Arthur J. Gallagher & Co.

Previous wording

The discussion and analysis that follows relates to our financial condition and results of operations for the three-month period ended March 31, 2024. Readers should review this information in conjunction with the March 31, 2024 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, 2023.

Current wording

The discussion and analysis that follows relates to our financial condition and results of operations for the six-month period ended June 30, 2024. Readers should review this information in conjunction with the June 30, 2024 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, 2023.

Previous wording

For Information on fiscal first quarter 2023 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, 2023.

Current wording

For Information on fiscal second quarter 2023 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 and six-month periods ended June 30, 2023.

Previous wording

Acquisition related adjustments principally relate to changes in estimated acquisition earnout payables adjustments and acquisition related compensation charges. In addition, from time to time may include changes in balance sheet estimates arising from conforming accounting principles, purchase-related true-ups and other balance sheet adjustments made after the closing date; the net impact of these on first quarter 2024 results was approximately $26 million of revenues and approximately $28 million of compensation expense.

Current wording

Acquisition related adjustments principally relate to changes in estimated acquisition earnout payables adjustments and acquisition related compensation charges. In addition, from time to time may include changes in balance sheet estimates arising from conforming accounting principles, purchase-related true-ups and other balance sheet adjustments made after the closing date; the net impact on the results for first quarter 2024 was approximately $26 million of revenues and approximately $28 million of compensation expense. There were no changes to these

Previous wording

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. For the risk management segment, organic change in fee revenues excludes the first twelve months of such revenues generated from acquisitions and such revenues related to divested operations in each year presented. In addition, change in organic growth in fee revenues excludes the period-over-period impact of foreign currency translation to improve the comparability of our results between periods.

Current wording

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, which include disposals of a business through sale or closure, run-off of a business and the restructuring and/or repricing of programs and products 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. For the risk management segment, organic change in fee revenues excludes the first twelve months of such revenues generated from acquisitions and such revenues related to divested operations in each year presented. In addition, change in organic growth in fee revenues excludes the period-over-period impact of foreign currency translation to improve the comparability of our results between periods.

Previous wording

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, as well as eliminating the impact of the items that have a high degree of variability. 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

Current wording

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, as well as eliminating the impact of the items that have a high degree of variability. 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.

Previous wording

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 41 and 47), for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share (on page 37), for organic revenue measures (on pages 42 and 47), respectively, for the brokerage and risk management segments, for adjusted compensation and operating expenses and adjusted EBITDAC margin, (on pages 43 and 44 for the brokerage segment and (on pages 48 and 49) for the risk management segment.

Current wording

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 45 and 51), for adjusted revenues, adjusted EBITDAC and adjusted diluted net earnings per share (on pages 39 and 40), for organic revenue measures (on pages 46 and 51), respectively, for the brokerage and risk management segments, for adjusted compensation and operating expenses and adjusted EBITDAC margin, (on pages 48 and 49) for the brokerage segment and (on pages 52 and 53) for the risk management segment.

Previous wording

We are engaged in providing insurance brokerage, reinsurance brokerage, consulting services, and third-party property/casualty claims settlement and administration services to entities and individuals around the world. In the three-month period ended March 31, 2024, we generated approximately 66% of our revenues for the combined brokerage and risk management segments domestically and 34% internationally, primarily in Australia, Canada, New Zealand and the U.K. We have three reportable segments: brokerage, risk management and corporate. The brokerage and risk management segments contributed approximately 88% and 12%, respectively, to revenues during the three-month period ended March 31, 2024. The corporate segment did not generate revenues in the three-month period ended March 31, 2024. Our major sources of operating revenues are commissions, fees and supplemental and contingent revenues from brokerage operations and fees from risk management operations. Interest income is earned on cash, cash equivalents and fiduciary cash and revenues are generated from premium financing.

Current wording

We are engaged in providing insurance brokerage, reinsurance brokerage, consulting services, and third-party property/casualty claims settlement and administration services to entities and individuals around the world. In the six-month period ended June 30, 2024, we generated approximately 64% of our revenues for the combined brokerage and risk management segments domestically and 36% internationally, primarily in Australia, Canada, New Zealand and the U.K. We have three reportable segments: brokerage, risk management and corporate. The brokerage and risk management segments contributed approximately 87% and 13%, respectively, to revenues during the six-month period ended June 30, 2024. The corporate segment did not generate any significant revenues in the six-month period ended June 30, 2024. Our major sources of operating revenues are commissions, fees and supplemental and contingent revenues from brokerage operations and fees from risk management operations. Interest income is earned on cash, cash equivalents and fiduciary cash and revenues are generated from premium financing.

Previous wording

We use the Council of Insurance Agents and Brokers (which we refer to as CIAB) insurance pricing quarterly survey as an indicator of the insurance rate environment. The CIAB represents the leading domestic and international insurance brokers, who write approximately 85% of the commercial property/casualty premiums in the U.S. The first quarter 2024 survey had not been published as of the filing date of this report. The fourth quarter 2023 survey indicated that commercial property/casualty rates increased by 7.0% on average and we expect a similar trend to be noted when the CIAB's first quarter 2024 survey report is issued, which would indicate overall continued price firming and hardening in most lines of business.

Current wording

We use the Council of Insurance Agents and Brokers (which we refer to as CIAB) insurance pricing quarterly survey as an indicator of the insurance rate environment. The CIAB represents the leading domestic and international insurance brokers, who write approximately 85% of the commercial property/casualty premiums in the U.S. The second quarter 2024 survey had not been published as of the filing date of this report. The first quarter 2024 survey indicated that commercial property/casualty rates increased by 7.7% on average and we expect a similar trend to be noted when the CIAB's second quarter 2024 survey report is issued, which would indicate overall continued price firming and hardening in most lines of business.

Previous wording

We believe increases in property/casualty rates will continue for the remainder of 2024 due to rising loss costs, a firm reinsurance market, increased frequency of catastrophe losses, prior year reserve volatility and social inflation. If loss trends deteriorate over the coming quarters, including due to the impact of natural catastrophes, or if profitability concerns on casualty lines increase, 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 tight labor market and lower 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’ budgets. Based on our experience, insurance and reinsurance carriers appear to be making rational pricing decisions and are providing adequate capacity in the market for nearly all lines of coverage.

Current wording

We believe increases in property/casualty rates will continue for the remainder of 2024 due to rising loss costs, a firm reinsurance market, increased frequency of catastrophe losses, prior year reserve volatility and social inflation. If loss trends deteriorate over the coming quarters, including due to the impact of natural catastrophes, or if profitability concerns on casualty lines increase, it could lead to a more difficult rate and conditions environment in certain lines. The combination of increasing insurable values (due to inflation, including wage inflation), a tight labor market and 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’ budgets. Based on our experience, insurance and reinsurance carriers appear to be making rational pricing decisions and are providing adequate capacity in the market for nearly all lines of coverage.

Previous wording

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, 2024 with the same period in 2023. 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 pages 41 and 47, respectively, of this filing.

Current wording

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 and six-month periods ended June 30, 2024 with the same periods in 2023. In addition, these tables provide reconciliations to the most comparable GAAP measures for adjusted revenues, adjusted

Previous wording

*For the three-month period ended March 31, 2024, the pretax impact of the brokerage segment adjustments totals $204.7 million, mostly due to non-cash period expenses related to intangible amortization, with a corresponding adjustment to the provision for income taxes of $51.6 million relating to these items. For the three-month period ended March 31, 2024, the pretax impact of the risk management segment adjustments totals $8.5 million, with a corresponding adjustment to the provision for income taxes of $2.4 million relating to these items. For the three-month period ended March 31, 2024, the pretax impact of the corporate segment adjustments totals $3.2 million, with a corresponding adjustment to the benefit for income taxes of $0.5 million. A detailed reconciliation of the 2024 provision (benefit) for income taxes is shown on page 38.

Current wording

*For the three-month period ended June 30, 2024, the pretax impact of the brokerage segment adjustments totals $291.3 million, mostly due to non-cash period expenses related to intangible amortization, with a corresponding adjustment to the provision for income taxes of $73.7 million relating to these items. For the three-month period ended June 30, 2024, the pretax impact of the risk management segment adjustments totals $1.6 million, with a corresponding adjustment to the provision for income taxes of $0.3 million relating to these items. For the three-month period ended June 30, 2024, the pretax impact of the corporate segment adjustments totals $2.8 million, with a corresponding adjustment to the benefit for income taxes of $0.5 million. A detailed reconciliation of the 2024 provision (benefit) for income taxes is shown on page 41.

Previous wording

*For the three-month period ended March 31, 2023, the pretax impact of the brokerage segment adjustments totals $219.0 million, with a corresponding adjustment to the provision for income taxes of $56.4 million relating to these items. For the three-month period ended March 31, 2023, the pretax impact of the risk management segment adjustments totals $2.6 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. A detailed reconciliation of the 2023 provision (benefit) for income taxes is shown on page 38.

Current wording

*For the three-month period ended June 30, 2023, the pretax impact of the brokerage segment adjustments totals $225.2 million, with a corresponding adjustment to the provision for income taxes of $56.3 million relating to these items. For the three-month period ended June 30, 2023, the pretax impact of the risk management segment adjustments totals $2.6 million, with a corresponding adjustment to the provision for income taxes of $0.9 million relating to these items. For the three-month period ended June 30, 2023, the pretax impact of the corporate segment adjustments totals $8.7 million, with a corresponding adjustment to the benefit for income taxes of $1.3 million. A detailed reconciliation of the 2023 provision (benefit) for income taxes is shown on page 41.

Previous wording

The brokerage segment accounted for 88% of our revenues during the three-month period ended March 31, 2024. Our brokerage segment is primarily comprised of retail, wholesale and Gallagher Re. Our brokerage segment generates revenues by:

Current wording

The brokerage segment accounted for 87% of our revenues during the six-month period ended June 30, 2024. Our brokerage segment is primarily comprised of retail, wholesale and reinsurance brokerage operations. Our brokerage segment generates revenues by:

Previous wording

Financial information relating to our brokerage segment results for the three-month period ended March 31, 2024 compared to the same period in 2023, is as follows (in millions, except per share, percentages and workforce data):

Current wording

Financial information relating to our brokerage segment results for the three and six-month periods ended June 30, 2024 compared to the same periods in 2023, is as follows (in millions, except per share, percentages and workforce data):

Previous wording

The following provides information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three-month period ended March 31, 2024 compared to the same period in 2023 (in millions):

Current wording

The following provides information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three and six-month periods ended June 30, 2024 compared to the same periods in 2023 (in millions):

Previous wording

Commissions and fees -The aggregate increase in base commissions and fees for the three-month period ended March 31, 2024, compared to the same period in 2023, was due to revenues associated with acquisitions that were made in the twelve-month period ended March 31, 2024 ($244.2 million), and to the organic change in base commissions and fee revenues. The organic change in base commissions and fee revenues were 8.8% and 9.5% for the three-month periods ended March 31, 2024 and 2023, respectively.

Current wording

Commissions and fees -The aggregate increase in base commissions and fees for the three-month period ended June 30, 2024, compared to the same period in 2023, was due to revenues associated with acquisitions that were made in the twelve-month period ended June 30, 2024 ($130.7 million), and to the organic change in base commissions and fee revenues. The organic change in base commissions and fee revenues were 7.5% and 9.6% for the three-month periods ended June 30, 2024 and 2023, respectively.

Previous wording

In our property/casualty brokerage operations, during the three-month period ended March 31, 2024 we saw continued strong customer retention, higher new business generation and increasing renewal premiums (premium rates and exposures). We believe these favorable trends should continue for the remainder of 2024; however, if economic conditions worsen or premium rate increases slow, we could see our revenue growth soften.

Current wording

In our property/casualty brokerage operations, during the three and six-month periods ended June 30, 2024 we saw continued strong customer retention, higher new business generation and increasing renewal premiums (premium rates and exposures). We believe these favorable trends should continue for the remainder of 2024; however, if economic conditions worsen or premium rate increases slow, we could see our revenue growth soften.

Previous wording

Items excluded from organic revenue computations yet impacting revenue comparisons for the three-month periods ended March 31, 2024 and 2023 include the following (in millions):

Current wording

Items excluded from organic revenue computations yet impacting revenue comparisons for the three and six-month periods ended June 30, 2024 and 2023 include the following (in millions):

Previous wording

In the three-month period ended March 31, 2024 we issued 357,000 shares of our common stock at the request of sellers and/or in connection with tax-free exchange acquisitions. In the three-month period 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.

Current wording

In the three and six-month periods ended June 30, 2024 we issued 154,000 and 512,000 shares of our common stock at the request of sellers and/or in connection with tax-free exchange acquisitions. In the three and six-month periods ended June 30, 2023, we issued 851,000 and 1,833,000 shares of our common stock at the request of sellers and/or in connection with tax-free exchange acquisitions.

Previous wording

Interest income, premium finance revenues and other income in the three-month period ended March 31, 2024 increased compared to the same period in 2023, primarily due to increases in interest income on our own and fiduciary funds.

Current wording

Interest income, premium finance revenues and other income in the three and six-month periods ended June 30, 2024 increased compared to the same periods in 2023, primarily due to increases in interest income on our own and fiduciary funds.

Previous wording

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, 2024 with the same period in 2023 (in millions):

Current wording

Compensation expense -The following provides non-GAAP information that management believes is helpful when comparing compensation expense for the three and six-month periods ended June 30, 2024 with the same periods in 2023 (in millions):

Previous wording

Operating expense -The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three-month ended March 31, 2024 with the same period in 2023 (in millions):

Current wording

Operating expense -The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three and six-month periods ended June 30, 2024 with the same periods in 2023 (in millions):

Previous wording

Depreciation - Depreciation expense increased in the three-month period ended March 31, 2024 compared to the same period in 2023 by $4.9 million. The increase in depreciation expense in 2024 compared to 2023 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 expense associated with acquisitions completed in the twelve-month period ended March 31, 2024.

Current wording

Depreciation - Depreciation expense increased in the three and six-month periods ended June 30, 2024 compared to the same periods in 2023 by $1.7 million and $6.6 million, respectively. The increase in depreciation expense in 2024 compared to 2023 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 expense associated with acquisitions completed in the twelve-month period ended June 30, 2024.

Previous wording

Amortization - The increase in amortization expense in the three-month period ended March 31, 2024 compared to the same period in 2023 was primarily due to the impact of amortization expense of intangible assets associated with acquisitions completed in the twelve-month period ended March 31, 2024. Based on the results of impairment reviews during the three-month period ended March 31, 2024 no impairments were noted. Based on the results of impairment reviews during the three-month period ended March 31, 2023 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).

Current wording

Amortization - The increase in amortization expense in the three and six-month periods ended June 30, 2024 compared to the same periods in 2023 was primarily due to the impact of amortization expense of intangible assets associated with acquisitions completed in the twelve-month period ended June 30, 2024. Based on the results of impairment reviews during the three and six-month periods ended June 30, 2024 we wrote off $14.0 million of amortizable assets. Based on the results of impairment reviews during the three and six-month periods ended June 30, 2023 we wrote off $3.1 million and $3.2 million respectively, 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).

Previous wording

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, 2024 compared to the same period in 2023, 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, 2024 and 2023, we recognized $18.7 million and $19.6 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 2020 to 2024. In addition, during the three-month periods ended March 31, 2024 and 2023, we recognized $34.9 million of income and $22.0 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 37 and 22 acquisitions, respectively.

Current wording

Change in estimated acquisition earnout payables -The change in the expense from the change in estimated acquisition earnout payables in the three and six-month periods ended June 30, 2024 compared to the same periods in 2023, 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 June 30, 2024 and 2023, we recognized $14.9 million and $19.7 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 2020 to 2024. During the six-month periods ended June 30, 2024 and 2023, we recognized $33.6 million and $39.3 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 2020 to 2024. In addition, during the three-month periods ended June 30, 2024 and 2023, we recognized $3.8 million of expense and $10.4 million of income, 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 30 and 34 acquisitions, respectively. In addition, during the six-month periods ended June 30, 2024 and 2023, we recognized $31.1 million of income 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 58 and 45 acquisitions, respectively.

Previous wording

-44 - 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 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.

Current wording

The amounts initially recorded as earnout payables for our 2020 to 2024 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 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.

Previous wording

Provision for income taxes - The brokerage segment’s effective income tax rates for the three-month periods ended March 31, 2024 and 2023, were 25.5% and 25.4%, respectively. We anticipate reporting an effective tax rate of approximately 24.5% to 26.5% in our brokerage segment based on known changes in tax rates in future periods.

Current wording

Provision for income taxes - The brokerage segment’s effective income tax rates for the three-month periods ended June 30, 2024 and 2023, were 25.4% and 25.7%, respectively. The brokerage segment’s effective income tax rates for the six-month periods ended June 30, 2024 and 2023, were 25.5% and 25.5%, respectively. We anticipate reporting an effective tax rate of approximately 24.5% to 26.5% in our brokerage segment based on known changes in tax rates in future periods.

Previous wording

Net earnings attributable to noncontrolling interests -The amounts reported in this line for the three-month periods ended March 31, 2024 and 2023, include noncontrolling interest earnings of $4.3 million and $0.8 million, respectively.

Current wording

Net earnings attributable to noncontrolling interests -The amounts reported in this line for the three-month periods ended June 30, 2024 and 2023, include noncontrolling interest earnings of $2.0 million in each period. The amounts reported in this line for the six-month periods ended June 30, 2024 and 2023, include noncontrolling interest earnings of $6.3 million and $2.8 million, respectively.

Previous wording

The risk management segment accounted for 12% of our revenue during the three-month period ended March 31, 2024. Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial, nonprofit, captive and public sector 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.

Current wording

The risk management segment accounted for 13% of our revenue during the six-month period ended June 30, 2024. Our risk management segment operations provide contract claim settlement, claim administration, loss control services and risk management consulting for commercial, nonprofit, captive and public sector 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.

Previous wording

Financial information relating to our risk management segment results for the three-month period ended March 31, 2024 as compared to the same period in 2023, is as follows (in millions, except per share, percentages and workforce data):

Current wording

Financial information relating to our risk management segment results for the three and six-month periods ended June 30, 2024 as compared to the same periods in 2023, is as follows (in millions, except per share, percentages and workforce data):

Previous wording

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, 2024 to the same period in 2023 (in millions):

Current wording

The following provides non-GAAP information that management believes is helpful when comparing EBITDAC and adjusted EBITDAC for the three and six-month periods ended June 30, 2024 to the same periods in 2023 (in millions):

Previous wording

Fees - In our risk management operations, for the three-month period ended March 31, 2024, new core workers' compensation and general liability claims arising improved from existing clients and new clients coming on board in 2023 and 2024. We believe these favorable new arising claim trends should continue for the remainder of 2024 however, worsening economic conditions or a reversal in the number of workers employed could cause fewer new liability and core workers' compensation claims to arise in future quarters. Organic change in fee revenues for the three-month period ended March 31, 2024 was 13.3% compared to 14.3% for the same period in 2023.

Current wording

Fees - In our risk management operations, for the three-month period ended June 30, 2024, new core workers' compensation and general liability claims arising improved from existing clients and new clients coming on board in 2023 and 2024. We believe these favorable new arising claim trends should continue for the remainder of 2024 however, worsening economic conditions or a reversal in the number of workers employed could cause fewer new liability and core workers' compensation claims to arise in future quarters. Organic change in fee revenues for the three-month period ended June 30, 2024 was 7.7% compared to 18.1% for the same period in 2023. Organic change in fee revenues for the six-month period ended June 30, 2024 was 10.4% compared to 16.2% for the same period in 2023.

Previous wording

Items excluded from organic fee computations yet impacting revenue comparisons for the three-month periods ended March 31, 2024 and 2023 include the following (in millions):

Current wording

Items excluded from organic fee computations yet impacting revenue comparisons for the three and six-month periods ended June 30, 2024 and 2023 include the following (in millions):

Previous wording

Interest income and other income - Interest income and other income primarily represents interest income earned on cash, cash equivalents and fiduciary cash. Interest income and other income in the three-month period ended March 31, 2024 increased compared to the same period in 2023, primarily due to increases in interest income from increases in interest rates earned on fiduciary cash.

Current wording

Interest income and other income - Interest income and other income primarily represents interest income earned on cash, cash equivalents and fiduciary cash. Interest income and other income in the three and six-month periods ended June 30, 2024 increased compared to the same periods in 2023, primarily due to increases in interest income from increases in interest rates earned on fiduciary cash.

Previous wording

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, 2024 with thesame period in 2023 (in millions):

Current wording

Compensation expense - The following provides non-GAAP information that management believes is helpful when comparing compensation expense for the three and six-month periods ended June 30, 2024 with thesame periods in 2023 (in millions):

Previous wording

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, 2024 with the same period in 2023 (in millions):

Current wording

Operating expense -The following provides non-GAAP information that management believes is helpful when comparing operating expense for the three and six-month periods ended June 30, 2024 with the same periods in 2023 (in millions):

Previous wording

The $34.1 million increase in compensation expense for the three-month period ended March 31, 2024 compared to the same period in 2023, was primarily due to increases in base compensation and hiring to support organic growth and associated benefits - $28.1 million in the aggregate, compensation associated with the acquisitions completed in the twelve-month period ended March 31, 2024 ‑ $5.6 million, and workforce related charges - $0.4 million.

Current wording

The $5.8 million increase in operating expense for the six-month period ended June 30, 2024 compared to the same period in 2023, was primarily due to expenses associated with the acquisitions completed in the twelve-month period ended June 30, 2024 - $5.6 million increases in acquisition integration costs - $0.3 million and workforce related charges - $0.2 million, partially offset by savings in client-related expenses and professional fees - $0.3 million in the aggregate.

Previous wording

Depreciation -Depreciation increased in the three-month ended March 31, 2024 compared to the same period in 2023 by $2.2 million which reflects expenditures related to upgrading computer systems, partially offset by the impact of office consolidations that occurred as leases expired in 2023 and 2022 (less depreciation associated with furniture, equipment and leasehold improvements). Also contributing to the increase in depreciation expense was the depreciation expense associated with acquisitions completed in the twelve-month period ended March 31, 2024.

Current wording

Depreciation -Depreciation decreased in the three-month period ended June 30, 2024 compared to the same period in 2023 by $2.2 million and was flat in the six-month period ended June 30, 2024 compared to the same period in 2023, due to the true up of depreciation expense related to valuation adjustments made to acquired software in the quarter on the My Plan Manager acquisition that was completed in December 2023. Depreciation expense also reflects expenditures related to upgrading computer systems, partially offset by the impact of office consolidations that occurred as leases expired in 2023 and 2022 (less depreciation associated with furniture, equipment and leasehold improvements).

Previous wording

Amortization - The amortization expense increased compared to the same period in 2023 by $4.8 million, primarily due to the acquisition of My Plan Manager in December 2023. Based on the results of impairment reviews during the three-month periods ended March 31, 2024 and 2023, no impairments were noted.

Current wording

Amortization - Amortization expense in the three-month period ended June 30, 2024 was zero due to the normal recurring quarterly amortization expense being offset by a true up of amortization expense related to valuation adjustments made to amortizable assets in the quarter for the My Plan Manager acquisition that was completed in December 2023. Provisional estimates of fair value were used by us to initially record the acquisition of My Plan Manager as of the acquisition date. We used an independent third party valuation specialist to assist us in determining the fair value of assets acquired and liabilities assumed for this transaction that was completed in the three-month period ended June 30, 2024. The amortization expense increased in the six-month period ended June 30, 2024 compared to the same period in 2023 by $3.3 million, primarily due to the acquisition of My Plan Manager. Based on the results of impairment reviews during the three and six-month periods ended June 30, 2024 and 2023, no impairments were noted.

Previous wording

Change in estimated acquisition earnout payables- The change in expense from the change in estimated acquisition earnout payables in the three-month ended March 31, 2024 to the same period in 2023, was due to accretion of the discount. During the three-month periods ended March 31, 2024 and 2023, we recognized $0.1 million and $0.2 million, respectively, of expense in each period, related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions.

Current wording

Change in estimated acquisition earnout payables- The change in expense from the change in estimated acquisition earnout payables in the three and six-month periods ended June 30, 2024 to the same period in 2023, was due to accretion of the discount. During the three-month periods ended June 30, 2024 and 2023, we recognized $0.1 million of expense in each period, related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions. During the six-month periods ended June 30, 2024 and 2023, we recognized $0.2 million and $0.3 million, respectively, of expense, related to the accretion of the discount recorded for earnout obligations in connection with our acquisitions.