Arthur J. Gallagher & Co.

Good afternoon and welcome to Arthur J. Gallagher and Co.' 's second quarter 2021 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-looking statements within the meaning of the securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary statements and risk factors contained in the company's 10-K statement. 10Q and 8K filings for more details on its forward-looking statements. 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. It is now my pleasure to introduce J. Patrick Gallagher, Chairman, President, and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

Thank you, Laura. Good afternoon, and thank you for joining us for our second quarter 2021 earnings call. On the call with me today is Doug Howell, our Chief Financial Officer, as well as the heads of our operating divisions. We had an excellent second quarter. The team delivered on all four of our long-term operating priorities to drive shareholder value. We grew organically. We grew through acquisitions, improved our productivity, all while raising our quality and maintaining our unique Gallagher culture. For our combined brokerage and risk management segments, we posted 17% growth in revenue, 8.6% organic growth, but it's over 10% when adjusted for timing, which Doug will spend some time on in a few minutes. Net earnings margin expansion of 107 basis points, adjusted EBITDA margin expansion of 30 basis points, and we completed eight new mergers in the quarter with more than $70 million of estimated annualized revenue. Most importantly, our Gallagher culture continues to thrive. Just a fantastic quarter on all measures. Now before I discuss how each of our businesses performed in more detail, let me comment briefly about the termination of our agreement to purchase certain Willis Towers Watson brokerage operations. We were excited about the opportunity and would have loved to complete the transaction. There are a lot of great people at Willis, and they would have been a great addition to our team. But here's the key point. With or without this, we remain very well positioned to support our clients, compete for new ones, and ultimately drive value for all of our stakeholders. We're in the greatest business on earth, our culture is stronger than ever, and I'm excited about our future. Okay, back to our quarterly results, starting with our brokerage segment. Purported revenue growth was strong at 16%. Of that, 6.8 was organic revenue growth, a little better than our June IR day expectation and closer to 9% adjusted for timing. Our net earnings margin moved higher by 53 basis points, and our adjusted EBITDAG margin expanded by 23 basis points, highlighting our continued expense discipline. Another excellent quarter from the brokerage team. Let me walk you around the world and break down our organization by geography, starting with our PC operations. First, our domestic retail operations were very strong with more than 8% organic. New business was excellent, nicely above second quarter 2020 levels. Risk placement services, our domestic wholesale operations, grew 12%. This includes nearly 25% organic in open brokerage and 6% organic in our MGA programs and binding businesses. New business and retention were both better than 2020 levels. Outside the U.S., our U.K. operations posted more than 9% organic. Specialty was 10% and retail was excellent at 9% bolstered by new business production. Pardon me. Canada was up an outstanding 16% fueled by rate and exposure growth on top of solid new business and retention. And finally, Australia and New Zealand combined grew nearly 4%, benefiting from good new business and stable retention. Moving to our employee benefit brokerage and consulting business, second quarter organic was up about 4%, which is also ahead of our June IR Day commentary, and another sequential step up over first quarter 2021 and the second half of 2020. As business activity improves, we're seeing more favorable growth in our core health and welfare fee-for-service and retirement consulting businesses. which is an encouraging sign for the second half of the year. So when I combined PC at 9 plus percent and benefits around 4 percent, total brokerage segment organic was pushing 9 percent, but with timing reported 6.8 percent. Either way, another really strong performance. Next, I'd like to make a few comments on the PC market. Global PC rates remain firm overall, and at the same time, we are seeing increased economic activity across our client base. Customers are adding coverages and exposures to their existing policies, and monthly positive policy endorsements are trending higher than pre-pandemic levels. And overall, second quarter renewal premium increases were similar with the first quarter. Moving around the world, U.S. retail was up about 8%, including double-digit increases in professional liability. Canada was up 9%, driven by increases in professional liability and package. New Zealand was flat, and Australia up 6%. Moving to the U.K., retail was up about 8%, with most classes of specialty business over 10%. And finally, within RPS, wholesale open brokerage was up 12% while our binding operations were up 4%. So clearly, premiums are still increasing across nearly all geographies. Looking forward, it feels that the current renewal environment will persist for some time. Carriers that cut back capacity in some of the less profitable lines of business like property, professional liability, umbrella, and cyber have yet to budge on terms or conditions or haven't reverted back to offering more limits or lower attachment points. And elevated natural catastrophes, continued impacts of the pandemic, social inflation, and low investment returns are all continuing to pressure rates. Add on top of this the potential for increased claim frequency as economies recover and carriers are making a strong case that rate increases are likely to persist for some time. We, too, see the global PC environment remaining difficult for our clients and that is likely to remain for the foreseeable future. Moving to our benefits business, our customer base is returning towards pre-pandemic levels a little more slowly than headline-grabbing sectors like retail, leisure, and hospitality. So we were expecting even better organic in the second half. Further, our HR consulting units are very well positioned to deliver solutions as clients and prospects pivot away from controlling costs to growing their businesses and attracting, motivating, and retaining their workforce in 2021 and beyond. So as I sit here today, I think second half brokerage organic will be better than the first half and could take full year 2020 organic towards 8%. That would be a terrific step up from the 3.2% organic we reported in 2020. Moving on to mergers and acquisitions. We completed seven brokerage and one risk management merger during the second quarter, representing over $70 million of estimated annualized revenues. I'd like to thank all of our new partners for joining us, and I extend a very warm welcome to our growing Gallagher family of professionals. As I look at our tuck-in merger and acquisition pipeline, we have more than 40 term sheets signed or being prepared, representing around $300 million of annualized revenues. Our platform continues to attract entrepreneurial owners looking to leverage our data, expertise, tools, and market relationships to grow their businesses. And we expect that our U.S. pipeline will grow in the second half of the year, given the potential changes in capital gains, taxes, So 2021 is setting up to be another successful year for our merger strategy. Next, I'd like to move to our risk management segment, Gallagher Bassett. Second quarter organic growth was pushing 20%, better than our June IR day expectations of mid-teens, and our adjusted EBITDA margin exceeded 19%. We benefited from a revenue lift related to our 2020 new business wins, increased new arising claims within core workers' compensation, and an easier pandemic-era comparison. Looking forward, the rebound in employment, economic activity, and our solid new business should lead to third and fourth quarter organic nicely in double digits. For the year, we expect organic to be just over 10% and our EBITDA margin to remain above 19%. So what an exciting time to be part of Gallagher. And that's because of our 35,000 plus employees and our unique Gallagher culture. It's our culture that keeps us together during the depths of the pandemic. And as we open offices around the globe, yet preserving the flexibility we've mastered over the last 16 months, I'm hearing the excitement about being back together. Ultimately, it's our employees that wake up every day and decide to do things the right way, the Gallagher way. That's what makes us different. It makes us special as a franchise. It attracts the very best people and merger partners and ultimately clients. I believe our culture has never been stronger. So with two quarters in the books, 2021 is shaping up to be an excellent year. Okay, I'll stop now and turn it over to Doug. Doug?

Thanks, Pat, and hello, everyone. As Pat said, an excellent quarter and first half of the year. Today I'll spend a little extra time on organic and then give you our current thinking on expenses and margins. Then I'll walk you through some items on our CFO commentary document, and I'll finish up with some comments on cash, liquidity, and capital management. Okay, let's move to page four of the earnings release and the brokerage segment organic table. Headline all in organic of 6.8%. Excellent on its own, but as Pat said, really running closer to 9%. There's two reasons for that. First, recall that we had some favorable timing in our first quarter related to contingent commissions that caused a little unfavorable timing here in the second quarter. Call that 70 basis points. Second, also recall that we took our 606 revenue accounting adjustment in the first quarter 2020. We then adjusted that in the second quarter of 2020. So that creates a more difficult compare of this year's second quarter. Call that about 150 basis points. These two items combined for about 220 basis points of a headwind here in the second quarter. We don't expect similar headwinds in the second half. Okay, let's go to page six to the brokerage-adjusted EBITDA table. You'll see that we expanded our EBITDA margin by 23 basis points here in the second quarter. Considering last year's second quarter was in the depth of the pandemic and our brokerage segment saved $60 million in that quarter, to post any expansion at all this quarter is terrific work by the team. Shows we are indeed holding a lot of our savings. So the natural question is, when you levelize for the $60 million of pandemic savings last year's second quarter and about $15 million of costs that came back this second quarter, what was the underlying margin expansion? Answer to that is about 125 basis points, which on 6.8% organic feels about right. That $15 million mostly relates to higher utilization of our self-insurance medical plans, a modest pickup in T&A expenses, and incentive comp. So we held $45 million of cost savings this quarter, and that's really terrific. Looking forward, we continue to think we can hold a lot of our pandemic period savings, perhaps more than half, but naturally some of those costs will come back. As of now, we think about $20 million of costs return in the third quarter and $30 million return in the fourth quarter. Both of those numbers are relative to last year's same quarters. So, again, the natural question might be, what organic do you need to post third and fourth quarter to overcome those expenses and still have margin expansion? Matt would say about 7%. which is really the real story. Recall at the beginning of the year, after expanding margins, 420 basis points in 2020, we were looking at just holding margins flat. Now we're looking at a full year margin expansion story. So even with the return of the expenses, and again, let's say, assuming for illustration, a full year organic of 7%, math would show another full point of margin expansion in 2021. That would mean our cumulative two-year margin expansion would be well over 500 basis points. That really highlights the improvements in productivity that are now ingrained in how we do business and how we operate. What a great story. Let's move on to the risk management segment EBITDA table on page seven. Adjusted EBITDA margin of 19.7% in the quarter is fantastic. And we continue to expect the team to deliver margins above 19% for the full year, showing that our risk management segment can also hold some of the pandemic induced cost savings, meaning that the 2020 step up in margin can be sustained in 2021. Let's move now to page four of the CFO commentary document that we post on our website. Comparing second quarter results in the blue section to our June IR day estimate in the gray section. Interest in banking was in line. Clean energy came in better than our estimate thanks to a hot late June, less wind energy production in certain areas of the country, and higher natural gas prices. Accordingly, we are increasing our full year net earnings range to $75 to $85 million on the back of the second quarter upside. You'll also notice two non-GAAP adjustments. one related to the cost associated with the terminated Willis-Towers Watson acquisition, and the other is a one-time deferred tax revaluation charge related to the statutory increase in the U.K.' 's 2023 corporate tax rate. When you control for those two items, it shows that adjusted M&A and corporate lines were both pretty close to our June 17th estimates. Looking ahead to the third quarter, and that's in the pinkish section, you'll see non-GAAP after-tax adjustment for $12 to $14 million. This charge is mostly related to redeeming $650 million of debt. That's the 10-year senior notes we issued in mid-May. You'll read that also on page three of the earnings release. This should also lead to lower third and fourth quarter adjusted interest and banking expense, savings maybe of $2 to $3 million after-tax each quarter. If you turn now to page five of the CFO commentary, go to the peach-colored section. Just another reminder of what we've been discussing in these calls and during our IR days for the last couple of years. 2021 is the last year our clean energy investments will show GAAP P&L earnings. Rather, beginning in 2022, we will show substantial cash flows through our cash flow statement. Call it $125 to $150 million a year for, say, six to seven years. I know I've highlighted this a lot, but I just want to make sure you consider this as you build your 2022 models and beyond. So next, let's go to the balance sheet on page 14, the top line cash. At June 30, cash on hand was $3.2 billion, and we have no outstanding borrowings on our credit facility. We'll use that first to redeem the $650 million of debt I just discussed, and also today we announced a $1.5 billion share repurchase program. That would leave us with about a billion of cash. Then add to that about $650 million of net cash generation in the second half. That's after dividends, CapEx, interest taxes, et cetera. And we would also have another $600 to $700 million of borrowing capacity. It means we have upwards of $2.5 billion for M&A. When I look at the pipeline, and if a capital gains tax rate change gets momentum, I think we'll have plenty of opportunities to put that capital to work at really fair multiples. Okay, those are my comments. An excellent quarter, an excellent first half, a bright outlook for the second half, and a really terrific cash position. Back to you, Pat.

Thanks, Doug. Laura, I think we can take some questions now.

Thank you. The call is now open for questions. If you have a question, please pick up your handset and press star 1 on your telephone at this time. If you are on speakerphone, please disable that function prior to pressing star 1 to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing star 2. Again, that is star 1 for questions. Our first question comes from a line at Ely's Green Stand with Wells Fargo. You may proceed with your question. Hi, thanks.

Good evening. My first question is on Pat, your organic growth comments. I think you mentioned that you guys would get the full year to 8%. So if my math is right, if you were sitting at 6.4% for the first half of the year, that would imply that you guys are expecting the back half to come close to 10%. Is there something wrong with that thinking? Or are you thinking, given the timing impact in the second quarter, that we get close to double digits in the second half of the year within brokerage?

Yeah, Elise, I think you might be a little strong on that based on the map. So just take a look at it again. I think our map produced it more like towards 9%. Okay, so 9%.

Okay. Close. And then my second question, you guys announced a $1.5 billion share repurchase program to effectively buy back the stock you issued for the Willis deal. So I just wanted to get a sense of timing on the buyback? Is that something you expect to complete this year? And then is the expectation that you go buy back all those shares, or is that also a little bit dependent upon, you know, some of the tuck-in deals if, you know, some of them come together pretty quickly?

No, I think as we sit right now, our intent is to repurchase the $1.5 billion. We think we can get that done in short order also, and certainly by the end of the year. You know, the point here is that we won't let excess capital slip idle by any means.

okay that's helpful and then um on the margin side doug you were you know give us some helpful information and you were giving an example right that if you guys get a full year organic of seven percent that you could show a hundred basis points of margin improvement so is that with the states coming back or is that um kind of after adjusting for the impact of stays or the expectation that we'll see about a hundred points of margin within brokerage this year

Yeah, I think what I was doing is using the illustration of saying if we post 7% for the full year, you'd see about 100 basis points of margin expansion, even with those costs coming back into our structure. And clearly, if we better 7%, we should be able to better that, too.

Okay, that's helpful.

Thanks for the color.

Sure. Thanks, Elise.

Our next question comes from the line of David Modemadden with Evercore ISI. You may proceed with your question.

hi good evening um i i had a question uh just on the uh just on the expense side um you know if i if i just look in brokerage at the operating expenses um you know non-comp non-dna just the opex line if i take out the 15 million of incremental costs It looks like expenses were roughly flat year over year. Doug, I think you spoke about this a little bit in your comments, but I guess I'm just wondering, is that sort of right that the underlying expenses in the business were sort of flat year over year? And would you expect that to continue, you know, for the rest of this year?

Did you take the entire $15 million out of OpEx, or did you spread some of that into comp, and then also did you factor in M&A? But you're not far off of it being pretty close to flat when you factor in M&A.

Yeah, I was just looking purely at OpEx. So, you know, it was roughly flat. But that's something that you think can continue for the rest of the year, just given some of the changes you guys made over the course of last year.

Yeah, I think that we're – like I said, I think that $20 million will come back in the third quarter of expenses, and I think $30 million will come back in the fourth quarter. That will be split some between objects and some between compensation. But by and large, our underlying costs – Other than maybe in the IT areas, we're starting to see savings in real estate. We're starting to see savings in professional fees. You know, we are seeing increases in travel and entertainment expenses because some of our clients are expecting us to be there, and we're happy to be there for it. But you are seeing some good growth. learnings from the pandemic. We have pretty well taken care of all of our incoming and outgoing mail. It's saving some cost there so we can centralize that so we can deploy mail anywhere around the world with the touch of a button. So there are some good projects that have been going on that we're continuing to harvest out of the operating expense line.

Got it. Yeah, that continues to come in a bit better than I would have thought. I guess any sort of update on the thinking in terms of the sustainable expense saves that you're getting from COVID of the, I think it was 150 to 175. Is that still a good sort of level to think about or, yeah, any sort of changes to that?

Yeah, let's level set. We were saving, let's say, let's call it $65 million a quarter during the pandemic, and we think that we can hold $30 million of that, $35 million of that. So, again, back to – I don't know where your $150 came from unless it was 60 times, you know, four and a half, and then divide by two. But where did you get the $150 from?

I was using more of a range that you guys had given. Okay. But, no, that makes sense. Okay. That makes sense. Thanks for that. I guess also, you know, maybe just on the growth side, I guess could you just break down, if we sort of look at the organic, the 9% in brokerage on, you know, sort of a clean basis here, Could you just talk about some of the different components of that, whether that is, you know, rate versus exposure versus new business and share gains and how you expect each of those to trend over the course of this year?

Okay. So new business is stronger than where we were same second quarter or for the year. New business reigns stronger. Retention is about the same. getting lift from rate and exposure that when we combine that together right now, I think it's about 50-50. Rate and 50% exposure.

Got it. Thank you.

Our next question comes from the line of Mark Hughes with Truett. You may proceed with your question.

Yeah, thank you very much. Good afternoon. You mentioned, I think, some of your Some of your end markets have been a little slower, getting ramped up, maybe compared to other more cyclical end markets. Could you expand on that just a little bit? What do you mean, end markets? Well, I think you were talking about your customers, if I heard you properly. Tell me if I didn't.

I think what you're talking about is our employee-benefiting business is You know, you see a lot of headline recovery and employment stats that generally are citing retail, hospitality, travel-related industries. Our customer base is not concentrated in those industries. It's more diverse than that. And it's just the return to work in our customer base isn't quite at those headline returning to work numbers that you see there. Is that what you're asking about? Mark, nothing – it's just a mix of business down in our benefits business.

Right. Yes, got you. No, that was my question. And, Pat, on pricing, I might not have heard all your commentary, but it seems like looking at some of your specific numbers compared to last time, they were as good or better in Q1. It seems like there's some broader discussion of potential deceleration. Why do you think you may be seeing it a little – little more optimistically than others, perhaps.

And I just from where I sit, Mark, when I'm talking to people in the field and when I'm talking to our underwriting partners, there just doesn't seem to be any appetite for cutting. Now, rate of increase is down. But I'm not I'm not seeing people say, oh, gosh, we got this thing right. Let's open the floodgates.

We're seeing a little bit of this. I think the larger-sized market, we saw increases in premiums there that were a little higher than, let's say, the mid-market or the smaller market throughout the end of 2020 and here in the first half of 2021. So we're just not seeing if the large-account market is not growing enough rates quite as fast as they were in the past, we're not really seeing that as much in the mid-market. We're seeing it more consistent with first quarter and fourth quarter. Did I lose you there, Mark?

No, no, here. I'm back. I'm sorry. Just to I'm curious if in a public forum any thoughts you'd care to share on potential for adding some staff in light of the Willis-Towers-Watson-Aon breakup. Are you seeing anything out in the market, any people moving that is noteworthy?

Well, no, we don't. But as you know, Mark, you've followed us a long time, organic hiring is a big part of our strategy. And there's no doubt that we're going to continue to hire production talent across all the lines of business that we've got. And our doors have always, you know, even in the depths of the soft market, you've followed us, you know, the door is open for production talent.

Very good. Thank you.

Thanks, Mark.

Our next question comes from the line of Mayor Shields with KBW. You may proceed with your question.

Thanks. I want to touch a little bit on capital management. I guess there's $850 million of the raised debt that you're keeping. Is it fair to interpret, Doug, your comments about M&A potential as being able to utilize that $850 million?

Yeah, absolutely. That's cash in the bank right now. We think that that, and we might have to borrow a little bit more toward the end of the year, first part of next year, depending on how the M&A pipeline looks at. But the 650, there's a special mandatory redemption feature in there, so we'll pay that back. And then we're happy with the 850 that we raised along with that, and we'll get that to work here in the second half of the year.

Okay. I might be trying too hard with this one, but if you're expecting an increase in potential sellers because of capital gain tax rates, is that likely to depress pricing on these assets at all?

Oh, you might have a little bit, but I think it will put – truthfully, I think that it might put – pricing might stay the same, and I actually might pull forward a little bit less on an earn-out and more up front. So you put it here in this year. You might be able to – is it a full turn on the multiple? Maybe to accelerate it and not have as much on the earn-out, but I wouldn't say it's going to cause a big –

uh decrease in pricing no there's a lot of competition for deals out there yeah fair enough okay thank you so much as a reminder if you would like to ask a question please press star 1 on your telephone keypad our next question comes from the line of alex bolton with raymond james you may proceed with your question hey i'm calling in on behalf of uh greg peters

maybe kind of sticking with M&A and the cap gains conversation. When you're talking, I guess, to potentials, is cap gains coming up within the conversation as of now, or is that still a thought?

No, it's coming up every time.

Okay. And then, you know, when looking at, I guess, M&A, you know, I guess,

what is the size of acquisitions that you're considering has that changed at all nope we're good at tuck-ins by the way let's also greg knows this very well actually if in fact there's 39 000 agents and brokers in america let's remember that business insurance that just brought out its its july uh edition this this month number 100 was 25 million in revenue so the playing field is, is full of really, really good tuck in players.

Okay. That makes sense. And then, um, when talking, when, you know, thinking about margin expansion and, um, you know, the effect T and E has, um, you know, maybe you can touch on, you know, your thoughts around deployment of T and E and, um, you know, how that might be changed, um, compared to, you know, 2019.

All right, let me see if I can understand that again. I thought you asked a question about India in there, or did I hear your word wrong?

No, I guess, no, I didn't say anything on India. It was, you know, the effect of you know, lower T&E on margin expansion, and then, you know, how you're considering deploying T&E, you know, in the future, maybe compared to 2019.

Right, great. Well, first of all, we have no hold on – if somebody wants to travel to see their clients, they're more than welcome to go do it. We have no restrictions on that, and people are self-governing on that. We will meet our clients wherever they would like us to meet them in order to conduct business with them. So we are there on how they want to do it. How much is that? We probably have – Maybe $5 million a quarter of step up from where we were in the past. So maybe there's an extra $5 million in our first quarter. Maybe we're at $10 million this quarter, $15 million next and $20 million next quarter relative to the depths of the pandemic. So we're doing it. The good thing about this, though, is that. we are actually being able to bring our experts to the point of sale virtually much more now than we were before. So remember the advantage that we have, and that is we have experts in every single aspect of insurance around the world. We can now drop that person into our customer's office, or even if they want to do it from home, virtually. International folks, you know, there's conservatively less international travel, but now we can bring our experts from London right into our terrific client or prospect in Des Moines, Iowa with a click of a button. So that's really the competitive advantage that we have. And 90% of the time we compete with somebody smaller than us, and they just don't have the expert. So when we can drop our expert in and bring those capabilities, it's going to lead to more wins in the future. In the past, to travel somebody in for a half-hour meeting, that might be a two- or three-day affair. So think about, even though expenses might return to a certain extent, it's the ability to get our experts at the point of sale or the point to the prospect virtually that really is the terrific outcome from the pandemic.

Okay, that makes sense. I appreciate the answers. Thanks, Al. Thanks, Ed.

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

Good evening, guys. First question, thinking about the second half of the year, I believe you're 9% organic. I think you mentioned this quarter you did 4% in employee benefits. You've got a lot of visibility on how that's supposed to trend. I mean, how are you guys thinking about how that would fit into 9% in the back half?

I think there's a sequential step up continuing in employee benefits like we've seen. As people come back to it, we're really starting to, just even in the last few weeks, our HR consulting units are starting to get more calls. We're starting to get, you know, as covered lives increase, you know, the number of participants in medical plans and dental plans is stepping up. So if that four went to six and then went to eight over the next couple quarters, it wouldn't surprise me. and our employees benefit.

Got it. And then for Pat, can you just remind us why, I mean, we see you guys do like 40 deals a year, but very few of them seem to be wholesale related. When you think about wholesale M&A, why don't we see more of those?

We're very active there, Ryan. I think it's just opportunistic. We've built RPS over the last 20-plus years in large part with acquisitions, and we've done some nice acquisitions over the last 12 months in RPS. One of the areas we've built out, of course, we're the country's largest MGA. We also have a program business that's really strong. But open market brokers, we've built the typical Gallagher way. We've recruited our own and built our own young people out of our internship, and we've done some very nice acquisitions there. So, no, there's no hold back there, and actually there's no real shortage of opportunities. A lot of competition, you know, one of which had a very successful IPO this month.

Gotcha. Okay, cool. Thanks, guys. Thanks, Ryan.

Our last question comes from a line of Phil Stefano with Deutsche Bank. You may proceed with your question.

Yeah, thanks. Good evening. Congrats on the quarter. I guess I'm not sure how to put this, and I hope it's not offensive, but I know that the complaint I'm going to get tonight and into tomorrow is the organic growth seems to be lagging peers. And I understand the timing issue with the contingent and the 606. But even at 9%, it feels like people are going to – I suspect people are going to complain. How do you want me to respond to this as I look at conversations over the next day?

Well, I think it's – I'll let Doug give you the technical side, Phil, because he's good at that. But let's put it this way. If you drop me in the room, here's what I'd say. I'm really proud of our team. We had a great quarter. And so did our competitors. God bless them. And if you take a look at our results over the past number of years versus anyone else you want to put up with that, our team gets up every morning and aggressively sells a lot of insurance. And so I take no second stance to the fact that this quarter was anything but outstanding. And, you know, one quarter comparables – It doesn't get my dander up. Doug could give you a more technical answer, but I think our people did a great job of selling insurance and holding on to our clients. And I'm really happy with the quarter. On a comparable basis, there's others that look stronger. I'm okay with that.

Yeah, I think, Phil, one of the things you might want to do is take last year's second quarter and this year's second quarter for all of us, add them up, and I think you might find that the delta isn't all that much different. And like Pat said, so over two years we're up about 10% organically in aggregate in our brokerage segment. And, again, I think that if you do the math on those that have reported or wherever your other insights are coming from, Their second quarter and their second quarter last year and this quarter might add up to about the same number. I think that, you know, running towards 90% is the best quarter since we've posted since fourth quarter 2003. And like Pat said, this level of organic growth isn't an aberration just to one of us or two of us or whatever. The entire industry is showing excellent organic growth. Industry is growing at a much higher clip than GDP. And I guess what I would say is our outlook for the second half of the year is pretty bullish. So that's how I would answer. But mathematically, take the two quarters together, and we won't be all that far apart when you have like-for-like business.

I guess part of this comes back to, if I think about the two-year stack that you're suggesting, it comes back to the idea that your clients – We're more persistent, and so we don't get the ebb and the flow that we've seen in the recovery last year. I guess is that a fair way to tie that commentary into the numbers?

Yeah, the other way I might put it, Phil, is we're doing a better job than our competition of mitigating the impact of rates for our clients.

Yeah, yeah, yeah. Okay, fair. Pat, when I think about the door is always open for talent that wants to come As part of the agreement for the Willis potential businesses that were going to be acquired, was there any non-compete or no shop for talent provisions within that that would keep you on the sideline from certain talent that might be wanting, you know, looking around?

Yeah, we have some limitations. We've agreed, of course, that, you know, we intend to honor those. And they're not extensive. But generally speaking, we're not limited in our ability to hire general production talent. But, of course, in that discussion, that transaction, there are some limitations, which we intend to honor.

Okay, perfect. Thanks, Walt. Congrats. And, look, I think the margin expansion story over the past few years has been probably second to none. So, you know, hopefully that's the takeaway that you get from me and my comments tonight. Thanks, Walt.

I appreciate it. All right. Thanks, Walt. Thanks, Laura. Let me just make a few comments here. We delivered, obviously, an excellent second quarter. I'm extremely proud of our team. I believe that we are in the best business in the world, and we're delivering significant value for our clients around the globe day in and day out. Thank you all for being with us this evening, and we'll talk to you next quarter. Thanks very much. Thank you, Laura.

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your evening.