Good afternoon and welcome to Arthur J. Gallagher & Company's First Quarter 2018 Earnings Conference Call. Participants have been placed on a listen-only mode. Your lines will be opened for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, include answers given in response to questions, may constitute forward-looking statements within the meaning of securities laws. These forward-looking statements are subject to certain risks and uncertainties discussed on this call or described in the company's reports filed with the Securities and Exchange Commission. Actual results may differ materially from those discussed today and the company undertakes no obligation to update these 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 most recent earning release and the 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 & Company. Mr. Gallagher, you may begin. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Thank you very much. Good afternoon everyone and thank you for joining us for our first quarter 2018 earnings call. With me today is Doug Howell, our Chief Financial Officer, as well as the Heads of our operating divisions. As I do each quarter, I'm going to touch on the four key components of our strategy to drive shareholder value. These are, number one, organic growth, we are an aggressive sales team; number two, growing through mergers and acquisitions; number three, improving our productivity and quality; and fourth, maintaining our unique culture. We had an excellent start to 2018. During the first…

Our first question comes from Elyse Greenspan, Wells Fargo. Please proceed with your question.

Hi. Good evening. My first question, so pretty strong organic growth quarter about 5% in Brokerage. Doug, I remember in March you had said that the Q1 might seasonally be a weaker quarter. I'm not sure it maybe that change when you adopted revenue recognition, but it seems like you're meeting your guidance kind of in line with the full year level, which is about 4.4%, so what could change or is it just you know embedding a level of conservatism, and will the Q1 still seasonally be a weaker quarter post rev rec? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Three things on that. As I think that with a such a heavy weighted new GAAP first quarter, we probably won't see that kind of lower seasonality in the first quarter that we had in the past. But it will take us a year or two years probably to figure that out. In terms of our guidance going forward, I think, what the rate tailwinds that we're seeing, exposure growth growing, you know, a little tailwind for that I think, that we'll see a full year 2018, a lot like 2017, but a little bit better. So if we're in the mid 4s, maybe we're in upper 4s, this will be added to interpret that at this point.

Okay. And then in terms of margin, so about 50 basis points of margin expansion in the quarter, nothing that you would call that's one-off there, so meaning if you know organic kind of was in line with the first quarter level, would you expect the same level of margin improvement for the rest of the year or just somehow the shifting of more employee benefits to the Q1 impact the margin improvement in the first quarter compared to other quarters? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Okay, a couple questions there. Yes, maybe may be a little bit fueled by the strong employee benefit first quarter, but you know, maybe 10 basis points, something like that. Looking forward, we typically see most of our margin expansion that happens in the first half of the year. And then in the second half of the year, if we get into mid-year raises or whatever, we don't see quite as much margin expansion in the last half of the year. But I think that for above 4%, there's some opportunities that continue to expand margins there.

Okay. And then one last question, so you pointed to the strong cash position and you guys are adding some debt this year. So yeah I mean I know this is a question that's been asked in the past. If deals don't materialize that would use the available cash that you will have, which will include proceeds in the recent offering. I guess when do you think you get to the point where share repurchase I think maybe becomes something that moves higher up on the list or is the pipeline that strong that you could just see it using all of your cash on hand during the remainder of this year? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: The pipeline is that strong. In the event that we do have excess cash for the end of the year, we would repurchase stock, but our pipeline is pretty strong right now.

Okay. Thank you very much. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Thank you, Elyse. Douglas K. Howell - Arthur J. Gallagher & Co.: Thanks, Elyse.

Our next question comes from Mark Hughes, SunTrust. Please proceed with your question.

Yeah, thank you. On the pipeline question, I think you said $400 million. Am I my right, remembering it was about $300 million last quarter, is there usually a seasonal uptick in that or is that just underlying strength and if so, what's going on? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: It wobbles all over the place, Mark. We're constantly out talking to people. Some take 10 years to close, others you can get done in six, seven months, so it just – it rises and falls with the people that are coming on and off the list. There's no real magic to it.

It is the... Douglas K. Howell - Arthur J. Gallagher & Co.: Closings tend to be a little slower in the first quarter because there's usually a push to get something done by year-end. So historically we've closed more deals in the last three quarters of the year than in the first.

And is the debt raise, is that a reflection of your increased optimism? Would you have done it regardless if you weren't seeing the strength in the pipeline? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: I think it's our confidence in the pipeline.

And then, the contingents were – you had a nice lift last quarter and then were down a little bit this quarter. How should we think about those on a go-forward basis? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Yeah. I think that listen, we would have – I think if you add supplementals and contingents together, we're at somewhere around about $85 million compared to $83 million last year, up about 2.3%. If we would have had another $1 million, $1.5 million, we would have been about 4%. I wouldn't read too terribly much into that at this point. But, they're growing 2.5%. Maybe next quarter they'll grow a little more or right in that same range. So I wouldn't overthink it too much.

Thank you. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Thanks, Mark.

Our next question comes from Greg Peters at Raymond James. Please proceed with your question. Charles Gregory Peters - Raymond James & Associates, Inc.: Good afternoon. Thanks for the call. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Good afternoon. Charles Gregory Peters - Raymond James & Associates, Inc.: A couple questions. First of all, Doug, back to your opening comments. I don't want to parse words here. You talked about the 50-basis point improvement in margins and the fact that 3% organic and you can't expand margins 3% or less in organic growth. It seemed like the language changed a little bit though because now all of a sudden, you threw out this 4% bogey that you can expect margins to expand beyond 4%, but not really below 4%. So maybe I just misheard it or you can clarify that. Douglas K. Howell - Arthur J. Gallagher & Co.: No. I think, you've heard – I don't – I have said it a couple times before, but we're in that range right now where as we look the way our margins are positioned, we have opportunities to reinvest in the business in certain areas that we think will fuel growth. And so at 3% pretty tough to do, at 4%, it kind of just happens in between, one quarter it might be up a little bit, one quarter might be flat. But I – so the words change probably compared to where we were three or four years ago, but in the last couple times we've had a chat about, that's kind of where we feel right now. Obviously, if we had sustained 3.3% organic growth for the next five years, you'll probably see some natural growth in margins, but you also have to look at wage…

Our next question comes from Kai Pan, Morgan Stanley. Please proceed with your question. Kai Pan - Morgan Stanley & Co. LLC: Thank you and good afternoon. So my – I just want to follow-up on both revenue growth, organic growth as well as the margin. On the organic front, Pat, you mentioned like this year probably about 1 point of tailwind and last year about 1 point of headwind. So the delta is about 2 points, so why 2018 would be 2 points or are much higher than 2017? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Well, Kai, first of all, I think you know where I come from on this. When I'm just short of a point up and I'm just short of a right at a point down, to me that's flat. It's helpful, it's not hurtful. And really what it does is it lets us go out in the marketplace and sell these capabilities. When you're in a historically old stock market and prices are dropping 10%, 15%, someone that has no real capabilities can lob a quote under the table that kills you. So this is a perfect market for our organic growth, for our people to be outselling, the things that we do so darn well and not have get whacked on the side of a head by a quote you never saw coming. But one point up, one point down, frankly that – to me, that's flat. Douglas K. Howell - Arthur J. Gallagher & Co.: I think that technically a year ago, we were probably flat. We probably didn't have much lift or pressure from that. That's really what our comments were, and then we're up – we're seeing about up 80 basis points right now. So it's really…

Our next question comes from Josh Shanker, Deutsche Bank. Please proceed with your question.

Thank you. I can't remember, whether it was three months or six months ago but on this call, you had said that you set your teammates down and you said look we have to have a conversation with our clients. They should expect rate increases coming through and we're now six months past the hurricanes. To what extent is that materializing as planned? Two, to what extent are those rate increases hurricane related and after we get through the reactionary price increases associated with the hurricanes we re-enter a stable market? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: So I think first of all, yes it is mostly hurricane-related property, non-cat exposed is up, cat exposed where there were losses are up probably 10% to even a little bit more than 10%. And those that are not cat exposed that didn't burn the market, you're still looking at 3% to 5%. And I think that when you think about where the rates were pre-hurricanes, they were as low as they've been in over a decade. So I do think that the rate increases are justified, they are selling in the market now. Some of the quotes that originally came out at more like 20%, 25% increases are that those aren't going to hold. But I don't see a return to a vast soft market anytime quickly. Once the balance sheets have had a chance to heal a little bit and the wind doesn't blow, then you'll see the rates come down again.

And do you expect to see year-over-year rate increases come 4Q? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: I do. And I see that also in particular. It's really interesting. When I started, hard and soft markets were across the entire spectrum. This is a bunch of markets inside the – by line. So comp is down a little bit. Well it deserves to go down. And then you have transportation is up somewhat. Well guess what, in particular, distracted driving is crushing the market. So these markets are moving as they should, based on the results by line.

Smart. Thanks for the color. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Thanks, Josh.

Our next question comes from Paul Newsome, Sandler O'Neill. Please proceed with your question. Jon Paul Newsome - Sandler O'Neill & Partners LP: Just a couple of quick follow-ups on the pricing environment. There's lots of conversation, and I don't know if it's real or not, about historically the small market being sort of the least competitive and that changing of late. And I was wondering if you're seeing any of that yourself. And then, somewhat similarly also pricing commentary, and I don't know if it's true or not is that month-by-month, it's getting little bit better every month and I don't know if that's true either and whether that's your experience as well. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: No, here's the thing. It varies. As I travel the network globally, it varies. So in Australia, for instance, you're seeing kind of mid-single digit range kind of almost everything's up. You get to the London specialty market and we think we're getting close to bottom, but there's still a tad bit of softness there. Then you travel around the United States, it's tougher in Florida and in Texas than it is in Illinois for sure. But I think it's really – well, when you step back from it, I continue to come back at this with you guys on these calls. Rate is really not impacting our results much. When you spread it across all that we're doing, some is up, some is down, but it's in this range of okay, cat property's up, that's nice, and that's necessary. But it's really a flattish market, and it has been for about eight years. Now, I'd also tell you down 3% up 3% I'd tell you is flat. I'm not going to lose an account, frankly,…

Our next question comes from Arash Soleimani from KBW. Please proceed with your question. Arash Soleimani - Keefe, Bruyette & Woods, Inc.: Thanks. I guess just the first question to what extent would you say there are opportunities on the free cash flow side to drive improvement there through working capital management for example? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Good question. We've been working on that a lot. We said we consolidate our bank accounts, we've improved our international cash flow, in particular, free cash in particular because when we did the four or five larger international acquisitions, we went through a consolidation effort and that's really paid off and generated a lot of cash. Where are we in the U.S., that's pretty mature at this point. So I don't see further working capital generation in the U.S. We've got a little ways to go yet internationally on that, but I think the big push on that that we start talking about 2 1/2 years ago was pretty well behind us. Arash Soleimani - Keefe, Bruyette & Woods, Inc.: Thanks. And the $6 million adjustment you mentioned for tax reform it shows up in Corporate. It didn't look like that got backed out of adjusted this quarter. I just wanted to make sure I understood why. Douglas K. Howell - Arthur J. Gallagher & Co.: Yeah. Good question. (00:37:27). But there's some component in there that's an adjustment for our estimates at 12/31. There's a smaller component in there that might be a continued run rate if we don't get some technical corrections done. But I probably – we'd probably could put as an adjustment but we just thought that since it was commingled be it just put it where it is, and call it out. Arash Soleimani - Keefe, Bruyette & Woods, Inc.: Right. Perfect, thanks for the answers. Douglas K. Howell - Arthur J. Gallagher & Co.: Thanks, Arash.

Our next question comes from Mike Zaremski, Credit Suisse. Please proceed with your question.

Hey, gentlemen. Couple of quick follow-ups on Gallagher Bassett. It's a Paul's question, where growth continues to be very strong. I guess then can you remind me how to think about how you guys think about your market share because I'm assuming you don't think every insurer thinks as, Pat, you think the next generation will think and some of them think that claims handling is a competitive advantage. And I guess it's along separately, can you remind us if there's something structural there regarding margin so that there's less operating leverage in that segment for certain reasons. Douglas K. Howell - Arthur J. Gallagher & Co.: I'll let Doug handle the margin side of it because the answer to that is yes, it's very labor intensive, but I'll talk to you about the – what I see the business opportunities to be. First of all if you take a look at Gallagher Bassett paying $10 billion of claims out in a year, that market share is nil, it's zero and it's unbelievable. You've got about $5 billion according to Insurance Information Institute. There's about $5 trillion of premium in the globe and that's including life, health and everything else. Property casualty, you'd know the number better than I. But when you take 60% of that number, let's just call it a trillion, we are we are so far from having any market share which is a beautiful thing. So, you're right. Not every CEO is going to start thinking the best thing in the world to do is outsource. But it's a fast growing part of Gallagher Bassett's business. It's become very, very meaningful. We've organized around it as a separate segment for Gallagher Bassett, and I think there is huge opportunity there. When I have some of my…

And so, then if we think about longer term as, is this segment where Vishal Jain and his team, there's more to be done in terms of more margin improvement versus the Brokerage segment? Douglas K. Howell - Arthur J. Gallagher & Co.: Well, I wouldn't say versus the Brokerage segment just by the sheer size differential but there is opportunity there. There's still lots of opportunities for us and I'm glad that you remember listening to our Chief Service Officer talk in March to the group. There's opportunities still on our Brokerage side too.

Okay. Thank you very much. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Thanks, Mike.

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

You see in the Risk Management business, any sign of inflation within the workers' comp business? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Inflation in what, Mark?

Just loss cost? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Oh yeah. I mean, a huge part of workers' compensation is medical. So you're going to constantly fight that battle and an awful large part of the cap business is medical only. So there's – that's why the managed care techniques are so important. That's why the purchase of pharmaceuticals and how you do that and manage that is so important. It's why getting people back to work is so important because there's huge inflation in that and add wage inflation to it, there's natural inflation there as well. Douglas K. Howell - Arthur J. Gallagher & Co.: And you realize though that that's not technically Gallagher Bassett's cost, that's the self-insured or carriers that we provide to claim service to. But that's why they come to Gallagher Bassett because they realize, you've got this undying inflation that's going on in medical costs. So what are the ways to leverage our scale, our knowledge, our capabilities to try to bend that curve a little bit.

Any sign of inflection or any sort of acceleration lately? J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: No. Douglas K. Howell - Arthur J. Gallagher & Co.: No, I don't think so, it's pretty steady.

Thank you. Douglas K. Howell - Arthur J. Gallagher & Co.: All right. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Thank you, Mark. Omer, anymore?

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Pat Gallagher for closing remarks. J. Patrick Gallagher, Jr. - Arthur J. Gallagher & Co.: Thank you very much. Well, as you heard today, we had a great first quarter and I'd like to personally thank all of our employees across the globe for their hard work and our clients for their continued support. 2018 should be another great year for Gallagher as we execute on our value creation strategy. We will grow organically. We will grow through mergers and acquisitions. We will constantly work to improve our quality and productivity, and every day we live and promote our unique culture. Thank you for being with us this afternoon.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.