Q3 2023 Arthur J. Gallagher & Co Earnings Call

Speaker 1: Good afternoon and welcome to Arthur J Gallagher and coast 3rd quarter 2023 earnings conference call. Participants have been placed on the listen only mode.

Good afternoon, and welcome to Arthur J, Gallagher and Coast third quarter 2023 earnings Conference call.

Participants have been placed on a listen only mode.

Speaker 1: Your lines will be open for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time.

Your lines will be opened for questions. Following the presentation today's call is being recorded.

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

Speaker 1: Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities law.

Some of the comments made during this conference call, including answers given in response to questions may constitute forward looking statements within the meaning of the securities laws.

Speaker 1: The company does not assume any obligation to update information or forward-looking statements provided on this call.

The company does not assume any obligation to update information or forward looking statements provided on this call.

Speaker 1: Before looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker 1: Please refer to the information concerning forward-looking statements and risk factors sections contained in the company's most recent 10K, 10Q, and 8K filings for more details on such risks and uncertainties.

Please refer to the information concerning forward looking statements and risk factors sections contained in the company's most recent 10-K 10-Q and 8-K filings for more details on such risks and uncertainties.

Speaker 1: In addition, for reconciliations of the non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the investor relations section of the company's website.

In addition for reconciliations of the non-GAAP measures discussed on this call as well as other information regarding these measures. Please refer to the earnings release and other materials in the Investor Relations section of the company's website.

Speaker 1: It is now my pleasure to introduce Jay Patrick Gallagher, Jr., Chairman, President, and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

It is now my pleasure to introduce J, Patrick Gallagher, Jr, Chairman, President and CEO of Arthur J Gallagher and co.

Mr. Gallagher you may begin.

Speaker 2: Good afternoon. Thank you for joining us for our third quarter 23 earnings call.

Good afternoon. Thank you for joining us for our third quarter 23 earnings call.

Speaker 2: On the call for you today is Doug Howell, our CFL, as well as the heads of our operating division.

On the call today is Doug Howell, our CFO as well as the heads of our operating divisions.

Speaker 2: We had an excellent third quarter. For our combined brokerage and risk management segments, we posted 22% growth in revenue.

We had an excellent third quarter for our combined brokerage and risk management segments, we posted 22% growth in revenue.

Speaker 2: 10.5% organic growth, gap earnings per share of $1.72, adjusted earnings per share of $2.35, up 22% year over year, reported net earnings margin of 15.5%, adjusted EBITAC margin of 30.8% up 78 basis.

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5% organic growth GAAP earnings per share of $1 72, adjusted earnings per share of $2 35 up 22% year over year.

Ported net earnings margin of 15, 5% adjusted EBITDA margin of 38% up 78 basis points. We also completed 12 mergers totaling $57 million of estimated annualized revenue another great quarter by the team on all measures.

Speaker 2: We also completed 12 mergers totaling $57 million of estimated annualized revenue. Another great quarter by the team on all may.

Speaker 2: Before I dive into more detail about the quarter and our outlook, I want to make a comment regarding the leadership appointments that were also announced this afternoon.

Before I dive into more detail about the quarter and our outlook I want to make a comment regarding the leadership appointments. There were also announced this afternoon.

Speaker 2: Tom Gallagher will assume the role of president and Patrick Gallagher will become COO, both effective January 1, 2024. These appointments are being made to better position us for the next phase of our growth. And before you ask, I have no plans to retire. I will continue to be CEO and Chairman focused on Gallagher's strategy and global expansion.

Tom Gallagher will assume the role of President and Patrick Gallagher will become CLO, both effective January one 2024.

Appointments are being made to better position us for the next phase of our growth.

And before you ask I have no plans to retire.

Continue to be CEO, and chairman focused on Gallagher's strategy and global expansion in.

Speaker 2: In their future roles, Tom and Patrick will help me lead organic and merger and acquisition growth initiatives, drive operational improvement, and further promote our bedrock culture across the entire organization.

And their future roles town and Patrick will help me lead organic and merger and acquisition growth initiatives drive operational improvement and further promote our bedrock culture across the entire organization.

Speaker 2: This is the best business on the planet. I love my job and believe we are just getting started.

This is the best business on the Planet I Love My job and believe we are just getting started.

Speaker 2: Moving to results on a segment basis, let me give you some more detail on our court's performance, starting with the brokerage segment. Reported revenue growth was 22%. Organic was 9.3%. Acquisition rollover revenues were $153 million. Adjusted EBITAC growth was 23%. And we posted a Adjusted EBITAC margin expansion of about 55 basic...

Moving to results on a segment basis, let me give you some more detail on our quarter's performance starting with the brokerage segment reported revenue growth was 22% organic was nine 3%.

Unknown Executive: Good afternoon, and welcome to Arthur J Gallagher and co. 3rd quarter, 2023 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. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward booking statements within the meaning of the securities law.

The acquisition rollover revenues were $153 million adjusted EBITDA growth was 23% and we posted adjusted EBITDAX margin expansion of about 55 basis points.

Speaker 2: Let me walk you around the world and provide some more detailed commentary on our brokerage organic. And just a level set versus some of our peers, the following figures do not include interest income. Starting with our retail...

Let me walk you around the world and provide some more detailed commentary on our brokerage organic and just to level set versus some of our peers. The following figures do not include interest income.

Unknown Executive: The company does not assume any obligations to update information or forward booking statements provided on this call. These forward booking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward booking statements and risk factors, sections contained in the company's most recent 10K, 10Q and 8K filings for more details on such risks and uncertainties.

Starting with our retail brokerage operations and.

Speaker 2: In our US, PC business underlying organic growth was about 8%. New business production and retention was better than last year.

In our U S PC business underlying organic growth was about 8% new business production and retention was better than last year, while less.

Speaker 2: Non-recurring construction in capital markets business was a bit of a head.

Nonrecurring construction and capital markets business was a bit of a headwind.

Speaker 2: Our UK PC business posted 7% organic with new business production and retention similar to last.

Our UK PC business posted 7% organic with new business production and retention similar to last year.

Unknown Executive: In addition, for reconciliation of the non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the investor relations section of the company's website.

Speaker 2: Our Canadian PC operation was up 10% organically, reflecting solid new business and retention and more modest renewal premium increase.

Canadian P. C operation was up 10% organically, reflecting solid new business and retention and more modest renewal premium increases.

Speaker 2: Rounding out the retail PC business, our combined operations in Australia and New Zealand posted 13% organic. Core new business wins remain excellent and renewal premium increases were ahead of third quarter 22 levels.

Rounding out the retail PC business, our combined operations in Australia, and New Zealand posted 13% organic core new business wins remained excellent and renewal premium increases were ahead of third quarter 'twenty two levels.

Patrick Gallagher: It is now my pleasure to introduce Jay Patrick Gallagher, Jr., Chairman, President and CEO of Arthur J Gallagher and co. Mr. Gallagher, you may begin. Good afternoon. Thank you for joining us for our third quarter 23 earnings call. On the call of the day is Doug Hall, our CFL, as well as the heads of our operating divisions. We had an excellent third quarter. For our combined brokerage and risk management segments, we posted 22% growth in revenue, 10.5% organic growth, gap earnings per share of $1.72, adjusted earnings per share of $2.35, up 22% year over year, reported net earnings margin of 15.5%, adjusted EBDAG margin of 30.8% up 78 basis points. We also completed 12 mergers, totaling $57 million of estimated annualized revenue, another great quarter by the team on all measures.

Speaker 2: Our global employee benefit brokerage and consulting business posted organic of 6% with solid health and welfare results and continued strength across many of our retirement and HR consulting practices.

Our global employee benefit brokerage and consulting business posted organic of 6% with solid health and welfare results and continued strength across many of our retirement and HR consulting practice groups.

Speaker 2: Shifting to our reinsurance wholesale and specialty business.

Shifting to our reinsurance wholesale and specialty businesses.

Speaker 2: Gallagher Rea posted 20% organic thanks to a strong 7-1 renewal.

Gallagher re posted 20% organic thanks to a strong seven one renewal season, another outstanding quarter by the team following an excellent first half.

Speaker 2: Another outstanding quarter by the team following an excellent first half.

Speaker 2: Risk Placement Services, our U.S. wholesale operations posted organic of 7 percent, including a couple point headwind from lower contingent.

Risk placement services, our U S wholesale operations posted organic of 7%, including a couple of point headwind from lower Contingence opened brokerage organic was 13% and organic was about 5% and our MGA programs and binding businesses and finally UK specialty posted.

Speaker 2: Open brokerage organic was 13%, and organic was about 5% in our MJ programs in BINI.

Speaker 2: And finally, UK Specialty posted organic of 18% benefiting from outstanding new business production, strong retention, and continued firm market condition.

Organic of 18% benefiting from outstanding New business production strong retention and continued firm market conditions.

Patrick Gallagher: Before I dive into more detail about the quarter in our outlook, I want to make a comment regarding the leadership appointments that were also announced this afternoon.

Patrick Gallagher: Tom Gallagher will assume the role of President and Patrick Gallagher will become COO, both effective January 1, 2024. These appointments are being made to better position us for the next phase of our growth. And before you ask, I have no plans to retire.

Speaker 2: Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance mark.

Next let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market.

Speaker 2: Global third quarter renewal premiums, which include both rate and exposure changes, were up 10 percent. That's at the top end of the 8 to 10 percent renewal premium change we had been reporting throughout 22 and early 23, and very similar to second quarter renewal premiums adjusting for business.

Global third quarter renewal premiums, which include both rate and exposure changes were up 10%.

At the top end of the 8% to 10% renewal premium change we had been reporting throughout 'twenty two in early 'twenty, three and very similar to second quarter renewal premiums adjusting for business mix.

Patrick Gallagher: I will continue to be CEO and Chairman focused on Gallagher's strategy and global expansion. In their future roles, Tom and Patrick will help me lead organic and merger and acquisition growth initiatives, drive operational improvement, and further promote our bedrock culture across the entire organization. This is the best business on the planet. I love my job and believe we are just getting started.

Speaker 2: Renewal premium increases remain broad-based, up across all of our major geographies and most product lines. For example...

Renewal premium increases remained broad based up across all of our major geographies and most product lines.

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<unk> is up more than 20% general liability is up about 6% workers' comp is up about 2% umbrella and package are each up about 10%.

Speaker 2: General liabilities up about 6%. Workers' cop is up about 2%. I'm Bell and Package are each up about 10%.

Patrick Gallagher: Moving to results on a segment basis, let me give you some more detail on our quarter's performance, starting with the brokerage segment. Reported revenue growth was 22%. Organic was 9.3%. Acquisition role over revenues were $153 million. Adjusted EBITAC growth was 23%, and Justice Points. Let me walk you around the world and provide some more detailed commentary on our brokerage organic. And just a level set versus some of our peers, the following figures do not include interest income.

Speaker 2: Overall, the primary market continues to behave rationally in our view, with carriers pushing for a weight rate where it's needed to generate an acceptable underwriting profit.

Overall, the primary market continues to behave rationally in our view with carriers pushing for weight right, where it's needed to generate an acceptable underwriting profit.

Speaker 2: Remember though, our job as brokers is to help our clients find the best coverage while mitigating price increases. So not all of these premium increases ultimately show up in our organic.

Remember, though our job as brokers is to help our clients find the best coverage, while mitigating price increases so not all of these premium increases ultimately show up in our organic.

Shifting to the reinsurance market.

Speaker 2: Following the orderly July 1st renewal season, all eyes are turning to January renewals. Assuming no major cat events before your end, we believe the property reinsurance market will see adequate capacity, continued firm pricing, rising insured values, and increased demand overall.

Following the orderly July 1st renewal season, all eyes are turning to January renewals, assuming no major cat events before year end, we believe the property reinsurance market will see adequate capacity continued firm pricing rising insured values and increased demand overall.

Patrick Gallagher: Starting with our retail brokerage operations in our U.S. PC business underlying organic growth was about 8%. New business production and retention was better than last year, while less non-recurring construction in capital markets business was a bit of a headwind. Our U.K. PC business posted 7% organic with new business production and retention similar to last year. Our Canadian PC operation was up 10% organically, reflecting solid new business and retention and more modest renewal premium increases.

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Speaker 2: When it comes to casualty, reinsure is a peer to be taken and cautious view of risk. With that said, we believe adequate capacity will be available to support increased demand at firm or price.

When it comes to casualty reinsurers appear to be taking a cautious view of risk, but that said, we believe adequate capacity will be available to support increased demand at firmer pricing.

Speaker 2: Here in the U.S., our retail and reinsurance teams met with more than 25 of our key U.S. insurance carrier partners at the annual CIAB conference earlier this month.

Here in the U S. Our retail and reinsurance teams met with more than 25 of our key U S insurance carrier partners at the annual <unk> Conference earlier this month.

Speaker 2: It remains a tough environment for carriers, dealing with frequency and severity of weather events, including secondary perils, pockets of unfavorable prior year development and casualty lines, higher replacement costs, social inflation, and rising reinsurance costs. So we believe carriers are likely to seek out further renewal premium increases and to maintain their cautious underwriting posture.

It remains a tough environment for carriers dealing with frequency and severity of weather events, including secondary perils pockets of unfavorable prior year development in casualty lines higher replacement costs, social inflation and rising reinsurance costs. So we believe carriers are likely to seek out further renewal premium.

Patrick Gallagher: Rounding out the retail PC business our combined operations in Australia and New Zealand posted 13% organic. Core new business wins remain excellent and renewal premium increases were ahead of third quarter 22 levels. Our global employee benefit brokerage and consulting business posted organic of 6% with solid health and welfare results and continued strength across many of our retirement and HR consulting practice groups. Shifting to our reinsurance wholesale and specialty businesses gallery posted 20% organic thanks to a strong 7.1 renewal season and other outstanding quarter by the team following an excellent first half.

Increases and to maintain their cautious underwriting posture.

Speaker 2: Moving to our customers business activity, overall it continues to be more resilient than headlines would suggest, and we continue to characterize it as strong.

Moving to our customers' business activity.

Overall, it continues to be more resilient than headlines would suggest and we continue to characterize it as strong during.

Speaker 2: During the third quarter, our daily indications showed year-over-year increases in positive mid-year policy endorsements and audits.

During the third quarter, our daily indications showed year over year increases in positive mid year policy endorsements and audits.

Speaker 2: Additionally, the U.S. labor market remains strong, with continued growth in U.S. nonfarm payrolls and a wide gap between the amount of job openings and the number of people unemployed and looking for work.

Additionally, the U S labor market remains strong with continued growth in U S nonfarm, payrolls and a wide gap between the amount of job openings and the number of people unemployed and looking for work.

Patrick Gallagher: Risk placement services our U.S, wholesale operations posted organic of 7% including a couple point headwind from lower contingents. Open brokerage organic was 13% and organic was about 5% in our M.J, programs and binding businesses. And finally U.K, specially posted organic of 18% benefiting from outstanding new business production strong retention and continued firm market conditions.

Speaker 2: We also just passed the six-month mark of the Buck acquisition and the team is off to a fantastic start with integration on track and financial performance in line with our expectations and I am most pleased with how the teams have come together to better serve our clients.

We also just passed the six month Mark of the Buck acquisition and the team is off to a fantastic start with integration on track and financial performance in line with our expectations and I am most pleased with how the teams have come together to better serve our clients. So I believe our HR consulting REIT.

Speaker 2: So I believe our HR Consulting, Retirement and Benefits business is well positioned headed into the 2024 enrollment period.

Patrick Gallagher: Next let me provide some thoughts on the PC insurance pricing environment starting with the primary insurance market. Global third quarter renewal premiums which include both rate and exposure changes were up 10%. That's at the top end of the 8% to 10% renewal premium change we had been reporting throughout 22 and early 23 and very similar to second quarter renewal premiums adjusting for business mix. Renewal premium increases remain broad based up across all of our major geographies and most product lines.

<unk> and benefits business is well positioned headed into the 'twenty 'twenty four enrollment period.

Speaker 2: So, bringing it all together, as we sit here today, we see full year brokerage organic in the upper eights and pushing towards nine percent. Posting that would be another fantastic year. Let me move on.

So, bringing it altogether as we sit here today, we see full year brokerage organic in the upper eights and pushing towards 9% posting that would be another fantastic year.

Let me move onto mergers and acquisitions we.

Speaker 2: We had an active third quarter, completing 12 new tuck-in brokerage mergers, representing about $57 million, of estimated annualized revenues.

We had an active third quarter, completing 12, new tuck in brokerage mergers representing about $57 million of estimated annualized revenue.

Speaker 2: I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals.

I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals.

Patrick Gallagher: For example, property is up more than 20%. General liabilities up about 6%. Workers cop is up about 2%. I'm valid package are each up about 10%. Overall the primary market continues to behave rationally in our view with carriers pushing for weight rate where it's needed to generate an acceptable underwriting profit. Remember though our job is brokers is to help our clients find the best coverage while mitigating price increases. So not all these premium increases ultimately show up in our organic.

Speaker 2: We also recently signed definitive agreements to acquire the insurance brokerage operations of Eastern Bank and Caden's Bank, with total pro forma annualized revenue towards $275 million.

We also recently signed definitive agreements to acquire the insurance brokerage operations of Eastern Bank and cadence bank with total pro forma annualized revenue towards $275 million Bill.

Speaker 2: Building on our success from the 2022 M&T Bank transaction, we are extremely excited about these mergers and believe these two regional banks have built brokerage businesses that operate and feel a lot like us.

Building on our success from the 2022 <unk> Bank transaction, we're extremely excited about these mergers and believe these two regional banks have built brokerage businesses that operate and feel a lot like us.

Speaker 2: And if that isn't exciting enough, we also have a very strong merger pipeline. Excluding these two pending mergers, we have around 45 term sheets signed or being prepared, representing more than $450 million of annualized revenue.

And if that isn't exciting enough. We also have a very strong merger pipeline.

Patrick Gallagher: Shifting to the reinsurance market Following the orderly July 1st renewal season, all eyes are turning to January renewals. Assuming no major cat events before your end, we believe the property reinsurance market will see adequate capacity, continued firm pricing, rising insured values, and increased demand overall. When it comes to casualty, reinsurance appear to be taking a cautious view of risk. With that said, we believe adequate capacity will be available to support increased demand at firm or pricing.

Excluding these two pending mergers we have around 45 term sheets signed or being prepared representing more than $450 million of annualized revenue.

Speaker 2: And we know all these won't ultimately close, but we believe we'll get our fair share.

Now all these won't ultimately close but we believe we'll get our fair share.

Speaker 2: Moving on to our risk management segment, Gallagher Bassett, third quarter organic growth was 17.9% ahead of September expectations due to continued growth in claim counts and new business from 22 new business wins.

Moving on to our risk management segment Gallagher Bassett.

Third quarter organic growth was 17, 9% ahead of September expectations due to continued growth in claim counts.

And new business from 'twenty to new business wins, we still expect to grow over these wins by double digits during the fourth quarter due to our superior client offerings, some smaller new business wins in 'twenty, three and continued growth in claim activity.

Patrick Gallagher: Here in the U.S., our retail and reinsurance teams met with more than 25 of our key U.S, insurance carrier partners at the annual CAB conference earlier this month. It remains a tough environment for carriers, dealing with frequency and severity of weather events, including secondary perils, pockets of unfavorable prior year development and casualty lines, higher replacement costs, social inflation, and rising reinsurance costs. So we believe carriers are likely to seek out further renewal premium increases and to maintain their cautious underwriting posture.

Speaker 2: We still expect to grow over these wins by double digits during the fourth quarter due to our superior client offerings, some smaller new business wins in 23, and continued growth in claim activity.

Speaker 2: third quarter adjusted EBITDAG margin of 20.4% was strong and in line with our September expectation. Looking forward, we see full year 2023 organic above 15% and adjusted EBITDAG margins pushing 20%. And that would be another fantastic year.

Third quarter adjusted EBITDAX margin of 24% was strong and in line with our September expectation.

Looking forward, we see full year 'twenty through organic above, 15% and adjusted EBITDAX margins, pushing 20% and that would be another fantastic year.

Speaker 2: And I'll conclude with some comments regarding our bedrock culture.

And I'll conclude with some comments regarding our bedrock culture.

Patrick Gallagher: Moving to our customer's business activity, overall, it continues to be more resilient than headlines would suggest, and we continue to characterize it as strong. During the third quarter, our daily indications showed year-over-year increases in positive mid-year policy endorsements and audits. Additionally, the U.S, labor market remains strong. With continued growth in U.S, non-farm payrolls and a wide gap between the amount of job openings and the number of people unemployed and looking for work.

Speaker 2: A few weeks ago, I had the pleasure to visit our associates in our India Gallagher Center Vex.

A few weeks ago I had the pleasure to visit our associates in our India Gallagher Center of Excellence was awesome to see our team in action again, the energy the excitement and relentless pursuit of improvement is thriving amount on our 10000 colleagues.

Speaker 2: was awesome to see our team in action again. The energy, the excitement, and relentless pursuit of improvement is thriving among our 10,000 colleagues.

Speaker 2: It's a huge competitive advantage for us because we can take a process, streamline and standardize it and then move it to our centers of excellence. Once there, the process is refined even further. And then we make the service available to all our geographies. At the same time, we are refining, automating, deploying robotics and using AI. We are a machine that is driving out rework, improving turnaround times, and raising our quality.

It's a huge competitive advantage for us because we can take a process streamline and standardize it and then move it to our centers of excellence once there the processes refined even further and then we make this service available to all our geographies at the same time, we are refining automating deploying robotics and.

Patrick Gallagher: We also just passed the six-month mark of the buck acquisition and the team is off to a fantastic start. With integration on track and financial performance in line with our expectations, and I am most pleased with how the teams have come together to better serve our clients. So I believe our HR consulting, retirement and benefits businesses well-positioned headed into the 2024 enrollment period.

Using AI.

We are a machine that is driving out rework, improving turnaround times and raising our quality Andrew.

Speaker 2: And remember, we don't outsource these important roles, rather these full-time Gallagher employees who represent the very best service and support professionals who are passionate about our customers and have a culture of constant improvement, which is the Gallagher way.

And remember we don't outsource these important roles rather these full time Gallagher employees represent the very best service and support professionals, who are passionate about our customers and have a culture of constant improvement, which is the Gallagher way.

Patrick Gallagher: So bringing it all together, as we sit here today, we see full-year brokerage organic in the upper eights and pushing towards 9%, posting that would be another fantastic year.

Speaker 3: Okay, I'll stop now and turn it over to Doug. It was a great quarter. Doug over to you. All right. Thanks, Pat. And hello, everyone. Today, I'll walk through third quarter organic and margins by segment, make some comments about how we see the fourth quarter shaping up and provide some early thoughts on full year 24. Then I'll provide some comments on our typical modeling helpers using the CFO commentary document that we post on our website. And I'll conclude my prepared remarks with a few comments and cash, M&A and capital model man.

Okay, I'll stop now and turn it over to Doug It was a great quarter, Doug over to you alright, Thanks, Pat and Hello, everyone.

Today, I'll walk through the third quarter organic and margins by segment make some comments about how we see the fourth quarter shaping up and provide some early thoughts on full year 'twenty four.

Patrick Gallagher: Let me move on to mergers and acquisitions. We had an active third quarter, completing 12 new tuck-in brokerage mergers, representing about $57 million of estimated annualized revenue. I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals. We also recently signed definitive agreements to acquire the insurance brokerage operations of Eastern Bank and Cadence Bank, with total performance annualized revenue towards $275 million.

Then I'll provide some comments on our typical modeling helpers using the CFO commentary document that we posted on our website and I'll conclude my prepared remarks with a few comments on cash M&A and capital management.

Speaker 3: Okay, let's flip to page three of the earnings release. All in brokerage organic of 9.3%, which as a reminder does not include interest income like some of our peers report. Organic including interest income would be about 12.

Okay, let's flip to page three of the earnings release, all in brokerage organic of nine 3%, which as a reminder, does not include interest income like some of our peers report organic including interest income would be about 12%.

Patrick Gallagher: Building on our success from the 2022 M&T Bank transaction, we are extremely excited about these mergers and believe these two regional banks have built brokerage businesses that operate and feel a lot like us. Yes. And if that isn't exciting enough, we also have a very strong merger pipeline. Excluding these two pending mergers, we have around 45 term sheets signed for being prepared, representing more than 450 million dollars of annualized revenue. And we know all of these won't ultimately close, but we believe we'll get our fair share.

Speaker 3: a few sound bites. First in total, we came in a little bit better than we foreshadowed at our September IR day due to really strong results from re-insurance and London Special.

Few soundbites first in total we came in a little bit better than we foreshadowed at our September IR day due to a really strong results for reinsurance in London specialty.

Speaker 3: Second, base commission and fee organic was strong at 9.6%.

Second base Commission and fee organic was strong at nine 6%.

Speaker 3: Third, supplemental contingents together up 5%. At our IRG, we flagged some softness, mostly related to the Maui fires. Since then, we have also seen a very slight uptick and expected insurance carrier loss ratios that also had a modest, unfavorable impact to our...

Our supplemental and contingents together up 5% at our IR day, we flagged sort of softness mostly related to the amount. We fires. Since then we have also seen a very slight uptick unexpected insurance carrier loss ratios that also had a modest unfavorable impact to organic.

Speaker 3: Regardless, 9.3% in total without interest income, 12% with, both are fantastic results for the quarter.

Regardless of nine 3% in total without interest income, 12% with both a fantastic results for the quarter.

Patrick Gallagher: Moving on to our risk management segment, Gallagher Basis. Third quarter organic growth was 17.9%. Ahead of September expectations due to continued growth in claim counts and new business from 22 new business wins. We still expect to grow over these wins by double digits during the fourth quarter due to our superior client offerings, some smaller new business wins in 23 and continued growth in claim activity. Third quarter adjusted EBITAC margin of 20.4% was strong and in line with our September expectation.

One special mentioned.

Speaker 3: have discussed that global renewal premium increases we were seeing around 10% this quarter and on the surface it might appear this increases a bit lower maybe about a point from what we said in September and also from second quarter

Just guys that global renewal premium increases we are seeing around 10% this quarter and on the surface. It might appear this increases a bit lower maybe about a point from what we said in September and also from the second quarter.

Speaker 3: It's important to note, when we look at our data by line and customer, and then adjust for MIX, the renewable premium increases for the third quarter are very similar to second.

Important to note when we look at our data by line and customer and then adjust for mix the renewal premium increases for the third quarter are very similar to second quarter. So please don't interpret that there has been any meaningful shift in the market. We're just not seeing that.

Speaker 3: So please don't interpret that there has been any meaningful shift in the market. We're just not seeing.

Patrick Gallagher: Looking forward, we see full year 23 organic above 15% and adjusted EBITAC margins pushing 20% and that would be another fantastic year.

Speaker 3: Looking ahead to Q4 organic, over the last year we have reminded that we have an accounting headwind to overcome. We call in Q422, we booked a change in estimate related to our 606 deferred revenue accounting. That will now create a more difficult...

Looking ahead to Q4 organic over the last year. We are reminded that we are in accounting headwind to overcome recall in Q4 'twenty two we booked a change in estimate related to our 606 deferred revenue accounting that will now create a more difficult compare call that about a point of organic.

Patrick Gallagher: And I'll conclude with some comments regarding our bedrock culture. A few weeks ago, I had the pleasure to visit our associates in our India Gallagher Center of Excellence. It was awesome to see our team in action again, the energy, the excitement and relentless pursuit of improvement is thriving among our 10,000 colleagues. It's a huge competitive advantage for us because we can take a process, streamline and standardize it and then move it to our centers of excellence.

Speaker 3: Call that about a point of organic headwind. Again, no news here, but just a reminder as you update your model.

Again, no new news here, but just a reminder, as you update your models controlling for that we see fourth quarter.

Speaker 3: Controlling for this, we see fourth quarter underlying organic growth approaching 9%. But the headline might look more like it.

Underlying organic growth approaching 9%, but the headline.

More like 8%, if we promise that that would mean full year brokerage organic in the upper eights pushing towards 9% again. These percentages do not include an interest income what a great year that would be.

Speaker 3: If we pose that, that would mean four-year brokerage organic and the upper eight pushing towards 9%. Again, these percentages do not include an interesting kind. What a great year, that was.

Patrick Gallagher: Once there, the process is refined even further and then we make the service available to all our geographies. At the same time, we are refining, automating, deploying robotics and using AI. We are a machine that is driving out rework, improving turnaround times and raising our quality. And remember, we don't outsource these important roles, rather these full time Gallagher employees who represent the very best service and support professionals who are passionate about our customers and have a culture of constant improvement, which is the Gallagher way.

Speaker 3: Clip now to page five of the orange release to the brokerage segment adjusted EBITAC table. We posted adjusted EBITAC margin of 32.4% for the quarter. That's up 55 basis points over a third quarter, 22's FX adjusted margin. That's great work by the team to end up a bit better than our September IR Day expectation.

Flip now to page five of the earnings release to the brokerage segment adjusted EBITDA table, we posted adjusted EBITDAX margin of 32, 4% for the quarter, that's up 55 basis points over third quarter 'twenty Two's FX adjusted margin that's great work by the team to end up a bit better than our September IR day.

<unk> expectations.

Speaker 3: Looking at margins like a bridge from Q322, organic gave us 80 points of expansion. Incremental and interesting income gave us 90 basis points. Bowling M&A mostly bucked, which naturally runs at lower margins, impacted it by about 65.

Looking like looking at margins like a bridge from Q3 'twenty two organic gave US 80 points of expansion incremental interest income gave us 90 basis.

Patrick Gallagher: Okay, I'll stop now and turn it over to Doug.

Douglas Howell: It was a great quarter, Doug over to you. All right, thanks Pat and hello everyone. Today I'll walk through third quarter organic and margins by segment, make some comments about how we see the fourth quarter shaping up and provide some early thoughts on full year 24. Then I'll provide some comments on our typical modeling helpers using the CFO commentary document that we post on our website. And I'll conclude my prepared remarks with a few comments and cash, M&A and capital management.

Olin M&A M&A, mostly box, which naturally runs at lower margins impacted it by about 65 basis points. We also made incremental technology investments called out about $7 million and had some continued inflation on TNT called out about $3 million, which in total used about 50 basis points followed that bridge.

Speaker 3: We also made incremental technology investments called that about $7 million and have some continued inflation on T&E called that about $3 million, which in total used about 50 base.

Speaker 3: Follow that bridge and the math gets you close to that 55 basis point of effects adjusted margin expansion in the third quarter.

And the math gets you close to that 55 basis points of FX adjusted margin expansion in the third quarter.

Douglas Howell: Okay, let's flip to page three of the earnings release, all in brokerage organic of 9.3%, which as a reminder does not include interest income like some of our peers report. Organic including interest income would be about 12%. A few sound bites. First in total, we came in a little bit better than we foreshadowed at our September IR Day due to really strong results from re-insurance and London specialty. Second, base commission and fee organic was strong at 9.6%.

Speaker 3: As for our Justice David Ack Margin, Outlook for the fourth quarter, we expect about 40 to 50 basis points of expansion.

As for our adjusted EBITDAX margin outlook for the fourth quarter, we expect about 40% to 50 basis points of expansion and remember that's off of fourth quarter 22 margins re computed at current FX levels. However, unlike the past few quarters, where FX created some noise.

Speaker 3: And remember, that's all from 4th quarter, 22 margins, recombuted at current FX.

Speaker 3: However, unlike the past few quarters where FX created some noise, we're fortunate that now there's not much impact to consider, so much easier to model. If we deliver on that, full year 23 would show margins expanding 30 to 40 basis points or 80 to 90 basis points, levelizing for the rolling impact above. That would be a terrific.

Douglas Howell: Third, supplemental contingents together up 5 percent. At our IRG, we flagged some softness mostly related to the Maui fires. Since then, we have also seen a very slight uptick in expected insurance carrier loss ratios that also had a modest, unfavorable impact to organic. Regardless, 9.3 percent in total without interest income, 12 percent with both are fantastic results for the quarter. One special mention, has discussed that global renewal premium increases, we were seeing around 10 percent this quarter, and on the surface, it might appear this increases a bit lower, maybe about a point, from what we said in September, and also from second quarter.

We're fortunate that now there is not much impact to consider so much easier to model. If we deliver on that full year 'twenty three would show margins expanding 30 to 40 basis points or 80 to 90 basis points localized them for the rolling impact of what that would be a terrific year.

Speaker 3: Looking ahead to next year, we are just beginning our budgeting process. But our very early thinking is that we're seeing organic in that seven to nine percent range. As for margins, we would anticipate seeing some margin expansion starting at four percent or in organic growth. And perhaps if we hit seven percent, call it around 50 basis point to the expansion.

Looking ahead to next year, we are just beginning our budgeting process and but our early or very early thinking is that organic that we're seeing organic in that 7% to 9% range as for margins. We would anticipate seeing some margin expansion starting at 4% organic growth and perhaps if we hit 7%.

Call it around 50 basis points of expansion.

Speaker 3: And also one other modeling heads up. Please don't forget, first quarter 24 margins will have a slightly tougher year over year compare since Buck will still be rolling into our results.

And also one other modeling.

<unk>. Please don't forget first quarter 'twenty four margins will have a slightly tougher year over year compare since back we'll still be rolling into our results.

Speaker 3: Okay, let's move on to the risk management segment and the organic and EBITAC tables on page 5 and 6.

Okay, let's move on to the risk management segment, and the organic and EBITDAX tables on page five and six.

Douglas Howell: It's important to note, when we look at our data by line and customer, and then adjust for MIX, the renewal premium increases for the third quarter are very similar to second quarter. So, please don't interrupt that there has been any meaningful shift in the market. We're just not seeing that. Looking at the Q4 organic, over the last year, we have reminded that we have an accounting headwind to overcome. We call in Q422, we booked a change announcement related to our 606-deferred revenue accounting.

Speaker 3: a really strong finish to the third quarter, 17.9% organic growth and margins at 20.4%. As Pat mentioned, we continue to benefit from higher claim-counselated new business wins from the second half of 22.

A really strong finish to the third quarter 17, 9% organic growth and margins at 24%.

As Pat mentioned, we continued to benefit from higher claim counts related new business wins from the second half of 'twenty two.

Speaker 3: Looking forward, we see organic in the fourth quarter, around 13%, and margins just above 20%. Organic does reflect the laughing of last year's newer large business wins, and margins remain terrific. So if we deliver on that, four-year organic would be above 15%, and margins pushing 20%. That would be another record year for Gallagobas.

Going forward, we see organic in the fourth quarter around 13% and margins just above 20% organic does reflect the lapping of last years newer large business wins and margins remained terrific. So if we deliver on that full year organic would be above 15% and margins pushing 20% that would be another record year for <unk>.

Douglas Howell: That will now create a more difficult compare. Call that about a point of organic headwind. Again, no news here, but just a reminder as you update. Controling for this, we see fourth quarter underlying organic growth approaching 9 percent, but the headline might look more like 8 percent. If we post that, that would mean four-year brokerage organic in the upper eights pushing towards 9 percent. Again, these percentages do not include interest income.

Gallagher Bassett.

Speaker 3: Looking ahead to four year 24, our early thinking is pointing towards nine to 11% organic and margins around 20%.

Looking ahead to full year 'twenty for our early thinking is pointing towards 9% to 11% organic and margins around 20%.

Okay, Let's turn to page seven of the earnings release in the corporate segment shortcut table.

Speaker 3: Okay, let's start page seven of the earnings release and the corporate segment shortcut table. In total, a just third quarter came in three cents better than the midpoint of the range we provided during our September IR. There is more.

Total adjusted third quarter came in <unk> <unk> better than the midpoint of the range. We provided during our September IR day, two reasons first lower borrowings on our line of credit at summit and M&A opportunities were pushed into October and November and second lesser FX Remeasurement has headwinds.

Douglas Howell: What a great year that would be. Flip now to page five of the earnings release to the brokerage segment, adjusted EBITAC table. We posted an adjusted EBITAC margin of 32.4 percent for the quarter. That's up 55 basis points over third quarter 22s, FX adjusted margin. That's great work by the team to end up a bit better than our September IRG expectations. Looking at margins like a bridge from Q322, organic gave us 80 points of expansion.

Speaker 3: Two reasons. First, more barrings on our line of credit as some of the M&A opportunities were pushed into October in November . And second, lesser FX remeasurement has had.

Speaker 3: Let's move down to the CFO commentary document to page 3. A couple of things versus our September IR day.

Let's move now to the CFO commentary document to page three a couple of things versus our versus our September IR day estimates.

Speaker 3: Third, you'll see third quarter amortization expense is better by $7 million. But remember, this is non-cash and doesn't impact adjusted EVA or adjusted EPS. This was simply due to balance sheet truups when we get our third party M&A valuation.

You will see third quarter amortization expense is better by $7 million, but remember this is noncash and it doesn't impact adjusted EBITDA, nor adjusted EPS.

Douglas Howell: Incremental interest income gave us 90 basis points. Poland M&A mostly bucked, which naturally runs at lower margins, impacted it by about 65 basis points. We also made incremental technology investments, called that about $7 million, and had some continued inflation on T&E, called that about $3 million, which in total used about 50 basis points. Follow that bridge and the math gets you close to that 55 basis points of FX adjusted margin expansion in the third quarter.

Due to balance sheet true ups, when we get our third party M&A valuations.

Speaker 3: Then you'll also see depreciation is a touch higher by $2 million, but that is offset by change in acquisition earnouts, which is lower by $2 million, so no net impact there.

And you'll also see depreciation is a touch higher by $2 million, but that is offset by change in acquisition earn outs, which is lower by $2 million. So no net yeah, no net impact there.

Speaker 3: Looking at the head, we've updated our fourth quarter numbers and footnotes, so just do a double check of your models. And we'll also update this page again during our December IR day and give you a first look at 2024.

Looking at had we've updated our fourth quarter numbers in footnotes. So just do a double check of your models and we will also update this page again during our December IR day, and give you a first look at 2024 numbers.

Douglas Howell: As for our adjusted EBITAC margin outlook for the fourth quarter, we expect about 40 to 50 basis points of expansion. And remember, that's off of fourth quarter 22 margins, recomputed at current FX levels. However, unlike the past few quarters, where FX created some noise, we're fortunate that now there's not much impact to consider so much easier to model. If we deliver on that 4-year 23, which shows margins expanding 30 to 40 basis points, or 80 to 90 basis points, levelizing for the role and impact of both, that would be a terrific...

Flip over to page four of the CFO commentary document.

Speaker 3: Flip over to page four of the CFO commentaries, document. To the corporate segment, I'll look for the fourth quarter. Only real movement is that Q4 interest in banking expenses up a vet, reflecting more anticipated borrowing.

Corporate segment outlook for the fourth quarter only real movement is that Q4 interest and banking expenses off of that reflecting more anticipated borrowing.

Speaker 3: Moving to page 5, this is the page that shows our tax credit carry forward. As of September 30, we have about $670 million available. A nice, future cash flow sweetener that helps fund future M&A. When you turn to page 6, you'll see the Roll Over Revenue Table for third quarter. The Roll Over Revenue is for the third quarter, we're $153 million.

Moving to page five this is a page that shows our tax credit carry forwards as of September 30, we have about $670 million available a nice future cash flow sweetener that helps fund future M&A.

When you turn to page six you'll see the rollover revenue table for third quarter.

Douglas Howell: Looking ahead to next year, we are just beginning our budgeting process. But our early, very early thinking is that organic, we're seeing organic in that seven to nine percent range. As for margins, we were to anticipate seeing some margin expansion starting at four percent or in organic growth. And perhaps if we hit seven percent, call it around fifty basis point of expansion. And also one other modeling heads up, please don't forget.

Rollover revenues for the third quarter were $153 million, that's a little better than our IR day expectation, mostly due notably to one merger that really hit it out of the park during the second half of September It really shows you the potential upside mergers can see after joining gallagher.

Speaker 3: That's a little better than our IRD expectation, mostly due notably to one merger that really hit it out of the park during the second half of September . It really shows you the potential outside. Mergeries can see after joining Gallup.

Speaker 3: Looking forward, we have included estimated revenues for M&A closed and announced through yesterday. That's important to note. These numbers already include expected revenues from Eastern and Cadence. We've assumed that we've assumed a mid-fourth quarter closing date, so please don't double count. And also, as we always say, please don't forget you need to make a pick for future M&A also.

Going forward. We have included estimated revenues for emanate closed and announced through yesterday. That's important to note. These numbers already include expected revenues from eastern and cadence we've assumed.

Douglas Howell: First quarter twenty four margins will have a slightly tougher year over year compare since buck will still be rolling into our results. Okay, let's move on to the risk management segment and the organic and EBITAC tables on page five and six. A really strong finish to the third quarter, 17.9% organic growth and margins at 20.4%. As Pat mentioned, we continue to benefit from higher claim counselated new business wins from the second half of 22.

We've assumed a mid fourth quarter closing date. So please don't double count.

And also as we always say please don't forget you need to make a pick for future M&A also.

In terms of funding M&A.

Speaker 3: First, available cash on hand at September 30th was around $550 million.

First available cash on hand at September 30 was around $550 million.

Speaker 3: Second, our fourth quarter is historically a very strong cash flow quarter. Third, we currently have nothing outstanding in our line of credit, so we can use that or do a bond offering. And finally, if we close a lot of the tuck-in M&A pipeline that Pat discussed before year-end, we may use a small amount of stock, but call it a couple hundred million dollars.

Our fourth quarter is historically, a very strong cash flow quarter.

Third we currently have nothing outstanding on our line of credit. So we can use that or do a bond offering and finally, if we closed a lot of the tuck in M&A pipeline that Pat discussed before year end, we may use a small amount of stock but call. It a couple of hundred million dollars.

Douglas Howell: Looking forward, we see organic in the fourth quarter, around 13% and margins just above 20%. Organic does reflect the laughing of last year's newer large business wins and margins remain terrific. So if we deliver on that for your organic would be above 15% and margins pushing 20% that would be another record year for Gallagher Bassett. Looking ahead to full year twenty four, our early thinking is pointing towards nine to 11% organic and margins around 20%.

Speaker 3: As we consider these alternatives, we're always being very mindful of maintaining our solid investment grade rating also.

As we consider these alternatives, we're always being very mindful of maintaining our solid investment grade rating also.

Speaker 3: As for 2024, we are currently estimating about $3.5 billion of capacity to fund future M&A using only free cash and incremental borrowing.

As for 2024, we are currently estimating about $3 $5 billion of capacity to fund future M&A, using only free cash and incremental borrowings.

Douglas Howell: Okay, let's turn to page seven of the earnings release and the corporate segment shortcut table in total adjusted third quarter came in three cents better than the midpoint of the range we provided during our September IR day. Two reasons. First, lower borrowing on our line of credit as some of the M&A opportunities were pushed into October and November and second, lesser FX remeasurement has had wins. Let's move down to the CFO commentary document to page three.

Speaker 3: Okay, those are my comments. Another fantastic quarter by the team. It's looking like another fantastic year. Congratulations to Patrick and Tom on their new roles. We have terrific momentum taking us into 24. Back to you.

Okay.

For my comments, another fantastic quarter by the team. It is looking like another fantastic year, congratulations to Patrick and time on their on their new roles. We have terrific momentum taking us into 'twenty four back to you Pat.

Speaker 2: Okay, I think we're ready for some questions and answers. I'm ready, we open it up. Thank you. The call.

Okay, I think we're ready for some questions and answers operator would you open it up.

Thank you the call is now open for questions.

Speaker 1: If you have a question, please pick up your handset and press star one on your telephone.

Douglas Howell: A couple of things versus versus our September IR day estimates. Third, you'll see third quarter amortization expense is better by seven million dollars. But remember, this is non cash and doesn't impact adjusted even at nor adjusted EPS. This was simply due to balance sheet true ups when we get our third party M&A valuations. Then you also see depreciation is a touch higher by two million, but that is offset by changing acquisition earnouts, which is lower by two million.

If you have a question please pickup your handset and press star one on your telephone at this time.

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Speaker 1: Our first question comes from the line of Rob Cox with Goldman Sachs.

Our first question comes from the line of Rob Cox with Goldman Sachs.

Please proceed with your question.

Speaker 4: Hey guys, thanks for the look on the organic growth for 2024. Just curious, you had previously mentioned that you didn't think there would be that much of a difference in sort of the, you know, different areas within the business growing at different rates. I'm curious if you have any updated thoughts on how different businesses may perform in 2024 versus 2023.

Douglas Howell: So no net, no net impact there looking at had we've updated our fourth quarter numbers and footnotes. So just do a double check of your models and we'll also update this page again during our December IR day and give you a first look at 2024 numbers. Flip over to page four of the CFO commentaries document to the corporate segment outlook for the fourth quarter. Only real movement is that Q4 interest and banking expenses up a bit reflecting more anticipated borrowing.

Hey, guys. Thanks.

Thanks for the outlook on the organic growth.

For 2024, just curious you had previously mentioned that you didn't think there would be that much of a difference in sort of the.

Different areas within the business growing at different rates I'm curious if you have any updated thoughts on on how different businesses may perform in 2024 versus 2023.

Speaker 3: Well, thanks for that. I think let us get through the budget process here. We'll have more for you other December IR Day. But right now, we're not seeing anything significantly different kind of across the portfolio of operations. But it's going to roll up somewhere into that seven to nine percent range as we're looking at it.

Thanks for that I think let us get through the budget process here, we will have more for you at our December IR day, but right now we're not seeing anything significantly different kind of across the portfolio of operations, but its gonna roll up somewhere into that 7% and 9% range is as we're looking at it now.

Douglas Howell: Moving to page five, this is the page that shows our tax credit carry forward. As of September 30, we have about $670 million available. A nice future cash flow sweetener that helps fund future M&A. When you turn to page six, you'll see the roll over revenue table for third quarter, the roll over revenues for the third quarter were $153 million. That's a little better than our IR day expectation mostly due to notably to one merger that really hit it out of the park during the second half of September.

Speaker 4: Okay, got it. Thank you. And then just on the 2024 margin expansion of 50 BIPs, if you could achieve 7%, just curious on if that includes impacts from investment income or, you know, maybe a potential slight uplift from some of these

Okay got it. Thank you and then just on the 2020 for margin expansion.

50 bps, if you could achieve 7%.

Just curious.

And if that includes impacts from investment income or maybe a potential slight uplift from some of these.

Douglas Howell: It really shows you the potential outside mergers can see after joining Gallup. Looking forward, we have included estimated revenues for M&A closed and announced through yesterday. That's important to note, these numbers already include expected revenues from eastern and cadence. We've assumed that we've assumed a mid-fourth quarter closing date, so please don't double count. And also, as we always say, please don't forget, you need to make a pick for future M&A also.

Speaker 3: higher margin acquisitions you've done recently.

Higher margin acquisitions, you've done recently alright.

Alright, so three things in there on that right now the way I got to that number.

Speaker 3: doesn't assume much incremental lift from investment income.

Didn't assume much.

Incremental lift from investment income.

Speaker 3: It does assume a little bit of a drag from one quarter of buck rolling into our numbers that naturally runs lower margins. But by and large, maybe those two offset each other a little bit and maybe there's a little extra rolling impact from M&A from buck. The rest of the M&A that we're planning on in our outlook for next year comes in pretty close at the same margins that we're at.

It does assume a little bit of a drag from one quarter of Buck rolling into our numbers that naturally runs lower margins, but by and large maybe.

Douglas Howell: In terms of funding M&A, first, available cash on hand at the September 30th was around $550 million. Second, our fourth quarter is historically a very strong cash flow quarter. Third, we currently have nothing outstanding in our line of credit, so we can use that or do a bond offering. And finally, if we close a lot of the tuck-in M&A pipeline that Pat discussed, before your end, we may use a small amount of stock, but call it a couple hundred million dollars.

Maybe those two offset each other a little bit and maybe theres a little extra.

Roland impact from M&A from box the rest of the M&A that we're planning on in our outlook for next year comes in pretty close at the same margins that were at.

Great. Thanks for the color.

Thanks, Rob.

Speaker 1: Thank you. Our next question is coming from Elise Greenspan with Wells Fargo.

Thank you. Our next question is coming from Elyse Greenspan with Wells Fargo. Please state your question.

Douglas Howell: As we consider these alternatives, we're always being very mindful of maintaining our solid investment grade rating also. As for 2024, we are currently estimating about $3.5 billion of capacity to fund future M&A using only free cash and incremental barbies. Okay, those are my comments. Another fantastic quarter by the team. It's looking like another fantastic year. Congratulations to Patrick and Tom on their new roles. We have terrific momentum taking us into 24. Back to you, Pat. Okay, I think we're ready for some questions and answers. I'm ready. We open it up. Thank you.

Speaker 5: Hi, thanks. Good evening. My 1st question on re, insurance, Pat, you guys said 20% organic growth in the quarter. You know, that's the strongest you guys have printed since you close that deal. Obviously, Q3 is smaller from a revenue perspective, but.

Hi, Thanks, Good evening My first question.

Insurance, Pat you guys said.

20% organic growth in the quarter.

That's the strongest you guys have printed since you closed that deal obviously Q3 smaller from a revenue perspective, but I was hoping is now more within that number and then.

Speaker 5: I was hoping, you know, is there more within that number? And then, you know, when you guys are guiding to 7 to 9% next year, I mean, what are you assuming just in terms of the momentum and the growth within that reinsurance business?

When you guys are guiding to 7% to 9% next year.

What are you assuming just in terms of the momentum and the growth within that reinsurance business.

Speaker 2: That's a good question, Lisa. I think, as Doug said earlier, we're just in the throes now budgeting, and I'd have to say that the reinsurance team

That's a good question. So I think as Doug said earlier, we're just in the throes now of budgeting and I'd have to say that the reinsurance team.

Unknown Executive: The call is now open for questions.

Unknown Executive: If you have a question, please pick up your handset and press star one on your telephone at this time. If you are on a speaker phone, please disable that function prior to pressing star one to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing star two. Again, that's star one for questions.

Speaker 2: has outperformed our expectations. They came aboard and have just continued to do an unbelievable job and that 20% does include new business and great retention. So when I look forward, I'm not gonna comment on rate. I'm not there yet. I gotta get their professional views we get into the budget. But I think that new business momentum will be good. I think retention will continue to be very, very strong.

<unk> outperformed our expectations.

Came aboard.

And have just continued to do an unbelievable job.

That 20% does include new business and great retention, so when I look forward I'm.

I'm not going to comment on rate.

I'm not there yet I gotta get their professional views, we get into the budget, but I think that our new.

Robert Cox: Our first question comes from the line of Rob Cox with Goldman Sachs. Please proceed with your questions. Hey, guys. Thanks for the look on the organic growth for 2024. Just curious, you had previously mentioned that you didn't think there would be that much of a difference in sort of the, you know, different areas within the business growing at different rates. I'm curious if you have any updated thoughts on on how different businesses may perform in 2024 versus 2023. Thanks for that.

New business momentum will be good I think retention will continue to be very very strong. So what I would tell you that I think we're gonna see 20% organic next year.

Speaker 2: So would I tell you that I think we're going to see 20% organic next year? I don't know. That'd be awfully hard. But I'm really, this is a good business for us.

I don't know that would be awfully hard, but really this is a good business for us.

Speaker 2: The market there, similar to what we're seeing on retail, we are not seeing softening. As we said in our prepared remarks, there's capacity.

The market there similar to what we're seeing in retail we are not seeing softening as we said in our prepared remarks.

There is capacity, but youre going to pay for it and I don't think thats going to change between one one and seven one next year.

Speaker 2: And I don't think that's going to change between 1-1 and 7-1.

Speaker 2: So I think that what you've got is kind of an interesting market, and again, this is if nothing happens in the cat.

So I think that what you've got is kind of an interesting market and again. This is if nothing happens in the cat world.

Patrick Gallagher: I think let us get through the budget process here. We'll have more for you other December IR day. But right now we're not seeing anything significantly different kind of across the portfolio of operations. But it's going to roll up somewhere into that seven to nine percent ranges as we're looking at it now. Okay, got it.

Speaker 2: So I'm not trying to wobble here. I don't have a really good clear answer for you at this point.

So I'm not trying to work with you I don't have a really good clear answer for you at this point.

Unknown Executive: Thank you.

Speaker 3: Yeah, at least I think I said to Rob, I said, let's give you that. Let's give more flavor by division in December . As you know, that'll be we'll be talking to you again.

Yeah. So I think I can give you that like to give more flavor by division in December.

That'll be we'll be talking to you again in six weeks.

Speaker 5: And then, you know, a good problem to have the results there have been really strong. I know there's an earn out associated with that transaction. Is that something that you would account for in twenty five? Or has that something that's already been accounted for?

And then.

Good problem to have the results there have been really strong I know, there's an earn out associated with that transaction is that something that you would account for 25 or.

Robert Cox: And then just on the 2024 margin expansion of 50 bips, if you could achieve seven percent, just curious on if that includes impacts from investment income or, you know, maybe a potential slight uplift from some of these higher margin acquisitions you've done recently. All right, so three things in there that I'm at right now, the way I got to that. Number. It doesn't assume much incremental lift from investment income. It does assume a little bit of a drag from one quarter of buck rolling into our numbers that naturally runs lower margins, but by and large, maybe those two offset each other a little bit and maybe there's a little extra rolling impact from M&A, from buck. The rest of the M&A that we're planning on in our outlook for next year comes in pretty close at the same margins that we're at. Great, thanks for the color.

Is that something that's already been accounted for.

Speaker 3: I think we'll have a, okay, the way it works is that we'll have to, uh, it gets triggered off a full year 24 raven.

I think we will ever okay. The way. It works is that we'll have that it gets triggered off of full year 'twenty for revenues because it's heavily skewed towards one one renewals I think we'll have a pretty good estimate of where we set.

Speaker 3: Because it's heavily skewed towards 1-1 renewals, I think we'll have a pretty good estimate of where we sit here before December . So I think I'll be able to give you a number on what we think we're gonna end up booking for acquisition, earn out. Now we adjust that out, but I think I should have a good number by our December IR day, and then that would be paid out in the first quarter or second quarter of 25.

Unknown Executive: Thanks Rob.

Here before December so I think I'll be able to give you a number on what we think we're going to end up booking for acquisition earn out.

Unknown Executive: Thank you.

Now we adjust that out.

But I think I should have a good number by our December IR day, and then that would be paid out in the first quarter or second quarter up 25.

Speaker 5: Okay, and then the M&A pipeline sounds, you know, still pretty robust. So you mentioned that some deals were pushed into October in November . Are those, you know, the Eastern and the Cadence transactions or are there other transactions that were pushed from a timing perspective that could be forthcoming?

Okay, and then the M&A pipeline sounds pretty robust.

You mentioned that some deals which were pushed into October and November are those.

The eastern and the cadence transactions are there other transactions that were pushed from a timing perspective that could be forthcoming.

Speaker 3: I would say that it was more so the Eastern transaction and it wasn't necessarily push. You have to file an HSR on that. So really our early estimates of maybe getting it done in September might have been a little optimistic on that. But I wouldn't, there's nothing else that you don't know about. Let me put it that way.

I would say that it was more so the eastern transaction and it wasn't necessarily parse out the file an HSR on that so really our early estimates.

Elyse Greenspan: Our next question is coming from Elyse Greenspan with Wells Fargo.

Patrick Gallagher: Please state your question. Hi, thanks. Good evening. My first question, re-insurance, Pat, you guys said 20% organic growth in the quarter. You know, that's the strongest you guys have printed since you close that deal. Obviously, Q3 is smaller from a revenue perspective, but I was hoping, you know, is there more within that number and then when you guys are guiding to seven to nine percent next year, I mean, what are you assuming just in terms of momentum and the growth within that re-insurance business?

Maybe give me a diamond September might've been a little optimistic on that but I wouldn't there's nothing else that you don't know about let me put it that way.

Okay. Thank you.

Thanks Elyse.

Okay.

Speaker 1: Thank you. Our next question comes from the line of Paul Newsom with Piper Samler. Please state your question.

Thank you. Our next question comes from the line of Paul Newsome with Piper Sandler.

Please state your question.

Speaker 6: Good afternoon. Congratulations in the course. Thanks for the call everyone.

Good afternoon, congratulations on the quarter. Thanks for the call everyone. Thanks, Bob.

Speaker 6: I want to ask a little bit more about the M&A environment. Is there anything to be read here that some of these big deals are coming out of banks?

I wanted to ask a little bit more about the M&A environment is there anything to be read here that some of these big deals are coming out of banks.

Patrick Gallagher: That's a good question. I think as Doug said earlier, we're just in the throws now budgeting and I'd have to say that the re-insurance team has outperformed our expectations. They came aboard and have just continued to do an unbelievable job. And that 20% does include new business and great retention. So when I look forward, I'm not going to comment on rate. I'm not, I'm not there yet. I got to get their professional views.

Speaker 6: And maybe just some thoughts if you have any about sort of how the buyers may be changing In this environment. I think we've been waiting for shifts in the market, but at least I've been sort of surprised at how they Happened or not happened in the last couple of quarters, but love your thoughts on

And maybe just some thoughts if you have any about sort of how the.

Buyers may be changing.

In this environment I think we've been waiting for shifts in the market but.

At least I've been surprised at how.

To tap.

Happened or not happen.

The last couple of quarters, but love your thoughts on that.

Patrick Gallagher: We get into the budget, but I think that new business momentum will be good. I think retention will continue to be very, very strong. So would I tell you that I think we're going to see 20% organic next year? I don't know, that'd be awfully hard, but I'm really, this is a good business for us. The market there, similar to what we're seeing on retail. We are not seeing softening. As we said in our prepared remarks, there's capacity, but you're going to pay for it.

Speaker 2: Well, I'll give you some and then Doug can make some comments as well. I do think, and we've said this before, that some of the competition relative to some of the private equity stuff is a little bit less robust.

I'll give you some and then Doug can make some comments as well I do think and we've said this before that some of the competition relative to some of the private equity stuff is a little bit less robust. There is still plenty of competition and if you put a nice piece of property out forbid youre going to get a lot of bids. So there is there's good.

Speaker 2: There is still plenty of competition. And if you put a nice piece of property out for bid, you're going to get a lot of bids.

Speaker 2: So there's good competition for these good properties.

Competition for these good properties.

Speaker 2: I can't get into the strategy of the banks as to why they're deciding now is the time to exit. We've seen that across a broad base and I think it's probably because multiples are at very, very solid high levels.

I can't get into the strategy of the bank. So as to why they are deciding now is the time to exit and we've seen that across a broad base and I think it's probably because multiples are at very very solid high high levels.

Patrick Gallagher: And I don't think that's going to change between 1-1 and 7-1 next year. So I think that what you've got is kind of an interesting market. And again, this is if nothing happens in the cat world. So I'm not trying to waffle it. I don't have a really good clear answer for you at this point. Yeah, I think I said to Rob, let's give you more flavor by division in December. That'll be, we'll be talking to you again in six weeks.

Speaker 2: And, you know, whether smart money thinks that those multiples may at some point in time begin to diminish, I'm not sure. But we've had incredible success with our friends at M&T. We're very excited about Eastern and Cadence. And frankly, if there's other banks that are looking in that direction, we're a very good place to look.

And.

Whether it's smart money thinks that those multiples may at some point in time begin to diminish.

Not sure, but we've had incredible success with our friends at <unk>.

We're excited about eastern and cadence and frankly, if theres other banks that are looking in that direction. We're a very good place to look.

Patrick Gallagher: And then, you know, a good problem to have. The results there have been really strong. I know there's an burnout associated with that transaction. Is that something that you would account for in 25 or has that something that's already been accounted for? I think we'll have a, okay, the way it works is that we'll have to, it gets triggered off a full year 24 revenues because it's heavily skewed towards 1-1 renewals.

Speaker 2: In terms of other M&A opportunities, you've got 30,000 agents and brokers across America. A good number of them are still owned and run by baby boomers. They're good businesses. This has been a very robust time for them. The last five years have been outstanding for them. A lot of change going on in our market.

In terms of other M&A opportunities.

You've got 30000 agents and brokers across America.

Good number of them are still owned and run by Baby Boomers.

They're good businesses. This has been a very robust time for them in the last five years have been outstanding for them lot of change going on in that market.

Speaker 2: awful lot of data analytics that they can't compete with. Now you have the advent of AI, which is coming on stronger and faster than I think any of us thought. And I think people look at it and say, maybe it's time to check who's out there. Maybe now's not a bad time for me to look. And when you take a look at our pipeline, we gave you some numbers today. I mean, it's just incredibly robust.

Awful lot of data and analytics that they can't compete with now you had the advent of AI, which is coming on stronger and faster than I think any of us thought and I think people look at it and say, maybe it's time to check who's out there maybe not a bad time for me to look at.

Patrick Gallagher: I think we'll have a pretty good estimate of where we sit here before December. So I think I'll be able to give you a number on what we think we're going to end up booking for acquisition, earn out. Now we adjust that out. But I think I should have a good number by our December IR day. And then that would be paid out in the first quarter or second quarter of 25.

And when you take a look at our pipeline.

Gave you some numbers today I mean, it's just incredibly robust.

Patrick Gallagher: Okay, and then the M&A pipeline sounds, you know, still pretty robust. So, you mentioned that some deals were pushed into October and November. Are those, you know, the eastern and the cadence transactions, or are there other transactions that were pushed from a timing perspective that could be forthcoming? I would say that it was the more so, the eastern transaction, and it wasn't necessarily pushed. You have to file an HSR on that. So, really, our early estimates, maybe getting it done in September might have been a little optimistic on that, but I wouldn't, there's nothing else that you don't know about. Let me put it that way.

Okay.

Speaker 6: And then, completely shifting to a different topic that if I could. There's some kind of this quarter I think about the shift back and forth between excess lines and especially, and...

And then.

Completely shifting to a different topic, if I could.

Elyse Greenspan: Okay, thank you. Thanks, Elyse.

Just some comments this quarter I think about the shifts back and forth between excess.

Unknown Executive: Thank you.

Lines and especially in.

Speaker 6: the standard carriers and I was wondering if from your perspective you're seeing any of that shift back to the standard carriers are really anything that's major from

The standard carriers and I was wondering if from your perspective, you are seeing that shift back to the standard of care has really been its major Kumar.

Speaker 2: terms and conditions environment, sort of excluding pricing. No, we're not. I mean, the stuff that's in the E&S market has gone

The terms and conditions.

Environment.

Sort of excluding pricing.

<unk>, where we're not I mean, not the stuff that's in the E&S market has gone there for a reason.

Speaker 2: And that is growing every single month in terms of 15, 20%. Our submissions at the RPS are up substantially this year. We measure that every day, frankly. And our submissions into RPS, our wholesaling operation, are at an all time high. Property in particular is a big driving line for sure. And there just is a lack of capacity.

And that is growing every single month in terms of 15% to 20% our submissions that Rps are up substantially this year, we measure that every day, frankly, and our submissions into Rps are wholesaling operation at.

Paul Newsome: Our next question comes from the line of Paul Newsome with Piper Sandler.

An all time high <unk>.

Paul Newsome: Please state your question. Good afternoon. Congratulations on the course. Thanks for the call everyone. Thanks, Paul.

Property in particular is a big driving line for sure and there just is a lack of capacity in it.

Speaker 2: And it is getting to, you know, it continues to be, you know, whoever can tell the best story might just get a quote.

It is getting to you know it continues to be you know.

Paul Newsome: I want to ask a little bit more about the M&A environment. Is there anything to be read here that, you know, this company's big deals are coming out of banks. And, you know, maybe just some thoughts if you have any about sort of how the buyers may be changing in this environment. I think we've been waiting for shifts in the market, but at least I've been sort of surprised at how they happened or not happened in the last couple of quarters, but love your thoughts on that.

Whoever can tell the best story might just get a quote.

Speaker 2: So no, I'm not seeing, and we are not seeing terms and conditions soften while things still stay in the excess market. And we're not seeing business fall back to the primary.

So no I'm not seeing and we're not seeing terms and conditions soften well things still stay in the excess market and we're not seeing business flow back to the primaries.

Speaker 6: All right, thanks always appreciate to help, appreciate to help guys. Thanks Paul.

Great. Thanks, I always appreciate the help I appreciate the help guys.

Thanks, Paul.

Okay.

Speaker 1: Thank you. Our next question comes to the line of Greg Peters with Raymond James.

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

Paul Newsome: Well, I'll give you some and then Doug can make some comments as well. I do think and we've said this before that some of the competition relative to some of the private equity stuff is a little bit less robust. There is still plenty of competition. And if you put a nice piece of property out for bid, you're going to get a lot of bids. So there's good competition for these good properties.

Speaker 7: Good evening, everyone. Hey, Greg, Pat, I feel like you have been saying you feel like you're just getting started for over 20 years now. That's true. So, I guess no change.

Good evening, everyone, Hey, Greg.

Pat I feel like you have been saying you feel like you're just getting started for over 20 years now that's true.

So I guess no change there.

Speaker 7: Can we go back to your comments on the bank acquisitions?

Can we go back to your comments on AR on the bank acquisitions, and I think you said some of the banks cadence in eastern or getting solid high multiples for those businesses. I think those are your words and I look at the CFO commentary and it looks like the.

Speaker 7: that some of the banks, Cadence and Eastern, are getting solid high multiples for those businesses.

Paul Newsome: I can't get into the strategy of the banks as to why they're deciding now is the time to exit. We've seen that across a broad base. And I think it's probably because multiples are at very, very solid high high levels. And, you know, whether smart money thinks that those multiples may at some point in time begin to diminish. I'm not sure, but we've had incredible success with our friends at M&T. We're very excited about Eastern and cadence.

Speaker 7: your words. And I look at the CFO commentary, and it looks like your

Your.

Speaker 7: side that you're looking for your multiples are paying are 10 to 11 times.

And inside that you're looking for your multiples are paying our 10 to 11 times.

Speaker 7: EBITDAQ, is that inclusive of Cadence in Eastern? Because it feels like those numbers were the multiples for those business were a little bit higher.

EBITDAX is that is that inclusive of cadence and eastern because it feels like those numbers world. The multiples for those businesses are a little bit higher.

Speaker 3: Yeah, typically what we do is for larger transactions like that, and we have a couple of, you know, one a year or something like that. We typically exclude that. The purpose of that disclosure is really showing you what we're seeing in the tuck.

Yes, typically what we use for larger transactions like that and we have a couple of one year or something like that we typically have.

Paul Newsome: And frankly, if there's other banks that are looking in that direction, we're a very good place to look in terms of other M&A opportunities. You've got 30,000 agents and brokers across America. A good number of them are still owned and run by baby boomers. They're good businesses. This has been a very robust time for them. The last five years have been outstanding for them. A lot of change going on in our market, an awful lot of data and analytics that they can compete with.

Excluding that the purpose of that disclosure is really showing you what we're seeing in the tuck ins.

Speaker 3: uh... the reality is that we're still seeing great opportunities you know what the ten times uh... maybe sometimes you get one at twelve some at ten uh... but there's a really there's a there's a ton of talking opportunities that are still realizing there's terrific value in that that at ten to twelve right and the reason why is they understand that they have careers inside of calligraph

We're still seeing great opportunities.

Well North of 10 times, maybe sometimes you can get one of 12 summit Tan.

Really there's a there's a ton of tuck in opportunities that are still realizing there's terrific value in that that at 10 to 12 right and the reason why as they understand that they have careers inside of Gallagher afterwards.

Speaker 3: their employees and their producers and themselves have great careers inside of Gallagher. So what a terrific thing. Sell your business at 10 to 12 times.

Poise and there are producers.

Paul Newsome: Now you have the advent of AI, which is coming on stronger and faster than I think any of us thought. And I think people look at it and say, maybe it's time to check who's out there. Maybe now it's not a bad time for me to look. And when you take a look at our pipeline, we gave you some numbers today.

Themselves have great careers inside of Gallagher, so what what a terrific thing cellular business at 10 to 12 times.

Speaker 3: Come in and work, take on increasing responsibility, double your agency or your location. So the reason why we can still be effective buyers at 10 to 12 times is the future opportunity of getting better together. We set it for 20 years since I've been here. When one plus one is equal three, four, and five, that's what they're seeing. So we continue to click those off day in and day out, kind of in those moments.

Come in and work take on increasing responsibilities double your your agency or your location. So the reason why we can still be effective buyers at 10 to 12 times as the future opportunity of getting better together, we set it for 20 years since I've been here when one plus one is equal three four and five that's what they are.

Patrick Gallagher: I mean, it's just incredibly robust, and then completely shifting to a different topic that if I could. There's some kind of this quarter I think about the shift back and forth between excess lines and especially and the standard carriers and I was wondering if from your perspective, you're seeing any of that shift back to the standard carriers or really anything that's major from a terms and conditions environment. No, we're not, I mean, the stuff that's in the E&S market has gone there for a reason and that is growing every single month in terms of 15, 20% our submissions that RPS are up substantially this year.

So we continue to to kick those off day in and day out kind of in those multiple ranges.

Speaker 7: Okay, that makes sense. And then on those, the larger transactions.

Okay that makes sense and then on on those larger transactions.

Speaker 7: It doesn't seem like, maybe I'm, I don't know the answer. So is there a lot of synergies to be harvested from, you know, as you integrate the businesses or are these stand-alone teams sort of like what you got with the WTW reinsurance operation?

It doesn't seem like maybe on.

I don't know the answers. So is there a lot of synergies to be harvested from as you integrate the businesses or are these standalone teams sort of like what you've got with the W. Tw reinsurance operations.

Speaker 3: No, I think here's the thing. I think with easterly cadence, I mean, it's not, it's not a

It's the thing I think with eastern and cadence I mean.

Speaker 3: There's no very few human synergies to be gained on this. As a matter of fact, they do a really great job servicing their customers and selling insurance, but there are efficiencies that can be gained through a common general ledger, or common agency management system, only needing one cyber protocol that runs over your platform. So there are some synergies there, but those are in the...

There is no.

Patrick Gallagher: We measure that every day, frankly, and our submissions into RPS, our whole sailing operation are at an all time high property in particular is a big drive. Having line for sure and there just is a lack of capacity and it is getting to, you know, it continues to be, you know, whoever can tell the best story might just get a quote. So no, I'm not seeing and we are not seeing terms and conditions soften while things still stay in the excess market and we're not seeing business flow back to the primaries. All right, thanks always appreciate to help, appreciate to help guys. Thanks, Paul. Thank you.

Few human Ah synergies to be gained on this as a matter of fact, they do a really great job servicing their customers in selling insurance, but there are efficiencies that can be gained through a common general ledger common.

Agency management system, only needing one cyber proto.

Protocol that runs over your platform. So there are some synergies there, but those are in the three or four or $5 million type numbers not in the $25 30 or $40 million type numbers are real the real kicker there Gregg is that look at these bigger deals run by banks and this is why we say it very much feels like we're buying some of these similar to us.

Speaker 2: three, four, five million dollar type numbers, not in the twenty five, thirty or forty million dollar type numbers. The real, the real kicker there, Greg, is that look at these bigger deals run by banks and this is why we say it very much feels like we're buying somebody similar to us. These are, these are firms that were.

Yes.

These are these are firms that were rolled up by the bank.

Greg Peters: Our next question comes from the line of Greg Peters with Raymond James.

Speaker 2: Typically good community people. I've heard three separate outreaches from cadence people in the last two days that I've known in one instance that they came in to kick the tires with us in 1998.

Typically good community people I've heard 333 separate outreach is from cadence people in the last two days that I've known in one instance that they came in to kick the tires with us at 1998.

Greg Peters: Please state your question. Good evening, everyone. Hey, Greg. Pat, I feel like you have been saying you feel like you're just getting started for over 20 years now. That's true. So I guess no change there.

Speaker 2: And I remember the guy wrote to me and he goes, Hey, I came with Shorty and I remember Shorty and I came with Jim and I remember Jim and I can't tell you how excited we are. Now what we're bringing to them is cadence could never do is that whole discussion of moving up.

I remember the Guy who wrote to me and he goes Hey, I came with it came with surety and I remember surety that came with Jim and I remember, Jim and I can't tell you. How excited we are now what we're bringing to them. There's cadence could never do is that whole discussion of moving upstream.

Patrick Gallagher: Can we go back to your comments on the bank acquisitions? And I think you said some of the banks, Cadence and Eastern, are getting solid, high multiples for those businesses. I think those are your words. And I look at the CFO commentary and it looks like you're inside that you're looking for it. Your multiples are paying are 10 to 11 times EBITDAQ. Is that is that inclusive of Cadence and Eastern because it feels like those numbers were the multiples for those business were a little bit higher?

Speaker 2: We can show you statistically that our closing rate on on bigger deals, and I'm not talking risk management, huge accounts. I'm just saying the bigger deals that are generating over 125 to $150,000 of commission are significantly greater today than they were five or 10 years ago. This is what we're giving them the opportunity to go after.

We can show you a statistically that our closing rate on on bigger deals and I'm not talking risk management huge accounts I'm, just saying the bigger deals that are generating over 125 to $150000 of commission are significantly greater today than they were five or 10 years ago. This is what we're giving them.

The opportunity to go after their typical agents in these banks that look just like everybody else and now they're going to go out and frankly, they're going to have our tools. They're terrifically excited about it. So that's I think the whole synergy thing. This is not take out head count. This is turn them on showing what.

Patrick Gallagher: Yeah, typically what we do is for larger transactions like that. We have a couple of, you know, one a year or something like that. We typically exclude that. The purpose of that disclosure is really showing you what we're seeing in the tuck ends. The reality is we're still seeing great opportunities. You know, the worth of 10 times maybe sometimes you get one at 12, some at 10. But there's a ton of tucking opportunities that are still realizing there's terrific value in that 10 to 12.

Speaker 2: They're typical agents in these banks that look just like everybody else. And now they're going to go out and frankly, they're going to have our tools and they're terrifically excited about it. So that's, I think the whole synergy thing. This is not take out headcount. This is turn them on, show them what we do, give them the tools and watch them eat the market all around.

We do give them the tools and watch them eat the market all around them.

Speaker 7: Okay, that makes sense. I guess the final question, I know it was, Paul was trying.

Okay that makes sense I.

I guess the final question I know.

Patrick Gallagher: And the reason why is they understand that they have careers inside of Gallagher afterwards. Their employees and their producers and themselves have great careers inside of Gallagher. So what a terrific thing. Sell your business at 10 to 12 times. Come in and work. Take on increasing responsibility. Double your agency or your location. So the reason why we can still be effective buyers at 10 to 12 times is the future opportunity of getting better together.

It was Paul was trying to get at this but.

Speaker 7: Frankly, we're hearing of some stress in some of the P-backed roll-ups where the combination of higher interest costs and earnouts are purchasing their free cash flow.

Frankly, we're hearing of some stress in some of the PE backed roll ups.

Where the combination of higher interest costs and earn outs are pressuring their free cash flow.

What's your view of some of those smaller entities that might be having problems could we see you be interested in some of those properties at some point in time, if they should become available.

Speaker 2: What's your view of some of those smaller entities that might be having problems? Could we see you be interested in some of those properties at some point in time if they should become available? Well, here's the thing. First of all, Greg, we'll look at every single opportunity we can and our first question every single time is what's the culture? What was-

Well here's the thing first of all Greg We will look at every single opportunity, we can and our first question every single time is what's the culture.

Patrick Gallagher: We set it for 20 years since I've been here. When 1 plus 1 is equal 3, 4 and 5, that's what they're seeing. So we continue to click those off day in and day out, kind of in those moments, and Paul Ranger. Okay, that makes sense.

What was it that went into this group in.

Speaker 2: In most of these, there are situations where we didn't succeed in buying something they bought. Let's talk about that around this table.

In most of these there are situations, where we didn't succeed in buying something they bought.

Patrick Gallagher: And then on those larger transactions, it doesn't seem like maybe I don't know the answer. So, is there a lot of synergies to be harvested from, you know, as you integrate the businesses or are these standalone teams sort of like what you got with the WTW re-insurance operations? Now I think with ease turning changes,[inaudible] on this group. In most of these, there are situations where we didn't succeed in buying something they bought.

Let's talk about that around this table and notwithstanding in the room.

Speaker 2: X, Y, Z didn't sell us. Why is that? Okay, fine. What's left there? And yes, I would say that there are some of those that we would be interested in, but we'd have to get through this whole cultural piece. You know, when you chose not to join Gallagher, I'll tell you the one main reason why you chose not to join Gallagher is because you didn't want change.

X Y Z you didn't sell this why is that okay fine what's left there and yes, I would say that there are some of those that we would be interested in.

But we'd have to get through this whole cultural piece.

When you chose not to join Gallagher I'll tell you. The one main reason why you chose not to join Gallagher is because you didn't want change.

Speaker 2: And our competition has done a very good job of saying, hey, why join Gallagher when I'll give you the money? I'm going to give you the cash, keep some in.

And our competition has done a very good job of saying, Hey, well I joined Gallagher when I'll give you the money I'm going to give you the cash keeps some in our returns have been terrific you'll get a second bite on the Apple and you don't need to change anything you don't need to change. Your name you don't need to change your agency system and while they have been doing that we've been building power.

Speaker 2: Our returns have been terrific, you'll get a second bite on the apple, and you don't need to change anything. You don't need to change your name, you don't need to change your agency system, and while they've been doing that, we've been building power to power, data, analytics, capabilities, vertical strength, they've got none of that.

The power of data analytics capabilities vertical strength, they've got none of that and now it's coming to roost with higher interest rates and tougher earn outs and you gotta make do.

Speaker 2: And now it's coming to roost with higher interest rates and tougher earnouts and you got to make do.

Speaker 2: You've got to come to on your promises. So yep, we'd look at them, but we're going to have to fall in love.

You bet it you've got to come through on your promises so yeah, we'd look at them.

But.

We're gonna have to fall in love.

Yeah.

Thanks for the detail.

Greg.

Yeah.

Speaker 1: Thank you. Our next question comes from the line of Mike Zaremsky with BMO Capital Markets. Please state your question.

Thank you.

Our next question comes from the line of Mike Zaremski with BMO capital markets.

Please state your question.

Hey, good afternoon.

Right.

Speaker 8: Maybe I missed this, but on the, uh, the cadence, uh. Deal, um, is it am I right? Looking at the, um. The revenue and even a disclosure that the kids has a 36 or 37% margin, which, which is. Pretty pretty great and then they're also on the deal. There was you called out tax benefits. I don't recall you guys calling out tax benefits in the past.

Maybe I missed this but on the cadence.

Deal.

Is it am I right looking at the.

The revenue and EBITDA disclosure that Ken is that 36% to 37% margin, which is which is pretty pretty great.

And then also on the deal there was you called out tax benefits.

Are you guys, calling out tax benefits in the past.

Speaker 3: yeah i think uh... first year uh... you're right i think it might be about thirty four percent but i think that it's not put over a point or two on that uh... i think that when it comes to the tax but i think it's important on these larger we always get a we always get a step up and basically on smaller deals uh... but on on many larger uh... mergers that

Yeah Alright.

Youre right I think it might be about 34%, but I think.

Not to quibble over a point or two on that.

I think that when it comes to the tax but I think it's important on these larger and we always get a we always get a step up in basis on smaller deals.

But on many larger mergers that.

Speaker 3: The sellers are not willing to allow a step up in basis. In this case, the sellers were willing to.

The sellers are not willing to allow a step up in basis. In this case, the sellers were willing to and we paid a little bit of a little bit more cash upfront on it but it's really a $250 million worth of deductions over the next 15 years at present value that back at five or 6% and get something to 100.

Speaker 9: and we paid a little bit more cash up front on it, but we're gonna get $250 million worth of deductions over the next 15 years. Your present value that back at five or 6%, you get something to 150. So it really.

So it really does it doesn't impact them all that much because I don't know if there are any.

Speaker 9: doesn't impact them all that much because I don't know if they're in a they might be able to shield it with an LOL carry forwards or something like that but it benefits us a lot so to build it to achieve that and it's not all that important in many times for let's say a PE firm that buys a bigger one or a trades because they've got the large interest

They might be able to shield, NOL carryforwards, or something like that but it benefits awful lot so to be able to achieve that and it's not all that important in many times for let's say a PE firm that buys a bigger whenever it trades because they've got the large interest.

Speaker 9: shield coming off of the high levels of debt they run.

Shield coming off of the high levels of depth. They run there so but for us to be able to negotiate that benefit and to be able to have a seller that's willing to channels allow that benefit to pass out it makes a big difference in this case.

This is a true win win for them.

Speaker 9: They get more cash, we get more cash, and it brings our multiple down consider.

Got more cash we get more cash and it brings our multiple down considerably.

Patrick Gallagher: Let's talk about that around this table, not with them in the room. XYZ didn't sell us. Why is that? Okay, fine. What's left there? And yes, I would say that there are some of those that we would be interested in, but we'd have to get through this whole cultural piece. You know, when you chose not to join Gallagher, I'll tell you the one main reason why you chose not to join Gallagher is because you didn't want change.

Speaker 9: This is not using our clean energy credits. You know, we have 670 million of clean energy credits available. Think about that. We'll use those over the next few years. It's almost like we have another free cadence coming our way because of those tax credits. So tax does matter. In this case, we think that a conservative view of that benefit is 150-some million dollars.

This is not using our clean energy credits.

$670 million of clean energy credits available to think about that we'll use those over the next few years, it's almost like we have another free cadence coming our way because of that because of those tax credits. So a tax does matter in this case, we think that that.

Patrick Gallagher: And our competition has done a very good job of saying, hey, why join Gallagher, when I'll give you the money, I'm going to give you the cash, keep some in. Our returns have been terrific. You'll get a second bite on the apple, and you don't need to change anything. You don't need to change your name. You don't need to change your agency system. And while they've been doing that, we've been building power to power data, analytics, capabilities of vertical strength, they've got none of that.

A conservative view of that.

Of that benefit is $157 million.

Speaker 8: Okay, interesting. Thanks you for the explanation on that. And I guess this one probably for this one question is for Pat and congrats to Thomas and Patrick on our new appointments. I just curious on Pat, will these new appointments cause any of your existing managers other than yourself to share responsibilities they didn't previously share?

Okay. Okay interesting. Thank you for the explanation on that.

And I guess this one's probably for fun.

One question is for Pat and congrats Thomas and Patrick on a new appointment I was just curious on tableau will these new appointments caused any of your existing managers other than yourself.

Sponsors they didn't previously.

Previously sure.

Speaker 2: Oh, there'll be some follow on that promotion. Sure. There's there's there's good opportunities for everybody gallery. Yep.

There'll be some follow on.

Patrick Gallagher: And now it's coming to roost with higher interest rates and tougher earnouts, and you got to make do on, you got to come do on your promises. So, yep, we'd look at them, but we're going to have to fall in love.

Promotion sure Theres theres good opportunities for everybody at Gallagher Yep.

Speaker 8: And so, were these promotions well telegraphed or were these promotions well telegraphed like within the firm like kind of over time or were these kind of... I'm going to ask you with a Gallagher answer. There's not a lot secret at Gallagher, right? Yes, I would say that these moves have been telegraphed over about 20 years. Okay, just making sure. No problem.

I mean with your promotion as well telegraphed alright.

When do you think.

These promotions like about well telegraphed like within the firm.

On them over time or.

Greg Peters: Thanks for the detail. Thanks, Greg. Thank you.

I'm going to ask you, where the Gallagher answered there is not a lot secret at Gallagher right.

Mike Serremsky: Our next question comes in the line of Mike Serremsky with BMO capital markets.

Yes, I would say that these moves have been telegraphed over about 20 years.

Mike Serremsky: Please state your question. Okay, good afternoon. Greg. Maybe I missed it, but on the cadence deal, is it in my right looking at the revenue and EBITDA disclosure that the kids has a 36 to 37% margin, which is pretty, pretty great. And then you're also on the deal that was you called out tax benefits. I don't recall you guys calling out tax benefits in the past. Yeah, all right.

Okay, just making sure.

No problem.

Okay.

I'll stop there. Thank you thanks, Mike.

Okay.

Thank you. Our next question comes from the line of Mark Hughes with tourists security.

Speaker 1: Our next question comes from the line of Mark Hughes with Tourist Security. Please proceed.

Please proceed with your question.

Yeah.

Speaker 10: Yeah, thank you. Did you give any guidance on the corporate segment profits for 2024? Any early thoughts there?

Yes. Thank you.

To give you any guidance on the corporate segment profit for 2020 for any early thoughts there.

Speaker 9: We haven't, and can you give me till December ? I know you're trying to figure out your 24 models.

We haven't and can you give me until December I know, you're trying to figure out your 24 models.

Patrick Gallagher: First, you're right. I think it might be about 34%, but I think the next couple over a point or two on that. I think that when it comes to the tax, and I think it's important on these larger, we always get a, we always get a step up and basic on smaller deals. But on many larger mergers, that the sellers are not willing to allow a step up and basis. In this case, the sellers were willing to.

Speaker 9: You might want to take what we did this year and just take it by line by line and make a site pick on it to see what you think it, what would happen there. I know it's really difficult to do, Mark, because of FX Remedium at Games. I know we put some acquisition costs through there that can be lumpy.

I wanted to take what we did this year and just take it by line by line and make our site pick on it to see what you think.

What would happen there I know, it's really difficult to do mark because of FX Remeasurement gains I know, we put some acquisition costs through there that can be lumpy.

Speaker 9: And there's a lot of tax, you know, restructure numbers that run through there as we implement tax planning strategy. I know it's really difficult, but could you just give me till December and I can get that to you?

And Theres a lot of attacks.

Restructure numbers that run through there as we as we implement tax planning strategy I know, it's really difficult, but could you just give me until December and I can get that to you.

Patrick Gallagher: And we paid a little bit, a little bit more cash up front on it, but certainly we're going to get $250 million worth of deductions over the next 15 years. You present value that back at five or six percent, you get something to 150. So it really does, doesn't impact them all that much because I don't know if they're going to, they might be able to shield it with NOL carry forwards or something like that, but it benefits us a lot.

Speaker 9: Yeah, yeah, we get this every year. So I just, I just.

Yeah Yeah.

Yeah, we get this every year.

I just did.

No.

Speaker 10: Any thoughts on medical inflation? Just curious to get to, I think, the benefits of being helped by.

Any thoughts on medical inflation, just curious to get I think they would benefit from being helped by.

Speaker 2: higher uh... health care cost for employees but uh... medical inflation impact on uh... state workers comp or uh... g l uh... you know it it's interesting you should ask because we were talking about that with the board uh... this week and yes you know we're seeing a lot of pressure on medical costs fully insured renewals at our largest carriers are showing seven to nine percent increases right now as we speak

Higher health care costs for employees, but the medical inflation impact on lets say workers comp or a G. L.

Patrick Gallagher: So build it to achieve that. And it's not all that important in many times for, let's say, a PE firm that buys a bigger one or a trades because they've got the large interest. She's coming off of the high levels of debt they run there. So but for us to build a, to negotiate that benefit and to build a seller that's willing to, to allow that benefit to pass us, it makes a big difference. So in this case, this is a true win-win for them. They get more cash, we get more cash, and it brings our multiple down considered.

It's interesting I should ask because we were talking about that with the board this week and yes.

We're seeing a lot of pressure on medical costs are fully insured renewals.

At our largest carriers are showing 7% to 9% increases right now as we speak.

Speaker 2: When you start to take retentions and you start to get in the stop-loss market, we're seeing averages there closer to 17 to 18 percent. That's on premium now, that's not on the underlying cost.

When you start to take Retentions and you start to get in the stop loss market, we're seeing averages they're closer to 17% to 18%. That's on premium now that's not on the underlying costs, but that's because more of the claims are tagging those carriers. So there they are not only trying to move away.

Patrick Gallagher: Blanett. This is not using our clean energy credits. You know, we have 670 million of clean energy credits available. Think about that. We'll use those over the next few years. It's almost like we have another free cadence coming our way because of those because of those tax credits. So tax does matter. In this case, we think that that conservative view of that benefit is 150 some million dollars.

Mike Serremsky: Okay. Interesting. Thank you for the explanation on that.

Speaker 2: But that's because more of the claims are tagging those care.

Speaker 2: So they're not only trying to move away in terms of the low end of the cost, but also they're having to pay that. So if you take a look at all of it all in, Mark, I'd say that our numbers that we're seeing are about eight to 9%, and that's embedded both in Work Comp as well as health insurance across the United States.

In terms of the rollout into the cost, but also they're they're having to pay that so if you take a look at all of it all in Mark I'd say that our numbers that we're seeing are about 8% to 9%.

It's embedded both in work comp as well as health insurance across the United States.

Patrick Gallagher: And I guess this was probably for this one question is for Pat and congrats to Thomas and Patrick on our new appointments. I just curious on Pat. Well, will these new appointments cause any of your existing managers other than yourself to share responsibilities. They didn't previously share. Oh, there'll be some follow on that promotion. Sure. There's there's there's good opportunities for everybody to Gallagher. Yep.

Thank you.

Okay.

Thanks Mark.

Speaker 11: Thank you. Our next question comes from the line of David Motemaden with Evercore ISI. Please state your question. Hey, thanks. Good evening.

Thank you. Our next question comes from the line of David <unk> with Evercore ISI. Please.

Please state your question.

[laughter].

Hey, Thanks, Good evening David.

Oh.

Hi, Good evening I was I was wondering if.

Speaker 11: You could just help me think through just how much of the organic growth.

You can just help me think through just how much of the.

Mike Serremsky: And so with the emotions about well telegraphs or these companies for these promotions about well telegraphs like within the firm like and over time or. I'm going to ask you with a Gallagher answer. There's not a lot secret at Gallagher, right? Yes, I would say these moves have been telegraphed over about 20 years. Okay. Just just making sure. Okay. I'll stop there. Thank you. Thanks, Mike.

<unk> gross.

Speaker 11: over the last several years and even this quarter is driven by

Over the last several years and even this quarter is driven by yeah.

Speaker 11: You know, just the macro environment versus what you guys have been doing behind the scenes to accelerate share gains, because it feels like there's been a lot going on to help you guys gain share and that the share gains are accelerating.

The macro environment versus what you guys had been doing behind the scenes to accelerate share gains because it feels like there's been a lot going on.

To help you guys gained share and that the share gains are accelerating.

Speaker 11: So I'm just wondering, I know it's kind of a big picture question. But as you guys head into next year and you think about that, 79% organic.

So I'm just wondering I know, it's kind of a big picture question.

But you know as you guys head into next year, and you think about that 7% to 9% organic.

Mark Hughes: Thank you. Our next question comes from the line of Mark Hughes with true security. Please proceed with your question. Yeah. Thank you.

Speaker 11: I guess how much of that do you think is coming from market share games as you guys continue to execute versus like, you know, rate and exposure improve.

How much of that do you think is coming from market share gains as you guys continue to execute versus like.

Rate and exposure improvements.

Patrick Gallagher: On the, did you give any guidance on the corporate segment profits for 2024? Any early thoughts there? We have it. And can you give me till December? I know you're trying to figure out your 24 models. You might want to take what we did this year and just take it by line by line and make a site pick on it to see what you think it. What, what, what would happen there?

Speaker 2: Well, let me split the question with Doug in this regard. Let me talk about market gains in terms of share gain and then he can tear the numbers a bit. But...

Well, let me let me split the question with Doug in this regard let me talk about market gains in terms of share gain and then he can tear at the numbers a bit but.

Speaker 2: We're seeing and we're measuring this literally every single day, every month. We know now where we're producing business.

We're seeing and we're measuring this literally every single day every month, we know now where we're producing business. We know for instance that 90% of the time, we compete with somebody smaller than we are we know exactly what's happening in our verticals. We have 32 verticals that were very very clear on management expectation.

Speaker 2: We know, for instance, that 90% of the time we compete with somebody smaller than we are.

Speaker 2: We know exactly what's happening in our verticals. We have 32 verticals that we're very, very clear on management, expectation, knowing what's going on, building products and what have you. That's in the property casualty arena. We have another seven or eight in benefits.

Patrick Gallagher: I know it's really difficult to do, Mark, because of actually measurement gains. I know we put some acquisition costs through there that can be lumpy. And there's a lot of tax, you know, restructure numbers that run through there as we implement tax planning strategy.

Knowing what's going on building products and what have you. That's in the property casualty arena, we have another seven or eight in benefits and in those verticals. We know that our growth rate is substantially greater than what is in our just general book of business. So internally, we know that we are taking definite.

Speaker 2: And in those verticals, we know that our growth rate is substantially greater than what is in our just general book of business. So internally, we know that we are taking

Patrick Gallagher: I know it's really difficult, but if you could just give me till December and I can get that to you. Yeah.

Patrick Gallagher: We get this every year. Any thoughts on medical inflation just curious to get to I think the benefits of being helped by higher healthcare costs for employees, but the medical inflation impact on a, say, workers comp or GL. You know, it's interesting you should ask because we were talking about that with the board this weekend. Yes. You know, we're seeing a lot of pressure on medical costs, fully insured renewals at our largest carriers are showing seven to nine percent increases right now as we speak.

Speaker 2: definite share in those verticals and I would probably I'd throw out a number Mike maybe you throw a number out on the table of what

Chair in those verticals and I would probably I'd throw out a number Mike maybe throw a number out on the table of what.

In terms of just in terms of the growth rate in the vertical as opposed to generally kind of our new business with 19% of our new business falls.

Speaker 2: just in terms of the growth rate in the vertical as opposed to general. And of our new business. So 19% of our new business falls. And.

Into one of our verticals in the Uinta.

Speaker 2: into one of those 19, 92. That's what I thought I heard 19. I apologize. So

One of the 1990 to 92, that's what I thought I heard 19 I apologize so.

Speaker 2: Each of those are growing faster than the general book. So, again, you've got to look at rate, you've got to look at exposure and all that stuff. But when you talk about sheer...

Each of those are growing faster than the general book value again, you've got to look at rate and you got to look at exposure and all that other stuff, but when you talk about share.

Speaker 2: There is absolutely no doubt, you go back to Doug's comment, an acquisition can be 1 plus 1 equals 5 because when Gallagher shows up with the relationships and the capabilities of the local broker and brings those relationships together with what we have as capabilities and the culture works.

Patrick Gallagher: When you start to take retentions and you start to get in the stop loss market, we're seeing averages there closer to 17 to 18 percent. That's on premium now. That's not on the underlying cost. , but that's because more of the claims are tagging those carriers. So they're not only trying to move away in terms of the low end of the cost, but also they're having to pay that. So if you take a look at all of it all in, Mark, I'd say that our numbers that we're seeing are about 8 to 9%, and that's embedded both in work cop as well as health insurance across the United States. Thank you. Thanks, Mark.

There is absolutely no doubt you'll go back to Doug's comment on the acquisition can be one plus one equals five because when gallagher shows up with the relationships and the capabilities of the local broker and brings those relationships together with what we have is capabilities and <unk>.

Unknown Executive: Thank you.

Culture works, we don't have to force sharing on people. The fact that they can pick up the phone and say I've got a college or University I've never worked on one before can somebody help me, we will swarm that opportunity, we will write that college or University, they'll get their fair share everybody wins and we're not fight.

Speaker 2: We don't have to force sharing on people. The fact that they could pick up the phone and say, I've got a college or university, I've never worked on one before, can somebody help?

Speaker 2: We will swarm that opportunity. We will write that college or university. They'll get their fair share. Everybody wins and we're not fighting that as a local entrepreneur who doesn't want to play with the big boys. Uh-uh. That's the exciting.

That is a local entrepreneur, who doesn't want to play with the Big Boys.

That's the excitement.

David Motemaden: Our next question comes from the line of David Motemaden with Evercore ISI.

Speaker 9: So I know that's a long-winded, weird way of saying it, but we are definitely taking share. To the numbers that I got, that's wrote over to you. Well, it's another that 7% organic growth, next chart that half comes from not new business wins, so taking share, I would say a quarter is coming from exposure unit and another quarter is coming from rate. If you got 9%, you probably got a third, a third, a third.

I know, that's a long winded weird way of saying it but we are definitely taking share to the numbers, Doug I throw it over to you want to know that that 7% organic growth.

David Motemaden: Please state your question. Hey, thanks. Good evening. I was wondering if you could just help me think through just how much of the organic growth over the last several years, and even this quarter is driven by, you know, just the macro environment versus what you guys have been doing behind the scenes to accelerate share gains because it feels like there's been a lot going on to help you guys gain share and that the share gains are accelerating.

Sure I'd say that half comes from net new business wins are taking share I would say a quarter is coming from.

Exposure units and another quarter is coming from rate. If we're at 9% you probably got a third a third a third in there.

Speaker 11: Got it. That's, that's really helpful. I appreciate that.

Got it that's that's really helpful. I appreciate that.

Speaker 11: And then maybe just to follow up, you know, we've seen obviously the two, the cadence and Eastern deals on top of the M&T bank broker last year or earlier this year.

And then maybe just a follow up.

Yes.

We've seen obviously, the two the cadence and eastern.

David Motemaden: So I'm just wondering, I know it's kind of a big picture question. But, you know, as you guys head into, you know, next year, and you think about that seven to nine percent organic, I guess how much of that do you think is coming from market share gains as you guys continue to execute versus like, you know, rate and exposure improvements? Well, let me split the question with Doug in this regard.

Yields on top of the <unk>.

Bank broker.

Last year.

Earlier this year.

Speaker 11: So, I guess I'm, I'm sort of wondering, you know, as we think about the sustainability of that organic, I know you're the preferred provider for, I think it was cadence.

So I guess I'm sort of wondering.

As we think about the sustainability of that organic I know you are the preferred provider for I think it was cadence.

Speaker 11: Um, but I guess how do you manage the fact that or the potential that there might be, you know, more of like an open process for some of those existing customers?

But I guess, how do you manage the fact that or the potential that there might be more of like an open process for some of those are existing customers.

David Motemaden: Let me talk about market gains in terms of share gain, and then he can tear the numbers a bit. But we're seeing, and we're measuring this literally every single day every month. We know now we're producing business. We know, for instance, that 90 percent of the time we compete with somebody smaller than we are. We know exactly what's happening in our verticals. We have 32 verticals that we're very, very clear on management expectation knowing what's going on, building products and what have you.

Speaker 11: Now that, you know, it's not a wholly owned, I don't know if that's something that you guys have worked through planning or, you know, just maybe help us think through that.

Now that it is not a wholly owned I don't know if that's something that you guys have worked through planning are.

Just maybe help us think through that.

Speaker 2: Well, I'll help you think through it and probably the people from Cadence Bank and say, he's maybe talking off the top of his head, blah, blah, blah. But I don't think the bank did much to help them produce insurance, like probably hurt their production.

I'll help you think through it and probably that people from cadence Bank and say you may be talking off the top of the head blah blah blah, but I don't think the bank did much to help them produce insurance like probably hurt their production.

David Motemaden: That's in the property caselier arena. We have another seven or eight in benefits. And in those verticals, we know that our growth rate is substantially greater than what is in our just general book of business. So internally, we know that we are taking definite share in those verticals. And I would probably, I'd throw out a number, Mike, maybe you'd throw a number out on the table of what? Just in terms of the growth rate in the vertical as opposed to general.

Speaker 2: Which is why when you look at some of these deals, the board goes, well, where's the growth? Cadence and Eastern, good growth, but the fact is, those people have gone out and scrapped for that business around the bank relationship, which was, of course, when they bought those firms, supposed to be the golden nugget in terms of being able to produce business. That just isn't true. In fact, I think we're going to unleash an opportunity to really grow the top line.

Which is why when you look at some of these deals the board goes well Where's the growth.

And Easter and good growth, but the fact is those people who've gone out and scrap for that business around the bank relationship which was of course when they bought those prefer rooms supposed to be the golden Nugget in terms of being able to produce business that just isn't true in fact, I think we're going to unleash an opportunity to really grow that.

Top line.

David Motemaden: And of our new business. So 19 percent of our new business falls into one of our verticals. In the, in the one of those 19? 1992. That's what I thought I heard 19 apologies. So each of those are growing faster than the general book. So I, now you, again, you've got to look at rate and you've got to look at exposure and all that stuff. But when you talk about share, there is absolutely no doubt.

Got it that's really helpful. Thanks.

No.

Speaker 1: Thank you. Our next question comes from a line of Myer Shields with KBW. Please.

Thank you.

Our next question comes from the line of Meyer Shields with K B W.

Please proceed with your question.

Speaker 8: Great, thanks to picture picture questions. 1. there's been some press about larger insurance brokers getting back into wholesale. Would that matter at all to Gallagher?

Great. Thanks to our big picture questions. One there's been some press about.

Larger insurance brokers getting back into wholesale would that matter at all to Gallagher.

David Motemaden: You go back to Doug's comment. An acquisition can be one plus one equals five because when Gallagher shows up with the relationships and the capabilities of the local broker and brings those relationships together with what we have as capabilities and the culture works. We don't have the force sharing on people. The fact that they can pick up the phone and say, I've got a college of university. I've never worked on one before.

Speaker 2: Not really. If you take a look at our wholesale business, RPS, we do not mandate inside Gallagher, so it's not 100% Gallagher placements there. We did consolidate down to a smaller number of players, and RPS does about 50% of Gallagher's placements. So we're very cognizant of what the world is like out there. But really, RPS trades with 15,000 to 18,000 independent agents.

Not really I mean, if you take a look at our our wholesale business our P. S.

We do not mandate inside Gallagher, so it's not 100% Gallagher placements there we did consolidate down to a smaller number of players in Rps does about 50% of Gallagher's placements. So we're very cognizant of what the world is like out there, but really Rps trades with 15 to 18000 independent agents.

David Motemaden: Can somebody help me? We will swarm that opportunity. We will write that college of university. They'll get their fair share. Everybody wins. And we're not fighting that as a local entrepreneur who doesn't want to play with the big boys. That's the exciting. So I know that's a long-winded, weird way of saying it, but we are definitely taking share. To the numbers I got, I throw it over to you. Well, it's another that 7% organic growth, and I sure I'd say that half comes from not new business wins, so taking share.

Speaker 2: And RPS does not trade particularly at all with our three larger competitors.

And Rps does not trade, particularly at all with our three larger competitors. So if they were the ones to choose to come into back into the market. We think it would have virtually no impact on us at all.

Speaker 2: So if they were the ones to choose to come in to back into the market, we think it would have virtually no impact on us at all.

Speaker 8: Okay, that's very helpful. Second question, and this relates to what you've been talking about, Pat, with the additional resources that being part of Gallagher brings. How rapidly can acquisitions take advantage of that? And is this something we should factor in when we're modeling acquired revenue?

Okay, that's very helpful.

Second question just relates to.

What you've been talking about that with the additional resources that being part of Gallagher brings.

How rapidly can acquisition take advantage of that and is that something we should factor in when we're modeling acquired revenues.

David Motemaden: I would say a quarter is coming from exposure units and another quarter is coming from rate. If you got 9%, you probably got a third, a third, a third in there. Got it, that's really helpful, I appreciate that.

Speaker 2: Day one, and I do mean day one, and the team will swarm that opportunity. Now, do they get used to operating that way? Have they got the customer teed up? It takes, it's still a learning curve, in all fairness. They'll call and we'll jump on the plane and have a shot at that university, but it will probably be a year or two before we land it. So I can't sit here and go day one, it just ratchets up. But I'll tell you what it does.

Day one.

And I do mean day, one and the team will swarm that opportunity now do they get used to operating that way have they got the see the customer teed up it takes its still a learning curve in all fairness, they they'll call and we'll jump on the plane and have a shot at that University, but it will.

Patrick Gallagher: And then maybe just follow up, you know, we've seen obviously the two, the cadence and Eastern deals on top of the M&T bank broker last year or earlier this year. So I guess I'm sort of wondering, you know, as we think about the sustainability of that organic, I know you're the preferred provider for I think it was cadence. But I guess how do you manage the fact that or the potential that there might be more of like an open process for some of those existing customers.

Robert maybe a year or two before we landed so I can't I can't sit here and go day wanted just ratchets up but I'll tell you what it does.

Speaker 2: It gets everybody in that firm excited. It worked Gallagher helped. You can't believe it. We, we turned this risk manager on their head. This is really cool. Next time around, what's the strategy? What's the methodology so that the resources are truly available to that team on day one. Now, would I factor into the earn out?

It gets everybody in that firm excited it worked Gallagher help you can't believe it.

We turned this risk manager on their head. This is really cool next time around what's the strategy. What's the methodologies. So that the resources are truly available to that team on day, one now would I factor into the earn out.

Speaker 2: Some of them take great advantage of it and really gut's help and makes their...

Some of them take great advantage of it and it really does help it makes the earn out others as I said, it's a longer ramp up speed and it's just a matter of the individual leaders.

Speaker 9: others as I said it's a longer wrap-up speed and it's just a matter of the individual leaders. Yeah, one day I think we actually understand true organic because we don't consider any new business net new business wins by those mergers in the first year. That doesn't get counted as our organic. Definitely. It was a $20, $20 million more of net new maybe across the business every year. I don't know. It might be worth.

Patrick Gallagher: Now that, you know, it's not a wholly owned, I don't know if that's something that you guys have worked through planning or, you know, just maybe help us think through that. Well, I'll help you think through it and probably the people from cadence bank and say you maybe talking off the top of the head blah, blah, blah. But I don't think the bank did much to help them produce insurance like probably hurt their production, which is why when you look at some of these deals, the board goes, well, where's the growth?

One thing I would say I think we actually understand true organic because we don't consider any new business net new business wins by those mergers in the first year that doesn't get counted as Jeff.

It was at $23 million more than that now maybe across across the business every year I don't know it might be worth.

Speaker 9: you know, 20 basis points are on our organic growth over the course of the year. So I think it naturally understates it.

20 basis points on our organic growth over the course of a year or so I think it naturally understates it.

Speaker 9: But I think the point, the point is, like I said on this one just a minute ago, we had a merger partner that just crushed it here at the end of September , and that doesn't go into our organic, but it sure impacts our acquisition or revenues. Now we try to give you that.

Patrick Gallagher: Cadence and Eastern good growth, but the fact is, those people have gone out and scrapped for that business around the bank relationship, which was of course when they bought those performs supposed to be the golden nugget in terms of being able to produce business that just isn't true. In fact, I think we're going to unleash an opportunity to really grow the top line. Got it. That's really helpful. Thanks. Thank you.

But I think the appointment.

I sat on this one just a minute ago, we had a merger part of it just crushed it here at the end of September.

And that doesn't go into our organic but it sure impacts our acquisition revenues that we tried to give you that when we when we do these projections. So look at that on page six of our CFO commentary, but the point is the great mergers are the ones that come in and hit the ground running use our resources and capabilities and next thing you know over there.

Speaker 9: when we do these projections. So look at that on page 6 of our CFO commentary. But...

Speaker 2: the point of the great mergers the one that come in hit the ground running use our resources and capabilities and uh... next thing you know next two three four years or they're just hitting it out of the park we've showed you in our hard day things like our drive just galrew drive one what

Two or three or four years, they're there they're just hitting it out of the park. We've showed you in or are they things like our drive just Gallagher drive.

David Motemaden: Our next question comes from a line of Meyer Shields with KBW. Please proceed with your question. Great. Thank you.

One.

Meyer Shields: Picture question one. There's been some press about larger insurance brokers getting back into wholesale. Would it matter at all to Gallagher? Not really. If you take a look at our wholesale business, RPS. We do not mandate inside Gallagher, so it's not 100% Gallagher placements there. We did consolidate down to a smaller number of players, and RPS does about 50% of Gallagher's placements. So we're very cognizant of what the world is like out there.

Just one item.

Speaker 2: that is so cool to these people. And it's basically the ability to sit with a client and say, people like you buy this. And here's what the lines of insurance are that are going to these types of truckers in your area or construction companies or senior living. Here's the layers that they're buying. And by the way, you're holding a $10 million liability limit. Most of your competitors are buying $20 million of Umbrella. Let me show you the losses we have in our group that have pierced the 10 million.

It is so cool to these people and it's basically the ability to sit with a client and say people like you buy this and here's what the lines of insurance are either going to these types of truckers in your area or construction companies or senior living here's the layers that they're buying and by the way you're holding a $10 million liability limit most.

Of your competitors are paying 20 or buying $20 million of umbrella. Let me show you. The losses, we have in our book it appears that $10 million.

Speaker 2: You probably ought to buy the 20. There's reasons that it blows the competition away and our merger partners can't wait to get their hands on it. That's one thing, and there's a dozen of those. Okay.

You probably ought to buy the 20, there's reason for that it blows the competition away and our merger partners can't wait to get their hands on it that's one thing.

Meyer Shields: But really, RPS trades with 15 to 18,000 independent agents, and RPS does not trade particularly at all with our three larger competitors. So if they were the ones to choose to come in to back into the market, we think it would have virtually no impact on us at all.

And there's a dozen of those.

Okay that was very helpful. Thank you so much thanks Mark.

Okay.

Thank you.

Patrick Gallagher: Okay, that's very helpful. A second question, and this relates to what you've been talking about, Pat, with the additional resources that being part of Gallagher brings. How rapidly can acquisition take advantage of that? And is it something we should factor in when we're modeling acquired revenues? Day one, and I do mean day one, and the team will swarm that opportunity. Now, do they get used to operating that way? Have they got the customer teed up?

Speaker 1: Our last question is coming from Yaron Kinar with Jeffries.

Our last question is coming from Yun Qunar with Jefferies. Please state your question.

Speaker 3: Thank you. Good afternoon. I apologize. I had some technical difficulties. So I hope I'm not asking stuff that's already been asked with regards to Eastern cadence. Do they have any different seasonal patterns? I think you touched on growth on the margin profile, but.

Thank you good afternoon.

I apologize I had some technical difficulties, so I hope I'm not asking something that's already been asked.

With regards to eastern cadence do they have any different seasonal patterns.

I think you touched on growth on the margin profile.

Hum.

Speaker 12: I'm curious if that margin profile kind of holds true to what you've seen. Look, it's already throughout the year. No, there's no see now. Yeah, okay. Remember we're easily larger.

I'm curious if that margin profile kind of holds true to what <unk> seen brokerage already throughout the year.

Patrick Gallagher: It takes, it's still learning curve in all fairness by the way. They'll call and we'll jump on the plane and have a shot at that university, but it will probably be a year or two before we land it. So I can't, I can't sit here and go, day one, it just ratchets up, but I'll tell you what it does. Because everybody in that firm excited, it worked. Gallagher, help. You can't believe it.

No theres no seasonality there.

September where seasonally larger.

Speaker 9: cooler, primarily because of our benefits and because of our reinsurance. Our P&C business is fairly steady throughout the year over the four quarters. Maybe it's 23% one quarter, 27% another, but we're not getting the wild swings like you do in reinsurance and employment.

Cooler.

Primarily because of our benefits and because of our reinsurance.

Our P&C business is fairly steady throughout the year over the four quarters, maybe it's 23% 27, another but we're not getting a wild swings like you do in reinsurance.

Patrick Gallagher: We, we turned this risk manager on their hands and said, this is really cool. Next time around, what's the strategy? What's the methodology? So the resources are truly available to that team on day one. Now, would I factor into the urn out? Some of them take great advantage of it and it really does help. It makes the urn out. Others, as I said, it's a longer wrap-up speed and it's just a matter of the individual leaders.

In employee benefits.

Speaker 13: And do either of those deals sell any vertical space that you were looking to boost up or is it more of a geographic play? What's the rationale there? Like good. Yes, this is my passion. So I would say both of them are in their geographies, are strong, where we're...

Got it.

Do either of those deals.

So any kind of vertical.

So you said that.

You were looking to.

Do stop or is it more of a geographic play whats the rationale there.

Mike Good yes. This is my cash so I would say both of them are in their geographies are strong where we are.

Patrick Gallagher: Yeah, one thing, I think we actually understate true organic because we don't consider any new business, net new business wins by those mergers in the first year. That doesn't get counted as our organic stuff. I don't know, is it $20, $20 million more of net new maybe across the business every year? I don't know, it might be worth, you know, 20 basis points on our organic growth over the course of the year.

Speaker 13: are maybe strong in other industries. So in Cadence, in their perspective, we do a lot of public energy.

Maybe strong in other industries, so in cadence and their perspective, we do a lot of public entity in the mid South region, and that's not one of their strengths, but they do a lot in construction and manufacturing so it complements us really really well. It's one of the reasons we liked them. So much eastern is the same way if you look in new England.

Speaker 13: mid-south region and that's not one of their strengths but they do a lot in construction and manufacturing so it complements those really really well. It's one of the reasons we like them so much. Each turn is the same way if you look in New England.

Patrick Gallagher: So I think it naturally understates it. But I think the point, the point is, like I said on this one, just a minute ago, we had a merger partner that just crushed it here at the end of September. And that doesn't go into our organic, but it sure impacts our acquisition or revenue. Now, we try to give you that when we, when we do these projections. So look at that on page 6 of our CFO commentary.

New England is heavily weighted towards life Sciences technology, and D&O and they balance that book considerably with a lot of other industry verticals, including construction. So it is very much a complementary business to each of those areas.

Speaker 13: life sciences, technology, and D&O, and they balance that book considerably with a lot of other industry verticals, including construction. So it is a very much a complementary business to each of those areas.

Speaker 14: Got it. And then one quick one to end up, corporate expenses were quite high this quarter. Were there anyone else there?

Got it.

And then one quick one.

Corporate expenses were quite high this quarter were there any one offs there.

Patrick Gallagher: But the point is, the great mergers are the ones that come in, hit the ground running, use our resources and capabilities. And next thing you know, in the next two, three, four years, they're just hitting it out of the park. We've showed you in our hard day things like our drive, just gallery drive. One item that is so cool to these people. And it's basically the ability to sit with the clients, say people like you buy this.

Speaker 9: I think when you look at it, if you look at the adjustment, if you look at it on an adjusted basis, there were some tax and litigation items where we adjusted that out on an adjusted basis.

I think when you look at it if you look at the adjustment if you look at it on a.

Adjusted basis, there were some tax and litigation items, when we adjusted that out on an adjusted basis, it's kind of noisy comp might be up three or $4 million I think we're a little further ahead on our corporate bonus accruals than we would have been in the past and when you look at operating expense it looks down.

Speaker 9: It's kind of noisy. Comp might be up three or four million dollars. I think we're a little further ahead on our corporate bonus accruals than we have been in the past. And when you look at operating expense, it looks down considerably on a adjusted basis, but that's the FX re-measurement gain.

Considerably on an adjusted basis, but that's the way the FX remeasurement gains that that that you are saying. So if you look at a pre tax basis on an unadjusted basis, that's what you'll see in there, but theres nothing theres nothing fundamentally underlying our our expense structure in the corporate segment.

Patrick Gallagher: And here's what the lines of insurance are that are going to these types of truckers in your area, or construction companies, or senior living. Here's the layers that they're buying. And by the way, you're holding a $10 million liability limit. Most of your competitors are paying 20 or buy in $20 million of umbrella. Let me show you the losses we have in our, it appears to 10 million. You probably ought to buy the 20. There's reasons that it blows the competition away, and our merger partners can't wait to get their hands on it. That's one thing.

Speaker 9: that you're seeing. So if you're looking at a pre-tack.

Speaker 9: on an unadjusted basis, that's what you'll see in there. But there's nothing fundamentally underlined our expense structure in the corporate segments.

Patrick Gallagher: And there's a dozen of those.

Thanks, so much.

Sure.

Speaker 2: Well, thank you again, everyone, for joining us this evening to our 50,000 colleagues across the globe. Thank you.

Well. Thank you again, everyone for joining us this evening.

Two our 50000 colleagues across the globe. Thank you.

Speaker 2: For your hard work this quarter and every quarter, our operational and financial success is a direct reflection of your efforts.

Your hard work this quarter and every quarter, our operational and financial success is a direct reflection of your efforts.

Speaker 2: And as pleased as I am with our third quarter performance, I'm even more excited about our future, future organic prospects, future M&A opportunities, and our ability to become more productive and increase quality. We look forward to speaking with the investment community in person at our IR day in December . Thank you again, everybody, and have a good evening.

Unknown Executive: Okay, that was very helpful. Thank you so much.

As pleased as I am with our third quarter performance I'm, even more excited about our future future organic prospects future M&A opportunities and our ability to become more productive and increased quality. We look forward to speaking with the investment community in person at our IR day in December. Thank you again, everybody and have a good evening.

Unknown Executive: Thank you.

Yaron Kinar: Our last question is coming from Yaron Kinar with Jeff Reed. Please think your question. Thank you.

Mike Pesch: Good afternoon. I apologize. I had some technical difficulties, so I hope I'm not asking stuff that's already been asked with regards to Eastern cadence. Do they have any different seasonal patterns? I think you touched on growth on the margin profile. I'm curious if that margin profile kind of holds true to what you've seen with this already throughout the year. No, there's no seasonality. Remember, we're seasonally larger, smaller, primarily because of our benefits and because of our re-insured P&C business.

Speaker 1: Thank you. This does conclude today's conference call. You may now disconnect your lines at...

Thank you. This does conclude today's conference call you may now disconnect your lines at this time.

Yeah.

Speaker 1: I'll disconnect your lines at this time.

[music].

And that disconnect your lines at this time.

Yeah.

Mike Pesch: It's fairly steady throughout the year over the four quarters. And I made it to 23% or 27% out of the year. But we're not getting the wild swings like you do in re-insurance and employee benefits. Got it. And do either of those deals sell any vertical space that you were looking to boost up or is it more of a geographic play? What's the rationale there? Like good. Yeah, this is Mike. So I would say both of them are in their geographies are strong where we are maybe strong in other industries.

Mike Pesch: So in cadence and their perspective, we do a lot of public entity in the mid-south region. And that's not one of their strengths, but they do a lot in construction and manufacturing. So it compliments us really, really well. It's one of the reasons we like them so much. Each turn is the same way. If you look in New England, New England is heavily weighted towards life sciences, technology, and D&O, and they balance that book considerably with a lot of other industry verticals, including construction. So it is a very much a complimentary business to each of those areas. Got it.

Douglas Howell: And then one quick one that corporate expenses were quite high this quarter. Were there anyone else there? I think when you look at it, if you look at the adjust and if you look at an adjusted basis, there were some tax and litigation. We adjusted that out on an adjusted basis. It's kind of noisy. Comp might be up three or four million dollars. I think we're a little further ahead on our corporate bonus of girls than we would have been in the past.

Douglas Howell: And when you look at operating expense, it looks down considerably on adjusted basis. But that's the FX remeasurement gains that you're seeing. So if you look at a pre-tax basis on an unadjusted basis, that's what you'll see in there. But there's nothing fundamentally underlying our expense structure in the corporate segment. Thanks so much.

Patrick Gallagher: Thank you again, everyone, for joining us this evening to our 50,000 colleagues across the globe. Thank you for your hard work this quarter and every quarter. Our operational and financial success is a direct reflection of your efforts. And as pleased as I am with our third quarter of performance, I'm even more excited about our future. Future organic prospects, future M&A opportunities and our ability to become more productive and increase quality. We look forward to speaking with the investment community and person at our IRD in December. Thank you again, everybody, and have a good evening. Thank you.

Unknown Executive: This does conclude today's conference call. You may now disconnect your lines at this time.