Good afternoon and welcome to Arthur J. Gallagher & Co.'s Q4 2020 earnings conference call. Participants have been placed on a listen-only mode. Your lines will be open for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in your response to questions, may constitute forward-looking statements within the meaning of the securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary statements and risk factors contained in the company's 10-K, 10-Q, and 8-K filings for more details on its forward-looking statements. In addition, for reconciliations of the non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the investor relations section of the company's website. It is now my pleasure to introduce Mr. J. Patrick Gallagher, Chairman, President, and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin. Thank you. Good afternoon, everyone. Thank you for joining us for our Q4 2020 earnings call. On the call with me today is Doug Howell, our Chief Financial Officer, as well as the heads of our operating divisions. Before we get started, I'd like to make a few comments regarding the tumultuous year that was 2020. It was a year that tested everything from our physical health to our mental state of mind to how we see one another. It has impacted our colleagues, our families, our communities around the world. It brought personal hardship and loss, stresses and challenges that none of us would have predicted a year ago. I believe we've learned a lot about ourselves and our society over the past year, and while 2020 is behind us, many issues and difficulties remain. Let's not forget 2020 also showed us that the world can work together towards a common goal to develop vaccines in order to solve a global problem. For that, I'm both thankful and I remain optimistic about our future. Now on to the discussion of the quarter and year. We delivered an excellent Q4 in the midst of the pandemic. We grew organically. We picked up momentum and grew through acquisitions. We improved our productivity and raised our quality. We continued to invest in our bedrock culture. I'm extremely proud of how the team performed during the quarter and the full year. In our brokerage segment, Q4 reported revenue growth was a positive 3.6%. Most of that, or 3.1%, was organic revenue growth. We executed on our cost containment playbook and further utilized our centers of excellence, saving about $60 million in the quarter, helping drive our net earnings margin higher by 281 basis points and expanding our adjusted EBITDA margin by 579 basis points. Net earnings were up 33%, and adjusted EBITDA was up 30%. Another fantastic quarter for the brokerage team. Let me walk you around the world and give you some sound bites about each of our brokerage units, starting with our PC operations. In U.S. retail, organic growth was strong at about 4.5%. New business and client retention was similar to last year's Q4, and midterm policy modifications, including full policy cancellations, were slightly better than prior year levels. In our U.S. wholesale operations, Risk Placement Services, organic was about 5%. Open brokerage organic was more than 20% due to strong renewals fueled by double-digit rate increases. Our MGA programs binding businesses were up about 2%. Retention was better sequentially, but as expected, new business wins are still lagging given the economy. Moving to the U.K., around 4.5% organic for the quarter. In both our retail and specialty operations, new and lost business was consistent with prior year. Special mention to our aviation team. They performed well in their largest quarter of the year, helping clients navigate exposures that were down significantly, called 30-40%, and rate increases that pushed premiums close to pre-COVID levels. Australia and New Zealand combined posted organic of about 1%. The spread between new and lost business was similar to last year, but we are not getting as much lift from rate and exposure as we had in previous years. Finally, our Canadian retail operations posted organic of 13%. Another terrific new business quarter combined with a nice tick up in client retention and strong rate environment. Overall, our global PC operations posted 4.5% organic, which is a bit better than the 4% we discussed at our December investor day. Moving to our employee benefit brokerage and consulting business, Q4 organic was around minus 2%, which is at the favorable end of what we thought during our December IR day. Similar to the previous couple of quarters, fees from consulting arrangements and special project work were down. However, revenue from our traditional health and welfare business continues to hold up, with slightly positive Q4 organic, which is an encouraging sign. When I bring PC and benefits together, total brokerage segment organic of 3.1%, a really strong quarter in this environment. Even better when you consider the tough compare against the Q4 2019 of over 6%. Next, I'd like to make a few comments on the PC market, starting with the rate environment. Global PC rates continue to march higher during the Q4 and overall. Rate was up around 8% across our footprint. Rates in Canada led the way up more than 12%. The U.S. was up more than 8%, with wholesale stronger than retail, including rate increases of 15% within our wholesale open brokerage operations, followed by the U.K., including London specialty at about 5%, and Australia and New Zealand combined in the low single digits. By line of business, property and professional liability are up 12%. Other casualty lines are up mid to high single digits, and workers' comp was flat to modestly positive. Not only are PC rates continuing to rise, terms and conditions are tightening and capacity is becoming increasingly constrained for some coverages. Nearly every area and line of business is firm or firming, and there are even a few lines that are very hard, like umbrella, cyber, and public company D&O. Needless to say, it is a difficult PC environment. This is where our teams excel, helping businesses, many of which are still struggling, navigate the market through creative program design, shopping coverages, and altering programs with increasing deductibles or reduced limits to help their Risk Management programs fit their budgets. Looking forward, I see similar PC market conditions continuing in 2021. While economic growth is coming, the pace of the recovery remains uncertain. We remain laser-focused on what we can control, delivering the very best insurance and Risk Management advice, now successfully doing this virtually more than ever before, constantly improving our high-quality customer service, engaging with new prospects, and growing our new business pipeline. Thus far in January, full policy cancellations and other midterm policy adjustments are trending similar to January 2020. While it is still early, we are seeing year-over-year renewal premium increases at levels comparable to Q4 2020. On the benefit side, the annual enrollment season is behind us, and for many of our clients, we saw covered lives stabilize from last year's declines, while retention and new business were similar to pre-COVID levels. In addition, a few of our benefits consulting practices are seeing increased activity and engagements early on in the year. While there is a lot of year left, these early January indications give me further conviction that full year 2021 brokerage segment organic will be even better than the 3.2% we delivered in 2020. Moving on to mergers and acquisitions. Following an active December, we finished the Q4 with 10 completed brokerage mergers representing about $100 million of estimated annualized revenues. We have announced a handful more so far in January, representing an additional $85 million of estimated annualized revenues. This includes the Bollington merger in the U.K., which we think will close in early February after receiving regulatory approval this week. I would like to thank all of our new partners for joining us, and I extend a very warm welcome to our growing Gallagher family of professionals. As I look at our M&A pipeline, we have 30 term sheets signed or being prepared, representing around $300 million of annualized revenues. We believe we are the platform of choice for successful entrepreneurs looking to take their business to the next level by leveraging our niche expertise, our tools, and data, in addition to being a great place for their employees to advance their careers. We expect to have a very active 2021, particularly in the U.S., due to concerns related to possible tax changes. To wrap up the brokerage segment, for the full year we delivered 5.4% growth in revenue, 3.2% all in organic growth, adjusted EBITDA margin expansion of 418 basis points fueled by cost savings of about $180 million. We completed 27 mergers representing about $250 million of estimated annualized revenue. A fantastic year for the brokerage team. Next, I would like to move to our Risk Management segment, Gallagher Bassett. Q4 organic edged back into positive territory, nicely surpassing our December expectations of being down as much as 2%. We had some positive lift due to increasing COVID-related workers' compensation claims and saw strong retention and new business. We ended 2020 with full year organic of minus 2.7%. In this environment, to close a year in which core claim counts were down double digits for more than 10 months of the year, and after posting a 10% organic decline in the second quarter alone, is a just terrific recovery story. Going back to April and the beginning of the pandemic, we set our sights on delivering full year 2020 adjusted EBITDA similar to 2019, even with full year revenues forecasted to be down $30 million or more. Boy, did the team deliver. The team proactively managed its workforce, carefully rebalanced claim loads across adjusters, and implemented expense controls, ultimately driving 2020 adjusted EBITDA of nearly $150 million, $4 million better than 2019. Being able to grow full year EBITDA despite organic revenues that were backwards is just fantastic work by the Risk Management team. As we look forward, January claim counts are trending very similar to the Q4, with many clients operating still at partial capacity. With new business sold in 2020 incepting over the next few quarters and still room for substantial job recovery, we believe full year 2021 organic will be closer to pre-COVID levels in the mid single digit range. Let me wrap up with some comments regarding our unique and resilient Gallagher culture. Culture guides our organization, our people in both good times and even more so in demanding times. I believe culture is the source of our perseverance, our determination, and our constant push for excellence. I'm extremely proud of our collective successes during 2020, but more importantly, how we came together to work as a team even while physically apart. Our culture has never been better, and I believe we are ending 2021 even stronger. I'll stop now and turn it over to Doug. Doug? Thanks, Pat, and good afternoon, everyone. I'll echo Pat's comments. A great quarter and an excellent year. I too would like to extend my appreciation to the team. Today, I'll begin with some comments on our cost savings, provide a few observations from our CFO commentary document that we post on our website. I'll do a vignette on our clean energy investments and finish with some thoughts on M&A cash and liquidity. All right, let's turn to the earnings release page six to the brokerage EBITDA table. You'll see that we grew adjusted EBITDA by about $85 million over last year's Q4, resulting in about 580 basis points of adjusted margin expansion. Within that, we realized about $60 million of cost savings relative to Q4 2019 adjusted for mergers. So underlying margin expansion was about 115 basis points on 3.1% all in organic, which on its own is impressive. When you move to page eight in the management segment, we grew EBITDA a bit more than $4 million on slightly positive organic, resulting in about 190 basis points of adjusted margin expansion. Within that, we realized about $5 million of cost savings relative to Q4 2019, which was moderated just a little by new client ramp-up costs. So underlying margins were up just a bit. That too is excellent, giving the flattish organic this quarter. Categories of Q4 savings for the combined brokerage and Risk Management segment were consistent with second and Q3. We used travel, entertainment, and advertising about $25 million. We reduced consulting and professional fees $14 million. We reduced outside labor and other workforce savings $16 million. Office supplies, consumables, and occupancy costs about $10 million. That totals around $65 million, which is consistent with what we said at our December IR day. Now, looking forward, the pace of recovery isn't clear. We came into the year with another virus surge, now maybe some positive cases coming down. Some areas are imposing more lockdowns, yet others are loosening up. There's been some successes, but mostly delays in a vaccine rollout. It is looking like more and more that the stimulus might be caught in gridlock here in the U.S. Regardless of whether you're looking at half-full or half-empty glass, very few outlooks are expecting the business environment to be much different by the end of the Q1. For us, when it comes to Q1 2021, we're seeing organic in the 3%-4% range, and we're seeing expense savings similar to Q4 2020. Call it another $600 million—excuse me, $60 million. If that happens, and we could again show margin expansion over about 500 basis points. Looking towards second, third, and Q4s of 2021, it gets a little more tricky when you do your models because the slope of the recovery is still uncertain, and we're already realizing substantial COVID-induced expense savings beginning early in April of 2020. If the recovery steps up in those quarters and we get back to organic of, say, high 4% or 5%, it does give us a path towards holding full year margins, especially if travel and entertainment remains limited. Now, all of this needs to be taken into context. In 2017, 2018, and 2019, we were expanding margins 50 to 75 basis points a year on organic in that 4%-5% range. The COVID hits, we execute on our cost containment playbook and still managed to grow organic 3%. That pops margins over 400 basis points in the face of this global pandemic. What I'm saying is that we have a fighting chance to hold or even improve full year margins here in 2021 on the prospect of getting closer to pre-pandemic organic growth later in the year. To me, that's still about as bullish a story as you could write. Now, if we move to the CFO commentary document that we post on our website, on page two, the blue Q4 column, you'll see most of the items are consistent with what we provided during our December IR day, and that's in the gray column. FX came in a penny better, and severance and integration costs also a penny better when you compare that to the prior quarters. Also, on page two in the reddish column, we're now providing our quarterly look at 2021. A few comments. First, foreign exchange. With the U.S. dollar weakening, and if it stays that way throughout the year, 2021 revenue could see a $100 million tailwind in brokerage and $14 million in Risk Management. Wouldn't be much EPS impact within Risk Management, but could translate into a nickel or so for our brokerage segment. That would even be better on reported EBITDA. Second, amortization expense. We're currently forecasting a little over $100 million a quarter in brokerage, which includes all announced mergers to date. You can see the roll-in revenues associated with all announced mergers to date on page five. Also, don't forget to adjust your amortization expense in the second and later quarters to reflect any future M&A you might be including in your model. Third, when you look at M&A multiples shown on page two on the last line of the table, like Pat said, we had an active December closing 10, three of which were on the larger end of our typical tuck-in size. That pushed the multiple up a turn or so this year, but it's still creating a nice arbitrage to our trading multiple. More importantly, it brings some really terrific merger partners to the team, letting us grow better together over the long haul. When you move to page three of the CFO commentary in the corporate table, when you compare our December IR day estimates in the gray column with our Q4 results in the blue column, we posted favorable interest expense due to strong cash flows. We had better clean energy earnings, inline M&A expense, and a slightly more favorable corporate line. Also, on page three, we're now providing a first look at 2021 ranges for the corporate segment, and that's in the reddish column. Nothing surprising, and there's no change on our outlook for clean energy, still in that $60 million-$75 million of annual after-tax earnings we provided during our IR day. This brings me to my vignette on clean energy. You'll read on page four, note five of the CFO commentary document that these investments are winding down at the end of 2021 unless there's an extension. That means in 2022, we will have zero GAAP earnings, but remember, that will be more than replaced with substantial cash flow benefits. In other words, 2021 and prior years were the credit generation years when we report the GAAP benefit in our P&L, but 2022 starts the cash harvest years where we'll get considerably larger cash benefits in our operating cash flows. Here's the shortcut way to think about how to compute those cash benefits. First, if you go to page 14 of the earnings release, about the seventh line down in our balance sheet, you'll read that we have a deferred tax asset of over $1 billion, mostly consisting of clean energy credit carryforwards. With one more year of credit generation, that asset should grow by another $100 million. Call it $1.1 billion of credit carryovers by the end of 2021. Assume in 2022, we'll begin using more credits than we've been using thus far. Third, how fast we'll be using those credits will depend on how fast we grow our U.S. taxable income. For this illustration, and if you assume a seven-year period, it might mean we would be harvesting about $125 million-$150 million in 2022, with that ramping up to about $175 million-$200 million in 2028. It's a little odd that GAAP earnings go to zero and then the cash benefits become dramatically better, but that's just how it works. This is and has been a really important part of our story over the last decade, so I think it was worth some extra time today. All right, let me go on to some comments on cash and M&A. At December 31, available cash on hand was nearly $700 million. We have a significant untapped capacity on our revolving credit facility, and we have another year ahead of us of really strong cash flows. That might mean that we would have perhaps $2.5 billion of M&A capacity here in 2021. That's a terrific position as we come into a year that we see as perhaps the most active year ever in the brokerage M&A space. Okay, that wraps up 2020, and we're positioned really well for 2021. Organic looks better. Bolt-on M&A looks better. We have a decent chance of keeping a large chunk of our cost savings. Assuming we're in a year of harvesting cash flows from our clean energy initiatives. Most important, I can feel our team's excitement about coming out of the pandemic stronger than ever before. My thanks to them for another fantastic year. Back to you, Pat. Thanks, Doug. Operator, let's go to questions and answers if we can. Thank you. The call is now open for questions. If you have a question, please pick up your headset and press star one on your telephone at this time. If you are on speakerphone, please disable that function prior to pressing star one to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing star two. Again, that is star one for questions. One moment while we pull. Our first question comes from a line of Elyse Greenspan with Wells Fargo. You may proceed with your question. Hi, thanks. Good evening. My first question, Doug, I appreciate the color you guys continue to provide on the expense savings. As we continue to think about, I guess, coming out of COVID, I know last quarter, I believe you guys had said, right, kind of when things settled, that half of the saves could persist and maybe think about some level between half and the $60 million, I guess I'm just talking about brokerage, in kind of the middle two quarters of 2021. Do those figures, I would assume that they still seem about right given where we sit today? Yeah, I think your recollection is right. What I did say is that there was a silver lining coming out of something so terrible, and that's that we've learned a lot about ourselves. I think that ultimately we think there's $125 million-$150 million of annual cost savings that we're pulling forward earlier into our continued march on margin improvement. As it emerges for the quarters this year, it really is kind of a sensitive interplay between organic and then just really what happens with the economy. We'll follow our customers' expectations. We are learning that they are much more receptive now to virtual interactions. It allows us to get our niche expertise at the point of sale easier than jumping on an airplane and spending days traveling. We are learning a lot, but we will follow our customers' expectations. How that exactly plays out in the second, third, and Q4s really depends on how fast organic moves from that 3-4% range up into maybe the 5-6% range. Okay, that's helpful. Then on the M&A environment, you guys mentioned, right, you closed a couple of larger deals to end December, right, that drove up the multiples. On the $300 million of revenue within those 30 term sheets that you guys mentioned, can you just give us a sense, kind of the skew? Are there any larger ones in there, or is it more just kind of the typical smaller bolt-on deals that you guys focused on of late as well? Yeah, I would say that, just clarifying that we had some larger tuck-in ones at the end of December, call it revenues in that $20 million-$25 million range. The deal sheets that we're looking at right now, $300 million of revenue spread across 30-35 term sheets. They're in the smaller range, nice local family-owned entrepreneurial businesses, and the range is lower than where we are right now full year. I would see us back kind of more where we were in the second, third, first, second, and Q3s. Okay. Can you give us an update on Capsicum, your reinsurance business, I guess, where that sits at the end of the year, how that's been trending from both a growth and margin perspective? Yeah, it's doing really well. We couldn't be more pleased with the team. Pat can talk about some of the cultural excitement that we have on that, but financially, they're growing in double digits still. Their margins are north of 30%. We see terrific opportunities for that business. Yeah. As you know, Elyse, this is my second go around. This one's a lot better. And then one last question, Doug. Is there a chance that there isn't any kind of extender bill that would extend your ability? I know you gave us a lot of helpful color, assuming that you can't generate any credits beyond the end of this year. Is there a chance that there could be any extender bill, or I guess most likely not at this point? Sure. I always think there's a chance, and I think that when Congress said about this, about helping us get better in burning some fossil fuels, they wanted help in making it better. As long as we're going to be using it, let's make it better. I think they see that, and I think they see the opportunity for this to continue to help innovate. We hope that there are some proposed legislative changes that possibly could make the extension happen. We are hopeful for that, and we certainly are trying to get that message on everybody's desk that we can. Okay. Thanks, Doug and Pat, for the color. Thanks, Elyse. Thanks, Elyse. Our next question comes from a line of Phil Stefano with Deutsche Bank. You may proceed with your question. Yeah, thanks. Good afternoon. In thinking about the sales pipeline, I'm trying to contemplate, I guess, in my mind, clients would have hunkered down early on in COVID and been less likely to change brokers or to really contemplate a move like that. Does it feel like people are just getting more comfortable with the world we live in today and that's opening up? Or when we think about the path from 3-4% organic growth to 5-6% organic growth, are we just waiting for the economy to improve and the shots to get in the arms so everyone can get back out there and living? Phils, Pat, there's a lot of answers to your questions. Let me back up a little bit. First of all, did the clients hunker down? You start with March of last year, and the answer to that's yes. Having said that, they have a lot of needs and a lot of requests. We were running webinars around COVID, return to work, all kinds of different as cyber, what have you. Blue MyMont, thousands of people signed up. It was not unusual for us to run a webinar with 5,000 attendees. I mean, I'd never heard of such a thing. There is a huge thirst for information, which helped our people, of course, know exactly some of the hot buttons that they should be talking to potential clients and to get out. I was amazed. I really would have told you that I thought maybe new business would have hunkered down. I did not think our lost business would increase because of that. In fact, it is amazing to me the kind of new business that we did generate. I think that it gives us a lot of confidence to sell the kind of business we sold last year, and you would get some fallover from 2019 into the Q1, maybe a little in the second quarter. Everything from May on was really generated after the first of the year. Really an incredible new business year. Secondly, are we seeing the advent potentially of people beginning to come back into the businesses? I think yes. I think we're seeing that there is going to be—and whether stimulus happens or not, I think businesses have learned how to do this. Take just a look at your local restaurants. I'd have bet a year ago they weren't—or March, they're not going to survive. Takeout's not making them robust, but they're surviving, and they're ready. I mean, in the Chicagoland area now, we can go to restaurants again. They have very limited occupancy, but they are ready. They're welcoming. They want people back, and people are excited about it. I think the pent-up demand for people to be able to go do things is also going to be helpful. Lastly, let's not forget something. I told you guys this a thousand times. I don't like hard markets, and I get it. They all look good on paper and what have you, but they tick every customer off. They are suffering through this right now because they don't really have a choice, but they are going to shop. We are there for them to understand that both our data capabilities as well as our professional niche capabilities and our ability to work them through the process of taking more risk, becoming more self-insured, that's our bread and butter. We're better at that than anybody. I think that it's all of those combined that leads me to believe that we see a very robust new business year ahead in 2021 and 2022. Okay. Thanks. Switching gears a bit, I feel like the dividend is something that we do not really talk about, but I was a bit surprised by the extent of the raise in the past week or so. Is there a long-term growth rate that you target, a payout ratio? Maybe you could just refresh our understanding on how you think about the dividend. Yeah. I mean, we did puff it up a little bit more yesterday. We did raise. I think it is an indication that our cash flows are very strong. We typically raise it a few cents and then maybe a little bit more and sit there for a year or so. I think there was a vote of confidence by the board that said that, "Let's take the dividend up just a little bit more this week." We did that, and we'll look at that every year. We agreed with the observations that cash is strong, so let's increase the dividend. Okay. Thanks. Thanks, Phil. Our next question comes from the line of Mike Sarver with Credit Suisse. You may proceed with your question. Hey, good early evening. I guess our first question on expenses, I know we've talked about this a lot, but it's been phenomenal. I'm trying to understand, do you feel that a lot of these expenses that will persist are kind of more Gallagher-specific and it'll give you a leg up on your competitors? Do you feel like a lot of these things are things that just your competitors are going to catch up to you eventually? You're just a kind of first mover? I know that's maybe a complicated question, but just trying to get a sense of whether this kind of gives you an advantage that will persist versus peers or others just are going to kind of follow you guys, but just it'll take them time. All right. Let's break this into a couple of things. Let me talk about who our competitor is. Ninety percent of the time, we're competing with somebody that's smaller than us, right? When you look at where are we really getting leverage, I think that we're getting leverage because of our scale, especially relative to that level of competitor, the smaller ones that we compete with day in and day out. I think we have opportunities to continue to use our lower-cost labor locations and our centers of excellence. I think our ability in order to rationalize our real estate footprint, I think that we can buy goods and services cheaper. I think our ability to automate many of the interactions with the clients and with our own employees, all of those things, I would say that Gallagher is positioned. We have a common agency management system in most of our countries and most of our businesses. Those are things that we believe that we will continue to bring scale advantages versus our smaller competitors. How do I feel about it comparing to, let's say, the other top 10 brokers? First of all, you got to pick the ones that have the culture that want to work together and make it happen. You have to pick the ones that have not already gone down this journey to see whether or not they are there yet or not. We think that we are in a really terrific place to continue to leverage our technologies and our scale compared to most of our competition. I do not know if they are catching up or if they are already there or they just do not have the culture to pull it off. Okay. That is helpful, Doug. Did you—more straightforward question—free cash flow for 2021, did you cite kind of an estimate for what we should expect? I did not, but I said that we probably could do up to $2.5 billion in M&A for this year. If you break that apart, we have $700 million on hand. If you look at our operating cash flows being somewhere in the $1.3 billion-$1.5 billion range, something like that, I think. You borrow a little bit more, and so that's how you get to the $2.5 billion. Okay. Just lastly, curious, a broker that reported earnings earlier today actually talked about stepping on the gas on hiring and taking advantage of some of the M&A that's taking place in the industry. Just curious, are you seeing any increased opportunities on the hiring side? Definitely seeing opportunities from two areas. Doug mentioned that 90% of the time we compete, we compete with smaller brokers. The smaller brokers have the problem of just simply not having the capabilities that clients are starting to ask for. These can be simple questions like, "How do I know? How do I know you just gave me the best deal? When I was out selling 30 years ago on a daily basis, that would be answered by saying, "I went to three carriers. This is the best price." That does not float today. They want to know what you're doing with clients, what carriers are doing it, where the ranges are, what their loss ratio looks like compared to others. They want detail. They want data. Smaller people can't do that. What you've got is folks that are losing accounts to the likes of ourselves, and we're out telling them, "Why wouldn't you come to a place that's happy to pay you for what you hunt and kill?" At the same time, you have all the support and the capabilities in the world. We can write any account of any size, no matter where it's located in the world, and that's very attractive. Of course, there's always opportunities with larger competitors. We clearly believe we offer a cultural difference. Thank you. Our next question comes from the line of Greg Peters with Raymond James. You may proceed with your question. Good afternoon. Just to follow up on Mike's question, I don't know if I missed it in the prepared remarks. The free cash flow for 2020 was what? For 2020, our free cash flow and our operating, free operating cash flow will be about $1.4 billion this year. That cash flow statement, when we file our 10-K in a week, you'll see it's around $1.4 billion. You said the guidance for 2021 is $1.3 billion-$1.5 billion. Was there some one-time benefits that flowed through in 2020 that you're not going to realize in 2021? Otherwise, I would have normally expected the free cash flow to grow. If you're growing your top line and your bottom line, I expect free cash flow to grow. What am I missing? I don't think it will appreciably change significantly in 2020 versus 2021. We'll grow at—if we hold margins in there, we're going to grow based on not including acquisitions in that number. If the cash flows off the acquisitions, we'll also fuel that too. Just to close the loop on your previous comments, when you said in 2022 that you'll drive a—was it a $125 million cash benefit from the pull-down of the tax credit? I can assume whatever free cash flow growth I have off of 2021 on an operating basis and then just add on an additional 125. Is that a fair way to think about it? Yeah. If you factor in mergers, yeah, that's a fair way. Okay. The second question I had—listen, I know you've commented on this before, and we're sort of dancing around it in the prepared remarks and the Q&A, but you talked about an 8% rate increase across your entire footprint. And you talked about terms and conditions being changing. I'm just curious about your customers and how they're dialing up retentions or reducing limits to offset the price. And I guess what I'm really trying to gauge is how does it look here at year-end 2020 versus how it was looking at year-end 2019? I think it's continuing to get stronger, Greg. I think that, look, if we're telling you that basically we're seeing rate increases of around 8% and organic is about 3.5%, you see a 5% difference. Where'd it go? It went to modification of what the purchaser is buying. That's our job. I mean, we sit down with these guys and men and women and say, "Look, here are your options. You had $250 million of limits last year. We can show you the stats that that would be a very unusual claim to break the $150 million barrier. Do you need that extra $100 million?" We help them work through that. Retentions are a very big part of it. A big part of it is, and this is where our history comes from, clients that enter self-insurance for the first time. I don't understand this. What's the deal? Why don't you take a $150,000 retention, and you'll basically save X on the transaction that you'll only have to pay if you do have the claims. Now, let's really focus on loss control. I don't need to get too detailed with you, but that's what we do for a living. Right. I guess what I had assumed that the difference between the 8 and the 3 was a combination of retentions, reduced limits, and reduced economic activity. Maybe I was overthinking it. That's fair. That's fair. That's fair. I left out the economic activity. That's fair. Okay. I guess the final thing—I know you've been talking about M&A—but listen, the dirty little not-so-big-of-a-secret is the number two and number three are out there in the merger dance. It feels like that is an opportunity for dislocation, for customers being unhappy, for you to make new hires, etc. I guess from the time that they announced this thing back in March of last year to now, have you seen anything in the marketplace that's disruptive that you see as an opportunity? Is the disruption, if there is any, going to come later in this process? Greg, obviously, I'm not going to talk about our competitors. I've said to you many times, change is good for us. When we move to further consolidation of three players at the top end of the spectrum and our name happens to be one of them, there's lots and lots and lots of opportunities along the lines of everything you're talking about. There's clients that have never really talked to Gallagher that we're going to have a shot at. I mean, if you go back in time and I went to the RIMS conference 100 years ago, nobody came by our booth. We've got 5,000 people that show up to our RIMS conference virtually. I mean, there's interest. We're in a very, very good position. Got it. I probably got a little too cute on the question. Sorry about that. Thanks for your answers. Sure. Thanks, Greg. Our next question comes from the line of Yaron Kinar with Goldman Sachs. You may proceed with your question. Hi. Good evening. My first question, just trying to tie the organic growth to margins next year. I would think there are different ways to get the 4-5% organic growth. Each of those potentially has a very different impact on margins, namely if you're getting more of that organic growth through rate versus exposure unit growth. Maybe you can talk about that a little bit. On the flip side, I think in the past, you used to talk about needing to get at least 3% organic in order to keep margins stable. How should we think about, let's say, a 3% organic growth for if you achieve that in 2021? What does that mean for margins? Right. The difference in workload on a customer that is adding exposure units, i.e., adding vehicles or changing miles, isn't significant whether they're adding a couple of vehicles. The workload associated with a rate increase that comes from exposure units, not that much more. If it comes from additional rate, that means we want to go out and shop it more. It will take a little bit more effort. Because of our efficiencies, we can do that at a pretty low-cost month. Just the number of policies or the exposure units or a modest rate increase or decrease does not change our workload that much. I would not say that that would have a significant impact on margin if you are kind of in that 2-4% range on rates and exposures. When you are asking the next part of the question about where do we see kind of the old tried-and-true line, if you grow organically 3%, is there margin lift in it? Yeah, I think there is. Is it in this year, in 2021, since we are up 400 basis points in margin this year alone? I think that would be pretty tough to get at 3%. Okay. Beyond 2021, though, if you do achieve 3% organic growth, even though the bar is so much higher today, you can still achieve margin improvement even with that? Yeah. We'd move that to 3-4% over the number of years. As our margins are getting over 30%, there's just not as much there to harvest as our technologies get rolled out. As our scale grows, we'll be able to have margin improvement on those tuck-in acquisitions that can come onto our chassis, can use our technologies. It's really more about selling more than it is necessarily about making more margin. There would be upward tick. Do I see that at 3% organic growth in 2022? I don't know if we'd have that much more margin expansion. Do it for five years in a row? Sure, there could be some. Got it. With this step-up in Gallagher's margins, with a good portion of that being retained, how do you think about acquisitions and potential targets? I would think that the bar to clear there could be significantly higher just given that your margins are higher today. If they're running good margins for the business that they're in and they show prospect for growth, we'll buy them regardless of whether it's dilutive to our margin if they come in. They are what they are. If we can improve their margins, terrific. If they're already at the upper end of the scale, then terrific. If they just happen to be in a space that requires a significant amount of service that maybe, let's say, that their margins are 22%, but they have a good growth, we'll still buy them and we'll let you know. We've done that in the past where we've said a rolling impact of acquisitions had X, Y, or Z impact on our margins. Got it. Thank you. Sure. Thanks, Yaron. Our next question comes from the line of David Motemaden with Evercore ISI. You may proceed with your question. Thanks. Good evening. Just a question on P&C exposure units. In the press release, it sounded like we're continuing to see an increase in exposure versus April and May 2020, which is not a big surprise. I guess I'm wondering how exposure units were trending thus far this year relative to 4Q. Obviously, a tough comp year- over- year, but are we continuing to see an improvement in exposure units in Q4, or has it sort of flattened out thus far in January? They're flat in January. Yeah. I think that we've kind of bounced off the bottom. We're not seeing significant daily step-up. We are seeing—we look at our global positive endorsements that go through on our policies on every day, and we can see that that's still showing a nice upward trend similar to pre-pandemic. You were not seeing massive exposure unit growth a year ago in the Q4 2019, early into 2020. You were not seeing it there. There is a steady increase. There has been a bounce off the bottom. We would expect throughout 2021 and 2022, as the economy recovers, that those exposure units would go back up also. Not much difference today than, let's say, in December. Got it. Okay. That makes sense. I guess I'm wondering, after we've gotten through some of the renewals here in January, are you seeing any movement on the commission rates? I guess just conversations around contingents and supplementals, maybe an update on how those are looking? Yeah. I think that commission rates and the like are solid. We're not having pressure from our carrier partners to try to diminish their payment to their distributors. As far as contingents and supplementals, we think we'll have a solid year, some growt h this year. Great. Thank you. Thanks, David. Our next question comes from the line of Mark Hughes with Truist. You may proceed with your question. Thank you. Good afternoon. Hey, Mark. Why the rebound in Risk Management? I wonder if you could break that into pieces: more claims, more employees, new business. How does that shake out? I think, Doug, if you want to granular to the percent, I can't do that. You hit right on it, Mark. I mean, we've got claims are recovering. We mentioned in our prepared remarks that COVID claims in particular have helped out. Economic activity, people are adding more folks. Those are the factors that produce claims. As we get people driving, as we get people going back to work, they will come back to more normal levels. We don't hope to get more COVID claims, but they are filling a hole in the bucket right now. Yeah. They had a terrific new business year too that's starting to incept. You saw that we had some—we spent a couple of million or a million or so on some new client ramp-up costs as we transitioned. Then we've got a solid outlook for this year of being back in mid-single digits maybe this year. That team has done a terrific job of new business wins too. Didn't hit a ton this year, but it will next year. How are you thinking about the open broker? It sounds like that was particularly strong in the Q4. Has that continued into Q1? Yes. It's continued. It's very strong, Mark. I mean, you understand wholesaling is a business that has an awful lot of market leverage up and down. We are in a very firm property market in particular in our team. What's exciting about this is, you know this, brokers do not want to go to wholesalers. It's not a friendly business in the sense that we're looking to give you a third of our commission. They're providing an unbelievable service to the brokerage community with whom we trade about 15,000 in the United States alone. Those people need help, and we're giving them help. That's why, along with rate, we're getting it both in item count and rate just by being ready to be very, very helpful. Thank you. Thanks, Mark. Our next question comes from the line of Paul Newsome with Managing Director. You may proceed with your question. Good afternoon. Good afternoon. I afternoon. I wanted to ask a little bit more about your comment about the lack of shopping by the customers. I mean, I think of a hard market as one with increased shopping. Your comments seem to square with every company I cover where the retention levels seem to be really unchanged through the last couple of years. Why do you think we haven't seen the increase in shopping? Why do you think that customers seem to be just kind of taking the rate and moving on? Paul, again, my comment was predicated on two things. To start with, in the pandemic, I didn't think customers would be having people knocking on their door as much as they do right now and as much as they did in 2019. I think that as they started to ferret their way through what's going to go on in this pandemic themselves, they were willing to very much hunker down and say, "I've got a good insurance program. This is where it is. I've got to be considering my own survival tactics. I surmise there'd be less shopping of our existing business. I was right a little bit. It certainly didn't stop shopping. It wasn't like everything came to a grounding halt. If you're a good broker and we've got really good competition in this market, in a hard market, you early on explain to your client that if you are unhappy with a hard market and you want to be really unhappier, shop the hell out of it because you're going to get slaughtered. In fact, in a hard market, shopping does decrease. Pardon me. Unfortunately, as things ease up a bit, people are unhappy, and it tends to increase shopping. Right now, we're in a very firm and firming market, and people understand that they need our expertise. It also does scare some of those littler competitors that we compete with 90% of the time out of being so bold as to say they can do better than we do. Pretty tough to prove it. Yeah. I think there's a flight to quality with this. I think that when you sit down and look at what you get from Gallagher, you get more. And how do you get more from us? You get price, you get service, you get access, you get creativity, you get innovation. It's pretty hard to leave that if you don't have competition knocking on the door that can offer that. I think it's a different era from when you and I were cutting our teeth, Paul, that it's basically small brokers competing with small brokers offering kind of the same thing. You get so much more from Gallagher today than you ever got before. Another thing piling in on that, once you show someone how to get through these days, and primarily by doing what we do so well, which is help people deal with assuming risk, bringing Gallagher Bassett in to help pay the claims, mitigating those claims, and showing them that in the long term, they've really garnered a lot more control of their destiny, you never lose those clients. A client that moves from the traditional first dollar purchase into any form of self-insurance, pooling with other public entities, moving into a group captive, doing their own single parent captive, taking a large retention on their workers' comp in a very heavy employee state, once you do that for them, it shifts the game completely. Makes sense. Switching to a different topic, obviously, with the change in the quick tax credits potentially going away, we're probably looking at a change in how we value your company. Less on earnings, more on something else like free cash flow. I guess my question is, is free cash flow the right number? Is operating cash flow the right number? I'm just curious because I know that there are customer monies that get intertwined with yours in the measurements. What's your theory on how we should measure cash flow if we have a proper way to do it? Yeah. All right. Great. Yeah. I I think that's a terrific question. All right. First, I still believe that EBITDA is a good proxy for how to value a broker. Then you just have to back off the cash taxes paid. Interest expense, of course, and the cash taxes paid and the interest shield on that. If you basically start with EBITDA, you're going to get pretty close to the way. That's been a traditional way. What does that mean for Gallagher? We've said this for years. We still pay taxes. People sometimes think that we're not paying our fair share. That's not the case at all. We still pay taxes. It runs about—I have said this—if you go back to when tax changed, we think that we're going to pay in that 5%-6%-7% of EBITDA range just as a proxy. We're probably at that same range. Even if tax rates go up to 28% from 21%, it would be a book rate differential. It would not really be a cash difference. If the Biden tax measures were put in place, it might cost us $10 million a year in taxes more, Paul. It would not be a huge number. The value of tax credits becomes more valuable if tax rates go up. For Gallagher, it is take our EBITDA, back off our CapEx, back off our interest expense, and put in 7% or 8% for cash taxes paid. You get pretty close to the cash flow amount for Gallagher. I might have missed something in there, but I think I got most of the pieces in that. I would start with EBITDA still. Fantastic. Thanks, guys. Appreciate it. Thanks, Paul. Thanks, Paul. Our next question comes from the line of Meyer Shields with KBW. You may proceed with your question. Great. Thanks. Good evening. One small question, one big one. Are the claims that you're seeing recover in Gallagher Bassett—sorry, Gallagher Bassett—are any of those just late reported claims that occurred earlier, or is it just now you're seeing more claims because of COVID or because of rising economic activity? More claims rising out of better economic activity and the addition of COVID claims, which was a category that didn't exist a year ago. Okay. Perfect. In the bigger picture, Pat, you talked about Gallagher's ability to write any client. To actually win those clients, do you need to have a more extensive set of consulting services comparable to the brokers that are bigger than you? Yeah. We do. Yeah. When you open our— pardon me? I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry. What? No. When you said we do, that Gallagher has those services or needs them in the same proportion. No, no. We do. We've got them. I mean, Doug was going to go down the line of, if you take a look at our verticals, our niche capabilities, I mean, we do not stand second to anybody. I can go through the list of those. We provide it to you every time we get a chance. You take a public sector client anywhere in the world. You take a college or university. We had some great college and university wins in the last month. Names that if I threw them out, which I will not today, you would go, "Whoa. Okay." I am talking on a global basis where we are probably the largest provider of college and university Risk Management advice in Australia. You are not going to be winning those types of accounts. We have gotten much stronger in terms of our benefits capabilities. When you take a look at what we do on the consulting work for health and welfare alone, but also all the other human resource needs, I mean, we're clearly a top three consultant in that regard. No. I mean, look, we know that over 90% of our business falls in clearly defined niches, which we have expertise that we think is frankly better than our large competitors. Okay. Excellent. Thanks so much. Thanks, Meyer. Our final question comes from the line of Phil Stefano with Deutsche Bank. You may proceed with your question. Yeah. Thanks for taking the follow-up. I was just hoping—is there any way you can help frame for us what the ceiling on the brokerage organic growth, brokerage organic margin might be? Oh, Phil, that's a tough question. I'd rather not. I think that the answer is it's just such an interplay between organic service expectation by our clients and then an underlying inflation too that we face every day and certain of that. Right now, we're in a low-wage inflation environment. We've kind of been in a low-wage inflation environment since really 2007, 2008. We're getting more efficient with scale. Technology costs are coming down. On the other hand, there are costs that more specific technical expertise costs more. You just said getting smarter people on your payroll that can handle some of the really, really technical aspects of what's going on. Systems, there's cost inflation in systems right now. It's a tough, tough answer. You're seeing the brokerage business somehow is running around 30 percentage points plus or minus 2 percentage points right now. That's the way it's running. You look across us and the other large publics, and you look at the PE-owned firms, there's a number around 30% plus or minus a couple of points there. Yeah. Fair enough. I figured I'd give it a try. Thank you. Thanks. Thanks, Phil. Ladies and gentlemen, I think that's all our questions. Yeah? Yes. I would like to turn it back over to you, Mr. Gallagher, for closing remarks. Thanks. Thank you again, everyone, for joining us this afternoon. We mentioned this in our prepared remarks, but we delivered an excellent quarter and full year. We all know how difficult the economic environment was. I would like to thank all of our Gallagher professionals around the globe for being flexible, working hard, and never losing focus on our job at hand. I'm confident that we can deliver another great year of financial performance in 2021 and truly believe that as an enterprise, we are just getting started. Thanks for being with us, folks. We appreciate it. This does conclude today's conference. You may disconnect your lines at this time.