous amount. So still, at least on a full year basis, thinking somewhere flat to a little bit up. We still got 3 more quarters to go.

[Greg Peters:]

Yes. Okay. And then my second question will be on -- it's a two part, but they're so-called limited with 1 question. It's on M&As. We're seeing in the press news of producers leaving different firms, moving to other firms. And then at the same time, we're watching the Willis-Aon merger sort of evolve. And you recognized in your first quarter that the acquisition pipeline -- the acquisition numbers were a little bit light. Can you talk about producer retention at Brown & Brown? And can you talk about how you're thinking about the M&A pipeline for the balance of the year?

[Powell Brown:]

Okay. So producer retention at Brown & Brown is good, and we're very pleased with that, number one. Number two, as to your comment or statement around people leaving other firms or wherever they're leaving, we would remind you that we have nonsolicitation and nonpiracy agreements that we believe in, we abide by, and we expect others to do that. So if someone were to join us from another firm, we want them to abide by that. And if someone were to leave Brown & Brown, we would expect they would abide by that. That's the second thing. The merger that you talked about between those 2 large firms, it is, number one, you didn't ask this, but is it going to happen? And the answer is absolutely, I think it's going to happen. But they may have to sell more revenue than they anticipated initially, one. Two, anything that -- time is not their friend. They want to get it done as quickly as possible. And therefore, there continues to be changes and you may read about people that are leaving or considering leaving or whatever the case may be. As it relates to acquisitions, I would like to remind you that acquisitions don't occur on our time line or on a quarterly basis, as you know, Greg. They occur when the sellers want to -- or they come to the conclusion that they're ready to part with what is many times their largest single asset. So it's not just a financial decision. It's an emotional decision as well. So we think that there's going to be plenty of opportunities from an acquisition standpoint. We think that there continues to be lots of change in the market. And what we've tried to do, as you know, is continue to build capabilities at Brown & Brown to enable our producers to be successful, not only to retain their customers, but to write lots of new customers. And so we are very pleased on where we are on that part.

[Operator:]

And we'll now move to our next question from Michael Phillips from Morgan Stanley.

[Michael Phillips:]

Actually, a quick follow-up for my first question from the last question on the Aon, Willis Tower. And you mentioned brokers and people. And Powell, you mentioned it's going to go through, but they're going to have to sell some stuff maybe more than they say. How much interest do you think you have and anything that might have to be sold off?

[Powell Brown:]

Well, we don't comment on transactions that haven't occurred or things that -- so what I would say is this. We are always interested in looking at good businesses that we believe could fit culturally and make sense financially. So that's not an exclusive statement around what you just asked, but we are interested in good businesses and -- that fit culturally and make sense financially. So we don't like the term never or always. Those are a little extreme.

[Michael Phillips:]

Okay. Second question then just on overall competition. And Powell, you mentioned a couple of things here. The gap between renewal and new business, one, and then just overall competition in new business, I think you mentioned in your opening commentary. I guess, can you elaborate more on where, I guess, you're seeing new business competition more intense than other areas in certain geographies or certain lines where you're seeing more competition there?

[Powell Brown:]

Sure. So Michael, I'm going to make some fairly broad statements, but remember, this would be most applicable to middle and upper middle market accounts, okay? So that's the first thing. So depending on where you are, there are certain areas in the country where we're starting to see it more often than not. So let's say, the Northeast or the Midwest are areas where we're seeing it more commonly than maybe Denver in the Mountain states. And so that's an example. And so I want to clarify exactly what I'm saying because for those of you that have followed Brown & Brown for more than 5 or 6 or 7 years, you've heard this story before, which is the following. Basically, if you have an account, and let's say that account is in the Northeast, and it's a manufacturer or a beer distributor or whatever the case may be, and it has good loss experience. And the incumbent company, whoever that is, wants a 6% or 7% rate increase overall on the account, that would not be -- it could be 3%, it could be 6% or 7%. Let's just say it's 6% for sake of this discussion. If it was possible to take the exact account, something that looked exactly the same, with the exact same loss experience and you submitted it to the market, it's a different name, it's a different account, but it looked exactly the same to the incumbent market that wanted the 6% rate increase on our customer, they would write that. We're starting to see them write that at the expiring rates, okay? So why is that important? I'm not saying that's happening universally across the board. I am not saying -- we're not saying it's happening in every geographic area. But what we're saying is we're starting to see it, and it's not just in 1 area or 1 account. So it may be anecdotal, but it's more broadly spaced than 1 geographic region. We believe that, that is the beginning of -- where you start to see some topping out in certain areas, and you're starting to see that in some of the rate increases because you can't have, let's just use in Florida property, 20% on top of 20% on top of 20%, another 20%. I'm not saying it's not possible, but I'm saying the insured feels like they've been whipsawed. And so we start to have customers that as rates continue to go up, they start thinking about terms and conditions. Terms, meaning do we change our deductible? Do we not buy that excess layer of something? Do we put a bigger deductible on our site -- whatever it is, there's multiple ways to manage cost but it's not just coverage, but it's such a huge issue on how to manage those cost increases. That also has a tendency to moderate the overall impact of the revenue increase on the account. It's important to note that.

[Operator:]

We will now move to our next question from Mark Hughes from Truist.

[Mark Hughes:]

On the organic growth in Retail, you've talked around a lot of this, no doubt, but the -- how much is new business versus rate? And I'll throw in there how much of those perhaps related -- that the rate is driving policyholders to look for new partners and that has allowed you to drive the new business activity?

[Powell Brown:]

Well, let's, Mark, remember. We don't talk about the specific impact of new business versus rate. But historically, I want you to know that we've always said, we believe that 2/3 to 3 quarters of the impact is exposure units. Not rates. So that'd be 1/3 -- 1/4 to 1/3 is rate. Having said that, we have said that we wrote a lot of new business in Q1. So I do want to make sure you heard that. We wrote a lot of new business in Q1, and we're happy about that. So having said that, you are tapping on something that is universally applicable across the entire platform and all of the divisions, but specifically Retail, Wholesale and Programs, which is capacity, meaning new capacity. That could be new capacity and liability, new capacity and property, new capacity and professional liability. And so in the first quarter and just like in prior quarters, we do have some very good relationships with carrier partners that have enabled us to win with them, to deliver winning solutions to our customers. And we're constantly and consistently looking for those new solutions. So what worked last year may not work this year, as you know. So we are constantly searching the marketplace, not just domestically, but kind of worldwide for capacity to deliver either a product, which could be in our Retail space or on a basis of more proprietary product through our Wholesale or Programs space. I hope that answered your question.

[Mark Hughes:]

Yes. It's definitely helpful. And then on the cat capacity for property, I think you're talking about Binding Authority. 2Q is a big quarter for Florida renewals. Is limited cat capacity -- is that going to impact you in 2Q?

[Powell Brown:]

Yes. We've talked about how we see it for sure impacting us on our personal lines, but also on the smaller Binding Authority business. So we believe that carriers in that space continue to reevaluate how they're going to reposition, maybe is the right term, their books of business in places like Florida. That's probably a nice way of saying that there's probably some business that they don't want to be on, and then there's probably some business that they will be on and open up some capacity, hopefully for us as well. So we think that probably balances out. But we don't -- I don't want to give you the impression that -- on the Binding Authority that it's like wide open right now because it is absolutely not wide open in cat prone areas. It's on a more limited basis, and cat capacity is a little bit like gold, as you know.

[Operator:]

And we'll now move to our next question from Derek Han from KBW.

[Derek Han:]

Can you hear me okay?

[Powell Brown:]

Yes, we can hear you, Derek. Go ahead.

[Derek Han:]

So my first question is, you talked about how new business opportunities are driving organic growth for the quarter. Were there any unusual factors or maybe onetime benefits that were impacting the organic growth as well as margins?

[Andy Watts:]

Derek, it's Andy here. No, nothing material that we called out for the quarter.

[Derek Han:]

Okay. And then my second question is, Andy, last quarter, you talked about how some of the businesses were delaying investments. Have you seen that trend kind of subside in 1Q and then further into 2Q? Or is it really more of the same?

[Andy Watts:]

Yes. That's on -- really on the customer side of things -- I think our comment was. We had mentioned in our earlier discussion that at least business confidence is starting to improve, Derek. At least from what we're seeing today, we would not say that we're "out of the woods" and that business owners across the board, all industries, all geographies are feeling really bullish about their businesses. Some clearly are, and they've had great 2020 years and probably have kicked off well to '21. But there's still a lot of companies that are figuring out how to really get restarted, how much to put back into their investments, when to put it back in. So still probably early days before we say it's wide open.

[Operator:]

We'll now move to our next question from Yaron Kinar from Goldman Sachs.

[Yaron Kinar:]

My first question going back to your M&A commentary. So I just want to make sure I'm thinking about this correctly. So if there is a cultural fit and makes financial sense, you are open to opportunities, even if they would be outside of the norm or of the core type of acquisitions that you've done in the past? Namely if they -- if you see businesses that get dislodged in other regions of the world, or in some verticals that you may not necessarily have the strength in today, those would be open opportunities for you. Is that fair?

[Powell Brown:]

Yaron, the answer is yes, as long as they're in the insurance space. I'm making the assumption. I don't like to assume anything, but they are insurance businesses of some sort. But yes, we would consider and we would evaluate them. And if, in fact, they were overseas, obviously, you have to think about regulatory issues and all kinds of other things. But yes, we would be open to consider that. Yes.

[Yaron Kinar:]

Okay. And then my second 1 is really quick. IT expenses. I think last year, you talked about some uptick in IT expenses. Were they just flat year-over-year in the first quarter? Or did you see any change year-over-year?

[Andy Watts:]

Andy here. No, we didn't have any material year-over-year increases that we need to call out. One of the things that we have been talking about over the past year or 2 is where we are on our technology initiatives, the benefits that we're getting from some of those previous investments, those benefits allowing us to redeploy some of that capital into some of our newer initiatives around innovation and the experience for the customer. So we feel really good where we are right now on overall spend.

[Operator:]

We will now move to our next question from Phil Stefano from Deutsche Bank.

[Phil Stefano:]

I think one of the words that got the most headlines, questions from the last earnings call was choppiness. And it feels like -- and not looking for organic guidance in any way, but it feels like maybe some of the concerns around choppiness in organic growth this year may have abated. I was just hoping you can kind of give us an update and to think about the standard deviations in organic that we might see this year.

[Powell Brown:]

Okay. So Phil, I think that choppiness now would be more specifically defined as in certain industries. So I'll give you an example. You start talking to people in the services industries like restaurants and theme parks and related things you see -- where you're seeing people having a hard time hiring people back. So that business may be choppy. I'm not saying all of them are like this, but that might be 1 example on an extreme end. And on the other side, you might say, if you want to get a contractor, everywhere around the country seems to be -- not in major metropolitan areas -- seems to be off the hook. So homebuilders and all kinds of stuff and the cost of wood and all that other stuff. So having said that, is that statement a correct statement? I believe that, that statement is at face value probably fair. What I would say is this. There is a difference between CEO or business owner confidence level and the way that you see people standing at the outside bar on your way home on a Friday night because the bar that I passed on the way home is packed. And there's nobody with a mask, not a one, not in sight. And it's outside and everybody is allegedly -- I'd say, apparently, there's no COVID at that bar. But what I'm trying to say is there's still a little gap there. And until we start seeing business owners saying, we're all in, in terms of reinvesting in their business, buying new equipment, doing things like that, we're still not totally there. But do we think it is less choppy? I think that, that's fair. And I also think that it depends on the industry. Certain industries are still just really bumpy. And then others are coming back with vengeance.

[Andy Watts:]

Yes. So we got a lot of -- we had a lot of discussions post the fourth quarter. And candidly, it feels like people have read way, way too much into the word choppiness, which was not -- one, not the intent. What we're trying to do is we're trying to just give everybody a feel that -- and we said this in previous quarters. We do not believe that this recovery is going to be linear in nature. We really don't. By the way, it'd be great if it was, but we don't think that's reality. We just think that there's going to be unusual ups and downs, how people are thinking about buying insurance, how they're looking at their renewal dates, et cetera, hiring people back. That's just going to cause things to be different during this recovery than in a normal market. That's all. And that just -- it's just going to need a little bit of time to work itself out. And again, we feel positive about the direction of where things are going. We just try to be a realist that there's going to be some unusual ups and downs every now and then.

[Phil Stefano:]

Okay. And the follow-up to that is maybe looking a bit more internally. And I guess I was hoping you could give us an idea of how has the conversations that you have with the regional managers changed over the past several months? Does it feel like they have an all-in mentality with investments in the way that they're thinking about their business? Or is there some hesitation internally in thinking about the investments that you're making?

[Powell Brown:]

So Phil, thanks for the question. Number one, we don't have regional managers. We have regional leaders. It's just the nuance at Brown & Brown, as you know. And number two, I want to -- yes, I think it's important. We don't have employees. We have teammates. And we don't have managers. We have leaders at Brown & Brown as a clarification. Having said that, I want to assure you this. We've been all in the whole time. So there is no question about the way our team has navigated the last 5 quarters. I can tell you that. And here's the thing. I could not -- and it's not about me, but I could not be more pleased at how our senior leadership team has navigated, what I would say, is one of the most difficult, unusual environments that any of us has ever been in. So having said that, this is different than the Great Recession in 2008, '09, '10, '11, '12. And what I mean by that is there's lot of things that people have had to deal with, different kinds of things as it relates to isolation, about mental wellness, I call it brain health -- we call it brain health and things like that. And so what I would tell you is our teammates are pumped, generally speaking, to come back in the office, to see other teammates and allow them to have a separation of home and work. And so that's a long-winded answer, but we are very pleased how the senior leadership did. We are very pleased about the way they thought about investing, in the way they thought about their businesses during this very difficult time. And equally as important is we're excited about the opportunity for new people to join our team and be large contributors to the progress on our way to $4 billion and beyond.

[Phil Stefano:]

All right. Well, congrats on the quarter and apologies for the poor terminology there, but I.

[Powell Brown:]

No, no, no. We're just clarifying. Thanks, Phil.

[Operator:]

We'll now move to our next question from Greg Peters from Raymond James.

[Greg Peters:]

Great. I wanted to go back to the comments and just help me understand what was going on. Powell and Andy, you talked about the moving pieces on employee compensation and benefits and noncash stock compensation. And then you also talked about the other operating expense. And so you gave us sort of a benchmark that we should look for -- and I don't want to put words in your mouth, but I think you said we should look for employee compensation benefits as a percentage of revenue to be flat in '21 versus '20 and not look at the first quarter. Do you want to make a similar comment on -- or some type of comment regarding other operating expense?

[Andy Watts:]

Maybe just a couple of points of clarification, Greg. I don't think we -- what we were trying to do in there was give guidance on the ratio of employee benefits as a percentage of revenue. And so what we are trying to be able to do was to just help everybody understand when they looked at the ratio or when all of you look at the ratio for the first quarter, it looks like it's actually up year-over-year. And we're just trying to give really kind of the 2 components inside of there, what stock comp did, the noncash stock comp, the impact for the first quarter, and we gave guidance of what we thought that'd be for the full year, and then the impact of our deferred compensation cost. Again, that moves up and down, has no impact really on margins in the quarter, but it moves between salary and the benefits as well as OpEx. So we kind of gave that piece up that's out there. So hopefully, that then gives you an idea of what other operating did as well as salaries and related for the quarter.

[Greg Peters:]

Okay. Well, I'll go back to the transcript. There's a lot of -- I got to unpack a lot of information there.

[Powell Brown:]

No problem. Give a call afterwards, if you want to chat some more about it.

[Operator:]

We will now move to our next question from Mark Hughes from Truist.

[Mark Hughes:]

Yes. Just on that point, I think you said the $10 million increase was maybe 200 basis points in extra margin. That was the differential. But on a full year basis, you look for noncash stock comp to be steady. Is that to say the margin will be -- it will be a good guy in the subsequent quarters?

[Andy Watts:]

Yes. So markets -- the stock comp is about a 100 basis point impact on margins in the quarter as a bad guy. But on a full year basis, we're expecting stock comp to be relatively similar to '20, barring our performance for the following 3 quarters, which may cause us to adjust that up or down.

[Mark Hughes:]

Yes. So as it stands today, it's probably a good guy, a modest good guy, depending on that. I don't know that you answered or addressed the issue of T&E spending. I think you gave us some good thoughts on margin overall. But how about the potential ramp in T&E?

[Powell Brown:]

Yes. So Mark, here's what we would say. Number one, as you know, in a decentralized sales and service organization, our leaders run their businesses like their own. And so they were very efficient to begin with, number one. Number two, we saw a pretty significant drop-off in T&E, as you have said. And in different businesses, in different parts of the country, we're already starting to travel and see people or they're allowing us to come out and see them. And we anticipate it would be just -- it would be speculative in terms of when we get back to whatever we get to. But what I would say is this. We want to see our customers, and they want to see us. So there is a feeling of desire on both parts to see people. So we think that in some businesses that will pick up more quickly than others. Do we think it will be back to so-called what it was before by the end of the year? I don't know about that. But I think that we're going to see absolutely a pickup. And if, in fact, the COVID vaccination rollouts and COVID in America continues to move in the right direction, meaning not spike or things like that, I think that's going to add to it.

[Andy Watts:]

And Mark, on that one, just make sure everybody takes into consideration everything we've said. We made a mention of that during year-end commentary that we do anticipate that it will grow during 2021 versus '20. But when we gave our guidance on margin expansion for 2021, that included the fact that we knew that our variable costs are going to go up during 2021, okay?

[Powell Brown:]

Holly, we'll take 1 final question, okay, if there is 1 in the queue.

[Operator:]

There are currently no more telephone questions.

[Powell Brown:]

Okay. Perfect. Well, thank you all very much for your time and questions, and we look forward to talking to you next quarter. Good day, and good luck.

[Operator:]

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.