Good morning, and welcome to the Brown & Brown fourth quarter earnings call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call, and including answers given in the response to your questions, may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the fourth quarter, and are intended to fall within the safe harbor provisions of securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated, desired, or referenced in any forward-looking statements made as a result of the number of factors.
Such factors include the company's determination as it finalized its financial results for the fourth quarter that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday. Other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's businesses and prospects, as well as additional information regarding forward-looking statements, is contained in the slide presentation posted in connection with this call and in this company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, further events, or otherwise. In addition, these are certain non-GAAP financial measures used in this conference call.
A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in their investor presentation for this call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.
Thank you, Cecilia. Good morning, everyone, and thank you for joining us for the fourth quarter 2019 earnings call. I'd like to take a few minutes to make some broad comments about how we think about our business. In 2018, we crossed an intermediate goal of $2 billion in revenue. In 2019, we delivered almost $2.4 billion in revenue. As many of you may know, our next financial goal is $4 billion in revenue. We do not have a stated timeframe to get there. We'll get there by adding talented teammates, growing organically, and acquiring businesses that fit culturally and make sense financially. If we had just wanted to achieve our next intermediate goal, we could have done that last week, last month, or last year. Acquiring businesses and running businesses are two distinctly different skills.
Furthermore, overpaying for a large acquisition does not create value for our teammates or our investors. As we've mentioned in the past, approximately 25% of our company is owned by teammates. When I go into an office and our teammates ask me, "Powell, what's up with the stock?" I know those teammates own Brown & Brown and want our company to do well. We believe that shows great alignment inside the company, and that will ultimately yield positive results for all shareholders. The achievement of our overall divisional and local goals are not possible without great teammates focused on delivering solutions to our customers. We're always searching for innovative ideas to help our customers succeed. We have over 10,000 teammates. They are the most important ingredient to our success. These teammates, armed with new capabilities, are always seeking to improve the customer experience at Brown & Brown.
How will we do that in the future? One way will be through the better use of data and digital capabilities and by partnering with the appropriate tech firms to help us drive innovation in our company. Technology is a very high priority for Brown & Brown and myself in 2020. Private equity is very aggressive in our space. They're betting that interest rates stay flat or go down towards zero. Each owner sponsor hopes they can grow the business organically and flip it at a higher exit multiple. It's frothy out there. When PE buys PE based on inflated EBITDA and expected synergies, there's not much room for error, if any. Our investment thesis is forever. We focus on capital allocation, return on invested capital, and cash flow from operations, which enable us to reinvest our earnings into the business each year.
While many are focused on quarterly results, we're focused on next year, three years from now, and five years from now. We're a customer-focused solutions business that has a disciplined capital allocation approach. We consider cash flow as a key benchmark in addition to total shareholder return versus major indices and our publicly traded peers. For the past five years, we've exceeded the average total shareholder return of the other public brokers by more than 50% and the S&P 500 by more than 125%. I raise these points because all of us at Brown & Brown are proud of our results. Not just in 2019 or the last five years, but since inception. We are a disciplined solutions provider that allocates capital effectively. We're pleased with our past performance and we're pumped about the future. Now I'm moving on to slide number three.
For the fourth quarter, we delivered $578 million in revenue, growing 13.8% in total, and we grew organically 5.2%. We're very pleased with the strong organic revenue growth, and I'll get into more detail in a few minutes about the organic revenue growth for each segment. Our EBITDAC margin was 27%, which is down 110 basis points versus the fourth quarter of 2018. Our net income per share for the fourth quarter was $0.27, increasing 3.8% as compared to the same period in the prior year. On an adjusted basis, excluding the change in acquisition earn-out payables, we delivered $0.28 of net income per share, growing 7.7% over Q4 of 2018. During the quarter, we acquired five businesses with annual revenues of approximately $19 million. I'm now on to slide four. For the year, we grew revenues at 18.8% and delivered organic revenue growth of 3.6%.
The one-time non-cash $8 million adjustment we recorded in the third quarter of last year within our National Programs segment had a negative impact of 50 basis points on our 2019 organic revenue growth for the year. We're very pleased with the continued improvement in our organic revenue growth we delivered in 2019. Our EBITDAC margin was 30%, down 60 basis points compared to 2018, which was primarily driven by the addition of the Hays business. Our net income per share for the full year of 2019 increased 14.8% to $1.40 from $1.22 in 2018. On an adjusted basis, which excludes the change in acquisition earn-outs, net income per share increased 13.8%. Later in the presentation, Andy will discuss our financial results in more detail. For the year, we closed 23 transactions with approximately $105 million of annual revenue.
We had another good year of M&A activity as we added many excellent businesses and teammates that fit culturally with Brown & Brown. I'm on slide five. For the fourth quarter, premium rates continued to increase or as we say previously, are firming. While we experienced some acceleration in premium pricing as compared to the last few quarters, we do not believe this is a broad-based hard market. As we discussed during the year, risk bearers are seeking rate increases and these are sticking in certain areas and not sticking in others. We've seen more significant increases in large accounts. These will not necessarily impact our organic growth as many of the larger accounts are on a fee basis. In general, there's a continued upward trend for most lines. The amount of increase continues to be driven by the loss experience for the account or certain classes of business.
The lines of the most notable increases include, but are not limited to, transportation, habitational, coastal property, both wind and quake, and excess liability, or otherwise known as umbrellas. As we've mentioned before, accounts with losses are generally seeing rate increases well above those accounts with minimal or no loss experience. Commercial auto remains the one line of coverage that has consistently realized a 5%-10% rate increase. We're seeing these increases across almost all carriers. Workers' compensation rates in most states remain down 2%-5%, other lines typically are increasing 2%-5%. As it relates to the E&S placement for cat-prone properties, including wind and quake, we realized increases in the range of 5%-20%, but there can be outliers. Most professional liability lines for private companies were flat to down 10%.
Public company D&O and E&O typically are up 5%-10% or more. As it relates to casualty pricing and the adverse loss development that's being realized across the industry, it's prompting carriers to review the adequacy of their pricing. If the loss development trend continues upward, we believe there will be more pressure to increase casualty pricing over the coming quarters. The E&S space remains the area we continue to see a number of carriers being more selective in certain lines or geographies, therefore, we're seeing a more pronounced impact on the E&S rates versus the admitted markets. In general, while risk bearers have been able to get rate increases, there has been upward movement from where we were a year ago for most lines. There's still a lot of capital on the market, competition for accounts with low loss experience remains.
In the current environment, we do not think these conditions will abate for at least the first half of 2020. We are pleased, actually very pleased, with the progress we have made on many company-wide initiatives throughout 2019 and feel we are in a great position to continue growing the business in 2020. I am now on slide number six. Let us talk about the performance in our four segments. Our retail segment delivered organic revenue growth of 7% in Q4. We would like to congratulate all of our teammates within the retail division for delivering the strongest organic revenue growth we have seen in many years. Our growth for the fourth quarter was driven by good new business, improved retention, and some rate improvement. On a full year basis, the 4.7% organic revenue growth represents continued incremental improvement over the 3% organic revenue growth we realized for the full year in 2018.
Finally, we are pleased with the performance of Hays for their first full year. Our national program segment grew 10.7% organically in the fourth quarter, delivering another really strong quarter. The organic revenue growth this quarter was also one of the highest we have delivered in many years when you exclude the impact of flood claims. Our growth was driven by continued strong performance from our earthquake programs, our lender-placed program, and many of our other programs performed very well. For the full year, our national program segment grew 3% organically. The one-time $8 million non-cash adjustment recorded in the third quarter of last year within our lender-placed business negatively impacted the full-year organic revenue growth by approximately 180 basis points. Overall, it was a great quarter and a full year. Thank you to Chris Walker and all of the team in national programs.
Our wholesale brokerage segment delivered another solid quarter with organic revenue growth of 7.9%, driven by strong performance in our brokerage business and increasing rate, rounding out another great year with organic revenue growth of 7.4% in 2019. A big thanks to Tony Strianese and all of the team in wholesale for delivering another great year. The organic revenue for our services segment decreased 19.4% for the quarter. We mentioned last quarter we expected revenues and margins to decline by 5%-10% for the services segment in Q4, being driven by our Social Security advocacy business and a terminated customer contract in one of our claims processing businesses. Additionally, organic revenue growth for the services segment was further impacted for the quarter by lower weather related and general property claims.
As we have seen in the past, our services segment can have more volatility in its revenues based on claims activity in a number of our businesses. While we experienced good growth over the last few years, 2019 was one of those years where we did not have a lot of claims activity contributing to the services segment decline of 6.3% organically. Now, let me turn it over to Andy to discuss our financial performance in more detail.
Thank you, Kyle. Good morning, everyone. Consistent with previous quarters, we're going to discuss our GAAP results, certain non-GAAP financial highlights, and then our adjusted results excluding the impacts of change in acquisition earn-outs. I'm over on slide seven. For the fourth quarter, we delivered total revenue growth of $70 million, or 13.8%, and organic revenue growth of 5.2%. Our income before income tax and EBITDA increased by 1.3% and 9.2% respectively. The lower growth in pre-tax income was driven by increased interest and amortization expense associated with our acquisition activity, as well as an increase in the change in acquisition earn-out payables of $5 million as multiple businesses experienced stronger than anticipated performance. Later, we'll walk through the detailed movement of our EBITDAC margin and the impact of Hays.
Our net income increased $3 million or 4.1% on our diluted net income per share increased by $0.01 or 3.8% to $0.27. Our effective tax rate for the fourth quarter of 2019 was 25% compared to 27% in the fourth quarter of 2018. The lower effective tax rate was driven by our state tax footprint and corresponding apportionment along with a tax rate change in Florida. Our weighted average number of shares were generally flat compared to the prior year as we purchased shares in order to mitigate the impact of our stock incentive plan. Lastly, our dividends per share increased to $0.085 or 6.3% compared to the fourth quarter of 2018. Moving over to slide number eight. This slide presents our results after removing the change in acquisition earn-out payables for both years. We believe this presentation provides a more comparable year-on-year basis.
Our income before income taxes on an adjusted basis grew 6.2% or slower than EBITDA due to the incremental interest and amortization expense associated with the acquisitions we completed since 2018. Moving over to slide number nine. This slide presents the key components of our revenue performance. For the quarter, our total commissions and fees increased 13.6%. Our contingent commissions and guaranteed supplemental commissions or GSCs increased by $2.5 million as compared to the fourth quarter of 2018, which was partially driven by our acquisition activity. When we isolate the net impact of M&A activity, our organic revenues increased by 5.2% for the fourth quarter. Over to slide 10. To provide some additional visibility into the major drivers of our EBITDAC margin, we've included a walkthrough from 2018 to 2019.
During the quarter, we had a couple of disposals that resulted in a gain that benefited our EBITDAC margin by 90 basis points. In line with our expectations, Hays negatively impacted our margins by approximately 150 basis points for the quarter due to the phasing of revenues and profit in accordance with the new revenue standard. I'll talk more about the financial performance of Hays in a few minutes. Other reflects the margin change we experienced across the remainder of our business. The main drivers were higher non-cash stock compensation cost and the dilutive impact of an acquisition we completed in 2019 that recognizes substantially all of its revenue in the first quarter of each year. Excluding these items, we experienced margin improvement for the quarter.
On a full-year basis, excluding the impact of Hays, we expanded margins driven by higher organic growth, increased contingents in GSCs, managing our expenses, and realizing benefits from our previous investments, which more than offset the impact of increased non-cash stock compensation expense. Moving over to slide 11. Our retail segment delivered total revenue growth of over 22%, driven by acquisition activity over the past 12 months and organic revenue growth of 7%, driven by growth across most lines of business. Our EBITDAC margin for the quarter decreased by 140 basis points due to the phasing of profit from Hays, the margin impact associated with an acquisition we completed in the third quarter of last year, 2019, and higher non-cash stock-based compensation cost. All of these items more than offset gains we realized from current quarter disposals.
When we isolate all these items, we experienced margin improvement for the quarter. Our income before income tax margin declined by 530 basis points due to higher intercompany interest expense, amortization, and incremental acquisition earn-out expense, and the drivers of the EBITDAC change, as noted previously. Moving over to slide 12. Our national program segment increased total revenues by $14.2 million, or 11.8%, and organic revenue by 10.7% due to strong performance from a number of our programs, including commercial and residential earthquake, lender-placed, and our sports and entertainment programs, as well as increased contingent commissions. Income before income taxes increased by $11.9 million, or 46.5%, primarily due to leveraging revenues and lower intercompany interest expense. EBITDAC increased by $9.9 million, or 24.9%, due to higher revenues and continued expense management. Moving over to slide 13.
Our wholesale brokerage segment delivered total revenue growth of 5.9% and organic revenue growth of 7.9%. Our contingent commissions for the quarter were down due to an adjustment in the prior year that did not recur in 2019. The EBITDAC margin decreased 80 basis points as a result of lower contingent commissions and GSCs, which more than offset margin expansion driven by higher organic revenue and expense management. Our income before income tax margin decreased 20 basis points due to the same factors driving the EBITDAC margin, which was partially offset by the benefit of lower intercompany interest and amortization expense. Over to slide 14. Total revenues for our services segment declined due to a decrease in organic revenue, which was partially offset by acquisition activity.
The lower organic revenue growth was driven by our Social Security advocacy businesses and lower weather-related and property claims, and a terminated customer contract that we mentioned last quarter. From a margin perspective, the EBITDAC decrease was driven by lower revenues. We anticipate this segment's revenues will continue to decrease approximately 5% for the first half of 2020, continuing to be impacted by our Social Security advocacy businesses and the customer contract that was terminated in the third quarter of 2019. Over on to slide 15. This slide presents our GAAP results for the full year of 2019 and 2018. For 2019, we delivered $2.4 billion of revenue, growing 18.8%, and earnings per share of $1.40. EBITDAC increased 16.5%, and the EBITDAC margin declined by 60 basis points. Excluding the impact of Hays, we experienced full-year margin improvement, which we are very pleased with.
Our full-year effective tax rate was 24.2%, decreasing 140 basis points versus 2018. For the year, our share count remained relatively flat, decreasing by 30 basis points from the prior year. Moving over to slide number 16. This slide presents our results excluding the change in estimated acquisition earn-out payables for both years. Our adjusted income before income taxes grew by 12.7%, which is slower than growth in EBITDAC due to higher interest and amortization related to the acquisitions we completed since 2018. Our adjusted net income grew by 14.7%, and adjusted earnings per share increased 13.8% to $1.40 as compared to 2018. Finally, a comment regarding the efficiency with which we convert revenues to cash. On a full year basis, we converted 28.4% of our revenues to cash flow from operations, which is 20 basis points higher than last year.
On a full year basis, our cash flow from operating activities has grown 19.5% as compared to total revenue growth of 18.8%. Moving over to slide number 17, we'd like to provide some additional information regarding the quarterly and annual performance for Hays. For the fourth quarter, Hays delivered revenues of $52 million, which is just about $4 million above the top end of the expected range for the quarter. EBITDAC for the quarter came in at about $8 million, which was at the lower end of the range. From a full year perspective, revenues were $221 million, which was just above the top end of our initial guidance of $210 million-$220 million. EBITDAC for the full year was $50 million, which was in the middle of our estimated range.
Diluted net income per share, excluding the incremental change in estimated acquisition earn-out payable, was $0.02 for the full year and was in line with our expectations. Before we move to closing comments, we've got some additional guidance regarding certain line items for 2020. We want to provide some guidance regarding the third quarter acquisition that was previously discussed that will recognize substantially all of its estimated $20 million-$22 million in revenue in Q1 to correspond with the effective dates of the policies it places. As a result of the new revenue standard, this acquisition will impact our quarterly profits in 2020.
The positive impact to our EBITDAC margin in Q1 is expected to be in the range of 100-150 basis points. We expect about a 30-40 basis points of compression in the second quarter, and then about 15-20 basis points of compression in the third quarter versus the same periods in the prior year. We anticipate GSCs will decrease $8 million-$10 million in 2020 as compared to 2019, primarily as a result of the one-time GSC of approximately $9 million we realized in the National Programs segment in the second quarter of 2019. As we discussed before, our stock compensation cost has been increasing as a result of better performance. We expect our stock compensation cost to increase during 2020 by approximately $6 million-$8 million over 2019.
Based upon our current rate outlook, interest expense is projected to be relatively flat year-over-year. Our amortization expense should be in the range of $100 million-$105 million for 2020. Keep in mind that both the estimated interest expense and amortization are excluding any additional acquisitions or borrowings that may occur in 2020. You'll need to make your own assumptions regarding these items. We expect our effective tax rate for 2020 to be similar to 2019. While the projected annual rate will be similar, we do anticipate our effective rate in the third quarter to be in the range of 14%-17%, and all other quarters to increase versus the prior year of 2019. The anticipated variance in the third quarter is driven by the tax benefit associated with the vesting of stock incentive awards.
With that, let me turn it back over to Powell for closing comments.
Thanks, Andy, for a great report. In closing, I want to make some comments regarding a number of topics and how we're thinking about our business and opportunities in 2020 and beyond. As it relates to the economy, we expect the growth rate and corresponding impact on exposure units to be relatively similar in 2020 from 2019. This is barring any major negative changes in trade relations or another matter that could impact the overall economy. From a rate perspective, we anticipate premium rates will continue to increase slightly during at least the first half of 2020. However, I'd like to repeat, we do not believe we have hard market conditions, but rather a firming of rates for many lines. This is driving certain risk bearers to either constrain capital or pull out of certain lines or geographies entirely.
On an M&A front, we expect competition will remain aggressive until interest rates increase materially. We expect PE will more than likely continue to leverage deals higher than strategic players. We're going to remain disciplined with our approach as it's proven very successful over the years. We will buy businesses that make sense financially and fit culturally. There are plenty of opportunities that fit the profile. We've been talking about the increasing importance of technology and the use of data. We firmly believe these will have a material impact on the delivery of insurance over the coming years. Let me be clear, I'm not saying that technology will displace the importance of a customer talking with their broker regarding the transfer of risk.
We're talking about how we'll interact with customers during the buying and renewal experience, removing the friction of simple transactions, as well as how we'll use data to help create new products with our carrier partners. We will also be focusing on how we can be more efficient and therefore direct more time towards winning and retaining additional customers. Since we are not a technology company, nor do we have all the answers, we will more than likely partner with insurtech companies so we can leverage their innovation in concert with our industry expertise and data. Allocating capital in the most optimal way remains top of mind for all of our leaders. We're fortunate to generate over $600 million of cash and anticipate this will grow more in the future.
As we've stated before, our goal is to deploy all of our available capital and more if the right opportunities are available so we can continue to deliver industry leading financial metrics, cash flow conversion, and ultimately shareholder value. Increasing and investing in our teammates remains a key priority for our company, as it is through our talented team that we're able to serve our customers. We believe we have the right operating framework and culture to stimulate additional profitable growth in 2020 and beyond. With that, I'd like to turn it back over to Celia to open it up for Q&A.
Thank you. If you wish to ask a question at this time, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Star one to ask a question. We will now take our first question from Greg Peters from Raymond James. Your line is open. Please go ahead.
Great. Good morning, everyone. I wanted to circle back. I have a couple of questions, but Powell, you were talking about technology, and I was wondering in the context of you not being a technology company, do you anticipate that in 2020 that you're going to be spending more on technology related initiatives across the franchise relative to 2019, or how should we think about that in terms of an expense headwind?
Good morning, Greg. The answer to the question is, as you saw, we named Stephen Boyd the Head of Technology, Innovation, Data, and Digital Strategy last year. We continue to evaluate not only things like security, but we talk about the way we are actually doing business internally. We're not at a point yet to say exactly what that is. The answer to the question is, we do believe that there's going to be more investment, and we're going to do it in a thoughtful way. I don't want anybody in this call taking something out of context like we're going to just go throw $25 million in a bucket. That's not what we're thinking. We are thinking about technology in several ways.
There are the ways to keep the lights on and running, like electricity, then there's protecting from the bad guys, as I call it. Then there's two parts of innovation. There is using something that would actually be emerging, which would be kind of a fast follower concept. Then there's also a component which might be on that leading edge concept, which is the smallest bucket. I feel really good about our team and some of the new people that we've had join us or are joining us in the technology area to help us think about doing business more efficiently where our teammates can focus more time on serving our customers. I'm excited about it.
Yeah, go ahead, Andy.
Hey, Greg. Yeah, Andy here. Maybe one other thing just to think about that similar to what we did back in the first quarter of 2016. If we had a large technology investment of a multi-year, we would come talk with all of our investors about that, we don't see anything like that on the horizon right now.
Thank you for saying that because as we're sitting here thinking about just your EBITDA margin for 2020, and I know you provided some guidance around what the acquisition's going to do. It's down 60 basis points for the full year in 2019 versus 2018. Hays is in that. Do you think that we've sort of stabilized? Do you think it's going to be better in 2020? Directionally, can you give us some ideas of where you guys are thinking about that?
Yeah. Greg, let's come back to 2019 just for a second. When we look at the margins for the organization, you're right, they are down. If you just pull out Hays by itself, our underlying margins are up. When we came into 2019, we said our goal was to increase our margins a little bit for the business. That's exactly what we delivered. We feel really good about where we are today. Really important, make sure when you pull Hays out. There's all kinds of other moving parts underneath of there. They almost all net out back and forth. We increase underlying margins, so again, really pleased with 2019. As it relates to 2020, we don't see any major headwinds coming at us that we know about right now.
Not that things could never change, as of today, no, we don't see anything and feel really good about the trajectory of the business.
Great. Thank you for that answer. Let's pivot back to the revenue side. Powell, I know you commented about exposures and the outlook for exposures. Retail was really strong, as you pointed out. Can you give us an idea of how much, not only for the fourth quarter for the year, was exposure versus rates? Should we be thinking about some pretty difficult comps as we move through 2020 on organic because of the success you had in 2019?
We don't break out the exact amount of the organic revenue growth for rate and exposures. As I've told you, kind of it's a balancing act from a standpoint of, from an exposure standpoint, we would say anecdotally that our customers are doing better generally across the board, which is no surprise to you, number one. You heard my comments earlier about the rates in the market. I believe and continue to believe that we're very consistent in what we've said. The retail business, not unlike the overall business, is a low to mid-single-digit organic growth business in a steady state economy that could be positively impacted slightly by other impacts, i.e., rates increasing in the area where we are today. We're not giving guidance on organic growth, as you know.
I will say this, though, I could not be happier with the progress that we have made in our retail business, and for that matter, the entire business over the last three to four years.
Great. The final point, just on free cash flow, the conversion rate. Is there any sort of headwinds that we should be concerned about as we think about the conversion rate for 2020? That's my last question.
Let's just clarify. Greg, we look at cash flow from operations as one of those key metrics.
There's no major items that we know about. The one thing that can occur back and forth is the movement in the fiduciary cash, because that ultimately rolls to cash flow from operations. Depending upon that movement, that's the only item that can cause noise up and down on some years. Otherwise, no, nothing.
Great. Thank you for your answers.
Thank you.
We will now take our next question from Elyse Greenspan from Wells Fargo. Please go ahead.
Hi, thanks. Good morning. My first question, we've been hearing a lot in terms of the pricing environment within Florida getting better as we move through 2020. Given your exposure there, Powell, I was hoping you can kind of talk about what you foresee happening in Florida during the year, and then also how that could potentially impact your organic revenue growth and provide a tailwind, potentially even beyond the first half of the year.
Okay. Let's talk about Florida in a couple ways. As you know, Florida has got the most coastal exposed building construction in the U.S., meaning cat exposed within one county other than New York State. Texas would be number 2. The last time I saw this number, it was $1,300 billion or something. It's a huge number. It's kind of staggering. First of all, we talked about the impact of the E&S market and how that would impact the potentially residential and commercial accounts that we're seeing. We said earlier that generally speaking, we're seeing rates that are in that 5%-20% range. That's a component. Number 2, I would tell you that in the state of Florida, there are lots of takeout companies, and those takeout companies are depopulating the Citizens, as many of you know.
There are, as we understand, a number of those companies that are being under watch by Demotech and others today. We don't know exactly what that will mean for that space yet, but some of the losses that have occurred in the past couple of years are developing in a manner or may have hit their reinsurance layers in a way that were not otherwise anticipated. Having said that, when we became a public company in 1993, the vast majority of our business was in Florida. Today, at just roughly $2.4 billion of revenue, our Florida exposure is much less. I say that because remember, in a business that in retail, which is roughly, these are all rough numbers, of $1.4 billion, maybe $180 million of it is in retail. We don't break out the amount of property we have.
We also have some nice size wholesale in Florida as well, but they're riding business all over the country in cat-prone areas. Elyse, I would caution you by saying that we're going to get some huge lift from the so-called Florida effect. We are all really happy to live in Florida for a whole bunch of reasons and run our business from here. I would just tell you that I think that I would want you to look at the Florida effect as similar to around the country with a slight upside to it, but nothing something where you need to go tweak something substantially. I would caution you about that.
That's very helpful. In terms of the retail segment, I know you guys don't like to give guidance, but if I recall correctly, I thought earlier in the year you had pointed to the second quarter of 2019 as being your strongest quarter for that segment, just given rev rec and some of the shift between the Q1 and the Q2. The fourth quarter ended up pretty strong, the strongest you've had in some time, as you pointed out. I'm just curious, was it new business, renewal, something one-off that drove the 7% in the quarter and that might have lifted that number relative to your prior expectations?
Okay. I think just to clarify your earlier comment, I think it was the first quarter as opposed to the second quarter that we talked about. Number two, I think that there is I have Andy sitting right next to me, and you guys will chuckle, but I always think that 606 clouds the issue versus makes it clearer. I'm not a CPA, and I'm not PCAOB. Having said that, I would tell you that we had just a damn good quarter. That means we wrote a lot of new business. We have clients that are, some of them, sometimes our clients get purchased, but we had clients that were buying businesses. We had exposure increases. We had things. It was just a really good quarter. I also would say, to manage your expectation, Elyse, is this.
One quarter doesn't make a trend, and we've said that. I look at it, if you look back at the organic growth of retail in the last four years, and I might be off on the four years ago, but I think it goes something like this, 1.8%, 2.7%, 3.0%, 4.7. We're pretty happy about that. We think that that is a big reason that the stock price has reacted accordingly, in addition to our acquisitions and our executing our plan in our other divisions and this and that and all this other stuff. Again, we're really pleased with it.
That's helpful. Just lastly, on the margin side. If I calculate it correctly, and I'm sorry to give the number, it seems like you improved your margins by about 20 basis points in 2019 ex Hays. Can you just comment in 2020, is that the right level of improvement to think about for all of Brown & Brown? Andy, those quarterly impacts for 2020 from that one acquisition, that's on the overall company, right? We would see really a much larger impact in retail?
Let's take the last part of the question first, then we'll come back around. Yes, that is correct. It is the movement on the total company. Maybe a way to think about that is once you've modeled in what you think the physics will do, ex that, then lay those potential adjustments in there. Flow that over into retail on a proportionate basis. On underlying companies we talked about earlier, we were up ex Hays about 20 to 30 basis points.
Does that seem about the right level of margin improvement when we think about 2020?
We don't give outward guidance, as you know, but we don't see any major headwinds coming at us right now for 2020 at this stage. We don't have any reasons why they would go backwards.
Let me interject one thing there, Elyse. Here's the thing, this doesn't help you with your model, what I would tell you is this. We are working really hard, and we're having a lot of fun. We are going to be investing in businesses that we think fit culturally and make sense financially, that includes hiring good people that would build businesses and all kinds of things. I want to just make sure that I know you're trying to come up with an absolute number, this is what it's going to be, it's going to pop out the other end in your model. We acknowledge that.
I just want you to understand that we are growing the top line and the bottom line. If you look at the performance in the last year or last three years or last five years, our goal is to continue to do that. I just say that because that doesn't mean you can just plug one number into the model and it's going to pop out the other end. I just want you to understand that we're going to try to invest the money the best way we think possible to yield the best long-term results. That may not be one quarter or one year for that matter. Sometimes 606, as Andy referenced earlier, impacts the way when we buy something, all of a sudden impacts the overall company in terms of an acquisition. That's fine. We're going to work through it.
We're just trying to make good acquisitions and hire more good people. To get to $4 billion.
Okay. Thank you very much. I appreciate all the color.
Yeah. Thank you.
We will now take our next question from Mark Hughes from SunTrust. Please go ahead.
Yeah, thank you. Good morning. Was the Hays acquisition incorporated in organic this quarter since it closed in this quarter last year?
Yeah. Good morning, Mark. It was included. It's only for the 45 days. Didn't have an overall major impact just from a weighting standpoint in the quarter.
As we think about that making a bigger impact in Q1, can you say what the growth trajectory Hays has been on?
The answer is we don't talk about the growth trajectory of individual businesses. We're very pleased with the performance of Hays and what we think is the future performance of Hays, but we're not going to comment on that. That's all wrapped up in my comment around the low to mid-single-digit organic growth in steady state economy.
In the margin effect from Hays, the lower contribution in the fourth quarter, was that just a change in earn-out that caused that, or was there some other factor?
No, nothing unusual there, Mark. When we closed out the third quarter, we had anticipated, we said there was more than likely the fourth quarter would have some noise inside of it. We anticipated that it would be a $0.01 loss in the fourth quarter. It came out to be $0.02. A $0.01 of that is the incremental acquisition earn-out, so we kind of landed right on where we were. We weren't too focused on the individual margins by quarter for the business. We were really focused on the total just because as we went into it, we took our best shot at the quarterlies, and when we look at the full year, we turned out on the top end of our revenues and kind of right in there on margins. We feel really, really good about how Hays performed this year.
The stock comp, you said, I think up $6 million-$8 million. If I'm looking at it properly, just off of the cash flow, looks like that's about half the pace of increase of 2019. Is that correct?
Yes.
Okay. Very good. Thank you.
Thanks, Mark.
We will now take our next question from Yaron Kinar from Goldman Sachs. Your line is open. Please go ahead.
Hi, good morning, everybody. I guess my first question is more of a market question. You talked about different lines of business, some where you're seeing a little more firming than others. Are there areas that you're seeing disruption at this point or difficulty placing a program?
When you say difficulty, meaning you're unable to get coverage, is that what you're referring to?
Yeah. Maybe you have to shrink the overall size of the program.
Right. I think there's really two instances that come right to mind, and I'll give you an example. There have been historically some writers of large property, particularly engineered property risks, who are pulling back their limits. By doing that, then you start to have to, so they might put up $1 billion or $2 billion or something, and all of a sudden, if they pull back, then they're layering that property. The cost is going up. I'm not saying that categorically in all instances, you can't place it, but sometimes they may not buy as high a limit because of cost pressures or things like that. That would be an example. That'd be one. Think property, particularly large limit, engineered risk. The second that comes to mind would be umbrella business, particularly on things like transportation or very heavy products exposure.
If you had a transportation account you're on, and let's just say for sake of this discussion, that you had one market write $25 million primary umbrella, and then you had another market write another $25 million, so they had a $50 million umbrella. I would tell you that to best of my knowledge, there are very few people on a transportation account that would put up more than 10 today. All of a sudden, the price of the 10 might be as much as the price of the 25 or more last year. That's the first thing.
There may get to a point where the pricing is such that nobody wants to offer the price at the higher levels just because they don't think they're getting enough rate for it, or what they will give or quote wouldn't be bought because people don't think that it's worth that much. There are few instances that I'm aware of where you have difficulty in placing accounts, but for the most part, what I'm aware of is we're pretty successful for our clients, but we watch that very closely.
That's very helpful color. My second question, National Programs, organic growth, seems like the last two quarters have turned a corner. It's been on a very positive trajectory. Are the headwinds that you faced earlier this year and late last year, are those kind of done at this point?
Well, remember, I think that you're correct in saying, number 1, National Programs and the team have the business in a really good place That's the first thing. The second thing is, remember, National Programs can be impacted by the underwriting appetite of a carrier. We don't know of any significant changes with our carriers right now, which would necessitate a movement of a program or something like that. That's a positive. Anytime you have a leadership change in a significant carrier partner in programs, there could be a change in appetite or how they view it. We think about, particularly in some of those underwriting programs where we have capacity that we're putting online, that could be wind, that could be quake, that could be other related things.
A lot of it is how do we get more capacity to fill those needs in the future. We may have a certain amount of capacity, and when we sell that capacity, if we don't get more capacity, then the growth is constrained. Now, we're not going to say specifically if there's a program like that, but we do have some capacity plays where that is possible. We're always out looking for capacity to grow our programs, particularly in times of disruption.
Got it. Understood. A quick modeling question. I think you'd said that services revenues would face a 5% decrease in the first half of 2020. Is that on an absolute basis or relative to 2019?
Yaron, on that one. Right now we're giving guidance of 5% down for the first quarter, and do that versus 2019.
Okay. Thank you.
For the same periods. Just when you're thinking about organic, one of the items just want to make sure we clarified for everybody is we do not include contingent commissions or GSCs in our calculations of organic. I know some of the other peers put it in, take it out, back and forth. We do not include those in our organic, okay.
Got it. Thank you so much.
We will now take our next question from Joshua Shanker from Deutsche Bank. Your line is open, please.
Thank you. Andy, I hate to make you repeat something, earlier when you were going through slide 10, I didn't quite follow the margin expansion story. Can you walk us through one more time why underlying margins expanded during the quarter?
If you come back, if you look at for the quarter, right. We started at 28.1%, and we finished this year at 27%. Down 110 basis points. We had picked up 90 basis points on change or the gains and losses on our disposals.
Which is not going to recur, of course.
Correct. Hays was a drag of 150 basis points, and then we were down 50 basis points. That's where what we were highlighting is for the quarter is our non-cash stock compensation cost and then the dilutive impact of the acquisition that we did in the third quarter. Those offset the underlying margin expansion that we had for the quarter.
Going through individual numbers, so I'm looking at ex Hays, I'm seeing 140 basis points of normalized margin compression. That's covered by the, am I wrong to think of it that way?
Yeah. Walk us through how you get there, because I don't think we follow that.
If you didn't have the gain on the disposal, I think you'd be at a 26.1, not a 27, right?
Hays is recurring, of course. Let's put that in. That's why I feel there were that. Ex Hays, I think you'd be at like a 26.1 plus 1.5, so 27.6, I guess. No. Ex Hays, you'd be at 26.7 ex Hays, I guess, is what I'm. Am I wrong to think that underlying compressed during the quarter, I guess? I'm trying to follow. I'm sorry.
If you're. No, I don't think we look at it that way, is just if you take and you isolate out the gains on the disposals and Hays, right? That is 60 basis points. Those are net, correct?
Yep.
Okay. Got it. Therefore, that leaves us with 50 on the other.
That's right. Hays is recurring, whereas the gain on disposal is not. That $150, I'm going to roll over into 4Q20 to occur again, I guess.
Why would you do that?
Hays-
No, hold on a second. We already made the lap on it, though, Josh. I think that's maybe where you got to keep that in mind. This was the last quarter that we were getting the full effect of it. As we go into next year, we're now more comparative.
Well, I don't think Hays can give you an additional 150 basis points of margin compression, but the fourth quarter Hays effect is going to be with you in 4Q20.
Yeah. Presume that the business doesn't do anything different. It's net. There's no increase or decrease in the margin then in fourth quarter of 2020 versus fourth quarter of 2019.
You'd be at a 26.1, no? Is that wrong?
At a 26.1 for the fourth quarter? Yeah.
Of '20. If everything's the same, except you don't have the gain on the disposal, you'd have EBITDA margin for 4Q20 would be a 26.1.
Right. You've got some impact of also the third quarter acquisition that's got some drag on it. Again, you're only going to have that this year.
Okay. All right. I want to work through how the margins bounce back, I guess, for next year. I'll take it offline. I guess I'm not smart enough, we'll figure this out. Thanks, Andy.
Sure. Just back up for a second, though, as you walk off here on the call. Are you saying that you're anticipating that margins will be going down next year for the business?
I don't know yet. I haven't done my numbers, I think I'm supposed to start at 26.1 and figure out the third quarter impact on it and whatnot. It feels like the base place to start for forecasting 4Q 2020 is slightly lower than where 4Q 2019 came in.
Again, here's what we would suggest is, ultimately your call on what you want to do. Start at the full year first, okay? Get the guidance that we've given on a full year regarding how we think about the business. That will then help you by the quarters.
All right. Clearly, first of all, not just one year, many years anyways is what matters. Let's continue this discussion offline. I appreciate all the help.
Sure. Thank you.
Thank you.
We will now take our next question from Michael Zaremski from Credit Suisse. Please go ahead.
Hey, thanks for fitting me in. I guess, Powell, in your prepared remarks, you said something along the lines of the large account space is seeing more rates. That business is fee-based. I believe you are alluding to not getting as much revenue benefit, versus if it was commission. I'm curious, is hard pricing in the large account space or very firm pricing, is that a tailwind? Or is each account really a case-by-case negotiation and it could be a headwind in certain cases? Just trying to better understand the dynamics there.
Right. Just think about, in large accounts, obviously the numbers are much larger. If you have an increase, in those instances, many of those accounts have risk managers, which their job is to try to get the most comprehensive coverage for the most competitive price. That puts additional pressure on that goal, if you want to call it that, if their pricing goes up. I would say it's very much case by case and how that buyer of insurance thinks about the hard market or hardening market, I should say. Firming, as I said, not hard market. They think of it as a hard market, but we don't. I would just tell you, I think it's more on a case-by-case basis.
Okay. That's helpful. Maybe for Andy, I guess you guys don't see any major headwinds for margins, so does that imply the contingent commission outlook is stable?
No. Remember, we said that we would anticipate that the GSCs will be down $8 million-$10 million in 2020. That was because of the one-time GSC of $9 million that we got in the second quarter of 2019. Otherwise, we don't know of any major items out there right now.
Okay. Are the contingents more casualty-weighted or property, or is there any color there?
No. I guess we've never broken them out or looked at them that way, but they're balanced to cost both casualty as well as property.
Lastly, there was the new commentary in the deck about expect competition and pricing pressure for acquisition targets. Powell, you gave a good color on that. Does that imply that stock buyback could potentially be more of it on the table if that proves to be correct?
Well, as we've said, Mike, in the past, what we try to do is evaluate the potential benefit of all the investment opportunities that exist for us. A buyback we talk about with the board periodically, and we evaluate what that looks like versus investing the money in acquisitions and otherwise. We don't have a stated buyback policy. I know that drives many of you crazy, but we will continue to evaluate that in the future. I don't want you to read into that says, well, if that's the case, then they're definitely going to be buying back stock. Do not make that assumption. We will do it when we evaluate the intrinsic value of the company versus the actual value of the stock at the stated time.
Okay. Thank you for the insights.
Thank you.
We will now take our next question from Meyer Shields from KBW. Please go ahead.
Thanks. I wanted to follow up on Mike's question, if I can. You talked about there being, I guess, less of an automatic revenue boost in large accounts because of the fee-based structure. Given that that's where we're seeing probably the most distortion in the marketplace now, what happens to the extra expenses associated with placing business as it becomes more expensive or it requires more effort? Do you get paid more for that?
No. That sounds good, but no.
Okay.
Sometimes you get paid less. Sometimes you get paid less if they're renegotiating the fee because of competition or something else. It makes life for our placement teams very exciting, maybe is the right way to say it.
That sounds like excitement we could do without. Second question. I was hoping now that you've started acquisitions in Canada, can you sort of update us on how we should think about non-U.S. M&A?
Sure. We have and will continue to look at opportunities that may exist in countries that we believe might present an opportunity for Brown & Brown. I would make a broad statement by saying, if you look at where we have businesses today, we now have a business in Canada, and we have businesses or a business in London. We have one in Bermuda. What would be consistent with all of those countries? Well, they're Commonwealth countries, number one. In those Commonwealth countries, they all have a rule of law. I'm not saying categorically that is the only place we would ever do an acquisition. I don't like the comment of always, never, or can't. I really don't like those terms. To this point, that's where we've thought about it, and if it made sense, we would consider that going forward.
It's interesting, Meyer, that you would ask that because the competitive landscape for acquisitions in some of those countries is even sometimes more fierce than it is in the United States, if that's possible. Kind of interesting.
Okay. No, thank you. That's very helpful.
We will now take a follow-up question from Mark Hughes from SunTrust. Your line is open. Please go ahead.
Yeah, just very quickly, you mentioned in the retail segment that one of the drivers was higher increases in employee benefits. Could you talk about what's driving that?
I don't remember making a comment about higher increase in employee benefits, although employee benefit healthcare costs are going up, but I don't remember making that in the
I'm just reading off the retail segment. That is one of the drivers you cite there, commercial auto and employee benefits.
Yeah. Oh, yeah. That's just on pricing for our customers, not us, our cost on that, Mark. Just in general, I think everyone sees it in the marketplace.
Right. Yeah. I think that sounds like that's a support for organic, so I was just sort of curious if there's anything new or different going on in benefits-
No.
-that was helping to drive growth.
Yeah, no, nothing. It continues kind of at the pace it has, so nothing new or different there.
Thank you.
Cecilia, we'll take one last question if there are any. Otherwise, we'll go ahead and cut off for today, please.
Perfect, sir. We have a follow-up question from Yaron Kinar from Goldman Sachs. Your line is open, please.
Thanks. Just another quick modeling question. The margin impact from the third quarter acquisition, I think you said 100 to 150 basis point positive in the first quarter, then drag in the second and third quarters. The numbers you provided, are those on a consolidated basis or for retail only?
Yes. Total company, Yaron.
Total. Okay. Thank you.
I want to make one comment as we wrap up, Cecilia, for everybody. Thank you first off for your time today. I know that if you have any questions, Andy would be more than happy to talk to you about those in detail or other people on our team. I want to make sure everybody understands that the Hays acquisition, in our mind, is an excellent acquisition, and that is first and foremost because they got great people. When I look back on acquisitions like Arrowhead and other large acquisitions where we've gotten a lot of really good people, those have been very significant in the history of our company. I think that the Hays team has a number of people like that.
I say that because Mike Egan and Jim Hays have built a great business, and there's a lot of other great people on that team. I want to make sure that the last comment today is this. We are very pleased with where we are in our entire business. We are very pleased with the Hays acquisition, and we expect great things from that part of our business in the years to come. Like I said, generally speaking, we don't see that many headwinds going into 2020, and we're all really pumped up about what that means for us and the company now and in the future on our way to $4 billion. We thank you for your time, and we look forward to talking to everybody again next quarter. Thank you. Have a nice day.
Thank you. That concludes today's conference call. Thank you for your participation.