Arthur J. Gallagher & Co. (NYSE:AJG) Q1 2024 Earnings Call Transcript

Arthur J. Gallagher & Co. (NYSE:AJG) Q1 2024 Earnings Call Transcript April 25, 2024

Arthur J. Gallagher & Co. beats earnings expectations. Reported EPS is $3.49, expectations were $3.4. Arthur J. Gallagher & Co. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to Arthur J. Gallagher & Co’s First Quarter 2024 Earnings Conference Call. [Operator Instructions] 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. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. 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.

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, Jr., Chairman and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

J. Patrick Gallagher: Thank you. Good afternoon. Thank you for joining us for our first quarter ‘24 earnings call. On the call with me today is Doug Howell, our CFO and other members of the management team and the heads of our operating divisions. We had a great first quarter to begin 2024. For our combined Brokerage and Risk Management segments, we posted 20% growth in revenue, our 13th straight quarter of double-digit growth, 9.4% organic; merger and acquisition rollover revenues of approximately $250 million. We also completed 12 mergers totaling nearly $70 million of estimated annualized revenue, reported net earnings margin of 21.5%, adjusted EBITDAC margin of 37.8%, GAAP earnings per share of $3.10 and adjusted earnings per share of $3.83, up 17% year-over-year.

So another terrific quarter by the team. Moving to results on a segment basis, starting with the Brokerage segment. Reported revenue growth of 21%. Organic growth was 8.9% and about 10% if you include interest income. Adjusted EBITDAC was up 18% year-over-year. And we posted adjusted EBITDAC margin of 39.9% a bit better than our March IR Day expectations. Let me give some insights behind our Brokerage segment organic, and just to level set, the following figures do not include interest income. Our global retail brokerage operations posted 7% organic. Within our P/C operations, we delivered 7% in the United States, 6% in the U.K., 2% in Canada, and 8% in Australia and New Zealand. And our global employee benefit brokerage and consulting business posted organic of about 8%, including some large live case sales that were completed in late March.

Shifting to our reinsurance wholesale and specialty businesses, overall organic of 13%. This includes Gallagher Re at 13%, UK specialty at 10% and U.S. wholesale at 13%. Fantastic growth, whether retail, wholesale or reinsurance. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market. Global first quarter renewal premiums, which include both rate and exposure changes, were up about 7%. Renewal premium increases continue to be broad-based, up across all of our major geographies and most product lines. For example, property was up nearly 10%; umbrella, up 9%; general liability, up 7%; workers’ comp, up 2%; package, up 8%; and personal lines, up 13% So many lines are seeing sizable increases.

There are two exceptions within professional lines. First, D&O, where renewal premiums are down about 5%; and second, cyber, where renewal premiums are flattish. These two lines appear close to reaching a pricing bottom, but combined, represent around 5% of our P/C business globally. So overall, our clients continue to see insurance costs increase, but our job as brokers is to mitigate these increases and deliver comprehensive insurance programs that align with their risk appetite and fit their budget. Moving to the reinsurance market. First quarter dynamics were dominated by the January 1 renewal season where we saw stable pricing and increased demand for property cat cover. Reinsurers continue to exercise discipline and met the increased client demand with sufficient capacity.

Importantly, the team was able to secure many new business wins while retaining most of our existing clients. During April renewals, reinsurance carriers maintain their discipline, and with increased demand and stable pricing, we saw more coverage being purchased. Within property, more capacity was available at the top end of programs and the quoting of renewal process was disciplined and predictable. The casualty treaty market saw stable pricing overall. However, carriers able to differentiate themselves through good management of prior year reserves were able to secure better reinsurance placements. Specialty class renewals were a bit more complex with some changes in terms and conditions. However, many clients were able to secure modestly lower pricing.

With that said, the tragedy in Baltimore may cause reinsurance carriers more pricing resolve throughout the rest of the year. Those interested in more detailed commentary on January or April renewals can find our first new market reports on our website. In our view, insurance and reinsurance carriers continue to behave rationally. Carriers know where they need rate by line, by industry and by geography. We are seeing this differentiation in our data. Premiums are increasing the most, where it’s needed to generate an acceptable underwriting profit. Great example of this is primary casualty, where we are seeing renewal premiums moving higher. Global first quarter umbrella and general liability renewal premium increases are in the high single digits, including 9% increases in U.S. retail.

A. M. Best recently maintained its negative outlook on the U.S. general liability insurance market due to worsening social inflation, medical expenses, and litigation financing. We’ve been highlighting these dynamics for a while, along with hearing concerns around historical reserves, which leads us to believe further rate increases are to come in casualty. At the other end of the spectrum, we have property. As insurance and reinsurance carriers believe they are getting closer to price and exposure adequacy, we are seeing property renewal premium increases moderating. With that said, first quarter insurance renewal premiums were still pushing double digits. As we look out for the remainder of the year, increased frequency or severity of catastrophes could again move the market in ‘24.

And while capacity was very challenging to come by during ‘22 and ‘23, we are now finding, when clients are looking to add coverage or limits, carriers are more than willing to provide additional cover. Notably, we are not seeing a change in the underwriting standards from our carrier partners. While continued premium increases seem rational to our carrier partners, our clients have experienced multiple years of increased costs, having a trusted adviser like Gallagher to help businesses navigating a complex insurance market by finding the best coverage for our clients while mitigating price increases. That’s what we do. Moving to our customers’ business activity. Overall, it continues to be solid. During the first quarter, our daily indication showed positive mid-year policy endorsements and audits ahead of last year’s levels across most geographies.

So, we are not seeing signs of a broad global economic slowdown. Within the U.S., the labor market remains tight. Non-farm payrolls continue to increase and more people are reentering the workforce. Yet there continues to be nearly 9 million job openings. Wage increases have persisted at the same time, medical cost trends are rising. With these dynamics, employers are focused on total rewards strategy to help them achieve their human capital goals while reining in costs. That’s why I believe our benefits businesses will have terrific opportunities in ‘24. Overall, we continue to win new brokerage clients while retaining our existing customers. In fact, our new business production has been on an upward trend in recent quarters, and our retention is holding.

We believe this is a direct reflection of our client value proposition, CORE360 and Gallagher Better Works, our niche expert service and our data and analytics. Don’t forget, we are competing with someone smaller than us, 90% of the time. These local brokers just can’t match the value we provide. So putting it all together, we continue to see full-year ‘24 brokerage organic in the 7% to 9% range, and that would be another outstanding year. Moving on to our Risk Management segment, Gallagher Bassett. Revenue growth was 19%, including organic of 13.3% and rollover revenues of $14 million. Adjusted EBITDAC margins were 20.6%, up 140 basis points versus last year and a bit better than our March IR Day expectations. Our results continue to reflect solid new business, outstanding retention, continued increases in new arising claims across both workers’ comp and liability and resilient customer business activity.

Looking forward, we continue to see ‘24 full year organic in the 9% to 11% range as our larger ‘23 new business wins have been fully onboarded. We now expect full year margin of approximately 20.5%. That would also be another outstanding year. Shifting to mergers and acquisitions. We had an active first quarter completing 12 new mergers, representing about $70 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. Looking ahead, our pipeline remains strong. We have around 50 term sheets signed or being prepared, representing around $350 million of annualized revenue. Good firms always have a choice, and we’ll be very excited if they choose to join Gallagher.

Let me conclude with some comments regarding our bedrock culture. It’s a culture that has remained constant through the decades of incredible growth. This is largely due to the 25 tenants of The Gallagher Way, which is entering its fifth decade next month. It is deeply rooted in the values of integrity, ethics and trust, which have been guiding us since 1927. Our culture is not just a differentiator, it’s a competitive advantage. It attracts the right talent to our organization and the best merger partners and enables us to build enduring relationships. What makes me particularly proud is that I witness our culture in action every day as our employees demonstrate their commitment to our clients, and that is The Gallagher Way. Okay. I’ll stop now and turn it over to Doug.

Doug?

Doug Howell: Thanks, Pat, and hello, everyone. Today, I’ll walk you through our earnings release. I’ll comment on first quarter organic growth and margins by segment, including how we are seeing full year organic growth and margins in each of the next 3 quarters. Then I’ll provide some typical comments on the modeling helpers we provide in 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. Okay. Let’s look to Page 2 of the earnings release. Headline, first quarter brokerage organic growth of 8.9%. That’s a bit better than our March IR Day expectation of 8% to 8.5%. And remember, we exclude interest income. Including such, we would have shown about 10% organic growth.

Looking ahead, we continue to see strong new business production and favorable client retention. Combine that with further rate increases, a resilient economic backdrop and sticky inflation, our 2024 brokerage organic outlook is unchanged. We are still seeing full year organic growth in that 7% to 9% range. Moving to Page 4 of the earnings release, to the Brokerage segment adjusted EBITDAC table. First quarter adjusted EBITDAC margin was 39.9%, a bit better than our March IR Day expectations. The footnote on that page explains what we discussed in our January earnings call and again at our March IR Day. There is 90 basis points of roll-in impact from M&A, principally Buck, that naturally runs lower margins. So on the surface, it is showing 30 basis points lower, but underlying margins actually expanded 60 basis points.

Again, that improvement is a little better than what we forecasted in March. Let me walk you through a bridge from last year. First, if you were to pull out last year’s 2023 first quarter, you would see we reported, back then, adjusted EBITDAC margin of 40.4%. Second, when we update that margin using current period FX rate, gets you to an FX adjusted margin of about 40.2%. And we’ve done that here. So you can see that in the 2023 column in this table. Third, deduct that the 90 basis point roll-in impact. Again, that’s all due to the roll-in math. And let’s – just to be clear, these are not businesses with margins that are going backwards. So that gets you to 39.3%, Compare that to the 39.9% we show today, and that gives you the underlying 60 basis points of margin expansion.

That is really great work by the team. As we look ahead to the following 3 quarters of ‘24, it is looking like we could expand margins in the 90 to 100 basis point range in each of the next 3 quarters. Let me give you some flavor on that. First, as Pat said, Buck passed its 1-year anniversary, so that roll-in noise is behind us. Second, as discussed at our March IR Day, the carryover impact of raises given in 2023 is comparatively lesser over the next 3 quarters. And third, the reality is we are typically posting margins higher than most of our M&A targets. While that slightly impacts what we report as margin expansion, we will do these mergers all day, any day. These are great businesses with terrific talent. And when we combine, we are better together.

So to repeat, expansion in 90 to 100 basis points range in each of the next 3 quarters would get you to about 60 basis points of full year margin expansion. That assumes we would post organic in that 7% to 9% range and it still is allowing us to continue to make substantial investments in data analytics, sales tools, digital service and arming our sales and service folks with the best resources in the business. Okay. Let’s move to the Risk Management segment and organic and EBITDAC tables on Pages 4 and 5, another fantastic quarter benefiting from new business wins and excellent client retention, 13.3% organic growth and margins at 20.6%. Looking forward, we are now lapping growth associated with our large new business wins from ‘23, and so we see quarterly organic for the rest of ‘24 in the 8% to 9% range.

As for margins, the team has done a great job posting margins above 20% this quarter, and we believe we can hold that for the remainder of the year. That also is a bit better than our March IR Day outlook. Turning to Page 6 of the earnings release, in the corporate segment shortcut table, adjusted first quarter numbers came in better than the favorable end of our March IR Day expectations due to lower acquisition costs and some favorable tax items, primarily associated with stock-based compensation, and that’s shown in the corporate line. So, now let’s move to the CFO commentary document that we posted on our website. Not much changes at all on Page 3 or 4 other than a few tweaks to a few numbers such as FX, non-cash items, et cetera. Just do a double check with your models using these numbers.

Page 5 updates our tax credit carryforwards. It shows about $820 million available at March 31, and that we would be – that we are benefiting our cash flows about $150 million to $180 million a year. Doesn’t flow through our P&L, but still a nice annual cash flow benefit to help us fund future M&A. Turning to Page 6, the top table. Recall, we introduced this modeling helper in January. It breaks down the components of investment income, premium finance revenues, book gains and equity investments in third-party brokers. Not much has changed from what we provided in March but we are still embedding 225 basis point rate cuts in the second half of ‘24. And we’ve also updated for current FX rates. The lower table on Page 6 is rollover revenues.

Blue column subtotal of about $228 million is very close to the $224 million we provided at our March IR day. And remember, the pinkish columns only include estimated revenues for M&A through – that we’ve closed through yesterday. So just a reminder, you’ll need to make a pick for future M&A. Also a little housekeeping. When you read Note 3 on that page, you’ll see we had an estimate change related to some historical acquisitions that causes the gross up of revenues and expenses. It nets close to nothing, but it does flow through the P&L. We’ve adjusted these out, so there’s no impact to organic adjusted net earnings or adjusted EBITDAC or adjusted EPS. Moving to cash, capital management and M&A funding. Available cash on hand at March 31 was around $1 billion, which includes a portion of the proceeds from our February debt offering.

So with $1 billion in the bank and expected strong future cash flows, we are still estimating we have total capacity in ‘24 of about $3.5 billion to fund M&A without issuing stock nor having to borrow much of any more. As for 2025, it looks like we could fund over $4 billion of M&A with free cash and debt, all of this while maintaining a solid investment-grade rating. Okay. Another terrific quarter and start to the year. Looking ahead, we see continued strong organic growth, a growing pipeline of M&A, further opportunities for productivity improvements and a culture that makes us hard to beat. I believe we are very well positioned to deliver another fantastic year here in ‘24. Back to you, Pat.

J. Patrick Gallagher: Thank you, Doug. Operator, I think we’re ready for some questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.

Elyse Greenspan: Hi, thanks. Good evening. My first question is on the brokerage segment. So organic, as you guys said, right, a bit better than what you expected in March. So close to the top end of the full year guided range, right, that you guys are maintaining that outlook, could you just give us a sense, do you expect growth to slow over the balance of the year? Is there some level of conservatism? I mean, Pat, you seemed positive on the pricing environment. We saw a little bit like GDP numbers today come out. I’m just trying to think about how you put that all together and how you would think growth would trend within brokerage over the next three quarters.

J. Patrick Gallagher: Well, I’m going to let Doug do the numbers. But yes, I mean, I think you’re reading me right, Elyse. I’m bullish on the environment. We are not seeing a downturn in terms of our clients. They’re employing more people. We’re seeing robust client activity at Gallagher Bassett. That’s a very good bellwether of what’s going on in the economy. Interest rates are up. The market hates inflation, but it’s good for brokers and high interest rates help us as well in terms of the growth in revenues and head count and all the rest of it. So the fundamental business environment is really, really good for us. As far as the numbers, Doug, go ahead.

Doug Howell: Yes. Listen, we don’t see much difference in each quarter going forward. We think we’ll be in that 7% to 9% range, Elyse. We do have a large first quarter and it is heavily weighted to reinsurance. So you would naturally expect us to – if we’re going to be in that range, that maybe the first quarter is a touch above the next three quarters, but I wouldn’t say it’s anything meaningful. And so we’re in that 7% to 9% range each of the next three quarters, which would bring us in, in that range for the full year. So really nothing different than what we’ve talked about the last couple of times we’ve been with you.

Elyse Greenspan: Thanks. And then the second one is on margin, right? So a little bit, like you said, the Q1 was a little bit better than the March guide, but you previously had said, right, 100 basis points in the – all three quarters. Now it’s 90 to 100 and the full year guide seems unchanged. Is it just maybe Q1 was a little bit better so now you’re taking some of that to invest internally? I know it’s a little nitpicky because it’s still 90 to 100, but just trying to kind of square the updated out-quarter margin view with what you told us in March.

Doug Howell: Well, listen, I think that the CFO commentary document has kind of said 90 to 100, I think, consistently. If I said 100% of the last IR Day, I may have said towards 100 basis points. So I think our guidance feels, to us, about the same.

Elyse Greenspan: Okay. And then one last one, the FTC, right, is looking to potentially remove non-competes from – I guess my question is two-pronged from both the ability, I guess, to bring folks into Gallagher and also considering the potential to lose talent to other players, how do you think this could impact the company if it does actually go through?

J. Patrick Gallagher: Well, let me comment on that one. First of all, I think everybody saw that the U.S. Chamber has filed a lawsuit in Texas that’s challenging this, and we’re supportive of the Chamber’s efforts. We think it’s an overreach by the executive branch. But having said that, if the new rules actually hold up, there’s a count in non-compete agreements as part of the sale of the business. And so we see that rule is having a little impact, really, on our M&A strategy. And that’s – when it first came out, that was kind of my concern. Our agreements with our production staff do not contain non-compete provisions, rather we use non-solicitation clauses. And there is a fine line difference there, but those cover clients and employees.

And from our first look, we think those are going to remain enforceable. Having said all that, we want people to want to work here. The reason, this is why culture is so important. This is a great place to work, and we attract highly motivated salespeople and entrepreneurs that are passionate about doing what they do, and they want to leverage their expertise and capabilities. And we give them the data and analytics and the centers of excellence to work with. We arm them with way better armament that they get from being part of a local competitor. We’re a great place to work. So while I don’t agree with the FTC, and I do agree with the Chamber’s position, we’re supportive of that, for our business, I think it’s a non-issue.

Elyse Greenspan: Thank you.

Operator: Our next question comes from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your question.

Mike Zaremski: Thanks. Good afternoon. Just as a quick follow-up on the FTC question. One of the top 10 brokers is on record saying that their California margins are a bit lower than the rest of the rest of the regions due to a little bit higher turnover, which might be due to Cali not having non-solicited and non-competes. Just curious as have you ever sliced and diced your California margins? And are they a little bit lower than the rest of the company?

J. Patrick Gallagher: Sliced and diced every margin by every possible measure you can think of. And no, they’re not a bit lower. We’ve been trading in California for 50 years. We love the state, we’re big, big there, and our people love working there.

Mike Zaremski: Okay. That’s clear. Switching gears to M&A. You guys – and I’ve asked this in the past, but I’ll just keep asking, because these are big numbers. So Doug, you said $4 billion of capacity for next year. That’s clear. But these are just big numbers, $3.5 billion this year, $4 billion next year. Does this imply, if you look at, like, the top 100 list of brokers, I know that’s just U.S., there’s lots of overseas stuff. But just – should we be thinking that you guys do some chunkier size deals as time progresses to be able to kind of fully deploy cash and debt?

J. Patrick Gallagher: Mike, this is Pat. I think it’s fair to say that when opportunity presents itself, we’re not afraid. I mean, 10 years ago, we stepped up and bought Wesfarmers out of Australia for $1 billion. That was the biggest play we’d ever made, and had, in fact, some financing for it that’s worked out incredibly well. I think our purchase of Willis was somewhere on the order of – Willis Re was somewhere on the order of $4 billion. And last year, we spent a good bit as well. So we’re not afraid to look at chunkier deals, but you hit on it. There’s 100 top 100. There happens to be 29,900 in the United States alone that are smaller than that. That’s where our activity is based most of the time.

Doug Howell: Yes. I think – Mike, this is Doug. I think that we have a chassis now that we can bring on a lot of smaller acquisitions, nice family-owned businesses that realize that they can be better together with us. I think that our M&A integration process is pretty smooth, very refined, 700 deals over the last 20 years. So we’ve got that down. And I think more and more, smaller or local brokers are realizing they can get the resources from us overnight that they’ve been wanting to have for maybe 20 years. So I think we have an advantage right now that family-owned broker now sees that they get to join us. This is their forever home. They don’t have to sell into a different model that maybe will flip them or sell them to a different owner or break them apart in order to get value.

They see that what’s being talked about of capabilities is real inside of us. And sometimes when they go to another quarter for them, they’re saying what they’re going to do versus what they have done. So I think that we have the opportunity to increase the volume of that nice tuck-in deals that we see out there. And I think that our story is getting stronger and stronger every day. Higher interest rate, it does not help others reinvest into their business. We reinvest so much into our business day in and day out. There are new ideas for tools and capabilities and the others just can’t say that. They haven’t done it. I don’t think they’re going to do it in a higher interest rate. So I think the volume of our tuck-in deals will increase.

Will we spend $3.5 billion this year and $4 billion next year. Yes, maybe we’ll see. I think we’ve got a good shot at it.

Mike Zaremski: Okay, thanks. I will get back in the queue.

J. Patrick Gallagher: Thanks Mike.

Operator: Our next question comes from the line of David Motemaden with Evercore ISI. Please proceed with your question.

David Motemaden: Hi, thanks. Good morning or sorry, good afternoon. Long day.

J. Patrick Gallagher: I don’t know maybe, I thought you are in Asia, that’s okay.

David Motemaden: Yes, I actually don’t even know where I am. But Pat, I wanted to just talk about your comments you made on the property insurance side and on clients looking to add incremental coverage or limits and just how I can think about that as a potential offset to some of the moderation in property insurance pricing that you were talking about as well. Just help me think about the – both of those factors and sort of how to think about that moderation and the impact that could have on your organic growth in the future.

J. Patrick Gallagher: Well, first of all, I think that when you look at that, those were in the section of the prepared remarks that had to do with reinsurance. There’s been a lot of demand the last number of years for cat covers and what have you that frankly were hard to meet. And that’s why we talk about the fact that it was more orderly this 1/1. We were able to complete what people wanted more or less. But there has been an appetite for more cover there that buyers and sellers have walked away from. But I think as we start to see pricing stabilize, become more predictable, that allows it to flow into their rating structure, etcetera. There’s demand for more cover on their part, and we’re meeting that demand. And I think that is offsetting some of the potential.

Now remember, we didn’t see property rates come down this quarter. What we’re saying is that the increase moderated. So I think that there’s kind of – on the retail side, if you’re a retail buyer – and remember, most of our book of business is the commercial middle market. Don’t get me wrong, we do a lot of risk management business, but these tuck-in acquisitions and the like that we’re doing are clearly middle market players. Those people don’t have a lot of choice. They’re buying full cover at higher prices. And if that moderates a bit, it’s good for the client.

Doug Howell: Interestingly, David, we have – we’re seeing rate increases and the exposure unit increases in the middle and smaller market greater than we did in the larger account size whereas, say, you go back a year or so ago, it might have been just the opposite. So we’re starting to see – if you’re talking about some rate moderation and the increase, it’s starting to pick up a little bit in the middle and small market space. The second thing is, remember, if the rate moderates, our customers are very good about opting out of coverage or as much coverage as rates go up and then opting back in for coverage to buy more when rates are coming down. So we’ve never captured the full increase of the rate and we won’t suffer the entire give back if rates moderate a little bit.

So there’s that opt in, opt out. We haven’t really talked about that much in the last 5 years or so. But we’re seeing customers opt back in to buy more coverage if there are some moderation in the increase of the rates.

J. Patrick Gallagher: Also on the property side, back to that, David, you’ve got – many years were zero interest rates, not the last couple, but zero interest rates left the schedules pretty much untouched. So you do have underwriters now being much more disciplined around the values, and that’s pushing values up. So we’ve got the benefit of more values being insured in the property business. And my prepared remarks basically pointed out that property was up nearly 10% this quarter. So we’re not seeing rates dropping. We’re seeing rates go up in property a little less viciously. Now having said that, if the wind blows this fall, we’re 1 month away from the start of the hurricane season, I’m just telling you all bets are off. I don’t know what’s going to happen. So for our clients sake, I hope that we have a benign season.

David Motemaden: No, thanks for that. And yes, I do – I was referring also, and you guys answered it, just the primary market, the moderation there. It is interesting to hear more about sort of that opt-in which I have not thought about. So that is helpful to hear about that. Thanks for that. And then if I could just add one more, just one more question. So it sounds like there were some large life sales that came through towards the end of March. Was that a pull forward from future quarters? Or I guess, sort of outlook on the pipeline of the life sales and just how that – how you’re thinking about that throughout the rest of the year.

Doug Howell: As probably more of the – if you remember, in December, we had some push out of the fourth quarter. So I would say it might be more catch-up than it is pulling from the future. And we’re talking about $5 million on a $3 billion revenue quarter. So it was – it’s not meaningful in any of our numbers. The difference. We love the business, but it’s not – it doesn’t make a big difference in any of our numbers.

David Motemaden: Got it. So that was in your sort of outlook range that you gave in March. So the upside this quarter was not just solely from the life sale?

Doug Howell: That’s right.

David Motemaden: Okay, thank you.

J. Patrick Gallagher: Thanks, David.

Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your question.

Mark Hughes: Yes. Maybe good afternoon.

J. Patrick Gallagher: Hi, Mark.

Mark Hughes: Hello. Pat, did you give the breakout for open brokerage versus the MGA or binding business within the wholesale?

J. Patrick Gallagher: I did not.

Doug Howell: You got about 16% open brokerage this quarter.

Mark Hughes: And then with the binding, I think it’s been running mid-single digits. Is that…

J. Patrick Gallagher: Higher than that. So more like 10%, 11%.

Mark Hughes: Okay. And then anything on the workers’ comp side? Or just waiting for signs of life there in terms of frequencies, severity, pricing? Is it more of the same? Or do we have some reason to think it could be in selecting?

J. Patrick Gallagher: No, I think that’s really interesting, Mark. In my career, that line has been, at times, pretty darn cyclical, and it is just as flat as a pancake. It’s just going along. You might see two here, three there. And it’s really just kind of flat.

Mark Hughes: Yes. Yes, thank you very much.

J. Patrick Gallagher: Thanks, Mark.

Operator: Our next question comes from the line of Katie Sakys with Autonomous Research. Please proceed with your question.

Katie Sakys: Hey, thanks. Good afternoon. First, just kind of wanted to touch on the margin expansion guidance for the full year. If organic revenue growth were to come in higher than the current guide, whether that comes from the wind blowing and property rates reaccelerating or for something else, how much of that would you guys kind of envision letting fall to the bottom line? Like, should we expect to see greater margin expansion? Or are there other areas of investment opportunities that you guys would kind of like to see some progress made on.

Doug Howell: Well, listen, I don’t think that our investment opportunities would be rolled out fast enough in order to spend more going into if we had to pop up in organic growth and starting in August, if something – the wind blows or something like that. So I don’t think we would have the ability even to ramp up on some of the – some big investment opportunities to offset that additional organic growth. But I’m trying to do some mental math here. If we’re up another 0.25 point in organic, it might produce another, in a quarter, to $10 million or $15 million if we had it for half a year, something like that, if I’m doing my math right. So I don’t think – it would probably naturally improve the margins a little bit.

I want to make sure we go back and clarify the question within wholesale, right? When you combine binding and programs, 11%, the programs are really more running around 2% to 3%. And open brokerage is in that 16% range. So just to make sure that we – I answered one question, Pat has answered a combined question and just to break those three out, 16%, over 10% and low single digits on the program side.