Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussion should be read in conjunction with our Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Annual Report on Form 10-K. In addition, please see “Information Regarding Non-GAAP Measures” below, regarding important information on non-GAAP financial measures contained in our discussion and analysis.

We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquartered in Daytona Beach, Florida. As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.

We have increased revenues every year from 1993 to 2019, with the exception of 2009, when our revenues declined 1.0%. Our revenues grew from $95.6 million in 1993 to $2.4 billion in 2019, reflecting a compound annual growth rate of 13.2%. In the same 26-year period, we increased net income from $8.1 million to $398.5 million in 2019, a compound annual growth rate of 16.2%.

The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, changes in general economic and competitive conditions, and the occurrence of catastrophic weather events all affect our revenues. For example, level rates of inflation or a general decline in economic activity could limit increases in the values of insurable exposure units. Conversely, increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance coverage. Historically, our revenues have typically grown as a result of our focus on net new business growth and acquisitions. We foster a strong, decentralized sales and service culture that leverages the broad capabilities and scale of our organization, with the goal of consistent, sustained growth over the long-term.

The term “Organic Revenue,” a non-GAAP measure, is our core commissions and fees less: (i) the core commissions and fees earned for the first 12 months by newly-acquired operations and (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period), and for the calculation of Organic Revenue growth in 2018 only (iii) the impact of the adoption of Accounting Standards Update No.2014-09, “Revenue from Contracts with Customers (Topic 606)” and Accounting Standards Codification Topic 340 – Other Assets and Deferred Cost (the “New Revenue Standard”) in order to be on a comparable basis with 2017. The term “core commissions and fees” excludes profit-sharing contingent commissions and guaranteed supplemental commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered. “Organic Revenue” is reported in this manner in order to express the current year’s core commissions and fees on a comparable basis with the prior year’s core commissions and fees. The resulting net change reflects the aggregate changes attributable to: (i) net new and lost accounts, (ii) net changes in our customers’ exposure units, (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners, and (iv) the net change in fees paid to us by our customers. Organic Revenue is reported in “Results of Operations” and in “Results of Operations - Segment Information” of this Annual Report on Form 10-K.

We also earn “profit-sharing contingent commissions,” which are commissions based primarily on underwriting results, but which may also reflect considerations for volume, growth and/or retention. These commissions, which are included in our commissions and fees in the Consolidated Statement of Income, are accrued throughout the year based on actual premiums written and are primarily received in the first and second quarters of each year, based upon the aforementioned considerations for the prior year(s). Prior to the adoption of the New Revenue Standard, these commissions were recorded to income when received. As a result of our adoption of the New Revenue Standard these commissions are now accrued based upon the placement of policies during the year and the expected payments to be received. Over the last three years, profit-sharing contingent commissions have averaged approximately 3.0% of commissions and fees revenue.

Certain insurance companies offer guaranteed fixed-base agreements, referred to as “Guaranteed Supplemental Commissions” (“GSCs”) in lieu of profit-sharing contingent commissions. GSCs are accrued throughout the year based upon actual premiums written. For the year ended December 31, 2019, we had earned $23.1 million of GSCs, of which $12.7 million remained accrued at December 31, 2019 and most of this will be collected over the first and second quarters of 2020. For the years ended December 31, 2019 and 2018, we earned $23.1 million and $10.0 million, respectively, from GSCs.

Combined, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2019 increased by $16.4 million over 2018. The net increase of $16.4 million was mainly driven by: (i) a GSC of approximately $9 million recorded in the second quarter of 2019 for the National Programs Segment that will not recur in the future as the associated multi-year contract has ended and (ii) to a lesser extent growth associated with acquisitions completed over the last 12 months.

Fee revenues primarily relate to services other than securing coverage for our customers, as well as fees negotiated in lieu of commissions, and are recognized as performance obligations are satisfied. Fee revenues have historically been generated primarily by: (1) our Services Segment, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services; (2) our National Programs and Wholesale Brokerage Segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and (3) our Retail Segment in our

large-account customer base, where we primarily earn fees for securing insurance for our customers, and in our automobile dealer services (“F&I”) businesses where we primarily earn fees for assisting our customers with selling warranty and service programs. Fee revenues as a percentage of our total commissions and fees, represented 27.1% in 2019 and 26.3% in 2018.

For the years ended December 31, 2019 and 2018, our commissions and fees growth rate was 18.7% and 8.2%, respectively, and our consolidated Organic Revenue growth rate was 3.6% and 2.4%, respectively. In the event that the gradual increases in insurable exposure units that occurred in the past few years continues through 2020 and premium rate changes are similar with 2019, we believe we will continue to see positive quarterly Organic Revenue growth rates in 2020.

Historically, investment income has consisted primarily of interest earnings on operating cash, and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy is to invest available funds in high-quality, short-term fixed income investment securities. Investment income also includes gains and losses realized from the sale of investments. Other income primarily reflects legal settlements and other miscellaneous income.

Income before income taxes for the year ended December 31, 2019 increased over 2018 by $63.5 million, primarily as a result of net new business and acquisitions completed since 2018 in addition to leveraging expenses, partially offset by additional interest expense and amortization associated with the acquisitions over the past two years, with the largest being our acquisition of The Hays Group, Inc. and certain of its affiliates (“Hays”).

Information Regarding Non-GAAP Measures

In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with generally accepted accounting principles (“GAAP”), we provide references to the following non-GAAP financial measures as defined in Regulation G of SEC rules: Organic Revenue, Organic Revenue growth, EBITDAC and EBITDAC Margin. We view these non-GAAP financial measures as important indicators when assessing and evaluating our performance on a consolidated basis and for each of our segments because they allow us to determine a more comparable, but non-GAAP, measurement of revenue growth and operating performance that is associated with the revenue sources that were a part of our business in both the current and prior year. We believe that Organic Revenue provides a meaningful representation of our operating performance and view Organic Revenue growth as an important indicator when assessing and evaluating the performance of our four segments. Organic Revenue can be expressed as a dollar amount or a percentage rate when describing Organic Revenue growth. We also use Organic Revenue growth and EBITDAC Margin for incentive compensation determinations for executive officers and other key employees. We view EBITDAC and EBITDAC Margin as important indicators of operating performance, because they allow us to determine more comparable, but non-GAAP, measurements of our operating margins in a meaningful and consistent manner by removing the significant non-cash items of depreciation, amortization and the change in estimated acquisition earn-out payables, and also interest expense and taxes, which are reflective of investment and financing activities, not operating performance.

These measures are not in accordance with, or an alternative to the GAAP information provided in this Annual Report on Form 10-K. We present such non-GAAP supplemental financial information because we believe such information is of interest to the investment community and because we believe they provide additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. We believe these non-GAAP financial measures improve the comparability of results between periods by eliminating the impact of certain items that have a high degree of variability. 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. This supplemental financial information should be considered in addition to, not in lieu of, our Consolidated Financial Statements.

Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Annual Report on Form 10-K under “Results of Operation - Segment Information.”

Acquisitions

Part of our business strategy is to attract high-quality insurance intermediaries and service organizations to join our operations. From 1993 through the fourth quarter of 2019, we acquired 536 insurance intermediary operations, excluding acquired books of business (customer accounts).

On November 15, 2018, we completed the acquisition of certain assets and assumption of certain liabilities of Hays. At closing, we delivered a payment of $705 million, consisting of $605 million in cash and the issuance to certain key owners of Hays of 3,376,103 shares of our common stock for a total value of $100.0 million. In addition, the Company may pay additional consideration to Hays in the form of earn-out payments in the aggregate amount of up to $25.0 million in cash over three years, which is subject to certain conditions and the successful achievement of average annual EBITDA targets for the acquired business during 2019, 2020 and 2021. This transaction was initially funded through utilization of the Company’s revolving line of credit within our credit facility, details of which can be found in “Management’s Discussion and Analysis of Financial Condition”, “Results of Operations” and Note 9 “Long-Term Debt” in the “Notes to Consolidated Financial Statements”.

Critical Accounting Policies

Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate our estimates, which are based upon historical experience and on assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for our judgments about the recognition of revenues, expenses, carrying values of our assets and liabilities, of which values are not readily apparent from other sources. Actual results may differ from these estimates.

We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business combinations and purchase price allocations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” for a discussion of the impacts for adopting Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and No. 2016-02, “Leases (Topic 842)”.

Revenue Recognition

The majority of our revenue is commissions derived from our performance as agents and brokers, acting on behalf of insurance carriers to sell products to customers that are seeking to transfer risk, and conversely, acting on behalf of those customers in negotiating with insurance carriers seeking to acquire risk in exchange for premiums. In these arrangements our performance obligation is complete upon the effective date of the bound policy, as such, that is when the associated revenue is recognized. Where the Company’s performance obligations have been completed, but the final amount of compensation is unknown due to variable factors, we estimate the amount of such compensation. We recognize subsequent commission adjustments upon our receipt of additional information or final settlement, whichever occurs first.

To a lesser extent, the Company earns revenues in the form of fees. Like commissions, fees paid to us in lieu of commission, are recognized upon the effective date of the bound policy. When we are paid a fee for service, however, the associated revenue is recognized over a period of time that coincides with when the customer simultaneously receives and consumes the benefit of our work, which characterizes most of our claims processing arrangements and various services performed in our property and casualty, and employee benefits practices. Other fees are typically recognized upon the completion of the delivery of the agreed-upon services to the customer.

Management determines a policy cancellation reserve based upon historical cancellation experience adjusted in accordance with known circumstances.

Please see Note 2 “Revenues” in the “Notes to Consolidated Financial Statements” for additional information regarding the nature and timing of our revenues.

Business Combinations and Purchase Price Allocations

We have acquired significant intangible assets through acquisitions of businesses. These assets generally consist of purchased customer accounts, non-compete agreements, and the excess of purchase prices over the fair value of identifiable net assets acquired (goodwill). The determination of estimated useful lives and the allocation of purchase price to intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges.

All of our business combinations initiated after June 30, 2001 have been accounted for using the acquisition method. In connection with these acquisitions, we record the estimated value of the net tangible assets purchased and the value of the identifiable intangible assets purchased, which typically consist of purchased customer accounts and non-compete agreements. Purchased customer accounts include the physical records and files obtained from acquired businesses that contain information about insurance policies, customers and other matters essential to policy renewals of delivery of services. However, they primarily represent the present value of the underlying cash flows expected to be received over the estimated future renewal periods of the insurance policies comprising those purchased customer accounts. The valuation of purchased customer accounts involves significant estimates and assumptions concerning matters such as cancellation frequency, expenses and discount rates. Any change in these assumptions could affect the carrying value of purchased customer accounts. Non-compete agreements are valued based upon their duration and any unique features of the particular agreements. Purchased customer accounts and non-compete agreements are amortized on a straight-line basis over the related estimated lives and contract periods, which range from 3 to 15 years. The excess of the purchase price of an acquisition over the fair value of the identifiable tangible and intangible assets is assigned to goodwill and is not amortized.

Acquisition purchase prices are typically based upon a multiple of average EBITDA, annual operating profit and/or core revenue earned over a one to three-year period within a minimum and maximum price range. The recorded purchase prices for all acquisitions include an estimation of the fair value of liabilities associated with any potential earn-out provisions, where an earn-out is part of the negotiated transaction. Subsequent changes in the fair value of earn-out obligations are recorded in the Consolidated Statement of Income when changes to the expected performance of the associated business are realized.

The fair value of earn-out obligations is based upon the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions contained in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business, and this estimate reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These estimates are then discounted to a present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.

Intangible Assets Impairment

Goodwill is subject to at least an annual assessment for impairment measured by a fair-value-based test. Amortizable intangible assets are amortized over their useful lives and are subject to an impairment review based upon an estimate of the undiscounted future cash flows resulting from the use of the assets. To determine if there is potential impairment of goodwill, we compare the fair value of each reporting unit with its carrying value. If the fair value of the reporting unit is less than its carrying value, an impairment loss would be recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. Fair value is estimated based upon multiples of earnings before interest, income taxes, depreciation, amortization and change in estimated acquisition earn-out payables (“EBITDAC”), or on a discounted cash flow basis.

Management assesses the recoverability of our goodwill and our amortizable intangibles and other long-lived assets annually and whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Any of the following factors, if present, may trigger an impairment review: (i) a significant underperformance relative to historical or projected future operating results, (ii) a significant negative industry or economic trend, and (iii) a significant decline in our market capitalization. If the recoverability of these assets is unlikely because of the existence of one or more of the above-referenced factors, an impairment analysis is performed. Management must make assumptions regarding estimated future cash flows and other factors to determine the fair value of these assets. If these estimates or related assumptions change in the future, we may be required to revise the assessment and, if appropriate, record an impairment charge. We completed our most recent evaluation of impairment for goodwill as of November 30, 2019 and determined that the fair value of goodwill exceeded the carrying value of such assets. Additionally, there have been no impairments recorded for amortizable intangible assets for the years ended December 31, 2019 and 2018.

Non-Cash Stock-Based Compensation

We grant non-vested stock awards to our employees, with the related compensation expense recognized in the financial statements over the associated service period based upon the grant-date fair value of those awards. During the performance measurement period, we review the probable outcome of the performance conditions associated with our performance awards and align the expense accruals with the expected performance outcome.

During the first quarter of 2018, the performance conditions for 260,344 shares of the Company’s common stock granted under the Company’s 2010 Stock Incentive Plan (the “2010 SIP”) were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2013. These grants had a performance measurement period that concluded on December 31, 2017. The vesting condition for these grants requires continuous employment for a period of up to ten years from the January 2013 grant date in order for the awarded shares to become fully vested and nonforfeitable. During the third quarter of 2018, the performance conditions for 2,229,561 shares of the Company’s common stock granted under the Company’s 2010 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in July 2013. These grants had a performance measurement period that concluded on June 30, 2018. The vesting condition for these grants requires continuous employment for a period of up to seven years from the July 2013 grant date in order for the awarded shares to become fully vested and nonforfeitable. As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and in diluted net income per share, where the net income attributable to unvested awarded stock plans is excluded from the total net income attributable to common shares.

During the first quarter of 2019, the performance conditions for 1,954,983 of the Company’s common stock granted under the Company’s 2010 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2014 and 2016. These grants had a performance measurement period that concluded on December 31, 2018. The vesting condition for these grants requires continuous employment for a period of up to seven years from the 2014 grant date and five years from the 2016 grant date in order for the awarded shares to become fully vested and nonforfeitable. As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and diluted net income per share.

During the first quarter of 2020, the performance conditions for approximately 1.9 million shares of the Company’s common stock granted under the Company’s 2010 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2015 and 2017. These grants had a performance measurement period that concluded on December 31, 2019. The vesting condition for these grants requires continuous employment for a period of up to seven years from the 2015 grant date and five years from the 2017 grant date in order for the awarded shares to become fully vested and nonforfeitable. As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and diluted net income per share.

Litigation and Claims

We are subject to numerous litigation claims that arise in the ordinary course of business. If it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss is estimable, an accrual for the costs to resolve these claims is recorded in accrued expenses in the accompanying Consolidated Financial Statements. Professional fees related to these claims are included in other operating expenses in the accompanying Consolidated Statement of Income as incurred. Management, with the assistance of in-house and outside counsel, determines whether it is probable that a liability has been incurred and estimates the amount of loss based upon analysis of individual issues. New developments or changes in settlement strategy in dealing with these matters may significantly affect the required reserves and affect our net income.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Consolidated Financial Statements and related Notes. For a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2018 and 2017, please see Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 26, 2019.

Financial information relating to our Consolidated Financial Results is as follows:

(in thousands, except percentages)		2019				% Change				2018
REVENUES
Core commissions and fees		$	2,302,506				18.4	%		$	1,944,021
Profit-sharing contingent commissions			59,166				5.9	%			55,875
Guaranteed supplemental commissions			23,065				131.6	%			9,961
Commissions and fees			2,384,737				18.7	%			2,009,857
Investment income			5,780				110.5	%			2,746
Other income, net			1,654				0.7	%			1,643
Total revenues			2,392,171				18.8	%			2,014,246
EXPENSES
Employee compensation and benefits			1,308,165				22.4	%			1,068,914
Other operating expenses			377,089				13.5	%			332,118
(Gain)/loss on disposal			(10,021	)			360.7	%			(2,175	)
Amortization			105,298				21.7	%			86,544
Depreciation			23,417				2.6	%			22,834
Interest			63,660				56.9	%			40,580
Change in estimated acquisition earn-out payables			(1,366	)			(146.0	)%			2,969
Total expenses			1,866,242				20.3	%			1,551,784
Income before income taxes			525,929				13.7	%			462,462
Income taxes			127,415				7.8	%			118,207
NET INCOME		$	398,514				15.8	%		$	344,255
Income Before Income Taxes Margin (1)			22.0	%							23.0	%
EBITDAC (2)		$	716,938				16.5	%		$	615,389
EBITDAC Margin (2)			30.0	%							30.6	%
Organic Revenue growth rate (2)			3.6	%							2.4	%
Employee compensation and benefits relative to total revenues			54.7	%							53.1	%
Other operating expenses relative to total revenues			15.8	%							16.5	%
Capital expenditures		$	73,108				76.1	%		$	41,520
Total assets at December 31		$	7,622,821				14.0	%		$	6,688,668

(1)	“Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues

(2)	A non-GAAP measure

Commissions and Fees

Commissions and fees, including profit-sharing contingent commissions and GSCs for 2019, increased $374.9 million to $2,384.7 million, or 18.7% over 2018. Core commissions and fees in 2019 increased $358.5 million, of which $298.3 million represented core commissions and fees from acquisitions that had no comparable revenues in 2018; approximately $70.0 million represented net new and renewal business; which was offset by $9.8 million related to commissions and fees revenue from businesses divested in 2018 and 2019, which reflected an Organic Revenue growth rate of 3.6%. Profit-sharing contingent commissions and GSCs for 2019 increased by $16.4 million, or 24.9%, compared to the same period in 2018. The net increase of $16.4 million was mainly driven by: (i) a GSC of approximately $9 million recorded in the second quarter of 2019 for the National Programs Segment that will not recur in the future as the associated multi-year contract has ended and (ii) the remainder primarily from growth associated with acquisitions completed over the last 12 months.

Investment Income

Investment income increased to $5.8 million in 2019, compared with $2.7 million in 2018. The increase was due to additional interest income driven by higher interest rates and cash management activities to earn a higher yield on excess cash balances.

Other Income, Net

Other income for 2019 was $1.7 million, compared with $1.6 million in 2018. Other income consists primarily of legal settlements and other miscellaneous income.

Employee Compensation and Benefits

Employee compensation and benefits expense increased 22.4%, or $239.3 million, in 2019 compared to 2018. This increase included $164.4 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2018. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2019 and 2018 increased by $74.8 million or 7.2%. This underlying employee compensation and benefits expense increase was primarily related to (i) an increase in teammates for certain of our higher growth businesses; (ii) an increase in bonus expense driven by the attainment of various revenue and profit targets within our businesses; (ii) increased producer commissions due to higher revenue; (iii) an increase in staff salaries attributable to salary inflation; (iv) the increase in the value of deferred compensation liabilities driven by changes in the market prices of our employees' investment elections, which was substantially offset by other operating expenses; and (v) an increase in non-cash stock-based compensation expense due to the better-than-expected Company performance related to our equity compensation plan and teammate retention. Employee compensation and benefits expense as a percentage of total revenues was 54.7% for 2019 as compared to 53.1% for the year ended December 31, 2018.

Other Operating Expenses

Other operating expenses represented 15.8% of total revenues for 2019 as compared to 16.5% for the year ended December 31, 2018. Other operating expenses for 2019 increased $45.0 million, or 13.5%, over the same period of 2018. The net increase included: (i) $56.5 million of other operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2018; (ii) increased expenses associated with information technology items related to data processing and value-added consulting services; partially offset by (iii) the increase in the value of corporate-owned life insurance policies associated with our deferred compensation plan, which was substantially offset by increases in the value of liabilities in the Company’s deferred compensation plan recognized as expense in employee compensation and benefits.

Gain or Loss on Disposal

The Company recognized gains on disposal of $10.0 million in 2019 and $2.2 million in 2018. The change in the gain on disposal was due to activity associated with book of business sales. Although we are not in the business of selling customer accounts, we periodically sell an office or a book of business (one or more customer accounts) that we believe does not produce reasonable margins or demonstrate a potential for growth, or because doing so is in the Company’s best interest.

Amortization

Amortization expense for 2019 increased $18.8 million to $105.3 million, or 21.7% over 2018. The increase reflects the amortization of new intangible assets from recently acquired businesses, partially offset by certain intangible assets becoming fully amortized.

Depreciation

Depreciation expense for 2019 increased $0.6 million to $23.4 million, or 2.6% over 2018. The increase was due primarily to the addition of fixed assets resulting from capital projects related to our multi-year technology investment program and other business initiatives, net additions of fixed assets resulting from recent acquisitions, partially offset by fixed assets which became fully depreciated.

Interest Expense

Interest expense for 2019 increased $23.1 million to $63.7 million, or 56.9%, over 2018. The increase was due to the debt issued as a result of acquisitions over the past two years, with the largest being our acquisition of Hays, and to a lesser extent a rise in interest rates associated with our outstanding floating rate debt balances.

Change in Estimated Acquisition Earn-Out Payables

Accounting Standards Codification (“ASC”) Topic 805-Business Combinations is the authoritative guidance requiring an acquirer to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase price arrangements) at the acquisition date must be included in the purchase price consideration. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations are required to be recorded in the Consolidated Statement of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years.

The net charge or credit to the Consolidated Statement of Income for the period is the combination of the net change in the estimated acquisition earn-out payables balance, and the interest expense imputed on the outstanding balance of the estimated acquisition earn-out payables.

As of December 31, 2019, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years ended December 31, 2019 and 2018 were as follows:

(in thousands)		2019				2018
Change in fair value of estimated acquisition earn-out payables		$	(7,298	)		$	603
Interest expense accretion			5,932				2,366
Net change in earnings from estimated acquisition earn-out payables		$	(1,366	)		$	2,969

For the years ended December 31, 2019 and 2018, the fair value of estimated earn-out payables was re-evaluated and decreased by $7.3 million for 2019 and increased by $0.6 million for 2018, which resulted in a credit, net of interest expense accretion, to the Consolidated Statement of Income for 2019 and net charges for 2018.

As of December 31, 2019, the estimated acquisition earn-out payables equaled $161.5 million, of which $17.9 million was recorded as accounts payable and $143.6 million was recorded as other non-current liability. As of December 31, 2018, the estimated acquisition earn-out payables equaled $89.9 million, of which $21.1 million was recorded as accounts payable and $68.8 million was recorded as other non-current liability.

Income Taxes

The effective tax rate on income from operations was 24.2% in 2019 and 25.6% in 2018. The Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) made changes to the U.S. tax code that affected our income tax rate beginning in 2017. The Tax Reform Act reduced the U.S. federal corporate income tax rate from 35.0% to 21.0% and requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries that is payable over eight years. The Tax Reform Act also established new tax laws that became effective January 1, 2018. The 2018 and 2019 effective tax rates reflect the reduction in the federal corporate income tax rate. The reduction in the effective tax rate in 2019 as compared to 2018 was driven by changes in our state tax footprint and corresponding apportionment as well as changes to tax rates in certain states. The effective tax rates for 2018 and 2019 reflect the adoption of FASB Accounting Standards Update 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”) in the first quarter of 2017. ASU 2016-09, which requires upon vesting of stock-based compensation that any tax implications be treated as a discrete credit to the income tax expense in the quarter of vesting, amends guidance issued in ASC Topic 718, Compensation - Stock Compensation.

RESULTS OF OPERATIONS — SEGMENT INFORMATION

As discussed in Note 17 “Segment Information” of the Notes to Consolidated Financial Statements, we operate four reportable segments: Retail, National Programs, Wholesale Brokerage and Services. On a segmented basis, changes in amortization, depreciation and interest expenses generally result from activity associated with acquisitions. Likewise, other income in each segment reflects net gains primarily from legal settlements and miscellaneous income. As such, in evaluating the operational efficiency of a segment, management focuses on the Organic Revenue growth rate of core commissions and fees, the ratio of total employee compensation and benefits to total revenues, and the ratio of other operating expenses to total revenues.

The reconciliation of total commissions and fees to Organic Revenue for the year ended December 31, 2019, by Segment, are as follows:

2019		Retail(1)								National Programs								Wholesale Brokerage								Services								Total
(in thousands, except percentages)		2019				2018				2019				2018				2019				2018				2019				2018				2019				2018
Commissions and fees		$	1,364,755			$	1,040,574			$	516,915			$	493,878			$	309,426			$	286,364			$	193,641			$	189,041			$	2,384,737			$	2,009,857
Total change		$	324,181							$	23,037							$	23,062							$	4,600							$	374,880
Total growth %			31.2	%							4.7	%							8.1	%							2.4	%							18.7	%
Profit-sharing contingent commissions			(34,150	)			(24,517	)			(17,517	)			(23,896	)			(7,499	)			(7,462	)			—				—				(59,166	)			(55,875	)
GSCs			(11,056	)			(8,535	)			(10,566	)			(76	)			(1,443	)			(1,350	)			—				—				(23,065	)			(9,961	)
Core commissions and fees		$	1,319,549			$	1,007,522			$	488,832			$	469,906			$	300,484			$	277,552			$	193,641			$	189,041			$	2,302,506			$	1,944,021
Acquisition revenues			(272,383	)			—				(5,721	)			—				(3,628	)			—				(16,541	)			—				(298,273	)			—
Divested business			—				(7,743	)			—				(790	)			—				(1,268	)			—				—				—				(9,801	)
Organic Revenue(2)		$	1,047,166			$	999,779			$	483,111			$	469,116			$	296,856			$	276,284			$	177,100			$	189,041			$	2,004,233			$	1,934,220
Organic Revenue growth(2)		$	47,387							$	13,995							$	20,572							$	(11,941	)						$	70,013
Organic Revenue growth %(2)			4.7	%							3.0	%							7.4	%							(6.3	)%							3.6	%

(1)	The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 17 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items.

(2)	A non-GAAP financial measure.

The reconciliation of total commissions and fees to Organic Revenue for the year ended December 31, 2018, by Segment, are as follows:

2018		Retail(1)								National Programs								Wholesale Brokerage								Services								Total
(in thousands, except percentages)		2018				2017				2018				2017				2018				2017				2018				2017				2018				2017
Commissions and fees		$	1,040,574			$	942,039			$	493,878			$	479,017			$	286,364			$	271,141			$	189,041			$	165,073			$	2,009,857			$	1,857,270
Total change		$	98,535							$	14,861							$	15,223							$	23,968							$	152,587
Total growth %			10.5	%							3.1	%							5.6	%							14.5	%							8.2	%
Profit-sharing contingent commissions			(24,517	)			(23,377	)			(23,896	)			(20,123	)			(7,462	)			(8,686	)			—				—				(55,875	)			(52,186	)
GSCs			(8,535	)			(9,108	)			(76	)			(31	)			(1,350	)			(1,231	)			—				—				(9,961	)			(10,370	)
Core commissions and fees		$	1,007,522			$	909,554			$	469,906			$	458,863			$	277,552			$	261,224			$	189,041			$	165,073			$	1,944,021			$	1,794,714
New Revenue Standard			1,254				—				(7,973	)			—				935				—				(10,307	)			—				(16,091	)			—
Acquisition revenues			(73,405	)			—				(7,289	)			—				(2,514	)			—				(7,969	)			—				(91,177	)			—
Divested business			—				(1,270	)			—				(114	)			—				(106	)			—				—				—				(1,490	)
Organic Revenue(2)		$	935,371			$	908,284			$	454,644			$	458,749			$	275,973			$	261,118			$	170,765			$	165,073			$	1,836,753			$	1,793,224
Organic Revenue growth(2)		$	27,087							$	(4,105	)						$	14,855							$	5,692							$	43,529
Organic Revenue growth %(2)			3.0	%							(0.9	)%							5.7	%							3.4	%							2.4	%

(1)	The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 17 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items.

(2)	A non-GAAP financial measure.

The reconciliation of income before incomes taxes, included in the Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the year ended December 31, 2019, is as follows:

(in thousands)		Retail				National Programs				Wholesale Brokerage				Services				Other				Total
Income before income taxes		$	222,875			$	143,737			$	82,739			$	40,337			$	36,241			$	525,929
Income Before Income Taxes Margin			16.3	%			27.7	%			26.7	%			20.8	%		NMF					22.0	%
Amortization			63,146				25,482				11,191				5,479				—				105,298
Depreciation			7,390				6,791				1,674				1,229				6,333				23,417
Interest			87,295				16,690				4,756				4,404				(49,485	)			63,660
Change in estimated acquisition earn-out payables			8,004				(751	)			(4	)			(8,615	)			—				(1,366	)
EBITDAC		$	388,710			$	191,949			$	100,356			$	42,834			$	(6,911	)		$	716,938
EBITDAC Margin			28.4	%			37.0	%			32.4	%			22.1	%		NMF					30.0	%

NMF = Not a meaningful figure

The reconciliation of income before incomes taxes, included in the Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the year ended December 31, 2018, is as follows:

(in thousands)		Retail				National Programs				Wholesale Brokerage				Services				Other				Total
Income before income taxes		$	217,845			$	117,375			$	70,171			$	34,508			$	22,563			$	462,462
Income Before Income Taxes Margin			20.9	%			23.7	%			24.4	%			18.2	%		NMF					23.0	%
Amortization			44,386				25,954				11,391				4,813				—				86,544
Depreciation			5,289				5,486				1,628				1,558				8,873				22,834
Interest			35,969				26,181				5,254				2,869				(29,693	)			40,580
Change in estimated acquisition earn-out payables			1,081				875				815				198				—				2,969
EBITDAC		$	304,570			$	175,871			$	89,259			$	43,946			$	1,743			$	615,389
EBITDAC Margin			29.2	%			35.6	%			31.1	%			23.2	%		NMF					30.6	%

NMF = Not a meaningful figure

Retail Segment

The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. Approximately 81.7% of the Retail Segment’s commissions and fees revenue is commission based. Because most of our other operating expenses are not correlated to changes in commissions on insurance premiums, a significant portion of any fluctuation in the commissions we receive, net of related producer compensation and cost to fulfill expense deferrals and releases as required by the New Revenue Standard, will result in a similar fluctuation in our income before income taxes, unless we make incremental investments or modifications to the costs in the organization.

Financial information relating to our Retail Segment is as follows:

(in thousands, except percentages)		2019				% Change				2018
REVENUES
Core commissions and fees		$	1,320,810				30.9	%		$	1,008,639
Profit-sharing contingent commissions			34,150				39.3	%			24,517
Guaranteed supplemental commissions			11,056				29.5	%			8,535
Commissions and fees			1,366,016				31.1	%			1,041,691
Investment income			149			NMF					2
Other income, net			1,096				2.4	%			1,070
Total revenues			1,367,261				31.1	%			1,042,763
EXPENSES
Employee compensation and benefits			760,208				33.3	%			570,222
Other operating expenses			228,256				35.0	%			169,104
(Gain)/loss on disposal			(9,913	)		NMF					(1,133	)
Amortization			63,146				42.3	%			44,386
Depreciation			7,390				39.7	%			5,289
Interest			87,295				142.7	%			35,969
Change in estimated acquisition earn-out payables			8,004			NMF					1,081
Total expenses			1,144,386				38.7	%			824,918
Income before income taxes		$	222,875				2.3	%		$	217,845
Income Before Income Taxes Margin (1)			16.3	%							20.9	%
EBITDAC (2)			388,710				27.6	%			304,570
EBITDAC Margin (2)			28.4	%							29.2	%
Organic Revenue growth rate (2)			4.7	%							3.0	%
Employee compensation and benefits relative to total revenues			55.6	%							54.7	%
Other operating expenses relative to total revenues			16.7	%							16.2	%
Capital expenditures		$	12,497				82.2	%		$	6,858
Total assets at December 31		$	6,413,459				9.6	%		$	5,850,045

(1)	“Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues

(2)	A non-GAAP measure

NMF = Not a meaningful figure

The Retail Segment’s total revenues in 2019 increased 31.1%, or $324.5 million, over the same period in 2018, to $1,367.3 million. The $312.2 million increase in core commissions and fees was driven by the following: (i) approximately $272.4 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2018; (ii) $47.4 million related to net new and renewal business; offset by (iii) a decrease of $7.7 million related to commissions and fees from businesses or books of business divested in 2018 and 2019. Profit-sharing contingent commissions and GSCs in 2019 increased 36.8%, or $12.2 million, over 2018, to $45.2 million primarily from acquisitions completed in 2018 and 2019. The Retail Segment’s growth rate for total commissions and fees was 31.1% and the Organic Revenue growth rate was 4.7% for 2019. The Organic Revenue growth rate was driven by increased new business, higher customer retention and increasing premium rates across most lines of business over the preceding 12 months.

Income before income taxes for 2019 increased 2.3%, or $5.0 million, over the same period in 2018, to $222.9 million. The primary factors affecting this increase were: (i) the net increase in revenue as described above, (ii) offset by a 33.3%, or $190.0 million, increase in employee compensation and benefits, due primarily to the year-on-year impact of acquisitions, salary inflation and additional teammates to support revenue growth, (iii) a combined increase in amortization, depreciation and intercompany interest expense of $72.2 million resulting from our acquisition activity in 2019 and 2018; (iv) other operating expenses which increased by $59.2 million, or 35.0%, due to the impact of our multi-year technology investment program and increased professional services to support our customers and acquisitions; (v) an increase in the change in

estimated acquisition earn-out payables of $6.9 million, to $8.0 million; partially offset by, (vi) an increase in the gain on disposal associated with the sale of certain books of business.

EBITDAC for 2019 increased 27.6%, or $84.1 million, from the same period in 2018, to $388.7 million. EBITDAC Margin for 2019 decreased to 28.4% from 29.2% in the same period in 2018. The decrease in EBITDAC Margin was primarily driven by: (i) the acquisition of Hays, which had a lower operating margin than the segmental average; partially offset by, (ii) the net increase in revenue excluding Hays; (iii) higher profit-sharing contingent commissions and supplemental commissions; and (iv) an increase in the gain on disposal associated with the sale of certain books of business.

National Programs Segment

The National Programs Segment manages over 40 programs supported by approximately 100 well-capitalized carrier partners. In most cases, the insurance carriers that support the programs have delegated underwriting and, in many instances, claims-handling authority to our programs operations. These programs offer targeted products and services designed for specific industries, trade groups, professions, public entities and market niches and are generally distributed through a nationwide network of independent agents and Brown & Brown retail agents. The National Programs Segment operations can be grouped into five broad categories: Professional Programs, Personal Lines Programs, Commercial Programs, Public Entity-Related Programs and the National Flood Program. The National Programs Segment’s revenue is primarily commission based.

Financial information relating to our National Programs Segment is as follows:

(in thousands, except percentages)		2019				% Change				2018
REVENUES
Core commissions and fees		$	488,832				4.0	%		$	469,906
Profit-sharing contingent commissions			17,517				(26.7	)%			23,896
Guaranteed supplemental commissions			10,566			NMF					76
Commissions and fees			516,915				4.7	%			493,878
Investment income			1,397				176.1	%			506
Other income, net			72				(8.9	)%			79
Total revenues			518,384				4.8	%			494,463
EXPENSES
Employee compensation and benefits			221,425				1.0	%			219,166
Other operating expenses			105,118				7.3	%			98,012
(Gain)/loss on disposal			(108	)			(107.6	)%			1,414
Amortization			25,482				(1.8	)%			25,954
Depreciation			6,791				23.8	%			5,486
Interest			16,690				(36.3	)%			26,181
Change in estimated acquisition earn-out payables			(751	)			(185.8	)%			875
Total expenses			374,647				(0.6	)%			377,088
Income before income taxes		$	143,737				22.5	%		$	117,375
Income Before Income Taxes Margin (1)			27.7	%							23.7	%
EBITDAC (2)			191,949				9.1	%			175,871
EBITDAC Margin (2)			37.0	%							35.6	%
Organic Revenue growth rate (2)			3.0	%							(0.9	)%
Employee compensation and benefits relative to total revenues			42.7	%							44.3	%
Other operating expenses relative to total revenues			20.3	%							19.8	%
Capital expenditures		$	10,365				(16.4	)%		$	12,391
Total assets at December 31		$	3,110,368				5.8	%		$	2,940,097

(1)	“Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues

(2)	A non-GAAP measure

NMF = Not a meaningful figure

The National Programs Segment’s total revenues in 2019 increased 4.8%, or $23.9 million, over 2018, to a total $518.4 million. The $18.9 million increase in core commissions and fees was driven by the following: (i) $14.0 million related to net new and renewal business; (ii) an increase of approximately $5.7 million related to core commissions and fees from acquisitions that had no comparable revenues in 2018; offset by (iii) a decrease of $0.8 million related to commissions and fees recorded in 2018 from businesses since divested. Profit-sharing contingent commissions and GSCs were $28.1 million in 2019, which was an increase of $4.1 million over 2018, which was primarily driven by a non-recurring GSC received from one of our partners in the second quarter of 2019.

The National Programs Segment’s growth rate for total commissions and fees was 4.7% and the Organic Revenue growth rate was 3.0% for 2019. The total commissions and fees growth was mainly due to a new acquisition, strong growth in our earthquake programs, sports and entertainment program, wind programs and a non-recurring GSC received from one of our partners in the second quarter of 2019. The Organic Revenue growth rate increase was driven by net new business, growth in renewals and higher premium rates in a number of our programs compared to the prior year.

Income before income taxes for 2019 increased 22.5%, or $26.4 million, from the same period in 2018, to $143.7 million. The increase was the result of a decline in intercompany interest expense of $9.5 million, growth and related scaling of a number of our programs and a non-recurring GSC received from one of our partners in the second quarter of 2019.

EBITDAC for 2019 increased 9.1%, or $16.1 million, from the same period in 2018, to $191.9 million. EBITDAC Margin for 2019 increased to 37.0% from 35.6% in the same period in 2018. The increase in EBITDAC Margin was related to (i) growth in a number or our programs; and (ii) a non-recurring GSC received from one of our partners in the second quarter of 2019.

Wholesale Brokerage Segment

The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, including Brown & Brown retail agents. Like the Retail and National Programs Segments, the Wholesale Brokerage Segment’s revenues are primarily commission based.

Financial information relating to our Wholesale Brokerage Segment is as follows:

(in thousands, except percentages)		2019				% Change				2018
REVENUES
Core commissions and fees		$	300,484				8.3	%		$	277,552
Profit-sharing contingent commissions			7,499				0.5	%			7,462
Guaranteed supplemental commissions			1,443				6.9	%			1,350
Commissions and fees			309,426				8.1	%			286,364
Investment income			178				7.9	%			165
Other income, net			483				(0.4	)%			485
Total revenues			310,087				8.0	%			287,014
EXPENSES
Employee compensation and benefits			157,924				7.0	%			147,571
Other operating expenses			51,807				3.2	%			50,177
(Gain)/loss on disposal			—				(100.0	)%			7
Amortization			11,191				(1.8	)%			11,391
Depreciation			1,674				2.8	%			1,628
Interest			4,756				(9.5	)%			5,254
Change in estimated acquisition earn-out payables			(4	)			(100.5	)%			815
Total expenses			227,348				4.8	%			216,843
Income before income taxes		$	82,739				17.9	%		$	70,171
Income Before Income Taxes Margin (1)			26.7	%							24.4	%
EBITDAC (2)			100,356				12.4	%			89,259
EBITDAC Margin (2)			32.4	%							31.1	%
Organic Revenue growth rate (2)			7.4	%							5.7	%
Employee compensation and benefits relative to total revenues			50.9	%							51.4	%
Other operating expenses relative to total revenues			16.7	%							17.5	%
Capital expenditures		$	6,171				145.1	%		$	2,518
Total assets at December 31		$	1,390,250				8.3	%		$	1,283,877

(1)	“Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues

(2)	A non-GAAP measure

NMF = Not a meaningful figure

The Wholesale Brokerage Segment’s total revenues for 2019 increased 8.0%, or $23.1 million, over 2018, to $310.1 million. The $22.9 million increase in core commissions and fees was driven by the following: (i) $20.6 million related to net new and renewal business; (ii) $3.6 million related to the core commissions and fees from acquisitions that had no comparable revenues in 2018; which was offset by (iii) a decrease of $1.3 million related to commissions and fees recorded in 2018 from businesses since divested. Profit-sharing contingent commissions and GSCs for 2019 increased $0.1 million over 2018, to $8.9 million. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 8.1%, and the Organic Revenue growth rate was 7.4% for 2019. The Organic Revenue growth rate was driven by net new business, a modest increase in exposure units, as well as increased rates seen across most lines of business.

Income before income taxes for 2019 increased 17.9%, or $12.6 million, over 2018, to $82.7 million, primarily due to the following: (i) the net increase in revenue as described above, (ii) a decrease in intercompany interest expense, (iii) a decrease in change in estimated acquisition earn-out payables, which was offset by (iv) an increase in employee compensation and benefits of $10.4 million, related to additional teammates to support increased transaction volumes, compensation increases for existing teammates, and additional non-cash stock-based compensation expense; and (iii) a net $1.6 million increase in other operating expenses, primarily related intercompany technology charges.

EBITDAC for 2019 increased 12.4%, or $11.1 million, from the same period in 2018, to $100.4 million. EBITDAC Margin for 2019 increased to 32.4% from 31.1% in the same period in 2018. The increase in EBITDAC Margin was primarily driven by Organic Revenue growth as described above. This was partially offset by the intercompany technology charges and increased employee compensation and non-cash stock-based compensation costs.

Services Segment

The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas. The Services Segment also provides Medicare Set-aside account services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services.

Unlike the other segments, nearly all of the Services Segment’s revenue is generated from fees, which are not significantly affected by fluctuations in general insurance premiums.

Financial information relating to our Services Segment is as follows:

(in thousands, except percentages)		2019				% Change				2018
REVENUES
Core commissions and fees		$	193,641				2.4	%		$	189,041
Profit-sharing contingent commissions			—				—				—
Guaranteed supplemental commissions			—				—				—
Commissions and fees			193,641				2.4	%			189,041
Investment income			139				(32.2	)%			205
Other income, net			1				—				—
Total revenues			193,781				2.4	%			189,246
EXPENSES
Employee compensation and benefits			91,514				6.5	%			85,930
Other operating expenses			59,433				(3.9	)%			61,833
(Gain)/loss on disposal			—				(100.0	)%			(2,463	)
Amortization			5,479				13.8	%			4,813
Depreciation			1,229				(21.1	)%			1,558
Interest			4,404				53.5	%			2,869
Change in estimated acquisition earn-out payables			(8,615	)		NMF					198
Total expenses			153,444				(0.8	)%			154,738
Income before income taxes		$	40,337				16.9	%		$	34,508
Income Before Income Taxes Margin (1)			20.8	%							18.2	%
EBITDAC (2)			42,834				(2.5	)%			43,946
EBITDAC Margin (2)			22.1	%							23.2	%
Organic Revenue growth rate (2)			(6.3	)%							3.4	%
Employee compensation and benefits relative to total revenues			47.2	%							45.4	%
Other operating expenses relative to total revenues			30.7	%							32.7	%
Capital expenditures		$	804				(47.3	)%		$	1,525
Total assets at December 31		$	481,336				2.1	%		$	471,572

(1)	“Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues

(2)	A non-GAAP measure

NMF = Not a meaningful figure

The Services Segment’s total revenues for 2019 increased 2.4%, or $4.5 million, over 2018, to $193.8 million. The $4.6 million increase in core commissions and fees was driven primarily by the following: (i) $16.5 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2018; offset by (ii) a decrease of $11.9 million related to net new and renewal business that was driven by lower weather-related and general property claims activity. The Services Segment’s growth rate for total commissions and fees was 2.4%, and Organic Revenue declined 6.3% in 2019. The Organic Revenue decline was realized primarily in our Social Security advocacy and property claims businesses.

Income before income taxes for 2019 increased 16.9%, or $5.8 million, over 2018, to $40.3 million due to a combination of: (i) the change in estimated acquisition earn-out payables partially offset by (ii) higher intercompany interest charges due to businesses acquired during 2019 and (iii) a decline in other operating expenses driven by management of our costs.

EBITDAC for 2019 decreased 2.5%, or $1.1 million, over the same period in 2018, to $42.8 million. EBITDAC Margin for 2019 decreased to 22.1% from 23.2% in the same period in 2018. The decrease in EBITDAC Margin was due the decline in Organic Revenue.

Other

As discussed in Note 17 of the Notes to Consolidated Financial Statements, the “Other” column in the Segment Information table includes any income and expenses not allocated to reportable segments, and corporate-related items, including the intercompany interest expense charges to reporting segments.

LIQUIDITY AND CAPITAL RESOURCES

The Company seeks to maintain a conservative balance sheet and liquidity profile. Our capital requirements to operate as an insurance intermediary are low and we have been able to grow and invest in our business principally through cash that has been generated from operations. We have the ability to utilize our revolving credit facility (the “Revolving Credit Facility”), which currently provides access to up to $700.0 million in available cash, and we believe that we have access to additional funds, if needed, through the capital markets to obtain further debt financing under the current market conditions. The Company believes that its existing cash, cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available under the Revolving Credit Facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next 12 months.

Our cash and cash equivalents of $542.2 million at December 31, 2019 reflected an increase of $103.2 million from the $439.0 million balance at December 31, 2018. During 2019, $678.2 million of cash was generated from operating activities, representing an increase of 19.5%. During this period, $353.0 million of cash was used for new acquisitions, $9.9 million was used for acquisition earn-out payments, $73.1 million was used to purchase additional fixed assets, $91.3 million was used for payment of dividends, $38.7 million was used for share repurchases and $50.0 million was used to pay outstanding principal balances owed on long-term debt.

We hold approximately $21.3 million in cash outside of the U.S., which we currently have no plans to repatriate in the near future.

Our cash and cash equivalents of $439.0 million at December 31, 2018 reflected a decrease of $134.4 million from the $573.4 million balance at December 31, 2017. During 2018, $567.5 million of cash was generated from operating activities, representing an increase of 28.4%. During this period, $923.9 million of cash was used for new acquisitions, $26.6 million was used for acquisition earn-out payments, $41.5 million was used to purchase additional fixed assets, $84.7 million was used for payment of dividends, $100.0 million was used for share repurchases and $120.0 million was used to pay outstanding principal balances owed on long-term debt.

Our ratio of current assets to current liabilities (the “current ratio”) was 1.22 at both December 31, 2019 and 2018.

Contractual Cash Obligations

As of December 31, 2019, our contractual cash obligations were as follows:

		Payments Due by Period
(in thousands)		Total				Less Than 1 Year				1-3 Years				4-5 Years				After 5 Years
Long-term debt		$	1,565,000			$	55,000			$	450,000			$	710,000			$	350,000
Other liabilities(1)			73,382				3,290				6,072				5,051				58,969
Operating leases(3)			245,919				49,405				85,193				57,743				53,578
Interest obligations			313,326				62,061				110,984				74,000				66,281
Unrecognized tax benefits			1,127				—				1,127				—				—
Maximum future acquisition contingency payments(2)			328,655				44,146				277,532				6,977				—
Total contractual cash obligations		$	2,527,409			$	213,902			$	930,908			$	853,771			$	528,828

(1)	Includes the current portion of other long-term liabilities.

(2)	Includes $161.5 million of current and non-current estimated earn-out payables.

(3)	Includes $5.8 million of future lease commitments not reflected on the balance sheet.

Debt

Total debt at December 31, 2019 was $1,555.3 million net of unamortized discount and debt issuance costs, which was an increase of $48.4 million compared to December 31, 2018. The increase includes (i) a drawdown on the Revolving Credit Facility of $100.0 million on August 9, 2019 in connection with the acquisition of CKP Insurance, LLC and various other acquisitions closed in the third quarter of 2019, (ii) the repayment of principal of $50.0 million for scheduled principal amortization balances related to our various existing floating rate debt term notes, (iii) amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of $2.1 million, offset by (iv) additional discount to par and aggregate debt issuance costs of $3.7 million related to the issuance of the Company's 4.500% Senior Notes due 2029 as of December 31, 2019.

On March 11, 2019, the Company completed the issuance of $350.0 million aggregate principal amount of the Company's 4.500% Senior Notes due 2029. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions which are customary for credit-rated obligations. At the time of funding, the proceeds were offered at a discount to the notional amount which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay a portion of the outstanding balance of $350.0 million on the Revolving Credit Facility, utilized in connection with financing related to our acquisition of Hays, and for other general corporate purposes. As of December 31, 2019, there was an outstanding debt balance of $350.0 million exclusive of the associated discount balance.

Total debt at December 31, 2018 was $1,507.0 million net of unamortized discount and debt issuance costs, which was an increase of $530.8 million compared to December 31, 2017. The increase reflects the addition of $650.0 million in principal balances, total debt repayments of $120.0 million, net of the amortization of discounted debt related to our Senior Notes due 2024, with a fixed interest rate of 4.200% per year and debt issuance cost amortization of $1.6 million. The Company also added $0.8 million in debt issuance costs related to the Term Loan Credit Agreement (as defined below) that was executed in December 2018.

On May 10, 2018, the Company elected to prepay in full the principal balance of $100.0 million from the Series E Senior Notes, which were issued on September 15, 2011 in connection with the December 22, 2006 Master Shelf and Note Purchase Agreement with a national insurance company. Along with accrued interest of $0.7 million and a prepayment premium of $0.7 million as the notes were to mature on September 15, 2018. This resulted in a net interest expense savings of $0.8 million after deducting the pro-rated interest expense and prepayment premiums paid when compared to holding the note to maturity paying the full semi-annual coupon interest expense of $2.3 million.

The Company borrowed approximately $600.0 million under its Revolving Credit Facility on November 15, 2018 in connection with the closing of the acquisition of certain assets and assumption of certain liabilities of Hays.

On December 21, 2018, the Company borrowed $300.0 million under a term loan credit agreement with Wells Fargo Bank, National Association, as administrative agent, Bank of America, N.A., BMO Harris Bank N.A. and SunTrust Bank as co-syndication agents, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BMO Capital Markets Corp. and SunTrust Robinson Humphrey, Inc. as joint lead arrangers and joint bookrunners (the “Term Loan Credit Agreement”). The Term Loan Credit Agreement provides for an unsecured term loan in the initial amount of $300.0 million, which may, subject to lenders’ discretion, potentially be increased up to an aggregate amount of $450.0 million (the “Term Loan”). The Term Loan is repayable over the five-year term from the effective date of the Term Loan Credit Agreement, which was December 21, 2018. Based on the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating as determined by Moody’s Investor Service and Standard & Poor’s Rating Service, the current rate of interest on the Term Loan is 1.25% above the adjusted 1-Month London Interbank Offered Rate (“LIBOR”). The Company used $250.0 million of the borrowings to reduce indebtedness under the Revolving Credit Facility.

Off-Balance Sheet Arrangements

Neither we nor our subsidiaries have ever incurred off-balance sheet obligations through the use of, or investment in, off-balance sheet derivative financial instruments or structured finance or special purpose entities organized as corporations, partnerships or limited liability companies or trusts.

For further discussion of our cash management and risk management policies, see “Quantitative and Qualitative Disclosures About Market Risk.”