Arthur J. Gallagher & Co. (AJG) 27 Jul 182018 Q2 Earnings call transcript

Good afternoon, and welcome to Arthur J. Gallagher & Co.'s Second Quarter 2018 Earnings Conference Call. Participants have been placed on a listen-only mode.

Your lines will be open for questions following the presentation. Today's call is being recorded.

objections, disconnect any this have you you at may time. If

within undertakes this the questions, including statements to the certain comments are of uncertainties forward-looking conference laws. may meaning Exchange These securities update described discussed made forward-looking risks to may results differ statements. from those discussed are company's Some filed Actual subject response during in on this call, to statements of with Commission. reports and no the company today in the these answers call constitute and the obligation the given Securities and materially

In materials addition, Relations you information is the J. this regarding the in release the introduce measures other call begin. Investor and section to please measures, pleasure Chairman, discussed earning Gallagher, It Arthur CEO refer to Patrick for on reconciliations of these of my Mr. most may as other as website. the well J. recent Co. non-GAAP company's now Gallagher, Gallagher & President of and the

through are Doug at general Thank on our operating and quality. comments I'll for going are drive our going employee improving the I'll our productivity and second delivering value. mid-year within components measures. joining address to market the our differentiator, crushed counts Doug as address the talk culture. will survey, of two you acquisitions, comments, as with our and of After the other shareholder four the mergers quarter, then including true all team two, With Bassett. of call. Chief Frankly us to Thank quarter, today organic on Howell, and which of this then my four: me benefits divisions. growing key Doug Today, touch about And Gallagher start and the rate results well growth you on I'm trends some in the our I afternoon. the to our strategy XXXX claim earnings our Financial quarter heads for Officer, much. Good very is

and brokerage points management EBITDAC revenue adjusted margin of For growth X.X%, basis EBITDAC XX risk increased organic generated segments and the combined quarter, adjusted XX%. our expanded

results In had I really team of to in outstanding and very energy all around clean mergers like work, which well. extend $XXX revenue. warm addition, outcome merger XX,XXX annualized all professionals XX the world. and of should add are from would million welcome partners, a about nearly new of the we a completed as execution from and These the strong performance dedication our we our to hard Gallagher the quarter,

bit on data deeper me mid-year growth numbers Let rate dive a and behind our environment the on based internal and data. some survey the rate organic points provide

segment, Within believe all of rates about in exposures First we in basis contributed XX X.X% our and organic this, divisions strong across growth brokerage our of globally. all reflecting points improving number. that

mid-year exposure a indicated internal pricing continued increasing the trend survey of casualty rate growth Our around globe. property, and

lines about of the United Let States, and pricing all second across positive organic retail with is casualty quarter, X.X% business. generated the brokerage business me start in almost property, our

around how a States, I'm only really lines, lines specialty to the For performance. together major between lines, only auto are is point up including pricing and catastrophe-exposed team's Property businesses in our in June flat down example, organic Casualty excited X%. commercial United up with In even the there both line in to specialty come Most X% retail the pleased X% up business. than the higher UK, are wholesale with property and and XX%. up or about our property compensation are the points. X% X%. and Staying I'm I lines and that casualty about with about Workers' average total up by was X pricing X-point is X-point. in was are weaker

Our UK is including X.X%. pricing Casualty pricing and Commercial retail specialty up lines, about quarter was X% property X%. the X% flat. to is in classes, over organic are up

flat. X% X% rates for organic rates Pricing organic New rate most in Property we're was rates were wholesale X% and average. up were lines casualty cautiously are in and on optimistic mid-single a X%; future. and to classes UK bottom Our to about up Zealand, specialty X% to appears the Australia was and firm digits. is X% In and up to

XXXX in in in around post growing organic to up organic to are rates economy we better So, a which be the world, when growth means did I XXXX. tailwind able providing a sum than should it PC we

Okay.

Moving benefits to our employee on operations.

quarter, for leverage to today. over to we internationally. to is IBIS The is value-added it X.X%. of an running has the close Our all-in industry I the conference three-year XX our generating the conference benefits had focused with three-day Academy benefits our attended hundreds U.S., higher. past numerous straight example of both top best growth and employment the in the continues prospects. on Average previous revenue issues trend conference X%, business how had in Employment Berlin. X%, in longest UK, world. these insights making and growth U.S. over past Canada, growth in the Conference in quarter major average and running global breakout professionals years, been and of organic countries annual just months of the The facing clients HR the Australia a minds across footprints, sessions around attendees deliver This our international also similar to XX the the benefits This increase one fantastic HR

positions high-quality combined benefits from for future. our with leadership, very well the growth thought modest a employment service business tailwind Our tools,

to which Next, is I'd to primarily risk segment, move management Bassett. our Gallagher like

stellar helped Australian performance also Second quarter Australia. a XX.X%. in ramp million was bonus $X up $X.X organic a growth of million additional fees by was and It fee

was organic quarter. in about U.S., was performance. these two Excluding the items, growth up X% organic excellent still an the X%, In

globe total see grow reflection quarter and year and beginning year. growth counts. claim about comp of Our claim we Gallagher workers' creeping in results. pickup And insurance a been around continues to business counts U.S. the deliver in carrier unique claim nicely counts our modest can organic are higher to with The liability superior Bassett impressed claim versus fantastic. the the outcomes Both are differentiator, and up first culture. be Everywhere and a has flattish this I have are more ramp to continue we team. great of I'll close my We also after about believe our is client quarter this operations fees, true half XX%. that additional and UK X.X% a in that business and are it visited last year. our organic even and our I Bassett had Internationally, up growth excluding environment the Australian year-to-date growth today more the international delivers realizing organic the talking and in culture clients Gallagher that. new our our comments better been was

all our of our consistent maintain to and service; culture. advice promote delivery all day to win-win our philosophies: partners culture excellent professional Every our to take shareholders. return be to trading customers best for Our our be placing is associates; craft, diligently and community and and with live passionate while the our mission first; culture, work and our teammates be deliver care striving statement get simple up underwriting and in our of excellent the four the employer and

tremendous measures, on over on Doug? quarter stop outstanding all An all Okay. and now half a Doug. turn I'll first measures. it

everyone. Thanks, Pat, good afternoon and

commentary through As halfway in Pat said, year. move and the what really here, first some that with document And on I'll a I'll second quarter, first posted the combined great earnings quarter. comments make our shape back the into we're truly we CFO release. terrific our referencing excellent website Today,

Okay.

tailwind exchange It's at X to our Day consistent with based the on current of looking commentary FX from year exchange like this XX and foreign we'll Some it's from June line. published what CFO takeaways a rates. page get still Investor document, the we small

the On about didn't and year, we integrate have looking we line, forecast the Coverdale. half quarter have as integration that this all a Pronto forward, $X.XX any but of first during we we

to interest segment, banking page Turning the line. and to the to X corporate

Our results with estimates midpoint right in Investor our the the June in second were provided Day. we quarter line of

and a third As now in lesser we quarter. look just forward, our the estimates little fourth the are

line, see $X.XXX that estimates. revised above we fourth estimates our upward midpoint the had XX a the clean quarter. we our quarter coming strong of you'll for energy and June the the third And have On looking forward,

However, a as I plays big the always weather part must estimates. predicting caution, our in

estimates locked are these stone. really So, in never

due for the Pronto the to third a our in On of fourth but and no time. estimates acquisitions line, recent we're M&A this quarter at this and little the change the quarter up Coverdale,

new to concluded matter UK. line, corporate in interpretations One might VAT came below XXXX on be estimates. a On we ground XX we in our soft related the June that we of the tax reason, $X.XX

reserve XXXX million So, quarter. we $X.X that in issue going or this even have forward. We in booked don't XXXX a nor

consider So, a this one-timer.

Looking as estimates in would foreign impacts much our that long the in have expenses U.S. of Recall of line forward, sheet earnings. but June we estimates non-deductible reform. the June. a review. our as and position fourth a line to our we're change third call were impact our our had such from first XXXX our first quarter We're on during tracking entertainment along our more digesting And legislation, the in new from not balance where ongoing final as well impact a and guided in segment XX, IR provided ways as and well the tax returns. tax as December the quarter compensation the Day. portion give initial corporate what time is not or quarter we to We've this some, we estimates call, is We from tax in both preparing

and for has tax cash us now, the just we as said have believe to abundance reform book been estimate items credits. an third we for Gallagher. we the then and these will cause In outcome quarter. not end, providing an But really tax we expense pay and of taxes terrific they say now more we're items So, are the fourth effectively a because

and Perhaps difficult. also our we that is taxes is that be around through future extremely modeling to $XXX are fact do which the another world. at free AMT the and to reduce does credits, current models and the repatriate you're a million credits tax to when way tax from preserved our peanuts help to our production it computing foreign us preserved of cash five cash XXXX. that clean when compared could clean best and to those assume we're appreciate bump total more X% June should X% it small generate both core levels, the when it pay management While may credits our arrive your I of energy think earnings you're rate next cost as credits our cause All friction next cash, valuable our They over said, risk reduce can to to XX, the in ability next X% taxes taxed, years. total I and only going then eliminate These the million get for amounts three it our you from that reduction brokerage at and the be that'll also X% of to EBITDAC And energy some close. at $XXX through years, up global they seven to deductions for that building does about paid the portion And that investments. tax are and decade.

closed gives to we've arbitrage today, a total these paid XXXX. in important, of purchased million. That's more we us we've our us strategy. free and what's annualized Through mergers, $XXX course, fair XX risk revenues in done all our with than XX lesser taxes in management in debt. Of that have at pricing nearly for to completed trading allows all XXXX, cash And brokerage about and more multiple. we fund X nice revenue of And already M&A it

had revenues. forward, a about XX of have of pipeline we merger being we for Looking share. to Right At believe all we $XXX fair our attractive opportunities. XX, expect get annualized we Clearly, we of term or cash about have about balance million prepared full these available June on $XXX sheets however, we'll million now, of acquisitions tuck-in don't close; sheet. signed either our

of the in our So the flow today the should year, remainder sit strategy XXXX. we for half as fund that, plus cash of our expected free M&A second

to some productivity quality. comments move Let's on and

centers. work up on real and of organic. the quarter adjusted cost earnings the the If you the table, X.X% That's ship X work to management we're release the brokerage bottom now team nice to points harmonize optimize to to of in segment turn automate basis page really our to margin XX by systems to and estate lower our our operating agency footprint, second

little because the is margin we Looking show our expansion. forward, mid-year. raises arises very historically give quarter This quarter we third the

year, third lower In seasonally of addition, margins have mergers two the quarter. our this EBITDAC in recent

make to expand organic harder you but and look expansion that like over say, organic at So likely still believe when too. margin we will it's difficult year, just a bit But margins more a much below X%. X% if that we is

the page adjusted Next of table risk X earnings basis the let's to XX.X%. turn top management page; to margin at the to release, of up XXX points the

that points is the which set our the earlier, XX%, these have over would mentioned and However items risk prior a associated year. items to management over two basis is level and segment bit expenses influenced nicely still XX revenue compared incentive delivered when by Pat up revenue you so compensation, margin

margins at targeting the segment. management over for risk we're still the Looking our XX% rest year of forward,

quarter, my in XXXX Back those position second the half, our and I terrific we're beyond. Pat. comments. So outstanding are you, to An success think half an continue first to in outstanding of

Thank Operator, think you, some we're Doug. ready questions. to I take

Thank you.

comes with question. your from of line question Please Morgan from first Stanley. Kai the proceed Pan Our

good and you, afternoon. Thank

Good afternoon, Kai.

Congrats on great quarter. the

organic first my half in X%. achieved you So, on first growth. And the question

So, the do achieve last you year work have year. assume won't to that. full in don't you almost half achieved go to X.X% second I the to

So, question better is half why organic than first the half? second would not my be really, growth

right, All Kai.

job competitor. as don't in more We bigger time in new want very the half limb a much good proposition the I here and guys a is we're compete looks means the riding spot competitors, just XX% think we're with value the from players. are we the and local we're with myself littler lot second say primarily this We And competing our of the that the competing quarters. I think be the of And field good a going we which of to explaining a And think know I really are on we're share good as business, through to I'm gals get than bring. not one. two proud doing taking half team. out I'd better in pretty when that marketplace, our

Yeah. Sales sometimes too, tricky can be Kai. almost

the we're So, with and better where far too. half we pretty are hope we in second year-to-date thus for happy we're bringing

in comp half compared Is with XXXX? the there a tougher second the

comparisons any I tougher don't know if there's necessarily.

our Our now so stronger first new much the recognition half under where of more the the year in is quarter. recognized half is revenue first

So, be don't second would anything that in two difficult quarters compare. a will I lesser recall of cause in total, but there substance

on question second release, about head controls. mentioned In little the My you more wonder, you elaborate Great. just could I count margin front. that. a on the press

half. not the the mentioned strong also the because half say might mid-year the You wage raise earlier in expansion to in so second half be second as first as

forward. So, true just want going to be going see is to that still

Yeah.

think I terrific a it's question.

First of production formula. a are them most our of all, on staff,

influence. So really that doesn't

non-formula is there's the we them annual giving around the something non-production, folks raises and and world to to at look about for folks, do performers. you our those when of try So, XX,XXX

So, third coming head and that that of the we and on generally count yes, see it controls, those existing happened quarter, comes we're the up people into to give year half that, businesses. the XXX away. that's on When XX,XXX first in you'll in

there. doing is job that a center of controlling people service grown out U.S., count about up the head building the of count. our Part here to head really has our But in we're team with a acquisitions. Our great XXX is

the our is at and hiring So, to contributing with terrific the margin not that job and expansion. when you a look that discipline true doing of just team's

the that deals? margins? they And create acquisition. given going drag a if paying deals magnitude margin book will to these on higher like bit Looks or one you're multiple be the than second will are your your there also, Last on the the them, overall a in little quarter. to Is actually I of accretive first the quarter the more for Okay. may competition

of one commentary, larger and in done We not at were question. that times. year-to-date. have the At X.X times in bit say bottom we little X the quarter, the X.X we good at would quarter page acquisition, we CFO been had times Yeah, this at X

slightly acquisition there's So, was one larger.

was EBITDA. multiple that Now a of

The ability have and tax acquisition U.S. important earnings. thing use that we credits the that our is the company's to against

adjusted even tax we're a it's basis, on So, numbers than lower that the here. showing

quarter. So, up we're pretty have on it to that happy And bit in board. this one drive little a did

really there's and with the for that still we there's taking be better our but price think there, are what I deal capabilities, forward, resources, bring multiples it Going to bring the the arbitrage our folks They're they a together competition they out they on us. what fair to deal. and know valuing fair can

them lot put say, of other for We also they'll deals. said. earn-out. what many is, thing I together of how bids get the book to would If And for a a they get, a give I'd and fair reiterate Doug chance kind just want people an can see a lot. There's competition

of not to next any tell and all go and going competitors size, we're pick So, our together with that to fit the the equity flip and some the we be it, you're anyway. long for a just it's you world. about going apple part really private with and important can when if world, organization any understanding of to expect the partners on sit them to smaller it's can exciting these us be we anywhere of join around write bite not what the account here that we carefully doing time, it's the to capabilities, living Well, and our in with if I'm

really, finding solid really we're think I So, partners.

Okay.

well a margin your these on Just portfolio follow-up, (XX:XX:XX)? deals as drag will create

that that that but in prepared are annual smaller too. large comments and more have margin profitable become have impact become XX% more that have them I quarter can by a would margins margins. did little the slightly quarter, expansion there's an the our quarter, in brokers my two margin necessarily expansion. bit that of below probably not third of profitable, Also, lot on third say third But we've a as the in of impact just

an organizations and us to a margin not annual dilutive by buying we're on basis. large, So, at

you And half. with Okay. Thank second so Great. good luck much.

Kai. Thanks,

Thanks.

comes from Wells Please Our Fargo. your Greenspan from line next of question Elyse with proceed question. the

improving was expect that to you Would growth of point? My guys Hi. or you question exposure and basis even organic and pick first the about XXXX that Good points XX by that balance evening. in quarter. the up mentioned you on, as rates continue level at about from this XXXX benefiting into think

Yeah, Elyse. is This Pat.

similar as the I think a we situation we'll year. see finish

when You've rate, from many, mean, it's I say and lift better we're this flat getting When we honest, see a heard but, XX-basis-point than me in it opinion. market exposure XX-basis-point And times. decrease, I it's my a many be let's a mean, up you jumping X I pull from point, mean, history were hard I really X XX%. XX/XX, rates our like. X.X, if XXXX go and were what Go XXXX, look point, X, down markets soft in numbers mean, after sideways back at up and

advantage nowhere really flattish smaller for that our when can't out lines, some just little quoting has that's up we and believe with. of all a to, this going against because markets sudden time So, somebody of The is flat comes say, of against a XX% the capability all shine, a quote, player we let's the nirvana our now team compete when that's is we're across up us, decided smaller. essentially to a slightly with market up can't with out tailwind not

organic acceleration a a sequentially. saw up, XX-basis-point then about follow so So you in growth

understand growth more in of writing more, winning, or more it of in just second of just getting price, are clients kind purchasing the organic quarter? coverage, flat was trying market? this what's what's the of we're greater So, in your it greater the been business quarter I'm first driver is you been new are to pretty versus kind what about contributor strong mix terms Is the the if

to your is yes. The answer question

Yeah.

each to All ship little less credit world. growth say, to dividends of we around done, loss the again, business, We've a more organic Playbook Gallagher world. a that of is had rising new is I field around lot paying the have business, have the those. the bit little and a

limits actually but So, heat bring are And if organic unit exposure, contributes take than on bit. kind right the a of to one now. some all does, rate, more to the rate is they thing, up deductibles really or rate up, ships continues economy because little the rising can exposure growth of down

economy but points expect that it so, a point, continues might And better to go to wouldn't basis basis I full XX points. be it XX to now, get I think the

not the Okay, started that even know as four of and for how you any kind great. expansion. there's margins And or guess, margin that see expansion. generate the quarters of guys commentary, your see margin been three business organic, back then lot in about in organic's so, you kind terms you expand I past business about better of your that, would talk below terms of X% or re-emphasizing, to I over a you X% going margin you talking do always but running ability your it's shift saw or in might of

I'd say, commentary. similar it's

a that we've and X% do already level. you'll great in a margin But perfect have expansion. to X% talked that opportunities. harder expand we think margin get about And over maybe under little X.X% world X.X%, over I

of making the we're investments into (XX:XX:XX) remember Now business under also, a too. the lot

both that better distribute got to underway folks our to have IT to also young summer, XXX You service nice in better. we've efforts this understand but internship program

So, still there's we expand investment X%. the especially you're over are inside going of when having on of a lot ability margins, to Gallagher, but

what to plans just Is correctly? and now of one million then that about numbers ability kind catch between And implying? great. the of your question. about mentioned credits clean XXXX. you Did last of were I XXX generate I another think Doug, Okay, energy you that

That's what right. that's said. Yeah, I

you for could of I the that – see XXXX over of credits. next and million a of over XXXX, the think rest XXXX XXX for number XXXX,

much. Thank very you Okay. That's great.

Elyse. Thanks, Thanks.

Elyse. Thanks,

Please question your Tunis question. next with of Ryan the Research. from comes Autonomous from Our proceed line

evening, guys. good Hey,

it the of equally that to question contributor kind on big the cat of good bigger mix, third of business, I brokerage is like us in sounded part just second a is give or was kind seasonality the the see the it biggest like you that's I on, of First where rate. exposed renewing guess, on, quarter? reminder Can with guess, pretty it a it

Second biggest quarters and third are the two renewal. on property

we of some this but it, percentage right exposed coastal-exposed property. there's lift don't our have my did top property, maybe but our off So, get as head, coastal the for of a numbers book I $X that's revenue million quarter billion $XX of

looked too. the exposed that It costal like XQ for property

Say that again?

about That's million down the so there. still in $XX quarter, only third it's quite

accelerating, Is Got guess one there you. thinking had question organic, I guess, process we're better and expenses about it. I I we better you're a maybe that? seeing obviously places investing hey earlier is you're seeing the could there were weren't internally you like in where change we that This all year seems thinking a expansion. Does budgeting your thought invest there's relative was, that, where how about Okay. some your then, margin to organic? organic – you're view maybe adjusting And because

internal doing. may or investing But what still we're got to we'd that. for organic think more we're to is, if on Folks, X%, more way X% they better stopping organic we we've their supper fund projects. a it a but say struggling because it's willing I have not be in way, just in saw sing Well, at to maybe be that

or we the ever of probably if much your side opposite environment. it's organic investing, There's X% is we back so, in million pull X% $XX a And could into got question been million how you $XX all think $XX million happening that's that (XX:XX) world the what important along. We all business. in would but it's to we've that investment the invest or growth around to doing

your third think wrong. to six got Ryan, We I have it's a into in don't Yeah. look seven okay, quarter, a without first business to in ratchet good we're quarter, nice to we me don't results. – we've now probably you get at great pretty or It's that do long-term. together no. investing keep half, of nice But nice the years strung and going investments have you the got don't quarter-by-quarter, and

So, our we've to make got through. and plans follow

Understood. helpful. And what we just here flow I generation think for you guys I an cash free guess, grow next maybe the how think And Gallagher. to guess, I to you should Doug. free earnings just I years. operating you potential think is about That's wanted opportunity few comment over relative the give having at guess on flow cash to

Right.

I of our taxes do best take that; maybe in XX% think X% expense, CapEx close. that you'll our X% EBITDA then get to probably pretty thing to in reduce is to not EBITDA, even and interest X% in project about the invested – and

Thank you.

Right. Thanks, Ryan.

line comes your next of from Our Greg James. the from question Peters Raymond Please proceed with question.

questions for include the But I cleanup Doug, you. had I think meant dividend on the cash also two to expense. flow you

all, is by but from management earlier note First this meeting poor year, I had this your maybe XXXX. million credits, on tax of taking $XXX

I is that So, I XXXX what the maybe hasn't changed, want guess, confirm. excluded number or to

on taking note bad whoever's been were have might copying. notes It you

note wasn't I It's so. taking part, a my copying. on No, bad

- didn't want just All I right.

No.

Also, but dividend, cash I we shareholders. that when question Ryan's back on the comes pay a talk yes, flow, that do (XX:XX) about free to – our think we

free So, for cash would flow you then dividend deduct acquisition, yes, but... the

a Well, flow guidance, when past dividend you It's as have takeaway. included you've nitpicking. provided free in the the cash

marketplace And can success Brown I'm curious question, Brown have the that. in any The buyers opine does question. like are in little other you're your around opinion cleanup not And competitors, M&A. The or private more XXXX through but it the you ago component seem if company question & than if the first going success to or on then year has and half transactions the your cleanup in equity I a a I the other closing had having know have less around comparison.

Yeah.

having because PE. success are sale than a think understanding are with people that a I more the life I strategic think we that better be after can

sound necessarily when what there there on think is the awareness not that's signing developing so sounds I well. that you're might good an document

Who's got their on? phone

That's – me. it's not not

must done, I but... Sorry. through have know where come operator has don't the that

a Doug, Well, just follow-up...

guys. on, Hold

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right. All

right. That's all

think phones and ringing. is this got we've them room I two in one of

get There we we off. hope. go, So, it (XX:XX) All standby. shut right.

that. about Sorry

okay. That's

we think law, wondering, of the PEs. on about little the a M&A there bit? success little you a come more saying into were So, compared the I talking detectability within play you're tax interest. you environment. Do was an were And effect I'm to know that's having

I so, don't think yet.

fit and there's I an of with fit of better may have lot partners. them they merger Gallagher a PE. they may better with good fit better think appetite, with Each they may Brown,

I I be can that good say there's see the really documents signing would be when opportunities how life of capabilities. Gallagher we're think So, a doing are the terrific there. it our really showing at also of might that And that you out job after more just

So, that's the I probably reason think why.

Pat. ago And Greg. space. too long to not This on, right Doug's the is with the one panel was if I in firms of want main on consulting a cross you philosophies. have. philosophy just probably stage, as this very that we do. were And different we as there twice have year Acrisure than a done has acquisitions many they five different completely

our year. year we've year fit people didn't did in like in revenue great, full get which test those real string And and real sure month the can sales a We'll we have this already have excitement. you any we And ago. you think is start trick a I to which and remember, year to build purchased is we be the that like last talking are or the some find more a also, making people environment, enough than you So lumpy. had this closings

to doing want than make like competition. it we're So, better the I wouldn't sound

the for two those Thanks cleanup on questions. Great. clarity

my screen and today success "insurance watching on this but a it business. newly your growing that going acquired, minted you could broker sitting spoke Pronto. Pronto and I Goosehead." was little at business bit, So, here what the the update that of I off question. an us remarkable that management for I'm about was on And you meeting a provide know you is And on outlook wondering at your was And principal there if what's

way, Right. up By bringing the for thanks Pronto.

California We have and is market, have consumer We serves non-standard Spanish similar priced growing an very that business service operating well. and not and storefronts our may very it auto we very in that For is provide model a quickly. primarily a the those Florida we than at provide that's as at language product. customers Texas, fairly know

had few shows terrific or only Actually as Now, XX in brokers my opportunity. really there it Goosehead think we've trading and here, but think about distribution. is days, a the think that value now, in for it's months we I a for it I is, memories

like So, multiple we'd like on EBITDA. our to a see that sure

the a you're that or I revenue. until growth date Goosehead situation, So, you organic a acquired said it's meeting, management bought, for growing million cleanup from it's correct? not you just at the it think was And accounting $XXX anniversaries, on the your transaction about Pronto the growth, as of annualized as as

Right.

Yeah.

talked at in and go Actually because something lot Days. our organic doesn't growth is they year that if and about I believe a our We've consistently understated, somebody, sell ever organic. we that out count our when that buy that Investor in first

the for you Thank answers.

Thanks.

Greg. Thanks,

Greg. Thanks,

Our from from with the of Mark next your Please question SunTrust. proceed question. Hughes line comes

Good afternoon. you. Thank

Mark. Hi,

Pat. Hello,

in usual was quarter. anything income is or good there Was that investment Your sustainable? this

I on what get the basis, out adjusted a think looking think you that you're to look sure have an I'd pretty Mark. flat at, book last off year. If that quarter-over-quarter I make of where sell that's we we is for put. think I little at that, dead gains but on back book business,

in did quarter, that? the say Okay. paid for that. All that the right. Thanks cash acquisitions you you Did for

again? Say

have amount acquisitions in you for the the quarter? paid that You of the cash

in front I don't me. sorry, of that, have

And share? are just of theme outsourcing claims the carrier there? you within risk carriers growing bigger Any business or you about insurance observations a talked Is nicely taking management. there then,

there's bigger I think theme. No, a

that a I a line think where realizing can then people things, to market, to And able believe claim build help to outcomes bunch be proof new also, carriers infrastructure more couple are getting be you'll they it that Gallagher we're boots have help the we same carriers don't underwrite. with of having not enter to We your infrastructure up concept we can to back and that Bassett, of a if the more outsource and enter better. a ground. will on point

fastest one a areas growing that's that's global on and so of And our basis.

I it's for So, an think us. exciting play

inflation system? is last in there's claims a some than the count observations do growing talked inflation, And finally, you faster you up about think about building the little Any year.

I don't.

I go is, you get claims. as more shifts, people just what think three you've got to back

Thank good. Very you.

Thanks, Mark.

Our next question Glasspiegel Janney question. comes Robert proceed from the from your line of Montgomery Scott. with Please

everyone. Good afternoon,

Hi, Bob.

Hi, Pat.

Brown it as versus on that smaller from to I difference stretching is On you're well did a am levelizing pace. the year's a from Is or Brown the a starting PE last the possible pickup that? rate tax seeing front, acquisition make on & pace,

stretching. You're

you're I think stretching bit Yeah, point. this at little a

you just some do hitting just it's What think, or random on noise? you're

the good We've most these boomers. by outstanding. half. mentioned seen We the buying XXX had quarter, we're tell fact real years. lumpy, it's in pipeline I this Bob. is And pipeline first outstanding. Yeah, truly run that are our is I you, run baby for mean, that Every the of I've a

I and You aren't getting younger. any

he generation bringing capitalizing they thing work his the was a into in there's people the place career a excited. And And probably about career mean, deal. son this is and firm son potential end towards I He's incredibly he a excited of mostly today, of life's to knew I lot great where his can career a bringing had way. was the have his a big merger driver opportunity. where a so, that partner he's thinking next path, talked into and your a your

but there's that, anything that over again, see they're I very with and wrong it's the over lumpy. good PE So, approach mean doesn't a competition, and

twice age well into my work that played. to able you're answer, Pat,

you, Bob. Thank

The...

nice to know. be I'm the trying here, guy always you

Thanks.

tariff battles lot about So, I Brits what's not the on pretty for Brexit/euro, there? London. optimistic the between on may be for you're But the or which overall world? U.S., from solved. in what going may the back gave a economy A what's saying the are but feel going there you outlook mean,

they about there's is year the concerns, Brexit some year say table. with ago, friends be do chance to follow A we'll our to means to consternation It's deal if Brexit ago. now that a wants around then than was want their My they don't if sit Europe any talk make this follow you have trade what because even there basically they trade fear the a a any then more I interesting okay, have is English because rules. and their rules when going the and real free Well, have rulemaking at going to Europe. it's representation happen

be properly and there are going located how got I The going that making a does a concern has you nor will Lloyd's is really are set huge to have industry financial trade do in and huge where Lloyd's we're European trade, up real trade is in that. going concerns. So, think have to sure think we you but to Europe, Now, I we Europe? don't European be some services

it's So, ago a than sure. year picture different a for

So, growth that is of in UK? sort but slower the expectations no recession

I'm not say, would still I booming. an economist. London is

and do this Wales But, My over city, you and is and get when that of it place So, thinking, the is bit you Scotland the UK a out fire. England get if city out don't into slow. God, you're there up I've told of many on the been like, I'd times, leave

you. Thank

Thanks, Bob.

proceed from Please next Zaremski Our Suisse. comes question. the Mike with of line your from Credit question

Hey, good afternoon, gentlemen.

Mike. Hi,

last guess a we have unexpected believe Bob's anything partial a the don't was of leader think the know still in? that guys was management a that transition I I in or question. I is or overseas. follow-up you subsidiary change working a Anything because for interest should to kind There planned into on regards that

That's right. exactly

So, Chily, X.X founders the other you recall Founder of CEO departure his He a with of ago. Re. was role a Chilton, bit for of us. into Grahame stepped we the along had years Capsicum

the That temporary. the be Capsicum to meant always was and Re to handed stepped he associate on baton So, in.

Matson is have announced role. I I'll already. as of Chily back tell that years the over CEO transition we'll fall going not see many basically it's believe take will anywhere, the very, at you And of for been as Capsicum. part the what, And a We Simon many, ahead. team this in smooth leadership, And various him very full-time roles he'll be a

Great. That's Okay. helpful.

but to seems It overall, waves that has in mentioned Next you in us maybe tremendous. wrong. to clearly same been earlier. leverage Can organic I guys risk X% also be equation somewhat growth operating remind don't segment? X.X% in I as it's you could that in think to come of the streaky management or terms the the Doug speak

maybe there improvement there's have would So, it doesn't expected. as seem like I been much as margin

a you said be past, that Yeah. years. business couple little to the inflation. in get closer got It's X% not as above X% now a And with back And But in business. really leverage to go probably and discussed maybe expansion we've to in that's we've bit of of it that. on you wage margin

quite not – geared as So, geared as favorably the it's heavily as segment. brokerage

tech to has an that segment a also It's awful investment. lot have of

out on device. big go a your building that. wants got to spin mobile constantly You're in tech There's be every to always now, offerings, everything everything's

or So, segment is the high of this rest the there the would I for way don't kind Xx segment CapEx to...? know, level be, of a

I we're like, what brokerage proportion side, like X% running it something to X% might versus say, say in wouldn't a be I more as let's spending that. say would No, revenues, X%, that. the

size feet about have question people think this five has increased strong, kind And three trees a is level in of M&A. years guys pipeline se. guys term past we recall And the it. I'm the two, that there been past an you said maybe integrating on Got beyond like have number you shovels high also longer over stronger. that in year I've excellent ground, the lastly, or know one, of a the the done I the per of curious you've just if team. in Okay. well and on doubled on are years. lot the as in I of next force But you've kind the job sandbox

a much? So, feed of where the to able in to point there be kind engine is going the as time opportunities aren't

XXXX. revenue take Well, largest million $XX in I bigger the at a did mean, in July, we're this insurances if United time. the from in one, And total from number broker article you look getting issue number the broker the States XXXth all business

is and of so across globally says believes the for XX,XXX he gets consultants that's not everyone America people, one prominent that He America, And XX,XXX our brokers also never-ending that's one there that firms. million. believes and America agents are which not $XX supply. most in he's think in that and there a that's agents there business Now, do that brokers that is less I that consolidated another than probably that accurate, starts, means that's

fragmentation can the it's supply. market the So absolutely as we as the of see, lack you – for a forward will and is but far have of supply unquenchable, not

to to $X a the continue $X needle at ramp because to million it's out to have needle there. they're move the million we'll continue but million way $X billion harder and the billion, on and whatever, numbers move figure to to Now, out up $X $X deals,

are is pipeline to we And phenomenal. continually Our adding pipeline. that

just don't see I insight. any So,

runway. of Okay, great. quarter. nice and right That's Thanks Plenty thought.

Well, thanks.

much. you Thank very

Our question Please Sachs. Goldman from your next comes of proceed the Kinar question. line from Yaron with

Hi. Good everybody. afternoon,

questions. of couple Just

front. M&A the on First

maybe when through takes standards, on company for specifically of you may brought margin how the margins the M&A a creates what can to sense us give and So, it's get of kind it to headwind long brokerage? be

merge table. And they believe of business, when at we're don't ours. that do businesses one we why are when point they to so They at don't the if just seasonality, is, for people their buy reasons buy have books try not make pay can family, at an family, join retirements, that they're that right. money to that own buying this their but dinner I that you well buy typically to run very community dilutive. for for our dying we annual money family quarterly going don't they we with we are earlier, margin said basis, they of look I Yaron, don't that similar earn Yeah. to turnarounds, that our the earn money can't food, margins It's own

for important And us. so that's

another seasonality. move it has doesn't needle the one way some quarterly so, for And or maybe except

If you acquisitions their earnings. Australia we significant quarterly back the some of in there New was Zealand, when go in and did seasonality some

not And so, in brokerage, even basis. on you'll but from to annual find smaller time, time that an

accretive. are margins times, their Many

from quarter a going So, margin I comment, why explain so out mentioned? that only you're if maybe two guess, back to the does third the as you potentially that acquisitions Doug's I can, headwind calling

Yeah.

that from compression think cost them. third that quarter. think that in And the very margin those I've the integration XX on we basis to the points at of deals, not that little Most I to and it's there's looked mergers it I XX there's integration. do,

that years then would continue still seasonality And into out right? well, as

Yeah, it sometimes, will.

as is thing renewal time they too. to tends move out too customers mix if dates we change with to other The different of it their level business,

have was cash brought to down? previous lower, estimates is just bit that little other the number cash think And as curious on question just you a the Okay. the what little bit a offered tax I you rate, I rate were gave. I than lower which And was

rate taxes if... State the again, as cash tax the the question on

Yeah.

X% for I I the to beyond to think in X%. about past think X% talked about then that. were X% next And talking couple the maybe X% years, you X% So, and you and

Yeah.

why: of that think credits. reason refund the I the AMT get earlier we in here's years, a

be going that to refunded we years. next the are So until, not XXXX credits to us in over receive say, let's were couple to or XXXX cash going

it will future, that basically grows drive And So then, down more EBITDA and credit. our the taxable the in earlier. same income we'll just have as amount of

that the AMT X% five, to least that. between X% I up actually will X% seven bit. at rate And years to I a business, what our rate see But in said, will for that, the So growth afterwards. six, in contribute to like just range creep little that's in getting X%, that and

much. you Thank it. Got very

Thanks, Yaron.

next your from line Gutterman question the of Balyasny. comes question. Ian proceed from Our with Please

Pat, actually buy acquisitions. I that bit the Thanks. have little a but, you from had Yaron it first saying a question follow just the up question, about margins on similar can to surprising numbers I guess, you. things about couple Hi. if I that was

sense, gotten can bigger, have think them. run advantages, bring would that these higher number in you much but yours, I margins those think of have you've make about don't circles capabilities times my are lot recent talked mean of around essentially letting these years words, smaller You've you brokers. I And thought you which in as that a now the a I would over

help that? just me that. I you can by So, reconcile confused got little I guess a

Yeah.

for smaller and the when of been you're thinking think opposite in time a buy have the about we underinvesting may is that they it most broker, resources sense I capabilities. their

be more plans technologies of expectation of kind come process it's might and using little our put them better, the more may our to we costs of technologies the in, when the a robust And opposite So, into there. side typically bit. secure structure thought benefit

maybe do. thing hirers they weren't them that to is have we'll Second producer if willing expect interns, is, do to

bit higher. So, pulled will some it be investment businesses. with into moderates a margin Underinvested down little those

allows them leverage the up recapture But and that maintain then Okay. back to that the can them growth and margin basically. bring spending you

That's right.

Yeah.

Okay. Got it.

Now you. I'm with

Okay.

couple I numbers Doug, had So, of a ones.

I'm EBITDA, the the time. right? at when I adjusted EPS one, brokerage. for reported but EBITDA, having Just be it's just am at I the is reported missing? EPS segment might page doing What than look When less on greater really something But hard brokerage dumb, I X, than look I adjusted the it

All right.

sorry, can Let you at? on just trying your to Where I see me question to page I'm track looking if it. track to X. are

of Yeah, of reported so adjusted the brokerage shows earnings $X.XX $X.XX. versus

Yeah.

negative reported, a few when like to is adjusted the I else page can't to But looks that just get it square. go higher I brokerage, for that's million it negative can't Right? EBITDA find, were the you something like there's than the So, so adjustments. model seems or there EBITDA

Yeah.

earn-outs primarily will acquisition non-cash have EBITDA. in not impact adjust we the change You that Those the items out.

it. Got

Okay.

adjusted there's earn-out. So

right. Right,

Okay.

just Trying why causing corporate, tax reform on the and back just of Okay. time and – the I'll a forgot a can go through get note of I releases similar explanation I is one is allocated? quite is, and again. that think you other quarter. because this couldn't it corporate quarter, what bunch through I impact look me more here last for And that going sort and one from at explain to not the is juggle exactly a it

right. All

biggest elimination there or through repatriation foreign guilty a coming is that's tax the that all, of first causes an is, this of the earnings of tax So, theoretical credit. a one

So, (XX:XX) all those.

the the allocate or tax we would that's segment the that what management in even money, And of the theory the we income. segment. moving fully So countries of brokerage capture world impacts be, credits we space and related treasury in though or if in really corporate the that And also, the any corporate around tax at management the up risk management those produce do risk into statutory is and we don't moneys we that's income brokerage rates the benefiting. repatriate

So, if and annuity lower we management went bonds rate have and that, paying tax the a risk brokerage you'd segment. and tax we weren't on out in bought

of So tax they're kind a quarter, These items ourselves will we on credits there. it. and that, offset penalize like our something million peanuts $X

they And so, a it's just they giveth the of deductions. the some rate bit away taketh on and little on

is XXXX the it or said, thing our And it will permanent continue as second models? you thing just said in now in put the a we is half, this you should

be No, I expense, in $X change forward. about forward, cash our should put a might this for and think book taxes million a going won't a quarter estimate but going that good you that's paid, it

Thank for Perfect. help. Right. you Got it. the

if of going too The of you a some XX initial heavier you first assume two estimates the sheet won't tax off. quarters were a forward, we quarter $X little far balance did reform, because but million our December tweaking because be to

Makes much. sense. you Thank so

the year. $X this is second in half The like million of more true sum

All right. Thanks.

Ian. Thanks,

from with line your from Our Shields proceed question Please next comes the KBW. of Meyer question.

Great. Thanks.

guess, asset. Pat, the acceleration of to growth problem a and Gallagher's, ones. decreases question? workers' about workers' an for trying in filings. it's I'm of not that Just quick claims a think (XX:XX:XX) carriers, couple talked I compensation you Is of compensation that rate

are up. robust exposure more carriers getting I our as well. a they're counts I it's the Well, mean, for units no the because problem But claim don't with think economy,

the as greater doesn't they're line lead been workers' that their as results extent going severity. comp solid. any accounts premium, well, collecting of So, more necessarily rise claim have of And but the to to are

more competition. that always in so, And draws

Yeah. true. Absolutely

Okay.

and that up? forward this we those (XX:XX:XX) Or an operating is picking slightly for forward? of question. inflation Should inflation, sorry. or more look we Second expense to higher is going wage When growth rates model

over commitment We we happening, the in There layers. service that is the especially that's shift professional such our centers some there wage in of to continuing of excellence. excellence. years In offshore XX of skilled made layers centers highly those to last have our by control because inflation significant a out and our associates case, can to

hires also do have can a than we it a that something look or XX just higher that or months we on year So, But XX little a than replacement those has safety is that that. exit. been raise months, if the And in higher little give or months of slightly previous annual valve raise bit we be at, on years. XX is this it

impact. an have does employment Full

Yeah.

about no for and about the lot. I talking that this mean, talent we're that forever around table question a there's we've talked war

doing the XX that have than have X.X% if points. expansion Yeah. We didn't organic margin higher growth you're you probably basis

Thank you. helpful. that's Okay,

Thanks, Meyer.

with from proceed of the John (sic) from comes Please line (XX:XX:XX) question Bank. [Josh] Shanker next your Our Deutsche question.

fitting evening, Good for everybody. Thanks me in.

Josh. Hey,

who acquisitions cap about than and let's follow couple you to a whatnot. and compete that questions just lot, with and fragmentation you I people want talk off it on a are smaller

about taking buy did over two business? in you should do very they X% United large companies always States. And those buy take shares I XXrd taking just need the you back to you One take XXnd competitors the company the this and I it. What talk guys than things? that confirmed insurance bought just and just and Why biggest time growth transaction about announced can't quarter, barriers or of to can't morning, fine. business the are the because And organic that then compete? a your think the Look, brokerage they business that this and compete. How smaller companies the business? think you you are earlier your they Can't

can is because these we fragmented Because that relationship-driven exist owners And convince that because those buy the businesses – a the can very have they they And guys job business them. that reasons works. the brokerage they and do is is business this terrific gals for business. of

all we when have as things, remember in great Doug two like are stream someone, front thought we're folks stream. we're an revenue say have to us buy the We're we earnings So, But of or team, people been win. getting able yes, resources. getting that our time getting likes to getting getting and

about telling and that out we're they any about us gone. thinking come there it, once for so, selling And of up don't them to creating sale and come should be the bones We're they're but firms all make the they some up these time. demand,

hat's brand take we'll likes of a do day. of to franchise, acquisition the it that my a So, the the off you thing recognition, that Wortham, and all great Marsh, was strength

Yeah.

capabilities other a doesn't we stock produce our sits you And share XX piece Josh, comes organizations gearing that really pick in a both overvalued, thing just of our because stock, just at X.X the is we're there it The great that, business and here. own on the is, the broker customers not saying versus they'll buy doesn't, buying trading share buying of our our times, If I'm that next other when shares the if then to, at of of ways. times shelf don't more shares it thing too other but back in, we with another they're up never model get are Gallagher an around just thing globe. ever, interpret is it arbitrage grows,

does smaller Just the value having arbitrage an buying shareholder buying not them at back than greater then and produce shares brokers grow.

works. model it can that out yourself, you so, And

percentage of United to of market by if in right. market something the what impossible you offering the quantify differentiated you out versus look States, their broker the just one there there taking, a the who And haven't at they market to opportunity try, actually then, it's for the about is probably right for the that's being just broker All is controlled client yet? met thing

XX% offering distinguished is not a product.

was I That easier than thought.

some a do in while. here We Yeah. every once work around

guess. our that's So,

Congratulations on much. Okay. great very a quarter. Thank you

Any other questions? Thank you. John.

this time. There further questions are no at

few here. comments let up me a wrap Then, Great. make just brief

XXXX execute we to shareholder and the should great first quarter great create our the of XXXX. said of year beginning, result had value. as a half from a a work This employees across to dedication sustainable our be we terrific the another As second globe. and is at direct on all we strategy hard for Gallagher

organically. We will grow

grow will We mergers and through acquisitions.

We for productivity our fulfilling will all work tenants improve promote XX mission guided of you appreciate we Thank afternoon, us to of and being great will our this the Gallagher a it. statement with and evening. quality, the Way. our unique we Have culture by

This concludes today's conference call.

lines your at You time. may disconnect this