Arthur J. Gallagher & Co. (AJG) Q3 2016 Earnings Report, Transcript and Summary

Good morning and welcome to Arthur J Gallagher & Co's Third Quarter 2016 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 the conference call including answers given in response to questions may constitute forward-looking statements within the meanings of the Securities laws. These forward-looking statements are subject to certain risks and uncertainties that will be discussed on this call and which are also described in the Company's reports filed with the Securities and Exchange Commission. Actual results may differ materially from those discussed today. In addition, for reconciliations of the non-GAAP measures discussed on this call, as well as other information regarding the use of these measures, please refer to the most recent earnings release and any 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.

I appreciate you joining us on our third quarter 2016 earnings call. Before I get down to some serious business, I have to start the call by saying, Go Cubs. With me this morning is Doug Howell, our Chief Financial Officer, as well as the heads of our operating divisions. As I do every quarter, today we're going to touch on four key components of our strategy to drive shareholder value. Those four are; one, organic growth, two, growing our business through mergers and acquisition, three, improving our quality and productivity and four, maintaining a very unique Gallagher culture. The team executed on all four of these pillars this past quarter and on a year-to-date basis. First, let me start with organic growth. In our brokerage segment, we closed at all in organic of 3.4%, up nicely over second quarter and right in line with our year-to-date organic of 3.6%. I recently returned from The Council of Insurance Agents & Brokers annual meeting where I met with more than 20 insurance carriers. Based on my conversations with carriers and consistent with our own experience in data, I continue to see the domestic pricing environment as stable. In fact, rate and exposure only had a little over one point of negative impact that our domestic property/casualty renewals results in the third quarter. I also spent time with our leadership teams in U.K., Canada, Australia and New Zealand over the past few weeks and pricing outside the U.S. remains broadly soft. So I see an environment for us that could lead to organic growth in the fourth quarter, similar to what we saw to the first nine months of this year. Clearly that depends on our new business in the fourth quarter and you may recall we did have a very large new business month in December 2015. Let me breakdown our organic around the world. I’m extremely pleased that every single division around the world posted organic growth in the quarter. Our sales culture is truly alive and well. Domestically we saw about 4% organic growth, within our retail P&C operation up 3%, wholesale was up 1% and benefits up nicely over 5%. We did experience some incremental pressure within our whole sale unit, driven by continued weak property pricing in the quarter. The domestic casualty lines pricing remained similar to last year. Exposure units are showing some offsetting some of the rate pressure. Property/casualty insurance market remains in level where our products teams can grow organically and outperform. Our employee benefit consulting operation continues to see great new business opportunities. This business could typically grow as more in the second half of the year and it did nicely here in the third quarter, an organic growth that’s promising for the fourth quarter too. In August, we released the results of our annual Benefits Strategy & Benchmarking Survey, one of the largest of its kind, with over 3,000 U.S. employees participating. This type of thought leadership and research is of great value to our clients and invaluable when we’re showing we’re showing new prospects or vast capabilities and insights. Let me move to our international brokerage operation. As I discussed in our July earnings call, in our September 23, Investor Day, all of our operation closely are working together, with integrated sales plans and are living and breathing our unique Gallagher culture. This quarter we saw 2% organic from our U.K. and Canadian teams and similar organic growth from our teams in New Zealand and Australia. This is simply excellent work as these international teams continue to grow through a rate and exposure headwind that is stiffer than we’re seeing here domestically. Next, let me move to merger and acquisition growth. The average size for the seven acquisitions this quarter was $4 million of revenue and at an average of 7.6 times EBITDAC, putting our year-to-date multiple at 7 times. Third quarter acquisition activity was a little slower than normal, but our pipeline remains very robust. We were approximately $90 million of revenue associated with agreed upon [ph] term sheets and another $140 million of revenues with term sheets issued being prepared. On that all of these transactions will close, I do think we’ll catch up to a more normal phase of transactions during the fourth quarter. Our pipeline is as strong as ever and is full of small independent entrepreneurs, with strong sales skill, excellent client relationships. Looking forward towards 2017, we’ll continue to focus on smaller tuck in mergers where we believe we can create value by giving these professionals full access to our capabilities, expertise and resources. I want to stop and thank all of our new partners for joining us and I extend a very warm welcome to our growing Gallagher family of professionals. So how did we do through the first three quarters in our brokerage segment? Over 9% total adjusted revenue growth of which 3.6 is organic, adjusted EBITDAC growth of 11%, adjusted EBITDAC margin expansion of 47 basis points and we continue to have an excellent merger and acquisition pipeline at fair multiples. I couldn’t be more pleased with our nine months result in the brokerage segment. Next, I’d like to move to our risk management segment which is primarily Gallagher Bassett services. Risk management had a nice rebound from the second quarter, with organic back in positive territory. The turnaround from the second quarter is due to a smaller impact from performance bonus income and more normal pattern in the business. Client retention rate remains strong and client satisfaction both in the U.S. and internationally continues to enhance GBs reputation and standing with new sales results surpassing prior year. Going forward for the risk management segment, we believe we can deliver positive organic in the fourth quarter and even better organic in 2017 as recent new business wins in Australia and the U.K. come on line. Our value proposition of delivering superior claim outcomes for clients will continue to be a differentiator of this business versus our competitors. Further, Gallagher Bassett is an excellent complement to our brokerage operations as it is another business that helps our clients manage and mitigate the total cost of risk. Moving now to clean energy, once again we had an excellent quarter and we’re three quarters into delivering nearly 15% growth in annual after tax earnings. Lastly, let me speak a bit on culture. I hope you had a chance to attend or to listen to our September Investor Day. Tom Tropp, our Chief FX and Sustainability Officer, discussed how our unique Gallagher culture drives shareholder value. I truly hope you can take away from Tom’s discussion; our culture directly contributes to our organic growth or distinguishes us from others in a highly competitive merger environment and hold as the basis for people coming together as a team to service clients consistently focused on doing the right thing. After the meeting we were asked, why culture wasn’t in Tom’s title. There’s a simple answer that a Gallagher culture is every single person’s responsibility and our culture continues to flourish. Okay, another great quarter and an excellent first nine months. Over to you, Doug.

All right thanks, Pat. Good morning, everyone. Like Pat said, we had another excellent quarter by the team. Today I have five items. We’ll do a refresh on modeling revenues, some comments on margins, we’ll do an update on winding down our integration efforts, then I’ll move to clean energy results and I’ll end with some comments on cash and capital management. Okay, let’s go to modeling revenues. I think just using the CFO commentary document that we posted on our IR website as follows, starting on Page 2 of the CFO commentary, adjusted fourth quarter 2015 revenues for the impact of foreign currency exchange that we currently estimate at about $29 million. Remember, start by adjusting fourth quarter ‘15, not ‘16, then apply your organic pick to that number. Next, layering well over M&A revenues for mergers that we completed in the first nine month of this year; Page 5 of the CFO commentary shows that we estimate about $28 million rolling in, in the fourth quarter. And then finally make your own pick for a new M&A revenue that might come from mergers we close here in the fourth quarter, but please remember to assume a mid-quarter closing date. Following these steps should help you from overall undershooting [ph] on revenues and avoid the related the EPS impact. Okay, moving to margins, adjusted brokerage EBITDAC margin expanded 20 basis points in the quarter. We continue to get some margin uplift from our international operations, but overall margin expansion was a bit muted because we had some adverse domestic medical plan experience in the quarter, cost us about 20 basis points. It’s unfortunate, but does happen from time to time. Looking towards the fourth quarter, if we had 3% organic and I’m not saying we will or we won’t, we could hold margins flat with last year’s fourth quarter or even squeak out a little expansion. As for the risk management segment, margin of 16.8% was right in line with our expectation that we shared with you at our investor meeting in September. This is really great work by the team. With the return to low single digit organic in the fourth quarter, we see margins in the lower 17% range. Now, let’s move down to integration, we’re nearly finished. We’re about done combining the four large acquisitions we did in the U.K. You can see it in the numbers, third quarter integration costs were $0.04 this year versus $0.10 last year and in the CFO commentary document you’ll see our fourth quarter estimates for integration are at about $0.03, also down from $0.10 in the fourth quarter of 2015. I’ll be back in London in a couple of weeks and I look forward to congratulating the team for a really, really terrific effort over this last year. And also I should - deserves mentioning here. Our Canadian merger is also substantially complete with their integration efforts, so it’s a really nice work to those folks up in Canada too. Moving next to clean energy, you heard Pat say that we had another excellent third quarter and we remain on track to deliver about 15% earnings growth over the last year. Warmer weather helped us beat our forecast in the third quarter, but production might be a little lower in the fourth quarter because we haven’t seen much cold weather yet. For example, you’ll see that there’s still a lot of green in the highway or rig way [ph] tonight. And don’t forget that our production has not only reduced our current year taxes, but we have also generated $430 million of credit that are sitting in our balance sheet. Approximately, that’s $430 million receivable from the government that will help us reduce our past taxes paid for many, many years. We believe this has meaningful value for the shareholders We also have about $230 million of available cash on our balance sheet and as I commented on before, we’re making really good progress on our bank account consolidation efforts that help us unlock available cash. So looking forward, you heard Pat say that our M&A pipeline is strong. We got nice cash and nice cash flows developed. So I think that will fund our M&A activity for the remainder of this year with cash and debt. As for 2017, I see even stronger cash flows, given integration will be behind us and we won’t have real estate moves that we have this year either. So we should be well positioned in 2017 to continue funding M&A with free cash and debt. So those were my comments and another great quarter and an excellent first nine months of the year. Thank you, Pat.

Thanks, Doug. Donna, would you open the line for questions please.

Thank you, the call is now open for questions. [Operator Instructions] Our first question is coming from Mark Hughes of SunTrust Robinson Humphrey. Please proceed with your question.

Yeah, thank you very much. Good morning.

Good morning, Mark.

In the risk management business, could you talk about claims volume? Was there also an issue maybe headwinds on underlying claims?

Yeah, we’re seeing some claim volume growth, but it’s not as strong as it was a year ago. We’ve seen about 1% growth in claims volume or claims activity down from probably 2, 2.5 this time last year.

And is that workers comp or is that overall?

Primarily workers comp and I think it - I believe the claim volume is an indicator of economic activity.

The benefit segment, sounds like you had good growth, I think you said 5%, any update on some of the exchange, additional help that client need, just some more detail would be good?

Yeah, sure and I’ve said this many times. Personally, I was not in favor for our country to - I was not a proponent of a volume care, but for companies putting the greatest thing in a room. So it’s helped our merger and acquisition activity and it’s a very, very complicated act and what that does is created an awful lot of consulting opportunities for us, our clients need a lot of help. The exchange is one of the things that we help our clients take a look at as they decide how they’re going to treat their employee base. We look really at what we’re doing from a consulting standpoint as a view of the total rewards that a client is going to use to maintain the employment of their best people. Really when you come down to it, every business is all about people and so you’ve to look at the entire list of benefits that you’re going to provide and then figure out how you’re going to actually work the health insurance into that. So exchange is popular, we’ve got probably about 15% of our clients out there taking a serious look at our exchange and the rest treat their insurance in a more traditional manner.

And one thing that the Northeast of Ohio native go tribes [ph].

Good for you Mark.

Thank you, our next question is coming from Elyse Greenspan of Wells Fargo Securities. Please proceed with your question.

Hi, good morning. First, in terms of the organic, I appreciate all the opening commentary, so it seems like you’re pointing to appropriate growth about in line with the year-to-date level which would be about I guess 3.6%, so little bit of an uptick eventually. Within that how do you see I guess, going into the Q4 as well as into ‘17, the components domestic and internationally you think - both should continue to pick up a little bit.

Well, domestically we’re seeing a pretty stable market which has been a stable market now for about five years, which is pretty unusual in my carrier and I think it's a very good thing for our clients. The past is hard and soft market cycle that we lived through for the last literally four years that doesn't benefit quiets at all. So today we've got a stable market domestically, a softer market internationally, so what I see is continued international 1% to 2% organic and hopefully closer to 4% to 5% domestically.

Yeah, I think on that year-to-date, excuse me the fourth quarter 3.6 number that you threw out there. Remember we did have a big December new business quarter.

Last year.

Last year, so I think that 3.6 might be on the upper end of that.

Okay great. And then the 1% to 2% and the 4% to 5% that you're referencing domestic and internationally that would apply to 2017 as well?

I think so.

Okay great. And then in terms of the acquisition pipeline, you did mention a bunch of deals with term sheet. How do you see the multiples on those deals, I mean I didn't notice that multiples that you guys are paying did kick up a little bit in the quarter, you attribute that to potentially a slowdown in the activity or is just taking longer I guess to get these deals fully signed. And then combined to that I guess if the deal flow does if these deals do not materialize would you guys consider repurchasing shares sooner rather I know in the past maybe end of 2017. Could that be pushed forward if these deals not materialized?

Yes, let me be clear about this. First of all, we see three uses of our cash. And we've said this literally for the - more than last decade. The first is we're going to buy brokers. Secondly we're paying dividends. And the third they were introduced to our stock back. So if in fact for whatever reason the acquisition activity slows down and we're going to maintain our pricing discipline around our acquisition activity. Been here before 20 years ago the banks pushed prices always through the roof and we had a bit of a slowdown on acquisition activity while they were doing that. They got their ability [ph] full private equity will eventually as well, but if we have excess cash we will buy our stock back.

Okay great.

Sounds for the multiple if you look at your year-to-date, we're still about seven times, is a little higher seven, six, I don't see there is are multiple pressure out there or pricing pressure out there, but I think there's a lot of sellers out there that see as that bring substantial capabilities to them that are willing to sell at a fair price. So those are the ones that we're going to be going out. Nice entrepreneurial tuck-in folks that are willing to take a fair price and understand that together we can be better.

Okay great. And then one other question I noticed on the revenue head from currency did go up in the fourth quarter although the EPS impact did not change, how do you think about I guess the head between revenue and expenses and what kind of currency hit we might be on earnings as we start given where exchange rates are to say as we start to think about 2017?

Yes, the uptick from our September 23 guidance and because of the further strengthening of the dollar versus the pound. We do have a little bit of a natural hedge in the U.K. because we had dollar denominated revenues and pound denominated expenses at service those revenues, so that's why we ended up with the minimis amount of impact on our EPS. And I would see right now, I don't know if the pounds going lower or not, but I would say that that trend would continue then that you could have an impact on revenues, but not that much impact on EPS.

Okay that’s great. Thank you very much.

Thanks Elyse.

Thank you. Our next question is coming from Kai Pan of Morgan Stanley. Please proceed with your question.

Hi this is Chai Goel [ph] for Kai. First question contingents and supplements. You have grown and 10% to 20% year-to-date. So could you talk a little bit of what’s driving there?

Yes, I think there's a couple things on it, I think it's a great question. If you listen to our September 23 IR Day I got on my eye horse a little bit about supplementals and contingents versus base contingent - base commissions and fees. I think that you should evaluate us using them all inorganic release combined a basin supplemental, because contingents can be a little volatile. Like I said in September, it's important for everybody to understand in one year we may place a piece of - place a policy what a carrier that has a strong base commissions and doesn't pay much in supplementals, the next year that policy might be better for the customer to be placed with another carrier that pays higher supplementals and a lower base or maybe that carrier would pay a contingents to that. We are completely indifferent and how that gets classified in our financial statements as long as we're being compensated appropriately and with full transparency to our clients. We’ve got to do the right thing for our clients first, and we can't worry about where that gets posted in our financial statements. So we have had strong growth in supplementals and contingent. And I think that's basically the carrier’s preference on that rather than paying based commissions at this point.

Okay, so I guess one of your peers did comment that the contingents could decline as popped [ph] up your declines. So how do you see that in 2017?

Well, I don't see much of a difference in our contingents be getting paid in the first part of 2017 based on our 2016 performance.

And have I think contingents have a higher margin, so can you quantify how much they could have held year-to-date?

The contingents and supplemental are higher margin for us. How much have they affected us year-to-date, they might have help margins I get a pop in number here and look at it, but may 15 basis points something like that of our 47 basis points margin expansion year-to-date maybe a third of that came from contingents.

Okay, thank you.

Thank you.

Thank you our next question is coming from Bob Glasspiegel of Janney Montgomery Scott. Please proceed with your question.

Good morning Bob.

Good morning, Arthur Gallagher team.

Good morning Bob.

Just curious about - Pat, we've had four months post Brexit vote, now we’ve got ability of seen how the world is changing. Curious what you think this does to your U.K. operation Lloyds as a center of gravity in that’s going to be a movement to Ireland a little bit on the margin for you in the world?

No, I don't think so. I think from an insurance perspective, I think it's going to be pretty much of a nonevent. Now that's early days and obviously we're monitoring all that, and I think that the people in the city of London are very concerned with what this means to the financial world, but from an insurance perspective the expertise is in London people have traded in that with that expertise for 300 years and I don't see it moving.

And any impact to sort of U.K. business flow that you've seen to date.

No actually not. The only real impact has been the impact of the Sterling decline.

Right. Yeah that's consistent with my perspective that I mean U.K. to leave U.K. becomes a little bit more painful with currency where it is, that you're definitely moving to a high expire expense.

I don't - I don't see, I really don't see any reason for anyone to decide that they have to move. That's going to differ by people in different industries, but when it comes to insurance the Lloyds and London insurance community was been incredibly strong before the E.U. and that will be strong afterwards.

Thank you, wishing you a productive and fruitful and fun weekend.

It is going to be fun. Let's hope we win. Thanks, Bob.

Thank you. Our next question is coming from Josh Shanker of Deutsche Bank. Please proceed with your question.

Yes, thank you very much. So I don't have to remind you little more, little less than a year ago you guys might have touch some comments that got people concerned about 2016. It's been a great 2016 for Gallagher.

Thank you.

Let’s talk about 2017 now. Compared to how you felt about the year ahead last year. How are you feeling right now, managed with guidance, but your gut was very concerned I think a year ago. Turned out to be probably over concerned, do you have any thoughts on the year-over-year change?

Yeah I'm very bullish on 2017, and you're exactly right Josh, you read my sentence well, finishing up last year I was a little bit concerned and then we ended up and we haven't had an incredible new business quarter in the fourth quarter last year, a really proud of the team. And I see the pipeline we use salesforce.com I can look into that pipeline virtually all our niches are strong, the business, the new business opportunities are strong. Now we're going to close them, we’re going to close it out, but I think 2017 will be another record year.

Very good and a couple months ago I asked you about health care exchanges and you said that you were broadening your offering or you may be on discussion with a couple health care exchange that currently you don't use. Can you talk about how what that broadening is like and maybe give us some details on what your plans might be yet?

Yes, in fact Josh, I appreciate the question very much. I'm really proud of our benefits team for how we position ourselves. I think we took a lot of heat two to three years ago about not investing heavily in the technology to create our own exchange. And what we said to the investment community and to our clients at that time is that we're consultants. We're going to use exchanges where they're appropriate for our clients and we're going to have one to two to maybe even more exchanges than that as appropriate for opportunities for clients to deal with their exposures. And we're going to remain consultants we're not going to be a product sales firm, and I think that's really worked out well force, as it were viewed in the market as helping clients sort through all their opportunities. We have a very nice partnership with [indiscernible] and we also have other exchanges that we're working with. And whatever is the most appropriate method of handling the client's exposures in health insurance we're going to bring that to the table, and I think that's the right position for a consultant.

What are the other vendors you're working with do for you that [indiscernible] doesn’t do for you?

Different geographies, different people on the platform, different - just a different approach.

And are they competitive module or is it an obvious thing that if client A needs an exchange we’re going to go through this provider versus client B who has these issues of obvious that they're [indiscernible] on customer.

Yep, that's exactly right.

Okay, thank you.

Thanks Josh.

Thank you. Our next question is coming Quentin McMillan of KWB. Please proceed with your question.

Hi, just have a numbers related question, Doug the M&A schedule that you've given in CFO commentary is great, but could you just talk for the deals that you've closed now, what would that number look like for 2017, not necessarily on a quarterly basis, but just for the revenue that's going to flow through into the next year?

Let me see if I can dig that out, if you go to like I said page five of that commentary sheets sorry that here, the role over impact into next year, right now we've closed deals totaling about $97 million, so I think just what we've got in the pipeline $50 million of it should show up next year plus whatever we close in the fourth quarter will show up also.

And as you said in the fourth quarter looks -

That would be 10 months of that whatever we close this fourth quarter so.

Okay great. And then if I could just shift to the follow-up on the contingents and supplemental commission question. Just on a bigger picture thought because I get what you're trying to get at that you don't really care how a client may be compensating you guys, but can you just talk is the commission percentage we use sort of the back of the envelope 10% if that sounds about right here. But this is the overall commission percentage when you add in the contingents and supplementals about the same more less than you're seeing?

I guess I don't understand the question, Quentin do that again. Is that commission more or less if we have a supplemental?

What I'm saying is, you're saying that the client is paying you a commission plus a supplemental on top of it would that overall number equate to the 10% whether you had the supplemental or you didn't have the supplemental it's more about we're going to get sort of a percentage of the overall premium and that percentage is held fairly constant.

No I think if you have a supplement or contingent you probably get an extra two points.

Okay great.

And that's was very important. That's completely transparent with the client and they agree that we can accept that.

All right. That's all I have thanks very much guys.

Thanks, Quentin.

Thank you. Our next question is coming from Adam Klauber of William Blair. Please proceed with your question.

Hi thanks, good morning everyone.

Morning.

Wholesale business in general is holding up pretty well, could you tell us what's driving that despite the market getting more competitive, and are the standard carriers beginning to inch in more in the last couple months and they were earlier in the year?

I'll take those backwards. The answer to your to the second question on the standard carriers inch in and the answer is yes. That puts pressure on us as wholesaler. Retailers are given to want to place their own business if they don't need to wholesaler, so that that's a headwind. You also have the headwind of the property rights, and I don't think Matthew is going to make any difference those rates whatsoever. So we're going to continue to face softness there. And the reason it's growing is because we're just really good at what we do and we're getting a lot more business both from our own retailers as well as people in the field.

Okay thanks. As far as the overall U.S. P&C market, commercial market seems like the competitive level is relatively rational we're hearing rates down flat to maybe 2% to 3% not too bad. Are you seeing any change in the last environment or are they still relatively robust still relatively stable?

Yeah I think so. We see toward inflation that continues. I don't see frequency going much, automobile is a struggle, every one of our carriers as we meet with them is really shaking their heads at what's going on in the auto world. And it's interesting because what they're finding is they research their data is distracted drivers. We get everybody on their devices out there crashing into each other.

Right, right. And you mentioned toward inflation could you just maybe give us a bit more color and that what you're hearing?

Well, what we're seeing is, it's the classic litigation environment. I mean, I don't have a percentage to put on it Adam, but the litigation continues to grow and the cost of that litigations are more expensive.

Okay, thanks a lot.

Thank you, Adam.

[Operator Instructions] Our next question is coming from Charles Sebaski of BMO Capital Markets. Please proceed with your question.

Thank you. Good morning.

Good morning.

May I have missed this somebody asked about it before, but I'm just trying to get through I know you guys have repurchased some shares to offset some issuance, but the M&A activity to date would seem below your capacity and so it would seem like there's unless there's particularly heavy fourth quarter that there's capacity for share reduction, and I am just curious if I'm adding that up properly and in terms of your cash flow generation and what you're doing?

Yes. Good question. I think that there is two headwinds against our cash flow this year, the integration costs were still there that we recall we did some substantial moves in the U.K as we consolidate operations there and we're doing some big moves here in the U.S. as we have moved into a different Chicago base building. So those costs have forced against cash flow this year, they won't be there next year. So next year we should have substantially more capacity than what you're seeing on the surface this year. I think M&A opportunities there's tons of them there, and we are - again we just want to make sure we're picking the right partners to join us. But like that said there's $250 million worth of deals sitting on the plate right now for the fourth quarter that we can see how and some really nice success with those coming into the first part of the year. Traditionally our first quarter is the smallest. So we could see a little there, but also it depends on how the election goes, you could have a sentiment that moves against capital gain treatment on sale of the businesses, so that’s the case you could get a little bit of a rush to the door by the end of this year are certainly before the legislature gets working next - you can being in January. So I think there's a good opportunities, there's still fair pricing out there, that immense market people are seeing our capabilities, so if we have a little while right now, I wouldn't worry about it long term.

Okay, but if I thought about you guys hear this year kind of $90 million of acquired revenue year-to-date outside of kind of the Brexit and the headquarter relocation would have thought like at that level we probably would have seen a bit more in share repurchase activity is that?

No I think, I think if you look at my commentary if you go back maybe at the beginning of the year we had $100 million of cash in our balance sheet. We now got $230 million something like that.

Some of that over and some of that overseas, so I don't want do is repatriate that money to got a lot of acquisition activities overseas so that might be what's causing your - perhaps [indiscernible] inyour model.

Okay. And then more on operational side, I know it's not huge numbers in, but it seems like the compensation expense kicking up a little bit, just curious on a more overall basis I suppose, the quarter are you seeing pressure on compensation both from like external in terms of the competitive dynamic people interested in your people other things, is there expectation that there might be compensation pressure going into 2017?

Yeah, that’s a great question. If you recall back in our September 23 IR meeting day, I said that the race is typically get there are given in the latter half of the year, so some of that’s hitting us right now here in the third and the fourth quarter and then we also had benefit expense that we had a little adverse development on our benefit program in really July and August, we didn’t see that in September again, so that’s pressure. Is there overall pressure in the market place? Yes, I think skill positions are expensive, we’re going up in some of the IT’s, security areas and there’s always competition for really good brokerage talents skill. There’s a little wage inflation, we have an opportunity to continue push forward kind of our centers of excellence primarily in India and the Philippines and so we have an opportunity to maybe reduce the impact of the domestic wage inflation by continuing to move offshore to our folks over there. So we have an opportunity to control, but there is a little bit of inflation out there in the market place.

And then finally, I recall a quarter or couple of quarters back that you mentioned that on the some of the international acquisitions that there was a pressure [ph] of bank accounts and trapped capital that you and your team were having to work through to aggregate and free up if you will. I’m just wondering where that process is and is there still left to go on?

Yeah, good progress is being made on that. We’re down over 30% in our accounts and we’ve got a list of about another 60 accounts for another maybe 10% that are going to be wound out by the end of the year and then I think most of that by the mid part of next year should done. Part of that is freeing up that excess cash internationally that’s coming from that exercise, so we’re making towards that progress. I was in Glasgow, what we do a lot of that work in September and the team’s got a really good eye to get that done by the mid part of ‘17.

Thank you very much.

Thanks, Charles. Danna, any other questions.

We’re showing no additional questions at this time. Do you have any additional or closing comments today?

Yes, I do. I’ll just make a quick comment. Thank you again for being with us this morning. As we’ve done all year and in the past, our focus remains on executing on each component of our value creation strategy. We’re going to grow organically, we’re going to grow through acquiring best of the best brokers, we will improve our quality and our productivity and we’re going to continue to invest in our culture. I’m pleased with the first three quarter of 2016 and I’m excited about wrapping up 2016 and delivering a fantastic year next year 2017. Thank you everyone for being with us this morning. We appreciate it.

Ladies and gentlemen, thank you for your participation. This concludes today’s teleconference, you may disconnect your lines at this time and have a wonderful day.