Good morning, and welcome to the Brown & Brown, Incorporated Third Quarter Earnings Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation, posted in connection with this call and including answers given in response to your questions may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the third quarter and are intended to fall within the Safe Harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties, and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors. Such factors include the company's determination as it finalizes its financial results for the third quarter, that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time-to-time in the company's reports filed with the Securities and Exchange Commission. This relevance to Brown & Brown’s confirmation and integration of the acquisition from Hays companies. Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward-looking statements, is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin sir.

Thank you, Hannah. Good morning everyone and thanks for joining us for our third quarter 2018 earnings call. Before we get into the results for the quarter, I wanted to make some comments regarding our announcement yesterday about the pending acquisition of Hays Companies. Hays is a $200 million plus broker based in Minneapolis and Minnesota. They started de novo in 1994 and have grown organically almost exclusively. The team is led by Jim Hays and Mike Eagen. Over half of their business is in the employee benefits area with the remaining in commercial and personal lines. You’ve heard us regularly talk about the importance of cultural fit, both our firms share a deep commitment to serve our customers best interests and we both understand that our teammates are the most important differentiator. We collectively are committed to a decentralized sales and service model. We’ll get into more detail about the transaction later in the presentation. I’m now on slide four. Let’s get into the results for the third quarter. We delivered $530.9 million of revenue, growing 11.6% in total and 1.4% organically. Excluding the impact of the new revenue standard, our total revenues for the quarter grew 6.5%. I’ll get into more details in a few minutes about the organic growth for each division. Our EBITDAC margin was 33.5%, which is flat versus the prior year, but benefitted from a 300 basis points from a new revenue standard. Andrew will discuss the movement of our margins later. Our net income per share for the third quarter of 2018 increased to $0.38 from $0.27 in the third quarter of the prior year, driven by an ongoing benefit from federal income tax reform and the impact of new revenue standard. As we’ve said in the past, we do have fluctuations quarter-to-quarter…

Yes. Hey Hannah, by chance is there a background noise by you that some can mute there, its overwriting part of the call please.

You at the line, it’s the only line open sir. Thank you.

All right, thank you. I appreciate it though. Good morning everybody. On the following slides, we’ll discuss our GAAP results and then our adjusted results excluding the impacts of acquisition earn outs and the impact of the new revenue standard. As a reminder, we’ve excluded the impact of the new revenue standard for the calculation of organic growth in order to provide a better comparison with the prior year. We plan to use this format for the remainder of 2018, and then in 2019 we’ll be on a comparative basis. Over onto slide number seven, this presents our GAAP and certain non-GAAP financial highlights. For the third quarter, we delivered total revenue growth of 11.6% and organic growth of 1.4%. Our income before income taxes increased by 14.5% and our EBITDAC grew by 11.8% both of which were positively impacted this quarter by the new revenue standard. Our net income grew by 39.8% and our diluted net income per share increased by 40.7% to $0.38 versus $0.27 in the third quarter of last year. The growth in our financial metrics except organic revenue growth was impacted by the adoption of the revenue standard this year. We’ll discuss more of this in a few minutes. The growth in net income and diluted net income per share in excess of revenue growth was primarily driven by our lower effective federal tax rate that resulted from tax reform last year. For the quarter, our effective tax rate was 25.5% as compared to 39% last year with our effective tax rate benefiting from the 14% decrease in the statutory federal corporate income tax rate. For the year, our expectation is for our effective tax rate to be in the range of 26% to 26.5%. Our weighted average number shares outstanding decreased approximate 1% compared…

Thanks Andy, great report. We would like to share some additional information about the Hays companies and the financial structure of the deal. The Hays business is very diversified across many industries, and over 50% of the revenues are from employee benefits. Combined, we’ll have an employee benefit business with annualized revenues of approximately $430 million – to $440 million in revenue, increasing our employee benefits business over 35%. The business operates in 21 states with 32 locations and has a team of over 700. Their largest offices are in Minneapolis, Milwaukee, Boston, Kansas City and Dallas. The addition of these new teammates will give us a great Midwest presence, help us further increase our organic growth, increase our capabilities and provide additional solutions for our customers. The Hays Company serves customers in all segments, but primarily focuses on the upper middle-market. They have a proven track record of starting new businesses, developing talent, growing their business organically. This year they are projecting to deliver revenues of approximately $205 million. With the addition of Hays, the revenues for our total company will increase over 10% and the total revenues for our retail segment will increase approximately 20%. From a leadership perspective, Jim will become our Vice-Chairman at Brown & Brown and join our board of directors. He will report to me. Mike Egan will become a senior leader of Brown & Brown and continue to lead the Hays companies. We are really excited to have both these talented gentlemen join our senior leadership team. I’m on slide 17. Let’s talk about our strategic rationale why we are purchasing Hays. This is a growth business that helps us accentuate our offerings in the upper middle-market accounts base. Their average organic growth for the past five years has been approximately 6%. They…

Thank you, sir. [Operator Instructions] Our first question is from Elyse Greenspan from Wells Fargo. Please go ahead. Your line is open.

Hi. Good morning. To start, I have a couple of questions on the Hays’ acquisition. You guys gave us a lot of financials which is very helpful. First off, the accretion figures that you guys provided the $0.02 to $0.03 per share. I guess, Powell, I think you said, you guys are going to buy back the stock that you issue over three years. So is that assuming a third, a third, a third in terms of when you’re going kind of buy back those shares that are issued there?

No. I think, we’ll just – we’ll buy them over the three-year period at least, but we’re not scheduling to buy it at a pro-rata amount.

And by the way that accretion as you know is GAAP accretion, not just cash. It’s important.

Yes. And then just in terms of some of the other financials, the revenue and expense synergies there, can you breakdown kind of where you think it might skew one way versus the other? And then the integration cost, I’m assuming you guys are going to pull that out of adjusted earnings. Can you just verify that, Andy?

Yes. Let’s touch on the expenses first; we’ll come back to the synergies. Yes, we’ll call those out over time if in any one quarter there or materially. Again we’re looking at the integration cost. It will be more heavily weighted from years two through four. We’ll have a little bit in 2019, but consistent with what we’ve done on other larger acquisitions we normally break things out for the first year, but if it’s so warranted, we’ll call that out for the impact on the margins. And then, on the synergy of the benefit front, it’s really weighted, both combination of revenue and expenses.

Remember, they have been investing actively in their business like we have. So growth opportunities in production and once again we're excited about the ability for us to leverage some of their capabilities and them to be able to leverage some of our capabilities, so that's a good thing, Elyse, we’re really pleased about that.

Yes. And we wouldn’t want anybody to think that we're doing the transactions for cost synergies. That is not why we’re buying the business. This is a high-growth business and we’re looking to continue to see that growth in the future.

Okay, great. And then in terms of -- Powell, you kind of alluded to in a couple sections in your remarks about higher interest rates, so the impact that that could happen on the economy. What about higher interest rates and the impact that could potentially have on private equity interest in the brokerage space? Have you seen any kind of slowdown as you looked at the deals more recently? Or do you expect to see a slowdown if interest rates continue to rise?

Well, that’s a logical comment, Elyse, and I’d like to think that we’re logical and you’re logical, but not all – PE is not always logical. It would seem to indicate that would happen if in fact, there was continued upward pressure or increases in interest rates. PE continues to be very active in the space. You’ve heard me say before. I think there will always be an element of PE in our industry. I believe, at last count there's 29 PE firms that are in the space. So there's lots of people that are trying to get in and be in and then flip things and [Indiscernible]. We don’t – we know that hope is not a good business strategy, but I would say that if in fact interest rates go up we would think it would actually change some of their buying patterns, but until at which time we see that? I don’t believe it.

Okay, great. And then one quick question on the quarter. You guys alluded to timing in your retail book and pointed us towards the year to-date figure for thinking about organic. Did you see timing impact more on the employee benefit side or in the commercial side or was that – is that a comment that you would make towards both of those businesses in the quarter?

I would say it was both of the businesses during the quarter, Elyse. And at the end of the day and I know I alluded to this, but we had – we’re not making any excuses, but we had some business that just didn't close. And so we anticipate good new business in Q4, but once again we got to be in Q4 to see that happen. But yes, I think it's in both businesses, benefits and P&C.

Okay. Thanks so much. I appreciate the color.

Thank you.

We will now move to our next question from Mike Zirinsky from Credit Suisse. Please go ahead. Your line is open.

Hey, great. Thanks. Good morning. I had a question on thinking about the margins directionally, if we kind of think out to 2019. I think previously investors were biased, maybe a little upwards due to less headwinds from the – you guys have talked about the IT investments and then also the new compensation program won’t be headwind anymore. I know Hays, if you can think about excluding Hays, I know Hays will be very material and have an impact, but ex the Hays’ acquisition is -- that still the right way to think about the business in terms of margins directionally for next year [Indiscernible] there's a lot of moving parts?

Well, I think the short answer is, yes, I think that’s the right way to think about it. But I would say, it's important to know that how we invest in businesses today and going forward will impact the overall trajectory. And so you said that Hays is a material part of retail. Its 200 million part of a billion. So it’s going to be $1.2 billion of revenue. So it is meaningful. And we are looking for businesses as you’ve heard of say, this fit culturally and make sense financially. We cannot stress that enough. And remember, we're doing this for ever. The private equity is short-term. So they don't care about the cultural implications. They just get it together and then try to spin it. And so, in the case that some of the businesses we buy will have higher than average mark -- our average margins. Some will have lower than average margins. But each of them will add to our capabilities and our talent both in production, service capabilities, marketing and leadership.

That’s helpful. And the next question is, thank you for pointing out the potential impact for rising interest rates on the construction industry. Could you at a very high level maybe size up what percentage of your – I don’t know, if its maybe revenues is construction related?

Yes. The answer is, we haven’t given out specific industry type and breakout, but I would tell you and this is a purely off the top of my head. It’s probably somewhere in the 6% to 10% of our retail business.

Okay. Thank you for that. And then lastly for Andy, the tax rates coming in about a point lower than the prior guidance, just curious is this a kind of a sustainable level as we’re thinking long-term or it will kind of fluctuate a little bit up and down?

Yes. Thanks for the question, Mike. So for the quarter we ended up at 25.5%. That was impacted by true-up that we did on our foreign repatriation. Like many companies, everyone was doing their best estimates at the back end of last year. That was about $1.6 million. So we take that out, our effective rate would've been kind of in that mid-26 range. That’s why we’re kind of thinking 26% to 26.5% now. On a full year basis, we think that’s a pretty good number, but one of the areas that we’ve got to continue to look at is exactly what Hays will do for our taxable footprint across the United States. And then, we continue to have states that are raising their rates as was indicative of New Jersey this year making a retro back to 11 [ph]. Maine has also changed their approach on unitary. So we continue to watch. There’ll be some movements underneath. But I think at least from our standpoint 26 to 26.5 is pretty good market right now.

Okay. Thank you for the color.

Our next question is from Kai Pan from Morgan Stanley. Please go ahead. Your line is open.

Thank you. Good morning. First question on Hays, as you’ve just said, this is largest deal in your history at 10% of revenue. So what do you think this deal different from your previous deals? And can you comment on potential opportunity for this deal and potential execution risk such as sort of system integration or revenue – any revenue overlap between offices and also can you comment on evaluation on deal as well?

Okay. Good morning, Kai.

Good morning.

So, that’s a multiple questions. First of all, as I said, we’re prompt about Hays joining our team. And as we said they are really a upper middle market business. They have great capabilities in both employee benefits and property & casualty. And so, number one, I will tell you that we have some things that we think can help them in some of those businesses and they definitely have some things in the employee benefits and some of their capabilities that can help us. So number one, I think this is the one-and-one equals three or more. That’s the goal. And I do believe that is the case; number one. Number two, they have enormous number of talented people that bring additional collective learning or knowledge to our system and so when you work with Brown & Brown and our companies we're trying to leverage that knowledge to the best interest of our customers and/or prospects. So it enhances quite honestly our institutional knowledge, that’s number two. Number three, they operate in most – most of their offices are in places where we don’t have offices, and so it’s very complementary and particularly in the Midwest as you’ve heard me say, we don’t have an office in many -- we have a small office in Minneapolis. We don’t have an office in Milwaukee. We don't have an office -- retail office in Kansas City. We don’t have an office in Dallas. So all of sudden we’re expanding into markets that we want to be in that we haven’t been in the past. As it relates to the valuation, I think everyone on this call will have their own perceptions of what we have paid for this transaction. Let me make an observation as it stated. And then let me make an observation longer term. Number one, the market drives the price and so one might say this is a full price for an acquisition and it is a very high performing, high-quality fit -- cultural fit for Brown & Brown, number one. Number two, we don't think about it in an isolated period of time in one year or more. We’re thinking about what one and one means three years and five years and more down the road and not unlike some of our other larger transactions, each one of those brought new capabilities that made us a better organization and made it – helped us to build out our offering to our customers. So, I can't stress it enough to say that we are very pleased that the Hays team and Brown & Brown are coming together. And I look forward to meeting all of their teammates in short order. And we look forward to welcoming them on the team officially sometime early – well, some time next month subject to HSR approval.

Thank you so much for all these thoughts. And I have a few follow-up questions. Number one is a national programs organic growth underlying is flattish. You cited a few headwinds. Do see the headwind persist? Or you can see improvements in term like organic growth in national programs?

Hi, Kai, it’s Andy here. Yes. We are anticipating headwinds in the fourth quarter. You remember back to our Investor Day we had make comments on the front, specifically on three areas. One is make sure take into consideration the year-on-year impact of lower flood claims. And we’ve mentioned earlier in our call we had about $22 million last year. We’re only anticipating a half million to a million fourth quarter of this year. The next item was around our lender-placed business, and again, that countercyclical. So as the economy continues to improve that business won’t see the same level of organic, so that will have some downward pressure. And then we’d also mention that we have a couple carriers that are changing risk appetite for two of our programs. That will persist for probably a couple of quarters, and then we’ll work through that. So we would definitely expect negative organic growth in the fourth quarter for national programs. Okay?

Okay, great. My last one on the new accounting standard; seems like the number just keep moving around, understanding it’s a new standard for everybody. But if you look at full year, a regional expectation is that would not impact the full year earnings, just moving among the quarters. But now your forecast is that the full year pretax earnings going to be anywhere between $16 million to $21 million, so that's pretty meaningful. I just wonder could you give a little more color on that. And is that is a run rate that is not putting forward from next year and next year's results we’re building on top of this?

Yes. I think good point on it, Kai. Around the complexity of this standard and probably not dissimilar to a lot of companies out there is there was a tremendous amount of effort put into it and there were estimates based upon the best information at the time as we went through it one of the items that we talked about this quarter was an $8 million adjustment that we had in national programs and that was just as we kind of continue to learn more that we would not expect to continue on. We had also estimated what we thought the contingents would be for the year and again we have to estimate what we think they're going to be 12 months from now not knowing the actual loss experience underneath. So as that continues to development. And I think we’ll get better on that refinement to over time. But no, we would not expect on a regular basis once we kind of get this embedded that we would have that level of uptick each year. So I think this is just part of kind of this first-year implementation.

And so to be clear, is that there would not be any sort like reversal in 2019?

No. We would not expect anything of materiality reversal or even positive year-on-year.

That’s great. Thank you so much.

Thank you.

We will now move to our next question from Greg Peters from Raymond James. Please go ahead.

Good morning everyone and thank for the call. I wanted to follow-up on the Hays Companies acquisition. It has to been a very coveted M&A target in the marketplace. So, Powell, maybe you can talk a little bit about the process and how competitive it was? And how many other players were interested in the company? So give us sort of a lay of the landscape there?

Okay. Well, I think the first time that we met Jim was 18 years ago. And our Chief Acquisitions Officer, Scott Penny, met him then. And then I met Jim and several senior leaders several years ago. And has spent time socially around each other in business settings and kind of been talking over the last couple years. And so, at the end of the day culture is equally is important to them as it is to us. And so when you really get right down to it, I always tell people if you’re thinking about selling your business go out and talk to some people who you think might fit, find the one that there's a cultural fit and then go get in a corner and negotiate what a fair price is. And that would be a good way to describe what this is. And so, we have – I mean, I can't speak upon the number of people that have called them because number -- lots of people call them all the time and talk to them about their business, but at the end of the day this was not a traditional process with the banker. And we cultivated this over the last several years and we feel really good about it.

Thanks for the color. And so this is a follow-up on -- if I look at slide 17 and you provide some benchmarks of performance for 2019 and you include integration costs to be spread out over a couple years in combined synergies. When I think about the combined synergies of 10 million to 15 million, should I assume that those are reflected in the EBITDAC guidance for 2019? Or is that 10 million to 15 million to be realized over a multiyear period?

It’s the latter. And Greg, we’ll have -- most of those they are more weighted out towards kind of years three, four and five. It will take a while to build into those.

Right. So, the final question on the Hays Companies is, and I know some of the previous analysts, they had questions about your consolidated EBITDAC margin and underlying EBITDAC margin, it looks like this transactions going to -- cost maybe up to 100 basis points of EBITDAC margin near-term. Am I missing something there? Or should I start benchmarking my margin off of this lower level?

That’s 100 basis points in retail.

Right.

Yes. The answer to the question is you’re thinking about it correctly, that’s correct.

Perfect. And Powell, I can’t help myself. Do you guys think you might change your reporting structure? Or you’re going to drop this all into retail and just let it rip?

No. I don't anticipate that’s changing. I want to make sure I understand what you're saying.

The four segments that you report, I mean, now you’ve got a substantial benefits business maybe you might want to break your benefits business on top of the other pieces?

No. We’re not planning on that.

Okay.

No. This will just be – this will be a region inside retail.

Okay. Thank you for those answers. And then I just wanted to -- one follow-up on the retail segment. And I was looking at your commentary provided on slide 11. And one of the items when you’re talking about the revenue results sort of caught my attention was the last two words of the statement there was lost business. Could you provide some color around that? Because that’s usually not something I would associate it with Brown & Brown. So maybe you can bridge the gap there?

Sure. Well, let’s put it this way. I think you would agree that you would – I think brutal honesty when you think Brown & Brown. So, we’re not trying to make any excuses. We lost some business in our businesses and that can be either through acquisition. It could be a decision, a loss of relationship. It could be all kinds of different things, Greg. But at the end of the day, we just call it what it is. And so we didn't grow the business. We didn’t write as much new business and we lost a little more business than we thought we would lose. So we lose business just like any other broker. We try to obviously work really hard not to lose business and we want to keep the customers that we have. But don't -- I don’t want you to take something out of that like we’re trying to foreshadow something. I think its more brutal honesty. It is what it is. We lost some business and it impacted our numbers. That’s how I want to get think about it.

So, it's more of an anomaly rather than some broader trend. So I think that's the message you're trying to deliver, correct?

That’s exactly right. Based upon what we can see, it’s a Q3 thing and we’re on to Q4 and we’re doing our thing.

Great. Thank you.

Greg, we’ve had these in previous quarters where we just one quarter you’ll have it, so just nothing unusual on trend or anything [ph].

We now move to our next question from Mark Hughes from SunTrust. Please go ahead.

Yes. Thank you. Good morning. Two quick ones. The fourth quarter claims revenue from last year, was it 22 million a national accounts and then 3 million in services, so 25 total?

Yes. So it was 22 million in national programs and then we had a little over 4 million in services last year. So that’s about 26 million in total. We think we’ll have – yes, go ahead Mark.

Very good. Then the technology investment in the EBITDAC walk, you don't refer to the technology investment, but in a number of the segments you point to it. Was there some offset somewhere? How should I think about that?

Yes. The offset was in corporates, that’s why its allocations between corporate and the divisions because we had build the investment cost up in corporate now getting that out to the positions of the segments. And then we did not call anything out for the third quarter and the walk is the impact on technology was minimal. So again its kind of performing right in line with what we had expected as well as what we talked about on previous calls. We had a little bit of downward pressure on margins first and second quarter, we said it would probably around flat for the third quarter with a little bit of lift in the fourth quarter and minimal impact on the full year. So we seem to be right in line.

Thank you.

We will now take our next question from Yaron Kinar from Goldman Sachs. Please go ahead.

Good morning everybody. Couple of questions on the Hays acquisitions. So first up when you talk about revenue growth there are you expecting any revenue creepage from the deal? Any maybe slowdown due to execution or do you think that the 5% or 6% growth rate over the few years can be maintained over the next three to five years?

Well, we would sure like to see that be the case and we’re not anticipating it slowing down. But Yaron, I’m sorry, we don’t -- we feel good about the trajectory and what's going on, borrowing something we’re not aware of.

Okay. And then on the margin side, so once you get passed of initial three, four years, do you think that the Hays business can achieve the margins that retail is currently generating?

The answer of the question is through middle market retail is a higher margin business than upper middle-market and more specifically large accounts. And so, the answer to the question is over time their margin will go up because they will become even more efficient because they've invested in production talent and service and marketing talent which is not at full capacity today. Having said that, we look at the business holistically and as we said earlier it’s going to have approximately 100 bps impact in year one, and then over time as we achieve collective synergies that the overall will improve, so, we feel good about the margin trajectory going forward. That's how we’d answer that question.

Okay. I appreciate it. And then maybe one final one. Can you talk about the IT and systems? I know you guys have been investing a lot and improving and updating your systems. So, do they need additional work on their system today? Is it easy to integrate your existing systems with theirs? Any color on that would be helpful?

Sure. So the short answer is they have a very talented group of IT people on their team, number one. Number two, they are currently on the agency management system that we are converting retail too, that does not mean that they are on the same version, I don't think, but they're on the same agency management system. So that’s a positive. Number three, just getting converted over – I know that sounds like basic things but to Office 365 and some of our systems it takes time. But what I would say is, if you're asking the question, are they in the Stone Age relative to IT? The answer is no, they're not. And so, we're excited about some of things that they've gone and how we can learn from them and vice versa in that particular space.

Okay. So whatever investments and systems they may still need is already part of your integration cost estimates?

That is correct.

Okay. Thank you very much.

Thank you.

Our next question is from Josh Shanker from Deutsche Bank. Please go ahead.

Thank you for holding the call late and taking my question. I just wanted – two questions, One was followed by Kai's. You mentioned $8 million unexpected revenue associated with the change in revenue standard in the national programs business. I was just trying to better understand what that was? And you say, that should be $8 million that increases at a normal CAGR in the 3Qs of the fewer – I just want to understand exactly what’s going on there?

Good morning, Josh. No, that was just a one-time adjustment that we had based upon estimations underlined on billing of customers do – definitely do not anticipate seeing that next year. That is a one-time item.

So, there’s 8 million headwind to think about in 3Qs, 2019 modeling. That's right?

From a total revenue that did not go into the organic calculation, no.

Okay. And then, on tax obviously there’s some discrete tax rate [ph] in the quarter. Do you have any thoughts on 2019 tax rate?

Not right now other than the comments that we made earlier. What we really like to do is get through year-end and figure out exactly what kind of our footprint looks like with Hays coming in and doing kind of all our year-end troops. And then once we release earnings for the fourth quarter we’ll give an update for 2019.

Okay. Thank you very much.

Thanks Josh.

Our next question is from Bob Glasspiegel from Janney Montgomery Scott. Your line is open. Please place your question.

Yes. Good morning everyone. Just a couple of tag-in questions on the Hays deal; whenever you buy something you’re going to buying companies that have lower EBITDAC margins, the new given your best in industry margin. What are some of the things you could point to besides scale that’s inherent in their current run rate of margins? And what's the path -- how long does it take you to get it traditionally, the company this size, which I guess, you haven’t done this big, but how long does it take to get to the company, to the margins where you wanted to be?

Well, let me backup for a one second. This is a business that as I said grew pretty much organically from zero to $200 plus million since 1994. So that’s very impressive to us and I think it would be to anybody yourself included relative to just growing a business, just going out and getting the right people and getting new customers and doing the right thing, so that’s number one. Number two; we don’t want to do something that actually changes their ability to continue to grow. We want to do thing to enhance their ability to grow as part of our organization. So, as I said earlier, we like to think about you’re selling service locally, but you leverage the capabilities of the organization nationally to the benefit of our customers. What we typically see, Bob, is you generally speaking in any kind of earn-out you have a kind of float up over time of some efficiencies that they achieve that might be possibility of purchasing power as a combined business, in some instances whether it would be technology or something else that we’re doing, supplies, it could be something that we could do one and one equal three where we have a where they maybe able to sell more business than they had previously in a certain industry type. There could be a whole bunch of different way to do that. But we think it's just anything else. It’s over a couple year that they actually improvement and we too.

And Bob you know our comments – hey, Bob, this is Andy here. Comments we made earlier as we said the synergies out of this we won’t see until kind of years three, four and five, it will kind of take that while to build into it. So we wouldn’t suggest that you put all those in your model in years one and two just for clarity.

Got it. And do they have a richer comp plan than yours or is it roughly comparable and you will have the principles super incentivized with your note the provisions which is a smarter way to do it. So one could assume will be extra incentivized with the commissions plus the earn-outs over the five-year period? Is that fair assumption?

That’s the fair assumption.

And their comp plan is reasonably comparable to yours?

Remember, in the upper middle market it is similar to some of our larger account businesses. Yes. That’s how we’d say it. They’ve created a performance-based incentive plan. We really like it. We don’t see any reasons why to change of plan right now, seems to work really really well for the business.

Great. And last question. How much debt did you say you’re going to put on and what rough rates should we look to when we model?

Yes. We will probably take on somewhere around 550 million to 600 million in debt just dependent upon cash that’s on the balance sheet and timing. And right now we’re estimating interest rate of four and three quarters, hopefully we’ll get less than that. Rates are ticking up right now.

And any amort [ph] that’s going to go through that you can quantify or any more depreciation?

Yes. If you look back on page 29 of the deck, we put right in there estimated amortization.

Okay, cool. Thank you

Yes. Thank you.

Our next question is from Meyer Shields from KBW. Please go ahead.

Great. Thanks, and thanks for your patience. I just had a few quick modeling questions. One, given it’s employee benefits focused is there any distinct seasonality in Hay’s revenues?

Not that we’re aware of. But just – as their business in general I think as Powell has commented is there any seasonality now. But keep in mind Meyer that the revenue recognition rules will absolutely move revenue between quarters. So what we are doing is we’re working with their team right now on implementation of rev rec was when we released earnings at the end of the year we will come back and provide quarterly guidance, but expect their revenues into the year would definitely move quite a bit around, so we’ll give some guidance on that okay.

Okay, that’s great. Second, on the $8 million national programs revenue recognition issues are there any offsetting expenses that also should not recur next year?

Nothing of material size there.

Okay. And then finally within retails, there was a slowdown in organic growth, but you are still running close to 3%. Was there any unwind of compensation accruals through the first half of the year in the third quarter expenses?

No.

Okay, perfect. Thank you so much.

Thank you.

We’ll now take a question from Adam Klauber from William Blair. Please go ahead.

Thanks, good morning. The $100 million of stack, how many producers is that going to? And did I hear correctly that’s [Indiscernible] for five years?

Yes, no number one the distribution of that we’re not talking about openly, and yes it’s a five year lockup.

Okay, so we’re not talking about that specifically, how are the producers being locked up.

The senior leadership of Hays has got a plan worked out with the individuals that are driving the business forward. But once again, as we told you then it would be in the public and our competitors would try to use that against us. So suffices to say that we feel comfortable with the plans that they have in place to continue to drive retention of people and accounts.

Okay, that’s great. Thank you. And then as far as the Hays EBITDAC margin, I think say 22%, 24% typically with the larger deals these days investment bankers tend to add an adjustments to sort of pre-put in cost savings. Is that 22%, 24% Hays historic margin, or does that include some of the bankers add back ins or cost savings?

Well let make sure that we’re saying the same thing. Number one, bankers are very good marketers, but we also understand what the numbers are real or not. There was not an investment banker involved in this. So those numbers are our numbers, our collective numbers together. So if you were to go out and see a deck of something on one of the deals that somebody is pitching they will make the margin look substantially higher than it is or could be. So any adjustments in the pro forma we collectively with the senior leadership at Hays are both very comfortable with and those are real numbers.

Okay, thanks that’s good to hear. Thanks.

And we have a follow on question from Yaron Kinar from Goldman Sachs. Your line is open.

Hey, just one quick one on modeling. I think you said that you’d have this $3 million head win in the fourth quarter and the services revenues. Is that in absolute numbers or is that just a base off of which you are still expecting to get some offset growth, mainly are you talking about a $40 million number or as the number you should be generating in the fourth quarter in services or will be a $40 million base that will still be offset by some growth?

Yes, think about it as the – whatever you are projecting for the fourth quarter, then pull $3 million off of that.

Okay. And then one final follow up on the 22% to 24% EBITDAC margin that you are expecting for Hays next year that does not include the combined synergies, is that correct?

As we’ve talked about Yaron is we are forecasting minimal synergies in kind of years one and two or 3 to 5, we will have some integration cost next year, most of those will be in two through four.

Okay, so..

Let me point out one thing, Yaron that I know you know this but this is a gap accretive deal in year one. And it is an asset purchase, so there – that is obviously a very positive thing for the team here. So I just want to make sure that you have that. I know you knew that, but I want make sure everybody else out there knows that too.

I appreciate and I guess, I just -- I want to make sure that I’m thinking about it correctly. So beyond the gap accretion, the 22 to 24 does incorporates some minimal integration cost and some minimal combined synergy estimates in that for next year.

No, it has a little bit -- a little bit of integration cost. It has no synergies or benefits in it.

Okay, thank you very much.

Thank you.

Ladies and gentlemen, that now concludes our question-and-answer session. So I’d like to turn the conference back to you Mr. Brown for any additional or closing remarks.

Thank you, Hannah. We appreciate every time today. We are excited about the Hays transaction and we look forward to talking to you again after Q4. Good day, bye bye.

Thank you. Ladies and gentlemen, that now concludes today’s conference call. Thank you for your participation. You may now disconnect.