Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis that follows relates to our financial condition and results of operations for the three-month period ended March 31, 2023. Readers should review this information in conjunction with the March 31, 2023 unaudited consolidated financial statements and notes included in Item 1 of Part I of this quarterly report on Form 10‑Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our annual report on Form 10-K for the year ending December 31, 2022.

Prior Year Discussion of Results and Comparisons

For Information on fiscal first quarter 2022 results and similar comparisons, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-Q for the fiscal three-month period ended March 31, 2022.

Information Regarding Non-GAAP Measures and Other

In the discussion and analysis of our results of operations that follows, in addition to reporting financial results in accordance with GAAP, we provide information regarding EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, diluted net earnings per share, as adjusted (adjusted EPS), adjusted revenue, adjusted compensation and operating expenses, adjusted compensation expense ratio, adjusted operating expense ratio and organic revenue. These measures are not in accordance with, or an alternative to, the GAAP information provided in this quarterly report on Form 10‑Q. We believe that these presentations provide useful information to management, analysts and investors regarding financial and business trends relating to our results of operations and financial condition or because they provide investors with measures that our chief operating decision makers use when reviewing the company’s performance. See further below for definitions and additional reasons each of these measures is useful to investors. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. The non-GAAP information we provide should be used in addition to, but not as a substitute for, the GAAP information provided. We make determinations regarding certain elements of executive officer incentive compensation, performance share awards and annual cash incentive awards, partly on the basis of measures related to adjusted EBITDAC.

Adjusted Non-GAAP presentation - We believe that the adjusted non-GAAP presentation of the current and prior period information presented on the following pages provides stockholders and other interested persons with useful information regarding certain financial metrics that may assist such persons in analyzing our operating results as they develop a future earnings outlook for us. The after-tax amounts related to the adjustments were computed using the normalized effective tax rate for each respective period.

Adjusted measures - We define these measures as revenues (for the brokerage segment), revenues before reimbursements (for the risk management segment), net earnings, compensation expense and operating expense, respectively, each adjusted to exclude the following, as applicable:

Net gains on divestitures, which are primarily net proceeds received related to sales of books of business and other divestiture transactions, such as the disposal of a business through sale or closure.

Acquisition integration costs, which include costs related to certain large acquisitions (including the acquisition of the Willis Towers Watson plc treaty reinsurance brokerage operations (which we refer to as the Willis Re acquisition)), outside the scope of our usual tuck-in strategy, not expected to occur on an ongoing basis in the future once we fully assimilate the applicable acquisition. These costs are typically associated with redundant workforce, compensation expense related to amortization of certain retention bonus arrangements, extra lease space, duplicate services and external costs incurred to assimilate the acquisition into our IT related systems.

Transaction-related costs, which are primarily associated with the acquisition of Willis Re (primarily related to deferred closings in certain jurisdictions in 2022) and of BCHR Holdings, L.P. and its subsidiaries, dba Buck (which we refer to as Buck). These include costs related to regulatory filings, legal, accounting services, insurance and incentive compensation.

Workforce related charges, which primarily include severance costs (either accrued or paid) related to employee terminations and other costs associated with redundant workforce.

Lease termination related charges, which primarily include costs related to terminations of real estate leases and abandonment of leased space.

Acquisition related adjustments, which include the change in estimated acquisition earnout payables adjustments and acquisition related compensation charges.

Amortization of intangible assets, which reflects the amortization of customer/expiration lists, non-compete

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agreements, trade names and other intangible assets acquired through our merger and acquisition strategy, the impact to amortization expense of acquisition valuation adjustments to these assets as well as non-cash impairment charges.

The impact of foreign currency translation, as applicable. The amounts excluded with respect to foreign currency translation are calculated by applying current year foreign exchange rates to the same period in the prior year.

Effective income tax rate impact, which levelizes the prior year for the change in current year tax rates.

Adjusted ratios - Adjusted compensation expense and adjusted operating expense, respectively, each divided by adjusted revenues.

Non-GAAP Earnings Measures

We believe that the presentation of EBITDAC, EBITDAC margin, adjusted EBITDAC, adjusted EBITDAC margin, adjusted EPS and adjusted net earnings for the brokerage and risk management segments, each as defined below, provides a meaningful representation of our operating performance. Adjusted EPS is a performance measure and should not be used as a measure of our liquidity. We also consider EBITDAC and EBITDAC margin as ways to measure financial performance on an ongoing basis. In addition, adjusted EBITDAC, adjusted EBITDAC margin and adjusted EPS for the brokerage and risk management segments are presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

EBITDAC and EBITDAC Margin - EBITDAC is net earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earnout payables and EBITDAC margin is EBITDAC divided by total revenues (for the brokerage segment) and revenues before reimbursements (for the risk management segment). These measures for the brokerage and risk management segments provide a meaningful representation of our operating performance for the overall business and provide a meaningful way to measure its financial performance on an ongoing basis.

EBITDAC, as adjusted and EBITDAC, as adjusted Margin - Adjusted EBITDAC is EBITDAC adjusted to exclude net gains on divestitures, acquisition integration costs, workforce related charges, lease termination related charges, acquisition related adjustments, transaction related costs, legal and income tax related costs and the period-over-period impact of foreign currency translation as applicable, and Adjusted EBITDAC margin is Adjusted EBITDAC divided by total adjusted revenues (defined above). These measures for the brokerage and risk management segments provide a meaningful representation of our operating performance, and are also presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

EPS, as adjusted and Net Earnings, as adjusted - Adjusted net earnings have been adjusted to exclude the after-tax impact of net gains on divestitures, acquisition integration costs, the impact of foreign currency translation, workforce related charges, lease termination related charges, acquisition related adjustments, transaction related costs, amortization of intangible assets, legal and income tax related costs and effective income tax rate impact, as applicable. Adjusted EPS is Adjusted Net Earnings divided by diluted weighted average shares outstanding. This measure provides a meaningful representation of our operating performance (and as such should not be used as a measure of our liquidity), and for the overall business is also presented to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

Organic Revenues (a non-GAAP measure) - For the brokerage segment, organic change in base commission and fee revenues, supplemental revenues and contingent revenues exclude the first twelve months of such revenues generated from acquisitions and such revenues related to divested operations in each year presented. These revenues are excluded from organic revenues in order to help interested persons analyze the revenue growth associated with the operations that were a part of our business in both the current and prior period. In addition, organic change in base commission and fee revenues, supplemental revenues and contingent revenues excludes the period‑over‑period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability. For the risk management segment, organic change in fee revenues excludes the first twelve months of fee revenues generated from acquisitions in each year presented.

In addition, change in organic growth excludes the period-over-period impact of foreign currency translation to improve the comparability of our results between periods by eliminating the impact of the items that have a high degree of variability.

These revenue items are excluded from organic revenues in order to determine a comparable, but non-GAAP, measurement of revenue growth that is associated with the revenue sources that are expected to continue in the current year and beyond. We have historically viewed organic revenue growth as an important indicator when assessing and evaluating the performance of our brokerage and risk management segments. We also believe that using this non‑GAAP measure allows readers of our financial statements to measure, analyze and compare the growth from our brokerage and risk management segments in a meaningful and consistent manner.

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Reconciliation of Non-GAAP Information Presented to GAAP Measures - This quarterly report on Form 10‑Q includes tabular reconciliations to the most comparable GAAP measures, as follows: for EBITDAC (on pages 44 and 50), for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share (on page 39), for organic revenue measures (on pages 45 and 50), respectively, for the brokerage and risk management segments, for adjusted compensation and operating expenses and adjusted EBITDAC margin, (on page 46) for the brokerage segment and (on page 51) for the risk management segment.

Other Informa****tion - Allocations of investment income and certain expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information. We allocate the provision for income taxes to the brokerage and risk management segments using local statutory rates. As a result, the provision for income taxes for the corporate segment for 2021 and prior periods reflects the entire benefit to us of the IRC Section 45 tax credits produced, because that is the segment which generated the credits. The law that provides for IRC Section 45 tax credits expired in December 2019 for our fourteen plants placed in service prior to December 31, 2009 (which we refer to as the 2009 Era Plants) and expired in December 2021 for our twenty-one plants placed in service prior to December 31, 2011 (which we refer to as the 2011 Era Plants). We anticipate reporting an effective tax rate of approximately 24.5% to 26.5% in the brokerage segment and 25.0% to 27.0% in the risk management segment for the foreseeable future. Reported operating results by segment would change if different allocation methods were applied. Because the law governing IRC Section 45 tax credits expired as of December 31, 2021, reported GAAP revenues and net earnings will decrease, yet our net cash flow will increase as a result of not having to pay expenses to operate the clean coal facilities and also from an increase in the use of credits against our U.S. federal income tax obligations.

In the discussion that follows regarding our results of operations, we also provide the following ratios with respect to our operating results: pretax profit margin, compensation expense ratio and operating expense ratio. Pretax profit margin represents pretax earnings divided by total revenues. The compensation expense ratio is compensation expense divided by total revenues. The operating expense ratio is operating expense divided by total revenues.

Overview and First Quarter 2023 Highlights

We are engaged in providing insurance and reinsurance brokerage and consulting services, and third-party property/casualty claims settlement and administration services to entities in the U.S. and abroad. In the three-month period ended March 31, 2023, we generated approximately 65% of our revenues for the combined brokerage and risk management segments domestically and 35% internationally, primarily in Australia, Bermuda, Canada, the Caribbean, New Zealand and the U.K. We have three reportable segments: brokerage, risk management and corporate, which contributed approximately 88%, 12% and 0% for brokerage, risk management and corporate, respectively, to revenues during the three-month period ended March 31, 2023. Our major sources of operating revenues are commissions, fees and supplemental and contingent revenues from brokerage operations and fees from risk management operations. Investment income is generated from invested cash and fiduciary funds, and other investments, and interest income from premium financing.

We typically cite the Council of Insurance Agents and Brokers (which we refer to as CIAB) insurance pricing quarterly survey at this time as an indicator of the current insurance rate environment. The first quarter 2023 survey had not been published as of the filing date of this report. The fourth quarter 2022 survey indicated that commercial property/casualty rates increased by 8.0% on average. We expect a similar trend to be noted when the CIAB first quarter 2023 survey report is issued, which would indicate overall continued price firming and hardening in some lines. The CIAB represents the leading domestic and international insurance brokers, who write approximately 85% of the commercial property/casualty premiums in the U.S.

We believe increases in property/casualty rates will continue for the remainder of 2023 due to rising loss costs, higher reinsurance pricing (particularly in property catastrophe), increased frequency of catastrophe losses and social inflation. If loss trends deteriorate over the coming quarters, including the impact of natural catastrophes, it could lead to a more difficult rate and conditions environment in certain lines. The combination of increasing insurable values (due in large part to inflation, including wage inflation), a still tight labor market and historically low unemployment is likely contributing to increases in client insured exposures. Additionally, we expect that our history of strong new business generation, solid retentions and enhanced value-added services for our carrier partners should all result in further organic growth opportunities around the world. Overall, we believe that in a positive rate environment with increasing exposures, our professionals can demonstrate their expertise and high-quality, value-added capabilities by strengthening our clients’ insurance portfolios and delivering insurance and risk management solutions within our clients’ budget. Based on our experience, most insurance carriers appear to be making rational pricing decisions and there is adequate capacity in the insurance and reinsurance market for most lines of coverage; however, the U.S. property catastrophe market could face significant price increases, tightening terms and conditions and a supply/demand imbalance for 2023 renewals.

Summary of Financial Results - Three-Month Periods Ended March 31, 2023 and 2022

See the reconciliations of non-GAAP measures on page 40.

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(Dollars in millions, except per share data)	1st Quarter 2023						1st Quarter 2022						Change
	Reported			Adjusted			Reported			Adjusted			Reported			Adjusted
	GAAP			Non-GAAP			GAAP			Non-GAAP			GAAP			Non-GAAP
Brokerage Segment
Revenues	$	2,375.2		$	2,375.0		$	2,122.6		$	2,080.8			12	%		14	%
Organic revenues				$	2,252.3					$	2,064.0						9.1	%
Net earnings	$	515.3					$	464.3						11	%
Net earnings margin		21.7	%					21.9	%				- 17 bpts
Adjusted EBITDAC				$	958.4					$	836.6						15	%
Adjusted EBITDAC margin					40.4	%					40.2	%				+ 14 bpts
Diluted net earnings per share	$	2.37		$	3.14		$	2.17		$	2.82			9	%		11	%
Risk Management Segment
Revenues before reimbursements	$	297.6		$	297.5		$	259.1		$	256.1			15	%		16	%
Organic revenues				$	291.6					$	255.2						14.3	%
Net earnings	$	33.5					$	23.9						40	%
Net earnings margin (before reimbursements)		11.3	%					9.2	%				+ 204 bpts
Adjusted EBITDAC				$	57.1					$	44.6						28	%
Adjusted EBITDAC margin (before reimbursements)					19.2	%					17.4	%				+ 177 bpts
Diluted net earnings per share	$	0.15		$	0.16		$	0.11		$	0.12			36	%		33	%
Corporate Segment
Diluted net loss per share	$	(0.28	)	$	(0.27	)	$	(0.23	)	$	(0.18	)
Total Company
Diluted net earnings per share	$	2.24		$	3.03		$	2.05		$	2.76			9	%		10	%
Total Brokerage and Risk Management Segment
Diluted net earnings per share	$	2.52		$	3.30		$	2.28		$	2.94			11	%		12	%

Within our corporate segment, net after-tax losses related to our clean energy investments were $(1.6) million and $(2.0) million, as reported, in the three-month periods ended March 31, 2023 and 2022, respectively. At this time, we do not anticipate our clean energy investments will produce after-tax earnings in 2023.

The following provides information that management believes is helpful when comparing revenues before reimbursements, net earnings, EBITDAC and diluted net earnings per share for the three-month period ended March 31, 2023 with the same period in 2022. In addition, these tables provide reconciliations to the most comparable GAAP measures for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share. Reconciliations of EBITDAC for the brokerage and risk management segments are provided on pages44 and 50, respectively, of this filing.

For the Three-Month Periods Ended March 31 Reported GAAP to Adjuste****d Non-GAAP Reconciliation:

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	Revenues Before																		Diluted Net Earnings
	Reimbursements						Net Earnings (Loss)						EBITDAC						(Loss) Per Share
Segment	2023			2022			2023			2022			2023			2022			2023			2022			Chg
	(in millions)						(in millions)						(in millions)
Brokerage, as reported	$	2,375.2		$	2,122.6		$	515.3		$	464.3		$	880.6		$	786.4			2.37		$	2.17			9	%
Net gains on divestitures		(0.2	)		(1.4	)		(0.2	)		(1.1	)		(0.2	)		(1.4	)		—			(0.01	)
Acquisition integration		—			—			39.7			35.0			51.2			43.8			0.18			0.17
Workforce and lease termination		—			—			11.8			5.0			15.4			6.2			0.06			0.02
Acquisition related adjustments		—			—			25.6			16.4			11.4			9.0			0.12			0.08
Amortization of intangible assets		—			—			89.1			93.7			—			—			0.41			0.44
Effective income tax rate impact		—			—			—			(7.7	)		—			—			—			(0.03	)
Levelized foreign currency translation		—			(40.4	)		—			(4.8	)		—			(7.4	)		—			(0.02	)
Brokerage, as adjusted *		2,375.0			2,080.8			681.3			600.8			958.4			836.6			3.14			2.82			11	%
Risk Management, as reported		297.6			259.1			33.5			23.9			55.9			44.1			0.15			0.11			36	%
Net gains on divestitures		(0.1	)		—			(0.1	)		—			(0.1	)		—			—			—
Workforce and lease termination		—			—			0.5			0.5			0.6			0.7			—			—
Acquisition related adjustments		—			—			0.1			—			0.1			0.1			—			—
Acquisition integration		—			—			0.4			—			0.6			—			—			—
Amortization of intangible assets		—			—			1.1			1.2			—			—			0.01			0.01
Levelized foreign currency translation		—			(3.0	)		—			(0.1	)		—			(0.3	)		—			—
Risk Management, as adjusted *		297.5			256.1			35.5			25.5			57.1			44.6			0.16			0.12			33	%
Corporate, as reported		0.1			22.8			(62.2	)		(49.1	)		(61.6	)		(48.2	)		(0.28	)		(0.23	)
Transaction-related costs		—			—			3.3			14.6			4.4			15.8			0.01			0.07
Income tax related		—			—			—			(5.0	)		—			—			-			(0.02	)
Corporate, as adjusted*		0.1			22.8			(58.9	)		(39.5	)		(57.2	)		(32.4	)		(0.27	)		(0.18	)
Total Company, as reported	$	2,672.9		$	2,404.5		$	486.6		$	439.1		$	874.9		$	782.3		$	2.24		$	2.05			9	%
Total Company, as adjusted *	$	2,672.6		$	2,359.7		$	657.9		$	586.8		$	958.3		$	848.8		$	3.03		$	2.76			10	%
Total Brokerage & Risk
Management, as reported	$	2,672.8		$	2,381.7		$	548.8		$	488.2		$	936.5		$	830.5		$	2.52		$	2.28			11	%
Total Brokerage & Risk
Management, as adjusted *	$	2,672.5		$	2,336.9		$	716.8		$	626.3		$	1,015.5		$	881.2		$	3.30		$	2.94			12	%

*For the three-month period ended March 31, 2023, the pretax impact of the brokerage segment adjustments totals

$220.1 million, with a corresponding adjustment to the provision for income taxes of $54.1 million relating to these items. For the three-month period ended March 31, 2023, the pretax of the risk management segment adjustments totals $2.7 million, with a corresponding adjustment to the provision for income taxes of $0.7 million relating to these items. For the three-month period ended March 31, 2023, the pretax impact of the corporate segment adjustments totals $4.4 million, with a corresponding adjustment to the benefit for income taxes of $1.1 million relating to this item and the other tax items noted on page 55 in note (3). A detailed reconciliation of the 2023 provision (benefit) for income taxes is shown on page 40.

*For the three-month period ended March 31, 2022, the pretax impact of the brokerage segment adjustments totals $186.2 million, with a corresponding adjustment to the provision for income taxes of $49.7 million relating to these items. For the three-month period ended March 31, 2022, the pretax of the risk management segment adjustments totals $2.2 million, with a corresponding adjustment to the provision for income taxes of $0.6 million relating to these items. For the three-month period ended March 31, 2022, the pretax impact of the corporate segment adjustments totals $15.8 million, with a corresponding adjustment to the benefit for income taxes of $6.2 million relating to this item and the other tax items noted on page 55 in note (3). A detailed reconciliation of the 2022 provision (benefit) for income taxes is shown on page 40.

Reconciliation of Non-GAAP Measures - Pr****e-tax Earnings and Diluted Net Earnings per Share

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(In millions except share and per share data)
	Earnings			Provision						Net Earnings (Loss)			Net Earnings (Loss)
	(Loss)			(Benefit)						Attributable to			Attributable to			Diluted Net
	Before Income			for Income			Net Earnings			Noncontrolling			Controlling			Earnings (Loss)
	Taxes			Taxes			(Loss)			Interests			Interests			per Share
Quarter Ended March 31, 2023
Brokerage, as reported	$	690.9		$	175.6		$	515.3		$	0.8		$	514.5		$	2.37
Net gains on divestitures		(0.2	)		—			(0.2	)		—			(0.2	)		—
Acquisition integration		51.2			11.5			39.7			—			39.7			0.18
Workforce and lease termination		15.5			3.7			11.8			—			11.8			0.06
Acquisition related adjustments		33.4			7.8			25.6			—			25.6			0.12
Amortization of intangible assets		120.2			31.1			89.1			—			89.1			0.41
Brokerage, as adjusted	$	911.0		$	229.7		$	681.3		$	0.8		$	680.5		$	3.14
Risk Management, as reported	$	45.5		$	12.0		$	33.5		$	—		$	33.5		$	0.15
Net gains on divestitures		(0.1	)		—			(0.1	)		—			(0.1	)		—
Workforce and lease termination		0.6			0.1			0.5			—			0.5			—
Acquisition related adjustments		0.1			—			0.1			—			0.1			—
Acquisition integration		0.6			0.2			0.4			—			0.4			—
Amortization of intangible assets		1.5			0.4			1.1			—			1.1			0.01
Risk Management, as adjusted	$	48.2		$	12.7		$	35.5		$	—		$	35.5		$	0.16
Corporate, as reported	$	(130.6	)	$	(68.4	)	$	(62.2	)	$	(0.7	)	$	(61.5	)	$	(0.28	)
Transaction-related costs		4.4			1.1			3.3			—			3.3			0.01
Corporate, as adjusted	$	(126.2	)	$	(67.3	)	$	(58.9	)	$	(0.7	)	$	(58.2	)	$	(0.27	)
Quarter Ended March 31, 2022
Brokerage, as reported	$	618.4		$	154.1		$	464.3		$	0.7		$	463.6		$	2.17
Net gains on divestitures		(1.4	)		(0.3	)		(1.1	)		—			(1.1	)		(0.01	)
Acquisition integration		43.8			8.8			35.0			—			35.0			0.17
Workforce and lease termination		6.3			1.3			5.0			—			5.0			0.02
Acquisition related adjustments		20.6			4.2			16.4			—			16.4			0.08
Amortization of intangible assets		123.0			29.3			93.7			—			93.7			0.44
Effective income tax rate impact		—			7.7			(7.7	)		—			(7.7	)		(0.03	)
Levelized foreign currency translation		(6.1	)		(1.3	)		(4.8	)		—			(4.8	)		(0.02	)
Brokerage, as adjusted	$	804.6		$	203.8		$	600.8		$	0.7		$	600.1		$	2.82
Risk Management, as reported	$	32.3		$	8.4		$	23.9		$	—		$	23.9		$	0.11
Workforce and lease termination		0.8			0.3			0.5			—			0.5			—
Amortization of intangible assets		1.6			0.4			1.2			—			1.2			0.01
Levelized foreign currency translation		(0.2	)		(0.1	)		(0.1	)		—			(0.1	)		—
Risk Management, as adjusted	$	34.5		$	9.0		$	25.5		$	—		$	25.5		$	0.12
Corporate, as reported	$	(113.0	)	$	(63.9	)	$	(49.1	)	$	(0.3	)	$	(48.8	)	$	(0.23	)
Transaction-related costs		15.8			1.2			14.6			—			14.6			0.07
Income tax related		—			5.0			(5.0	)		—			(5.0	)		(0.02	)
Corporate, as adjusted	$	(97.2	)	$	(57.7	)	$	(39.5	)	$	(0.3	)	$	(39.2	)	$	(0.18	)

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Acquisition of the BCHR holdings, L.P. and its subsidiaries dba Buck

On December 20, 2022, we signed a definitive agreement to acquire the partnership interests of Buck, for a gross consideration of $660.0 million or approximately $585.0 million net of agreed seller funded expenses and net working capital. The acquisition closed on April 3, 2023. We funded the transaction via free cash flow and funds received from the unsecured senior notes offering. Buck is a leading provider of retirement, human resources and employee benefits consulting and administration services. Buck has been in existence for more than 100 years and has a diverse client base by both size and industry. Buck has over 2,300 employees, including more than 220 credentialed actuaries, and primarily serves customers throughout the U.S., Canada and the U.K.

Results of Operations

Brokerage

The brokerage segment accounted for 88% of our revenues during the three-month period ended March 31, 2023. Our brokerage segment is primarily comprised of retail, wholesale and reinsurance brokerage operations. Our brokerage segment generates revenues by:

(i)

Identifying, negotiating and placing all forms of insurance or reinsurance coverage, as well as providing risk-shifting, risk-sharing and risk-mitigation consulting services, principally related to property/casualty, life, health, welfare and disability insurance. We also provide these services through, or in conjunction with, other unrelated agents and brokers, consultants and management advisors;

(ii)

Acting as an agent or broker for multiple underwriting enterprises by providing services such as sales, marketing, selecting, negotiating, underwriting, servicing and placing insurance coverage on their behalf;

(iii)

Providing consulting services related to health and welfare benefits, voluntary benefits, executive benefits, compensation, retirement planning, institutional investment and fiduciary, actuarial, compliance, private insurance exchange, human resources technology, communications and benefits administration; and

(iv)

Providing management and administrative services to captives, pools, risk-retention groups, healthcare exchanges, small underwriting enterprises, such as accounting, claims and loss processing assistance, feasibility studies, actuarial studies, data analytics and other administrative services.

The primary source of revenues for our brokerage services is commissions from underwriting enterprises, based on a percentage of premiums paid by our clients, or fees received from clients based on an agreed level of service usually in lieu of commissions. Commissions are fixed at the contract effective date and generally are based on a percentage of premiums for insurance coverage or employee headcount for employer sponsored benefit plans. Commissions depend upon a large number of factors, including the type of risk being placed, the particular underwriting enterprise’s demand, the expected loss experience of the particular risk of coverage, and historical benchmarks surrounding the level of effort necessary for us to place and service the insurance contract. Rather than being tied to the amount of premiums, fees are most often based on an expected level of effort to provide our services. In addition, under certain circumstances, both retail brokerage and wholesale brokerage services receive supplemental and contingent revenues. Supplemental revenue is revenue paid by an underwriting enterprise that is above the base commission paid, is determined by the underwriting enterprise and is established annually in advance of the contractual period based on historical performance criteria. Contingent revenue is revenue paid by an underwriting enterprise based on the overall profit and/or volume of the business placed with that underwriting enterprise during a particular calendar year and is determined after the contractual period.

Litigation, Regulatory and Taxation Matters

During 2022, we received a subpoena from the FCPA Unit of the DOJ seeking information related to our insurance business with public entities in Ecuador. We continue to fully cooperate with the investigation.

As previously disclosed, our IRC 831(b) (or “micro-captive”) advisory services business has been under audit by the IRS since 2013. Among other matters, the IRS is investigating whether we have been acting as a tax shelter promoter in connection with these operations. Additionally, the IRS is conducting a criminal investigation related to IRC 831(b) micro-captive underwriting enterprises. We have been advised that we are not a target of the criminal investigation. We are fully cooperating with both matters.

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Financial information relating to our brokerage segment results for the three-month period ended March 31, 2023 compared to the same period in 2022, is as follows (in millions, except per share, percentages and workforce data):


	Three-month period ended March 31,
Statement of Earnings	2023			2022			Change
Commissions	$	1,747.4		$	1,565.3		$	182.1
Fees		412.7			391.9			20.8
Supplemental revenues		81.6			74.3			7.3
Contingent revenues		71.8			71.6			0.2
Investment income		61.5			18.1			43.4
Net gains on divestitures		0.2			1.4			(1.2	)
Total revenues		2,375.2			2,122.6			252.6
Compensation		1,206.1			1,096.4			109.7
Operating		288.5			239.8			48.7
Depreciation		27.9			24.2			3.7
Amortization		120.2			123.0			(2.8	)
Change in estimated acquisition earnout payables		41.6			20.8			20.8
Total expenses		1,684.3			1,504.2			180.1
Earnings before income taxes		690.9			618.4			72.5
Provision for income taxes		175.6			154.1			21.5
Net earnings		515.3			464.3			51.0
Net earnings attributable to noncontrolling interests		0.8			0.7			0.1
Net earnings attributable to controlling interests	$	514.5		$	463.6		$	50.9
Diluted net earnings per share	$	2.37		$	2.17		$	0.20
Other Information
Change in diluted net earnings per share		9	%		19	%
Growth in revenues		12	%		32	%
Organic change in commissions and fees		9	%		9	%
Compensation expense ratio		51	%		52	%
Operating expense ratio		12	%		11	%
Effective income tax rate		25	%		25	%
Workforce at end of period (includes acquisitions)		33,623			30,337
Identifiable assets at March 31	$	40,919.9		$	39,237.3
EBITDAC
Net earnings	$	515.3		$	464.3		$	51.0
Provision for income taxes		175.6			154.1			21.5
Depreciation		27.9			24.2			3.7
Amortization		120.2			123.0			(2.8	)
Change in estimated acquisition earnout payables		41.6			20.8			20.8
EBITDAC	$	880.6		$	786.4		$	94.2

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The following provides information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three-month period ended March 31, 2023 compared to the same period in 2022 (in millions):


	Three-month period ended March 31,
	2023			2022			Change
Net earnings, as reported	$	515.3		$	464.3			11	%
Provision for income taxes		175.6			154.1
Depreciation		27.9			24.2
Amortization		120.2			123.0
Change in estimated acquisition earnout payables		41.6			20.8
EBITDAC		880.6			786.4			12	%
Net gains on divestitures		(0.2	)		(1.4	)
Acquisition integration		51.2			43.8
Workforce and lease termination related charges		15.4			6.2
Acquisition related adjustments		11.4			9.0
Levelized foreign currency translation		—			(7.4	)
EBITDAC, as adjusted	$	958.4		$	836.6			15	%
Net earnings margin, as reported		21.7	%		21.9	%	- 17 bpts
EBITDAC margin, as adjusted		40.4	%		40.2	%	+ 14 bpts
Reported revenues	$	2,375.2		$	2,122.6
Adjusted revenues - see page 38	$	2,375.0		$	2,080.8

Commissions and fees - The aggregate increase in base commissions and fees for the three-month period ended March 31, 2023, compared to the same period in 2022, was due to revenues associated with acquisitions that were made in the twelve-month period ended March 31, 2023 ($57.4 million), and to the organic change in base commissions and fee revenues. The organic change in base commissions and fee revenues were 9.5% and 9.4% for the three-month periods ended March 31, 2023 and 2022, respectively.

In our property/casualty brokerage operations, during the three-month period ended March 31, 2023 we saw continued strong customer retention and new business generation and increasing renewal premiums (premium rates and exposures). We believe these favorable trends should continue into the second quarter of 2023; however, if economic conditions worsen, we could see our revenue growth soften.

- 44 -

Items excluded from organic revenue computations yet impacting revenue comparisons for the three-month periods ended March 31, 2023 and 2022 include the following (in millions):


	Three-Month Period Ended March 31,
Organic Revenues (Non-GAAP)	2023			2022			Change
Base Commissions and Fees
Commission and fees, as reported	$	2,160.1		$	1,957.2			10.4	%
Less commission and fee revenues from acquisitions		(57.4	)		—
Levelized foreign currency translation		—			(36.6	)
Organic base commission and fees	$	2,102.7		$	1,920.6			9.5	%
Supplemental revenues
Supplemental revenues, as reported	$	81.6		$	74.3			9.8	%
Less supplemental revenues from acquisitions		(0.6	)		—
Levelized foreign currency translation		—			(1.6	)
Organic supplemental revenues	$	81.0		$	72.7			11.4	%
Contingent revenues
Contingent revenues, as reported	$	71.8		$	71.6			0.3	%
Less contingent revenues from acquisitions		(3.2	)		—
Levelized foreign currency translation		—			(0.9	)
Organic contingent revenues	$	68.6		$	70.7			-3.0	%
Total reported commissions, fees, supplemental revenues and contingent revenues	$	2,313.5		$	2,103.1			10.0	%
Less commissions, fees, supplemental revenues and contingent revenues from acquisitions		(61.2	)		—
Levelized foreign currency translation		—			(39.1	)
Total organic commissions, fees, supplemental revenues and contingent revenues	$	2,252.3		$	2,064.0			9.1	%

The following is a summary of brokerage segment acquisition activity for 2023 and 2022:


	Three-month period ended March 31,
	2023		2022
Number of acquisitions closed		10		5
Estimated annualized revenues acquired (in millions)	$	69.0	$	32.2

In the three-month period ended March 31, 2023 we issued 131,000 shares of our common stock at the request of sellers and/or in connection with tax-free exchange acquisitions. In the three-month period March 31, 2022, we did not issue any shares of our common stock in connection with acquisitions.

Supplemental and contingent revenues - Reported supplemental and contingent revenues recognized in 2023, 2022 and 2021 by quarter are as follows (in millions):

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	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		YTD
2023
Reported supplemental revenues	$	81.6							$	81.6
Reported contingent revenues		71.8								71.8
Reported supplemental and contingent revenues	$	153.4							$	153.4
2022
Reported supplemental revenues	$	74.3	$	65.7	$	64.7		80.0	$	284.7
Reported contingent revenues		71.6		43.1		52.4		40.2		207.3
Reported supplemental and contingent revenues	$	145.9	$	108.8	$	117.1	$	120.2	$	492.0
2021
Reported supplemental revenues	$	66.8	$	55.2	$	61.0	$	65.7	$	248.7
Reported contingent revenues		63.3		43.3		43.7		37.7		188.0
Reported supplemental and contingent revenues	$	130.1	$	98.5	$	104.7	$	103.4	$	436.7

Investment income and net gains on divestitures - This primarily represents (1) interest income earned on cash, cash equivalents, restricted cash and fiduciary cash and interest income from premium financing and (2) net gains related to divestitures and sales of books of business, which were $0.2 million and $1.4 million for the three-month periods ended March 31, 2023 and 2022, respectively. Investment income in the three-month period ended March 31, 2023 increased compared to the same period in 2022, primarily due to increases in interest income from increases in interest rates earned on our funds.

Compensation expense - The following provides non-GAAP information that management believes is helpful when comparing compensation expense for the three-month period ended March 31, 2023 with the same period in 2022 (in millions):


	Three-month period ended March 31,
	2023			2022
Compensation expense, as reported	$	1,206.1		$	1,096.4
Acquisition integration		(34.1	)		(30.3	)
Workforce and lease termination related charges		(13.4	)		(5.5	)
Acquisition related adjustments		(11.4	)		(9.0	)
Levelized foreign currency translation		—			(27.5	)
Compensation expense, as adjusted	$	1,147.2		$	1,024.1
Reported compensation expense ratios		50.8	%		51.7	%
Adjusted compensation expense ratios		48.3	%		49.2	%
Reported revenues	$	2,375.2		$	2,122.6
Adjusted revenues - see page 38	$	2,375.0		$	2,080.8

The $109.7 million increase in compensation expense for the three-month period ended March 31, 2023 compared to the same period in 2022, was primarily due to compensation associated with the acquisitions completed in the twelve-month period ended March 31, 2023 ‑ $33.9 million, base compensation related to the hiring of producers and other roles to service and support organic growth, benefits and other incentive compensation, partially offset by savings related to back office headcount controls - $61.7 million in the aggregate, increases in acquisition integration costs - $3.8 million, workforce and lease termination related charges - $7.9 million and acquisition earnout related adjustments - $2.4 million.

Operating expense - The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three-month period ended March 31, 2023 with the same period in 2022 (in millions):

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	Three-month period ended March 31,
	2023			2022
Operating expense, as reported	$	288.5		$	239.8
Acquisition integration		(17.1	)		(13.5	)
Workforce and lease termination related charges		(2.0	)		(0.7	)
Levelized foreign currency translation		—			(5.5	)
Operating expense, as adjusted	$	269.4		$	220.1
Reported operating expense ratios		12.2	%		11.3	%
Adjusted operating expense ratios		11.3	%		10.6	%
Reported revenues	$	2,375.2		$	2,122.6
Adjusted revenues - see page 38	$	2,375.0		$	2,080.8

The $48.7 million increase in operating expense for the three-month period ended March 31, 2023 compared to the same period in 2022, was primarily due to expenses associated with the acquisitions completed in the twelve-month period ended March 31, 2023 - $11.6 million, the return of, and underlying inflation of, advertising, travel, entertainment and other client-related expenses, and additional investments in technology, partially offset by savings from office consolidations - $33.5 million in the aggregate and acquisition integration costs - $3.6 million.

Depreciation - Depreciation expense increased in the three-month period ended March 31, 2023 compared to the same period in 2022 by $3.7 million. The increase in depreciation expense in 2023 compared to 2022 was due primarily to the purchases of furniture, equipment and leasehold improvements related to office consolidations and moves, and expenditures related to upgrading computer systems. Also contributing to the increase in depreciation expense was the depreciation expenses associated with acquisitions completed in the twelve month period ended March 31, 2023.

Amortization - The decrease in amortization expense in the three-month period ended March 31, 2023 compared to the same period in 2022 was primarily due to the impact of acquisition valuation true-ups recorded in the first quarter of 2022 relating to acquisitions made in third quarter 2021, partially offset by the impact of amortization expense of intangible assets associated with acquisitions completed in the twelve month period ended March 31, 2023. Based on the results of impairment reviews during each of the three-month periods ended March 31, 2023 and 2022, we wrote off $0.1 million of amortizable assets. We review all of our intangible assets for impairment periodically (at least annually for goodwill) and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. We perform such impairment reviews at the division (i.e., reporting unit) level with respect to goodwill and at the business unit level for amortizable intangible assets. In reviewing intangible assets, if the undiscounted future cash flows were less than the carrying amount of the respective (or underlying) asset, an indicator of impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings as a component of amortization expense. Expiration lists, non-compete agreements and trade names are amortized using the straight-line method over their estimated useful lives (two to fifteen years for expiration lists, two to six years for non-compete agreements and two to fifteen years for trade names).

Change in estimated acquisition earnout payables - The change in the expense from the change in estimated acquisition earnout payables in the three-month period ended March 31, 2023 compared to the same period in 2022, was primarily due to adjustments made to the estimated fair value of earnout obligations related to revised assumptions due to rising interest rates and increased market volatility and projections of future performance. During the three-month periods ended March 31, 2023 and 2022, we recognized $19.6 million and $9.2 million, respectively, of expense related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions made in the period from 2019 to 2023. In addition, during the three-month periods ended March 31, 2023 and 2022, we recognized $22.0 million and $11.6 million of expense, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised assumptions due to changes in interest rates, volatility and other assumptions and projections of future performance for 22 and 30 acquisitions, respectively. The net adjustments in the three-month period ended March 31, 2023 include changes made to the estimated fair value of the Willis Re acquisition earnout and reflect updated assumptions as of March 31, 2023.

The amounts initially recorded as earnout payables for our 2019 to 2023 acquisitions were measured at fair value as of the acquisition date and are primarily based upon the estimated future operating results of the acquired entities over a two- to three-year period subsequent to the acquisition date. The fair value of these earnout obligations is based on the present value of the expected future payments to be made to the sellers of the acquired entities in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, we estimate the acquired entity’s future performance using financial projections developed by management for the acquired entity and market participant assumptions that were derived for revenue growth and/or profitability. We estimate future earnout payments using the earnout formula and performance targets specified in each purchase agreement and these

- 47 -

financial projections. Subsequent changes in the underlying financial projections or assumptions will cause the estimated earnout obligations to change and such adjustments are recorded in our consolidated statement of earnings when incurred. Increases in the earnout payable obligations will result in the recognition of expense and decreases in the earnout payable obligations will result in the recognition of income.

Provision for income taxes - The brokerage segment’s effective income tax rates for the three-month periods ended March 31, 2023 and 2022, were 25.4% and 24.9%, respectively. In the first quarter of 2022, we increased our state effective income tax rate, which resulted in the overall U.S. effective income tax rate increasing from 25% to 26% and caused us to incur additional income tax expense. We anticipate reporting an effective tax rate of approximately 24.5% to 26.5% in our brokerage segment for the foreseeable future. In addition, in 2021, the U.K. government enacted tax legislation that increases the corporate income tax rate from 19% to 25% effective in April 2023.

Net earnings attributable to noncontrolling interests - The amounts reported in this line for the three-month periods ended March 31, 2023 and 2022, include noncontrolling interest earnings of $0.8 million and $0.7 million, respectively.

Risk Management

The risk management segment accounted for 12% of our revenue during the three-month period ended March 31, 2023. Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial, not for profit, captive and public entities, and various other organizations that choose to self-insure property/casualty coverages or choose to use a third-party claims management organization rather than the claim services provided by underwriting enterprises. Revenues for our risk management segment are comprised of fees generally negotiated (i) on a per-claim or per-service basis, (ii) on a cost-plus basis, or (iii) as performance-based fees. We also provide risk management consulting services that are recognized as the services are delivered.

Financial information relating to our risk management segment results for the three-month period ended March 31, 2023 as compared to the same period in 2022, is as follows (in millions, except per share, percentages and workforce data):

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Statement of Earnings	Three-month period ended March 31,
	2023			2022			Change
Fees	$	293.0		$	259.0		$	34.0
Investment income		4.5			0.1			4.4
Net gains on divestitures		0.1			—			0.1
Revenues before reimbursements		297.6			259.1			38.5
Reimbursements		33.2			30.8			2.4
Total revenues		330.8			289.9			40.9
Compensation		179.8			158.7			21.1
Operating		61.9			56.3			5.6
Reimbursements		33.2			30.8			2.4
Depreciation		8.7			10.1			(1.4	)
Amortization		1.5			1.6			(0.1	)
Change in estimated acquisition earnout payables		0.2			0.1			0.1
Total expenses		285.3			257.6			27.7
Earnings before income taxes		45.5			32.3			13.2
Provision for income taxes		12.0			8.4			3.6
Net earnings		33.5			23.9			9.6
Net earnings attributable to noncontrolling interests		—			—			—
Net earnings attributable to controlling interests	$	33.5		$	23.9		$	9.6
Diluted net earnings per share	$	0.15		$	0.11		$	0.04
Other information
Change in diluted net earnings per share		36	%		22	%
Growth in revenues (before reimbursements)		15	%		18	%
Organic change in fees (before reimbursements)		14	%		15	%
Compensation expense ratio (before reimbursements)		60	%		61	%
Operating expense ratio (before reimbursements)		21	%		22	%
Effective income tax rate		26	%		26	%
Workforce at end of period (includes acquisitions)		8,804			7,392
Identifiable assets at March 31	$	1,126.7		$	1,047.2
EBITDAC
Net earnings	$	33.5		$	23.9		$	9.6
Provision for income taxes		12.0			8.4			3.6
Depreciation		8.7			10.1			(1.4	)
Amortization		1.5			1.6			(0.1	)
Change in estimated acquisition earnout payables		0.2			0.1			0.1
EBITDAC	$	55.9		$	44.1		$	11.8

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The following provides non-GAAP information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three-month period ended March 31, 2023 to the same period in 2022 (in millions):


	Three-month period ended March 31,
	2023			2022			Change
Net earnings, as reported	$	33.5		$	23.9			40	%
Provision for income taxes		12.0			8.4
Depreciation		8.7			10.1
Amortization		1.5			1.6
Change in estimated acquisition earnout payables		0.2			0.1
Total EBITDAC		55.9			44.1			27	%
Net gains on divestitures		(0.1	)		—
Workforce and lease termination related charges		0.6			0.7
Acquisition related adjustments		0.1			0.1
Acquisition integration		0.6			—
Levelized foreign currency translation		—			(0.3	)
EBITDAC, as adjusted	$	57.1		$	44.6			28	%
Net earnings margin (before reimbursements), as reported		11.3	%		9.2	%	+ 204 bpts
EBITDAC margin (before reimbursements), as adjusted		19.2	%		17.4	%	+ 177 bpts
Reported revenues (before reimbursements)	$	297.6		$	259.1
Adjusted revenues (before reimbursements) - see page 38	$	297.5		$	256.1

Fees - In our risk management operations, for the three-month period ended March 31, 2023, new core workers compensation and general liability claims arising improved from 2022 due to our clients’ improving business conditions and from new clients coming on board in 2022 and 2023. We believe these favorable trends should continue for the remainder of 2023, however, worsening economic conditions or a reversal in the number of workers employed could cause fewer new core workers compensation claims to arise in future quarters. Organic change in fee revenues for the three-month period ended March 31, 2023 was 14.3% compared to 15.2% for the same period in 2022.

Items excluded from organic fee computations yet impacting revenue comparisons for the three-month periods ended March 31, 2023 and 2022 include the following (in millions):


	Three-Month Period Ended March 31
Organic Revenues (Non-GAAP)	2023			2022			Change
Fees	$	288.8		$	255.3			13.1	%
International performance bonus fees		4.2			3.7
Fees as reported		293.0			259.0			13.1	%
Less fees from acquisitions		(1.4	)		—
Less divested operations		—			(0.9	)
Levelized foreign currency translation		—			(2.9	)
Organic fees	$	291.6		$	255.2			14.3	%

Reimbursements - Reimbursements represent amounts received from clients reimbursing us for certain third-party costs associated with providing our claims management services. In certain service partner relationships, we are considered a principal because we direct the third party, control the specified service and combine the services provided into an integrated solution. Given this principal relationship, we are required to recognize revenue on a gross basis and service partner vendor fees in the operating expense line in our consolidated statement of earnings.

- 50 -

Investment income - Investment income in the three-month period ended March 31, 2023 increased compared to the same period in 2022, primarily due to increases in interest income from increases in interest rates earned on our funds and fiduciary cash.


	Three-month period ended March 31,
	2023			2022
Compensation expense, as reported	$	179.8		$	158.7
Acquisition integration		(0.6	)		—
Workforce and lease termination related charges		(0.4	)		(0.3	)
Acquisition related adjustments		(0.1	)		(0.1	)
Levelized foreign currency translation		—			(2.2	)
Compensation expense, as adjusted	$	178.7		$	156.1
Reported compensation expense ratios (before reimbursements)		60.4	%		61.3	%
Adjusted compensation expense ratios (before reimbursements)		60.1	%		61.0	%
Reported revenues (before reimbursements)	$	297.6		$	259.1
Adjusted revenues (before reimbursements) - see page 38	$	297.5		$	256.1

The $21.1 million increase in compensation expense for the three-month period ended March 31, 2023 compared to the same period in 2022, was primarily due to increased base compensation related to merit wage increases and hiring to support growth, partially offset by savings in temporary help - $19.7 million in the aggregate, compensation associated with the acquisitions completed in the twelve-month period March 31, 2023 - $0.8 million and an increase in acquisition integration costs - $0.6 million.

Operating expense - The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three-month period ended March 31, 2023 with the same period in 2022 (in millions):


	Three-month period ended March 31,
	2023			2022
Operating expense, as reported	$	61.9		$	56.3
Workforce and lease termination related charges		(0.2	)		(0.4	)
Levelized foreign currency translation		—			(0.5	)
Operating expense, as adjusted	$	61.7		$	55.4
Reported operating expense ratios (before reimbursements)		20.8	%		21.7	%
Adjusted operating expense ratios (before reimbursements)		20.7	%		21.6	%
Reported revenues (before reimbursements)	$	297.6		$	259.1
Adjusted revenues (before reimbursements) - see page 38	$	297.5		$	256.1

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The $5.6 million increase in operating expense for the three-month period ended March 31, 2023 compared to the same period in 2022, was primarily due to the return of, and underlying inflation of, travel, entertainment and other client-related expenses, partially offset by savings in professional fees, business insurance, and savings from office consolidations - $5.2 million in the aggregate, and acquisition related costs - $0.4 million.

Depreciation - Depreciation expense decreased in the three-month period ended March 31, 2023 compared to the same period in 2022 by $1.4 million which reflects the impact of office consolidations that occurred as leases expired in 2023 and 2022 (less depreciation associated with furniture, equipment and leasehold improvements), partially offset by expenditures related to upgrading computer systems.

Amortization - The amortization expense decreased in the three-month period ended March 31, 2023 compared to the same period in 2022 by $0.1 million. Based on the results of impairment reviews during the three-month period ended March 31, 2023, no such impairments were noted. Based on the results of impairment reviews during the three-month period ended March 31, 2022, we wrote off $0.1 million of amortizable assets.

Change in estimated acquisition earnout payables - The change in expense from the change in estimated acquisition earnout payables in the three-month period ended March 31, 2023 compared to the same period in 2022, was primarily due to accretion of the discount and adjustments made to the estimated fair value of earnout obligations related to revised projections of future performance. During the three-month periods ended March 31, 2023 and 2022, we recognized $0.2 million of expense in each period, related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions. In addition, during the three-month period ended March 31, 2022, we recognized and $0.1 million of income, respectively, related to net adjustments in the estimated fair value of earnout obligations in connection with revised projections of future performance for one acquisition, respectively.

Provision for income taxes - The risk management segment’s effective income tax rates for the three-month periods ended March 31, 2023 and 2022, were 26.4% and 26.0%, respectively. In the first quarter of 2022, we increased our state effective income tax rate, which resulted in the overall U.S. effective income tax rate increasing from 25% to 26% and caused us to incur additional income tax expense. We anticipate reporting an effective tax rate on adjusted results of approximately 25.0% to 27.0% in our risk management segment for the foreseeable future. In addition, in 2021, the U.K. government enacted tax legislation that increases the corporate income tax rate from 19% to 25% effective in April 2023.

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Corporate

The corporate segment reports the financial information related to our clean energy and other investments, our debt, certain corporate and acquisition-related activities and the impact of foreign currency remeasurement. For a detailed discussion of the nature of these investments, see Note 14 to our most recent Annual Report on Form 10‑K as of December 31, 2022. For a detailed discussion of the nature of our debt, see Note 6 to our consolidated financial statements included herein as of March 31, 2023 and in Note 8 to our most recent Annual Report on Form 10‑K as of December 31, 2022.

Financial information relating to our corporate segment results for the three-month period ended March 31, 2023 compared to the same period in 2022 is as follows (in millions, except per share):


	Three-month period ended March 31,
Statement of Earnings	2023			2022			Change
Revenues from consolidated clean coal production plants	$	—		$	22.3		$	(22.3	)
Royalty income from clean coal licenses		—			0.4			(0.4	)
Other net revenues		0.1			0.1			—
Total revenues		0.1			22.8			(22.7	)
Cost of revenues from consolidated clean coal production plants		—			22.9			(22.9	)
Compensation		29.6			26.9			2.7
Operating		32.1			21.2			10.9
Interest		67.9			63.9			4.0
Depreciation		1.1			0.9			0.2
Total expenses		130.7			135.8			(5.1	)
Loss before income taxes		(130.6	)		(113.0	)		(17.6	)
Benefit for income taxes		(68.4	)		(63.9	)		(4.5	)
Net loss		(62.2	)		(49.1	)		(13.1	)
Net loss attributable to noncontrolling interests		(0.7	)		(0.3	)		(0.4	)
Net loss attributable to controlling interests	$	(61.5	)	$	(48.8	)	$	(12.7	)
Diluted net loss per share	$	(0.28	)	$	(0.23	)	$	(0.05	)
Identifiable assets at March 31	$	3,047.8		$	2,613.0
EBITDAC
Net loss	$	(62.2	)	$	(49.1	)	$	(13.1	)
Benefit for income taxes		(68.4	)		(63.9	)		(4.5	)
Interest		67.9			63.9			4.0
Depreciation		1.1			0.9			0.2
EBITDAC	$	(61.6	)	$	(48.2	)	$	(13.4	)

Revenues - Revenues in the corporate segment consist of the following:

Revenues from consolidated clean coal production plants represents revenues from the consolidated IRC Section 45 facilities in which we have a majority ownership position and maintain control over the operations at the related facilities. The law governing IRC Section 45 tax credits expired as of December 31, 2021.

The decrease in revenue from consolidated clean coal production plants for the three-month period ended March 31, 2023 compared to the same period in 2022, was due to the expiration of the IRC Section 45 program. Even though the law governing IRC Section 45 tax credits expired as of December 31, 2021, we did have some production at our clean coal plants in the three-month period ended March 31, 2022 to run-off existing chemical supplies.

Royalty income from clean coal licenses represents revenues related to Chem-Mod LLC. As of March 31, 2023, we held a 46.5% controlling interest in Chem-Mod LLC. As Chem-Mod LLC’s manager, we are required to consolidate its operations.

The decrease in royalty income in the three-month period ended March 31, 2023 compared to the same period in 2022, was due to the expiration of the IRC Section 45 program.

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Cost of revenues - Cost of revenues from consolidated clean coal production plants consists of the cost of coal, labor, equipment maintenance, chemicals, supplies, management fees and depreciation incurred by the clean coal production plants to generate the consolidated revenues discussed above. The decrease in cost of revenues in the three-month period ended March 31, 2023, compared to the same period in 2022, was due to the expiration of the IRC Section 45 program. Even though, the law governing IRC Section 45 tax credits expired as of December 31, 2021, we did have some production at our clean coal production plants in the three-month period ended March 31, 2022 to run-off existing chemical supplies.

Compensation expense - Compensation expense in the three-month periods ended March 31, 2023 and 2022, includes salary, incentive compensation, and associated benefit expenses of $29.6 million and $26.9 million, respectively. The change in compensation expense for the three-month period ended March 31, 2023 compared to the same period in 2022 was primarily due to growth in back office compensation.

Operating expense - Operating expense in the three-month period ended March 31, 2023, includes banking and related fees of $0.8 million, external professional fees and other due diligence costs related to acquisitions of $8.4 million, which includes $4.4 million of transaction-related costs as described on page55 in note (2), other corporate and clean energy related expenses, including litigation matters, costs associated with a triennial corporate-wide meeting, technology and other professional fees, of $22.8 million, partially offset by a net unrealized foreign exchange remeasurement loss of $0.1 million.

Operating expense in the three-month period ended March 31, 2022 includes banking and related fees $0.6 million, external professional fees and other due diligence costs related to acquisitions of $15.9 million, which includes $13.8 million of transaction‑related costs as described on page 55in note (2), other corporate and clean energy related expenses, including technology and professional fees, of $7.8 million, and a net unrealized foreign exchange remeasurement gain of $3.1 million.

Interest expense - The increase in interest expense for the three-month period ended March 31, 2023, compared to the same period in 2022, was due to the following:


Change in interest expense related to:	Three-month period ended March 31, 2023
Interest on borrowings from our Credit Agreement	$	2.1
Interest on the maturity of the Series G notes		(1.8	)
Interest on the maturity of the Series E notes		(0.4	)
Interest on the $500.0 million notes funded on June 13, 2018		0.5
Interest on the $950.0 million senior notes funded on March 2, 2023		4.5
Amortization of hedge gains/losses		(0.9	)
Net change in interest expense	$	4.0

Depreciation - Depreciation expense in the three-month period ended March 31, 2023 increased compared to the same period in 2022, due to depreciation related to corporate home office related assets.

Benefit for income taxes - We allocate the provision for income taxes to the brokerage and risk management segments using local country statutory rates. The law that provides for IRC Section 45 tax credits expired in December 2019 for our fourteen 2009 Era Plants and expired in December 2021 for our twenty-one 2011 Era Plants. Our consolidated effective tax rate for the three-month period ended March 31, 2023 was 19.7% compared to 18.3% for the same period in 2022. The tax rates for the three-month periods ended March 31, 2023 and 2022 was lower than the statutory rate primarily due to the income tax benefit of stock based awards as well as the revaluation in 2022 of deferred tax assets to a higher state effective tax rate. There were no tax credits produced in the three-month periods ended March 31, 2023 and 2022. In first quarter 2022, we increased our state effective income tax rate, which resulted in the overall U.S. effective income tax rate increasing from 25% to 26%, and caused us to incur additional income tax benefit during the quarter and recognized a one-time benefit related to the revaluation of certain deferred income tax assets. In addition, the production of IRC Section 45 clean energy tax credits ceased in December 2021.

Net loss attributable to noncontrolling interests - The amounts reported in this line for the three-month periods ended March 31, 2023 and 2022 include noncontrolling interest loss of ($0.7) million and $(0.3) million, respectively, related to our investment in Chem-Mod LLC. As of March 31, 2023 and 2022, we held a 46.5% controlling interest in Chem-Mod LLC. Also included in net earnings attributable to noncontrolling interests are offsetting amounts related to non-Gallagher owned interests in several clean energy investments.

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The following provides non-GAAP information that we believe is helpful when comparing our operating results for the three-month periods ended March 31, 2023 and 2022 for the corporate segment (in millions):


	2023									2022
							Net Earnings									Net Earnings
				Income			(Loss)									(Loss)
				Tax			Attributable to						Income			Attributable to
	Pretax			(Provision)			Controlling			Pretax			Tax			Controlling
Three-Month Periods Ended March 31,	Loss			Benefit			Interests			Loss			Benefit			Interests
Interest and banking costs	$	(68.7	)	$	17.9		$	(50.8	)	$	(64.5	)	$	16.8		$	(47.7	)
Clean energy related (1)		(2.2	)		0.6			(1.6	)		(2.7	)		0.7			(2.0	)
Acquisition costs (2)		(9.5	)		1.5			(8.0	)		(18.4	)		1.4			(17.0	)
Corporate (3) (4)		(49.5	)		48.4			(1.1	)		(27.1	)		45.0			17.9
Corporate, as reported		(129.9	)		68.4			(61.5	)		(112.7	)		63.9			(48.8	)
Adjustments
Transaction-related costs (2)		4.4			(1.1	)		3.3			15.8			(1.2	)		14.6
Income tax related (3)		—			—			—			—			(5.0	)		(5.0	)
Components of Corporate Segment, as adjusted
Interest and banking costs		(68.7	)		17.9			(50.8	)		(64.5	)		16.8			(47.7	)
Clean energy related (1)		(2.2	)		0.6			(1.6	)		(2.7	)		0.7			(2.0	)
Acquisition costs		(5.1	)		0.4			(4.7	)		(2.6	)		0.2			(2.4	)
Corporate (4)		(49.5	)		48.4			(1.1	)		(27.1	)		40.0			12.9
Adjusted three months	$	(125.5	)	$	67.3		$	(58.2	)	$	(96.9	)	$	57.7		$	(39.2	)

(1)

Pretax loss for the three-month periods ended March 31, 2023 and 2022 is presented net of amounts attributable to noncontrolling interests of $(0.7) million and $(0.3) million, respectively.

(2)

We incurred transaction-related costs, which include legal, consulting, employee compensation and other professional fees primarily associated with our acquisition of Willis Re (primarily related to deferred closings in certain jurisdictions in 2022) and the acquisition of Buck, which was signed on December 20, 2022 and closed on April 3, 2023.

(3)

In first quarter 2022, we increased our state effective income tax rate, which resulted in the overall U.S. effective income tax rate increasing from 25% to 26% and caused us to have additional income tax benefit during the quarter and recognized a one‑time benefit related to the revaluation of certain deferred income tax assets.

(4)

Corporate pretax loss includes a net unrealized foreign exchange remeasurement loss of ($0.1) million in first quarter 2023 and a net unrealized foreign exchange remeasurement gain of $3.1 million in first quarter 2022.

Interest and banking costs and debt - Interest and banking costs includes expenses related to our debt.

Clean energy - For 2023, this consists of the operating results related to our investments in new clean energy projects and the wind up of our investment in clean coal production plants. Prior to 2023, this consisted of the operating results related to our investments in clean coal production plants and royalty income from clean coal licenses related to Chem-Mod- LLC. The production of IRC Section 45 clean energy tax credits ceased in December 2021, which reduced the royalty income received by Chem-Mod LLC and net earnings generated by our investments in clean coal production plants in 2022. Even though the law governing IRC Section 45 tax credits expired as of December 31, 2021, we did have some production at our clean coal production plants in the three-month period ended March 31, 2022 to run-off existing chemical supplies.

Acquisition costs - Consists mostly of external professional fees and other due diligence costs related to our acquisitions. On occasion, we enter into forward currency hedges for the purchase price of committed, but not yet funded, acquisitions with funding requirements in currencies other than the U.S. dollar. The gains or losses, if any, associated with these hedge transactions are also included in acquisition costs.

Corporate - Consists of overhead allocations mostly related to corporate staff compensation, other corporate level activities, and other corporate level activities and net unrealized foreign exchange remeasurement. In addition, includes the tax expense related to partial taxation of foreign earnings, nondeductible executive compensation and entertainment expenses, the tax benefit from vesting of employee equity awards as well as other permanent or discrete tax items not reflected in the provision for income taxes in the brokerage and risk management segments. The income tax benefit of stock based awards that vested or were settled in the

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three-month periods ended March 31, 2023 and 2022, were $29.9 million and $27.9 million, respectively, and is included in the table above in the Corporate line.

Clean energy investm****ents - We have investments in limited liability companies that own 29 clean coal production plants developed by us and six clean coal production plants we purchased from a third party. All 35 plants produced refined coal using propriety technologies owned by Chem-Mod LLC. We believe that the production and sale of refined coal at these plants prior to 2022 were qualified to receive refined coal tax credits under IRC Section 45. The 14 2009 Era Plants received tax credits through 2019 and the 21 2011 Era Plants received tax credits through 2021.

Our investment in Chem-Mod LLC prior to 2022 generated royalty income from refined coal production plants owned by those limited liability companies in which we invest as well as refined coal production plants owned by other unrelated parties.

Please refer to our filings with the SEC, including Item 1A, “Risk Factors,” on pages 25 through 27 of our Annual Report on Form 10‑K for the fiscal year ended December 31, 2022, for a more detailed discussion of these and other factors that could impact the information above.

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations. The insurance brokerage industry is not capital intensive. Historically, our capital requirements have primarily included dividend payments on our common stock, repurchases of our common stock, funding of our investments, acquisitions of brokerage and risk management operations and capital expenditures.

Operating Cash Flows

Historically, we have depended on our ability to generate positive cash flow from operations to meet a substantial portion of our cash requirements. We believe that our cash flows from operations and borrowings under our Credit Agreement (defined below) will provide us with adequate resources to meet our liquidity needs in the foreseeable future. To fund acquisitions made during 2022 and for the three-month period ended March 31, 2023, we relied on a combination of net cash flows from operations, proceeds from borrowings under our Credit Agreement, and proceeds from issuances of senior unsecured notes.

Cash provided by operating activities was $428.5 million and $216.6 million for the three-month periods ended March 31, 2023 and 2022, respectively. The increase in cash provided by operating activities during the three-month period ended March 31, 2023 compared to the same period in 2022, was primarily due to growth in our core brokerage and risk management operations and timing differences between periods with cash receipts and disbursements related to accounts receivables and accrued compensation and other current liabilities compared to the same period in 2022. During the three-month period ended March 31, 2022, we collected $71.1 million of clean coal production related receivables and made $84.8 million in payments for clean coal production related payables that were accrued in our December 31, 2021 consolidated balance sheet. Due to the law governing IRC Section 45 tax credits expiring as of December 31, 2021, we did not have this cash flow activity during the three-month period ended March 31, 2023.

During the three-month period ended March 31, 2023 employee matching contributions to the 401(k) plan of $73.8 million relating to 2022 were funded using common stock. During the three-month period ended March 31, 2022, employee matching contributions to the 401(k) plan of $65.7 million relating to 2021 were funded using common stock.

Our cash flows from operating activities are primarily derived from our earnings from operations, as adjusted for our non‑cash expenses, which include depreciation, amortization, change in estimated acquisition earnout payables, deferred compensation, restricted stock and stock‑based and other non-cash compensation expenses. Historically, cash provided by operating activities was unfavorably impacted if the amount of IRC Section 45 tax credits generated (which is the amount we recognize for financial reporting purposes) was greater than the amount of tax credits utilized to reduce our tax cash obligations. Excess tax credits produced during the period resulted in an increase to our deferred tax assets, which is a net use of cash related to operating activities. In the three‑month period ended March 31, 2023, Section 45 credits were no longer generated due to the IRC Section 45 program expiring as of December 31, 2021, and therefore the Section 45 credit utilization against our cash tax obligation resulted in favorable cash flow in the three-month period ended March 31, 2023. Please see “Clean Energy Investments” below for more information on their potential future impact on cash provided by operating activities.

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When assessing our overall liquidity, we believe that the focus should be on net earnings as reported in our consolidated statement of earnings, adjusted for non‑cash items (i.e., EBITDAC), and cash provided by operating activities in our consolidated statement of cash flows. Consolidated EBITDAC was $874.9 million and $782.3 million for the three-month periods ended March 31, 2023 and 2022, respectively. Net earnings attributable to controlling interests were $486.5 million and $438.7 million for the three-month periods ended March 31, 2023 and 2022, respectively. We believe that EBITDAC items are indicators of trends in liquidity.

Change in Presentation of Fiduciary Assets and Liabilities in First Quarter 2023

In first quarter 2023, we changed the presentation of certain amounts and classifications in our consolidated balance sheet and statement of cash flows to identify and present fiduciary assets and liabilities and respective changes of these accounts in the balance sheet and statement of cash flows. These revisions also better reflect the cash flows associated with our operations. Lines for accounts receivable, fiduciary assets and fiduciary liabilities were added and lines for restricted cash, premiums and fees receivable and premiums payable to underwriting enterprises were removed. In addition to these changes, we moved the net change in fiduciary assets and liabilities from the operating section to the financing section of the statement of cash flows. We made the applicable revisions to the December 31, 2022 balance sheet and statement of cash flow for the three-month period ended March 31, 2022 to conform to the current period presentation. These changes had no impact on the 2022 consolidated statement of earnings or December 31, 2022 stockholders’ equity. See Note 1 to our March 31, 2023 unaudited consolidated financial statements for an additional discussion of the change in presentation of fiduciary assets and liabilities.

Defined Benefit Pension Plan

Our policy for funding our defined benefit pension plan is to contribute amounts at least sufficient to meet the minimum funding requirements under the IRC. The Employee Retirement Income Security Act of 1974, as amended (which we refer to as ERISA), could impose a minimum funding requirement for our plan. We are not required to make any minimum contributions to the plan for the 2023 plan year, nor were we required to make any minimum contributions to the plan for the 2022 plan year. Funding requirements are based on the plan being frozen and the aggregate amount of our historical funding. The plan’s actuaries determine contribution rates based on our funding practices and requirements. Funding amounts may be influenced by future asset performance, the level of discount rates and other variables impacting the assets and/or liabilities of the plan. In addition, amounts funded in the future, to the extent not due under regulatory requirements, may be affected by alternative uses of our cash flows, including dividends, acquisitions and common stock repurchases. We did not make any discretionary contributions to the plan during the three-month periods ended March 31, 2023 and 2022. We are not considering making any discretionary contributions to the plan in 2023, but may be required to make significantly larger minimum contributions to the plan in future periods.

Investing Cash Flows

Capital Expenditures - Capital expenditures were $29.7 million and $37.7 million for the three-month periods ended March 31, 2023 and 2022, respectively. In 2023, we expect total expenditures for capital improvements to be approximately $200.0 million, part of which is related to expenditures on office moves and investments being made in information technology and software development projects. Capital expenditures are lower in 2023 compared to 2022 primarily due to the timing of payments of these expenditures in 2023. Also impacting capital expenditures is the movement of information technology to cloud computing based technology from in‑house hosted environments. Expenditures made related to cloud computing based technology are accounted for as deferred costs versus fixed assets, which would reduce capital expenditures.

Acquisitions - Cash paid for acquisitions, net of cash and restricted cash acquired, was $311.4 million and $121.7 million in the three-month periods ended March 31, 2023 and 2022, respectively. In addition, during the three-month period ended March 31, 2023, we issued 1.0 million shares ($185.5 million) of our common stock as payment for a portion of the total consideration paid for 2023 acquisitions and earnout payments made in 2023. During the three-month period ended March 31, 2022, no shares were issued of our common stock as payment for consideration paid for 2022 acquisitions and earnout payments made in 2022. We completed ten and five acquisitions in the three-month periods ended March 31, 2023 and 2022, respectively. Annualized revenues of businesses acquired in the three-month periods ended March 31, 2023 and 2022 totaled approximately $69.0 million and $32.2 million, respectively. For the remainder of 2023, we expect to use new debt, our Credit Agreement, cash from operations and our common stock, or a combination thereof to fund all of the acquisitions we complete.

If liquidity concerns arise, we may be more likely to issue common stock to fund acquisitions.

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Dispositions - During the three-month periods ended March 31, 2023 and 2022, we sold several books of business and recognized net gains of $0.3 million and $1.4 million, respectively. We received net cash proceeds of $0.1 million and $1.0 million related to the 2023 and 2022 transactions, respectively.

Clean Energy Investments - During the period from 2009 through 2021, we made significant investments in clean energy operations capable of producing refined coal that we believe qualified for tax credits under IRC Section 45. The IRC Section 45 tax credits generate positive cash flow by reducing the amount of federal income taxes we pay. We anticipate positive net cash flow related to IRC Section 45 activity in 2023. However, there are several variables that can impact net cash flow from clean energy investments in any given year. Therefore, accurately predicting cash flows in particular future periods is not possible at this time. However, if we continue to generate sufficient taxable income to use the tax credits produced by our IRC Section 45 investments, we anticipate that these investments will continue to generate positive net cash flows due to the utilization of IRC Section 45 tax credits to offset taxable income in years after the program expired. In October 2022, we filed our 2021 federal tax return and elected to continue a tax method change in that return. This resulted in an acceleration of the amount of tax credits that we utilized on the return by approximately $150.0 million, which was recorded in fourth quarter 2022. We also amended our 2014 and 2015 federal tax returns in fourth quarter 2022, which resulted in a refund of $3.7 million of IRC Section 45 tax credits. While we cannot precisely forecast the cash flow impact in any particular period, we anticipate that the net cash flow impact of IRC Section 45 activity will be positive overall. Please see “Clean energy investments” on page 56 for a more detailed description of these investments and their risks and uncertainties. Please see “Other Information” on page 38 for the cash flow impact of the expiration of laws governing tax credits.

Financing Cash Flows

On December 14, 2022, we entered into a second amendment to our amended and restated multicurrency credit agreement dated August 27, 2020, (which we refer to as the Credit Agreement). The second amendment to the Credit Agreement provided that the LIBOR should be replaced with a successor rate. The amendment also included additional terms and conditions for SOFR loans and RFR loans. See below for more detail.

There were no borrowings outstanding under the Credit Agreement at March 31, 2023. Due to the outstanding letters of credit, $1,189.1 million remained available for potential borrowings under the Credit Agreement at March 31, 2023.

We use the Credit Agreement to post letters of credit and to borrow funds to supplement our operating cash flows from time to time. In the three-month period ended March 31, 2023, we borrowed $605.0 million and repaid $665.0 million under our Credit Agreement. In the three-month period ended March 31, 2022, we borrowed $380.0 million and repaid $425.0 million under our Credit Agreement. Principal uses of the 2023 and 2022 borrowings under the Credit Agreement were to fund acquisitions, earnout payments related to acquisitions and general corporate purposes.

On September 20, 2022, we entered into an amendment to our revolving loan facility (which we refer to as the Premium Financing Debt Facility), that provides funding for the three Australian (AU) and New Zealand (NZ) premium finance subsidiaries. The amendment, among other things, extended the expiration date of the Premium Financing Debt Facility from September 15, 2023 to September 15, 2024, and increased the total commitment for the AU$ denominated tranche from AU$340.0 million to AU$410.0 million. The Premium Financing Debt Facility is comprised of: (i) Facility B, is separated into AU$350.0 million and NZ$25.0 million tranches (the NZ$ tranche will decrease as of May 1, 2023 to NZ$10.0 million), (ii) Facility C, an AU$60.0 million equivalent multi-currency overdraft tranche and (iii) Facility D, a NZ$15.0 million equivalent multi-currency overdraft tranche. At March 31, 2023, AU$213.0 million and NZ$0.0 million of borrowings were outstanding under Facility B, AU$14.7 million of borrowings were outstanding under Facility C and NZ$12.4 million of borrowings were outstanding under Facility D, which in aggregate amount to US$159.8 million of borrowings outstanding under the Premium Financing Debt Facility.

On February 10, 2023, we used operating cash to fund the $50.0 million Series E note maturity. During March 2023, we communicated to the lender our intent to pay early the $50.0 million of floating rate debt with an original maturity of June 13, 2024.

On March 2, 2023, we closed and funded an offering of $950.0 million of unsecured senior notes in two tranches. The $350.0 million aggregate principal amount of 5.50% Senior Notes are due 2033 (which we refer to as the 2033 Notes) and $600.0 million aggregate principal amount of 5.75% Senior Notes are due 2053 (which we refer to as the 2053 Notes). The weighted average interest rate is 5.05% per annum after giving effect to underwriting costs and a net hedge gain. During 2019 through 2022, we entered into a pre‑issuance interest rate hedging transaction related to these notes. We realized a net cash gain of approximately $112.7 million on the hedging transactions that will be recognized on a pro rata basis as a decrease to our reported interest expense over ten years. We used the proceeds of these offerings to fund acquisitions, earnout payments related to acquisitions and general corporate purposes.

At March 31, 2023, we had $2.550.0 million of Senior Notes, $4,198.0 million of corporate‑related borrowings outstanding under separate note purchase agreements entered into during the period from 2011 to 2021, no borrowings outstanding under our credit

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facility, $159.8 million outstanding under our Premium Financing Debt Facility and a cash and cash equivalent balance of $1,549.9 million. See Note 6 to our March 31, 2023 unaudited consolidated financial statements for a discussion of the terms of the Senior Notes, Note purchase agreements, the Credit Agreement and the Premium Financing Debt Facility.

Consistent with past practice, as of March 31, 2023, we have entered into pre-issuance hedging transactions of $500.0 million for 2024 and $400.0 million for 2025. During the three-month period ended March 31, 2023, we settled approximately $60.0 million of gains related to our interest rate hedge contracts with a notional value of $350.0 million that will be amortized into interest expense in future periods.

The Senior Notes, Note purchase agreements, the Credit Agreement and the Premium Financing Debt Facility contain various financial covenants that require us to maintain specified financial ratios. We were in compliance with these covenants at March 31, 2023.

Dividends - Our board of directors determines our dividend policy. Our board of directors determines dividends on our common stock on a quarterly basis after considering our available cash from earnings, our anticipated cash needs and current conditions in the economy and financial markets.

In the three-month period ended March 31, 2023, we declared $118.5 million in cash dividends on our common stock, or $0.55 per common share, an 8% increase over the three-month period ended March 31, 2022. On April 26, 2023, we announced a quarterly dividend for second quarter 2023 of $0.55 per common share. This dividend level in 2023 will result in annualized net cash used by financing activities in 2023 of approximately $469.6 million (based on the number of outstanding shares as of March 31, 2023) or an anticipated increase in cash used of approximately $40.1 million compared to 2022. We make no assurances regarding the amount of any future dividend payments**.**

Shelf Registration Statement - On March 8, 2021, we filed a shelf registration statement on Form S-3 with the SEC, registering the offer and sale from time to time, of an indeterminate amount of debt securities, guarantees, common stock, preferred stock, warrants, depositary shares, purchase contracts, or units. The availability of the potential liquidity under this shelf registration statement depends on investor demand, market conditions and other factors. We make no assurances regarding when, or if, we will issue any securities under this registration statement. On November 15, 2016, we filed a shelf registration statement on Form S-4 with the SEC, registering 10.0 million shares of our common stock that we may offer and issue from time to time in connection with the future acquisitions of other businesses, assets or securities. At March 31, 2023, 0.7 million shares remained available for issuance under this registration statement. On November 15, 2022, we filed a second shelf registration statement on Form S-4 with the with the SEC, registering 7.0 million shares of our common stock that we may offer and issue from time to time in connection with future acquisitions of other businesses, assets or securities. At March 2023, 7.0 million shares remained available for issuance under this registration statement.

Common Stock Repurchases - We have in place a common stock repurchase plan approved by our board of directors in July 2021, that authorizes the repurchase of up to $1.5 billion of common stock. During the three-month periods ended March 31, 2023 and 2022, we did not repurchase shares of our common stock. The plan authorizes the repurchase of our common stock at such times and prices, as we may deem advantageous, in transactions on the open market or in privately negotiated transactions. We are under no commitment or obligation to repurchase any particular number of shares, and the plan may be suspended at any time at our discretion. Funding for share repurchases may come from a variety of sources, including cash from operations, short-term or long‑term borrowings under our Credit Agreement or other sources. See “Issuer Purchases of Equity Securities” below for more information regarding shares repurchased during the quarter.

At-the-Market Equity Program - On November 15, 2022, we entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC, pursuant to which we may offer and sell, from time to time, up to 3,000,000 shares of our common stock through Morgan Stanley as sales agent. We intend to use the net proceeds of sales under this program to fund future acquisitions from time to time or for general corporate purposes. Pursuant to the agreement, shares may be sold by means of ordinary brokers’ transactions, including on the New York Stock Exchange, at market prices prevailing at the time of sale, at prices related to the prevailing market prices, or at negotiated prices, in block transactions, or as otherwise agreed upon by us and Morgan Stanley. During the quarter ended March 31, 2023, we did not sell shares of our common stock under the program.

Common Stock Issuances - Another source of liquidity to us is the issuance of our common stock pursuant to our stock option and employee stock purchase plans. Proceeds from the issuance of common stock under these plans for the three-month periods ended March 31, 2023 and 2022, were $30.3 million and $45.9 million, respectively. On May 10, 2022, our stockholders approved the 2022 Long-Term Incentive Plan (which we refer to as the LTIP), which replaced our previous stockholder-approved 2017 Long-Term Incentive Plan. All of our officers, employees and non-employee directors are eligible to receive awards under the LTIP. Awards which may be granted under the LTIP include non-qualified and incentive stock options, stock appreciation rights, restricted stock

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units and performance units, any or all of which may be made contingent upon the achievement of performance criteria. Stock options with respect to 11.9 million shares (less any shares of restricted stock issued under the LTIP - 2.9 million shares of our common stock were available for this purpose as of March 31, 2023) were available for grant under the LTIP at March 31, 2023. Our employee stock purchase plan allows our employees to purchase our common stock at 95% of its fair market value. Proceeds from the issuance of our common stock related to these plans have contributed favorably to net cash provided by financing activities in the three-month periods ended March 31, 2023 and 2022, and we believe this favorable trend will continue in the foreseeable future.

We have a qualified contributory savings and thrift 401(k) plan covering the majority of our domestic employees. For eligible employees who have met the plan’s age and service requirements to receive matching contributions, we historically have matched 100% of pre-tax and Roth elective deferrals up to a maximum of 5.0% of eligible compensation, subject to federal limits on plan contributions and not in excess of the maximum amount deductible for federal income tax purposes. Beginning with the match paid in 2021, the amount matched by the company will be discretionary and annually determined by management. Employees must be employed and eligible for the plan on the last day of the plan year to receive a matching contribution, subject to certain exceptions enumerated in the plan document. Matching contributions are subject to a five-year graduated vesting schedule and can be funded in cash or company stock. We expensed (net of plan forfeitures) $21.0 million and $20.1 million related to the plan in the three-month periods ended March 31, 2023 and 2022, respectively. During 2022, our board of directors authorized the 5.0% employer matching contribution on eligible compensation to the 401(k) plan for the 2022 plan year to be funded with our common stock, which we funded in February 2023. During 2021, our board of directors authorized the 5.0% employer matching contribution on eligible compensation to the 401(k) plan for the 2021 plan year to be funded with our common stock, which we funded in February 2022.

Outlook - We believe that we have sufficient capital and access to additional capital to meet our short- and long-term cash flow needs.

Critical Accounting Estimates

There have been no changes in our critical accounting estimates, which include revenue recognition, income taxes and intangible assets/earnout obligations, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Business Combinations and Dispositions

See Note 3 to the unaudited consolidated financial statements for a discussion of our business combinations during the three-month period ended March 31, 2023. We did not have any material dispositions during the three-month period ended March 31, 2023.

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