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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Marsh & McLennan’s Companies Conference Call. Today’s call is being recorded. First quarter 2020 financial results and supplemental information were issued earlier this morning. They are available on the Company’s website at www.mmc.com. Please note that remarks made today may include forward-looking statements, including certain expectations related to COVID-19 and other matters.
Forward-looking statements are subject to risk and uncertainties and a variety of factors may cause actual results to differ materially from those contemplated by such statements. For a more detailed discussion of those factors, please refer to our Earnings Release for this quarter and to our most recent SEC filings, including our most recent Form 10-K, all of which are available on the MMC website.
During the call today, we may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to the most closely comparable GAAP measures. Please refer to the schedule in today’s earnings release.
I’ll now turn this over to Dan Glaser, President and CEO of Marsh & McLennan Companies. Please go ahead.
Thank very much and good morning. Thank you for joining us to discuss our first quarter results reported earlier today. I’m Dan Glaser, President and CEO of Marsh & McLennan. Joining me on the call today is Mark McGivney, our CFO; and the CEOs of our businesses, John Doyle of Marsh; Peter Hearn of Guy Carpenter; Martine Ferland of Mercer; and Scott McDonald of Oliver Wyman. Also, with us this morning is Sarah DeWitt, Head of Investor Relations.
I am pleased to report that our first quarter results were excellent, despite seeing early signs of COVID-19 related headwind. Before I get into our results, I want to start by addressing the current crisis. We are living through deeply troubling times that are unprecedented in our life time. This is first and foremost a human tragedy with the health and livelihood of virtually everyone around the world is threatened, and the ultimate economic impact is still very much unknown.
We do know that the next several months and possibly longer will be difficult. Uncertainty is at an all time high. There is poor visibility, business outlook has been severely damaged and confidence is down. Even though it is hard to imagine at present, we will see the other side of this crisis. In the aftermath, there will be a prolonged adjustment. I don't think any of us expected quick return to life as we knew it.
However, recent data shows that, our response to the crisis is helping to flatten the curve. And we can already see some parts of the world take early steps towards recovery. And then see businesses are working at multiple levels to get global economy working again. Underpinning our work is our interaction with government and clients including banks, insurance companies and all sectors of the global economic infrastructure.
Navigating the current period is challenging for all enterprises. Yet Marsh & McLennan has proven to be resilient, strong and unique. We will learn and improve as an organization during this difficult period. Marsh & McLennan has never been flatter, faster or more connected than we are today. And I expect some of how we are adapting through this period will benefit us over the longer term.
I want to share some insight about how we are operating in the crisis. The safety and well-being of our colleagues is our first priority. We move quickly to suspend travel, implement work from home and put in place flexible work policies. We have a world class executive team, which I'm incredibly proud to lead. We also like to thank our colleagues who have rallied in their support of each other, and our clients.
Over the last decade, we've invested significantly in the infrastructure of our business across the world. We are a globally integrated firm in terms of systems and processes. And this is proven invaluable in our response to this crisis. Within days, we were able to pivot close to 100% work from home with over 70,000 concurrent remote connections across the world and virtually no disruptions in our business and our ability to serve clients.
In fact, we have a number of recent new business wins where nobody met in person. We entered this crisis in a position of strength and are focused on delivering reasonable financial performance in the short-term, while supporting our colleagues and positioning the firm to the mid to long-term. We've made several decisions reflecting this approach.
In mid-March, we committed that while we are in the thick of this crisis, our colleagues jobs are secure. We also set up a $5 million support fund for colleagues in need, as well as committed to matching charitable gift contributions.
Our decision for colleagues interest is first is guided by our values and aspirations as a company. This doesn't mean we are being complacent on cost reductions during this period. It is simply the right thing to do. It also speaks to our confidence in the strength of our business, which will rebound as the global economy improved.
We've moved back to cut non-essential expenses and reduce capital expenditures, and we will obviously see meaningful decreases in G&A. We're taking prudent and necessary actions to manage expenses, but at the same time, we're still focused on positioning for the long-term. As an example, in early April, we closed another terrific acquisition in MMA Assurance Holdings, which will operate at the Midwest regional headquarters for MMA. So far in 2020, we announced three MMA acquisitions, and in just 10 years MMA has grown into a leading mid-sized business platform in the U.S. approaching $2 billion in revenue with 7,200 colleagues in 150 offices.
I am inspired by the hard work, dedication and focus of our colleagues in this unprecedented time. It is their efforts to demonstrate the strength and character of Marsh & McLennan. The environment will remain challenging and the duration is unknown. But, Marsh & McLennan enters this period in a position of strength and we will emerge on our front foot.
This month marks the one year anniversary of our combination with JLT. I am pleased to say the major elements of integration including integration of colleagues, culture and financial system are behind us. We are well along the way on technology.
Our strong first quarter results are evidence that the initial period of choppiness from the acquisition is over. And we emerge as a stronger more diverse company, with more capabilities and geographic depth. We are a unified firm globally, we are working as one enterprise, smarter, more connected and more creative than we were a year ago.
During these challenging times, we continue to innovate for positive change for our clients, focusing on shaping the industries in which we operate. In health and benefits, Mercer Marsh Benefits created a COVID-19 product, which is now supporting over 500,000 employees in Italy.
The team then developed similar products to support people in more than 30 countries, with all regions working together, exchanging findings and truly operating as one team around the world. Our benefits technology Darwin has also proven very valuable to clients helping them rapidly inventory their pandemic coverage, address gaps and deploy creative solutions to their employees, such as access to virtual physical and mental well-being services and telemedicine.
We’ve also been advocating for the development of public private partnerships around the world who address pandemic risk. Marsh and Guy Carpenter are bringing policyholders, insurers and the government together to develop public private partnerships to accelerate economic recovery and restore a more resilient global economy in the future. Mercer is helping clients to assess updated pension costs and funding level projections and investment portfolio options. We've been advocating the short-term pension funding release to help businesses address near-term cash challenges and protect jobs.
In Oliver Wyman, we are helping clients with their crisis response, navigating the impact on demand and supply as well as working through financial and liquidity challenges. We've developed a proprietary tool called the pandemic navigator that helps companies predict future COVID-19 development, informed by different suppression tactics and ultimately estimate overall and company specific economic impact. The tool covers more than 40 countries and all U.S. States will help our clients plan for when and how to conduct business after the crisis has subsided.
Many of our clients around the world are already actively using the tool and accessing our experts, including more than 100 healthcare organizations, several government and public sector entities over a dozen major financial services companies and corporations across sectors. In summary, I am proud of how our company is responding to this crisis.
Let me spend a moment on current P&C insurance market conditions. P&C insurance pricing continues to increase. The Marsh global insurance market index increased 14% versus 11% in the fourth quarter, and 8% in the third quarter. Global property insurance was up 15% in global financial and professional lines were up 26%, while global casualty rates were up 5% on average. Keep in mind however, our index used a large account business where we typically earned fees. Small and middle market insurance pricing increased more modestly in the mid single-digit range.
Given the losses from the pandemic, pricing trends globally are likely to continue. The range of insured loss outcomes from the pandemic is wide and evolving. The loss is unique, because it is ongoing. It will take a long time for us to be fully understood. It affects nearly every country and it also led to a simultaneous asset stock. What we do know, is there will be significant losses in lines such as event cancellation, travel, D&O, workers compensation, credit lines and political risk.
The potential for other losses, business interruption or otherwise make the overall loss difficult to estimate at this time. The determination of coverage for the virus will be policy-by-policy. But, we think legislating retroactive coverage is a step too far and will challenge the very notion of insurance.
Declining exposure unit due to the economic fallout from COVID-19 will put downward pressure on premiums, although it will vary greatly by industry and by line of business. In some cases, carriers are offering or considering proactive premium adjustment. Although to-date it is limited in commercial lines. In some market regulators are looking for mandate refund.
Turning to reinsurance, the April 1 renewals are largely focused on Japan. Following a couple of years that were the worst the Japanese tycoon activity experienced in recent times. Japanese insurers paid significant increases to a renewal of their capacity excess of loss covers. The rates and other loss-free lines were stable.
The upcoming June 1 renewals are largely focused on Southeast U.S. wind exposure. Many renewal placements are expected to face upward rate pressure from continued loss created from 2017 and 2018 hurricane events. In addition, reinsurers will be assessing the impact from COVID-19 related issues.
Overall, the global P&C insurance market is complex. Pandemic issues continue to evolve and this is before we enter the U.S. hurricane season. It is in times like these where our expertise and capabilities are even more critical.
Now let me turn to our first quarter financial performance. We delivered excellent results in the quarter with underlying revenue growth of both Risk and Insurance Services and Consulting. Total Revenue was $4.7 billion up 14% or 5% on an underlying basis. Underlying growth was strong in both segments with RIS up 5% and Consulting up 3%.
Adjusted operating income increased 15% versus a year ago to $1.2 billion. The adjusted operating margin increased 80 basis points to 27%. Adjusted earnings per share increased 8% versus a year ago to $1.64 reflecting strong underlying growth and margin expansion.
Even though COVID-19 will impact our results for the remainder of the year, our strong first quarter performance is evident that we enter this period in a position of strength and able to manage through this difficult environment.
Moving to -- on to an update of our expectations for 2020. The current situation is still evolving and it is uncertain how deep and prolonged the downturn will be. Our outlook is based on a short global economic pullback starting in the second quarter, with the global lockdown lifting in the third quarter, but recessionary conditions persisting through the year.
For the full year 2020, we currently expect a modest decline in underlying revenue. We are being vigilant and disciplined regarding discretionary expenses. We've strong control over our cost base and have leverage that our disposal to manage in the near-term. For the full year, if underlying revenue declines moderately, we could be adjusted EPS in a similar range or slightly better.
With that, let me turn it over to Mark for a more detailed review of our results.
Thank you, Dan, and good morning. Our first quarter results were excellent. And although the current crisis will impact our performance this year, we faced it well positions and strong. Dan covered the high level results for the quarter. So, I will provide some additional details on our results, and then turn to updated views on our outlook in capital management.
Looking at Risk and Insurance Services, first quarter revenue was $2.9 billion, up 20% compared to a year ago or 5% on an underlying basis. Adjusted operating income increased 20% to $932 million and our adjusted operating margin expanded 90 basis points to 34.5%.
At March, revenue in the quarter was $2.1 billion with underlying growth of 5%. Growth in the quarter was broad-based and driven by the strong new business and renewal. The U.S. and Canada division delivered another quarter of strong growth with underlying revenue of 5%. The U.S. and Canada have achieved 5% or higher underlying growth in seven of the last eight quarters.
In international underlying growth was solid at 4%. EMEA with 4%, representing the highest underlying growth in that region in 12 quarters, led by strength in Continental Europe and in Middle East. Asia Pacific was up 6% on top of 8% in the first quarter of 2019. This result is impressive considering the virus impacted Asia in the first quarter and Latin America grew 3% on an underlying basis.
Guy Carpenter's revenue was $827 million up 25% or 7% on an underlying basis driven by strong growth in EMEA, North America and Asia Pacific. Guy Carpenter has now achieved 5% or higher underlying growth in nine of the last 10 quarters.
In the Consulting segment, revenue in the quarter was $1.8 billion up 5% compared with a year ago or 3% on an underlying basis. Adjusted operating income was $289 million and the adjusted operating margin contracted by 80 basis points to 17.2%.
As we mentioned on our last call, we expected the first quarter margin to decline in Consulting due to some quarterly volatility, and the inclusion of JLT’s Employee Benefits business, whose margins have historically been relatively low in the first quarter.
At Mercer revenue in the quarter was $1.3 billion with strong underlying growth of 5% continuing the trend of sequential improvement in growth from the first quarter of 2019. Wealth increased 3% on an underlying basis, reflecting low single-digit growth in defined benefits and mid single-digit growth in investment management.
Our assets under delegated management were approximately $267 billion at the end of the first quarter up 1% year-over-year, but down 12% sequentially due to the decline in equity market.
Health grew 8% on an underlying basis the strongest growth since the fourth quarter of 2015, reflecting solid performance across the portfolio and Career grew 2% on an underlying basis.
At Oliver Wyman, revenue in the quarter was $511 million, which was flat on an underlying basis. After a good start to the year we saw the beginning of virus related impacted Oliver Wyman in March.
Adjusted corporate expense was $54 million in the quarter. Our other net benefit credit was $64 million in the quarter. And for 2020, we anticipate this item will be modestly lower than in 2019. Based on current expectations, we would assume roughly $256 million for this -- or the 2020 versus $271 million in 2019.
Foreign exchange with a slight headwind to EPS in the quarter assuming exchange rates remain at current levels. We expect FX to be approximately $0.86 per share headwind for the remainder of the year.
Our effective adjustment tax rate in the first quarter was 23.2% compared to 22.6% in the first quarter last year. Our tax rate benefited from favorable discrete items, the largest of which was the accounting per share based compensation similar to a year ago.
Excluding discrete items, our effective adjusted tax rate was approximately 25.5%, based on the current environment, it is reasonable to assume a tax rate between 25% and 26% for 2020.
April 1, marked the one year anniversary of our acquisition of JLT. And we are on plan or ahead of schedule on all of our key milestones, including cost savings and restructuring actions. We incurred $80 million of JLT integration and restructuring costs in the first quarter, bringing the total to-date to $415 million. We remain on track to achieve our guidance of at least $350 million of JLT savings by the end of 2021. We still expect to incur $625 million of cash costs and $75 million of non-cash costs to achieve these savings. While it remains our expectation that a significant amount of our actions will be taken in 2020, the current crisis could impact timing as we navigate through the near-term. As a result, we could see some shift in our expectations for integration costs and savings between 2020 and 2021, but our current view is the impact will be relatively modest.
Our outlook for 2020 has obviously changed in light of the current crisis. We want to share how we think our performance could develop, but have to emphasize that we have less visibility into how our results could unfold over the next few quarters than at any time we can remember.
Our view is based on our outlook today. And it goes without saying that conditions to turnout materially different than our assumptions, which would affect our projections. As Dan mentioned, our outlook is based on a sharp economic pullback starting in the second quarter, with the global lockdown lifting in the third quarter that recessionary conditions persistent through the year.
Based on these forecasts and our internal analysis, our current view is that we could see a modest decline in the underlying revenue for the full year with the deepest declines in the second and third quarters.
At Marsh, we still see the potential for modest underlying revenue growth for the year, although the second and third quarters will be challenging. We believe Guy Carpenter will see mid single-digit underlying growth for the year, with a stronger first half and a weaker second half. We currently expect Mercer could see underlying revenue declined for the remainder of the year and be down modestly for the full year.
Oliver Wyman will see a meaningful pullback in underlying revenue in the second and third quarters that could be greater than the peak decline we saw in the financial crisis. We would note, however, that once the financial crisis is sided and the global economy is stabilized, both Mercer and Oliver Wyman experienced a strong rebound in underlying growth.
Contemplating this outlook on the top line, we moved quickly to manage our expenses and significantly cut back on every discretionary expense across the firm. Our earnings will benefit from these actions as well as to continue contribution from JLT synergies. Based on this, if our revenues in the range that we've discussed, we could see adjusted EPS for the year in the same range or slightly better.
Turning to capital management and liquidity, in addition to our existing $1.8 billion credit facility of which $800 million was unused at the end of the quarter. We recently secured additional borrowing capacity in the form of a new $1 billion line of credit. This was a proven step to increase our access to short-term funding given the uncertainty of the current environment.
On our fourth quarter call, we provided an outlook for capital management and that outlook is clearly changed in light of the current environment. While we intend to maintain our dividend, it is unlikely we will grow the dividend double-digit this year. On the fourth quarter call, we indicated that we did not expect any share repurchases in the first half of 2020. At this point, we do not expect to repurchase shares this year.
We remain focused on deleveraging, although the pace of debt pay down will ultimately depend on our cash flow generation in the current environment. Total debt at the end of the first quarter was $13.6 billion, compared with $12 billion at the end of 2019. This increase in debt is primarily due to short-term borrowings to fund seasonal cash needs, which are highest in the first quarter. We were also holding additional cash in quarter end to fund the purchase of Assurance Holdings and M&A acquisition that closed on April 1.
Our next scheduled debt maturities are in December 2020 with $700 million senior notes will mature and in January 2021 when a $500 million term loan comes due. During the first quarter, we repaid $500 million of debt that matured.
Interest expense in the first quarter was $127 million. Based on our current forecast, we expect approximately $140 million of interest expense in the second quarter. Our cash position at the end of the first quarter was $1.5 billion. Uses of cash in the quarter totaled $476 million and including $232 million for dividends and $244 million for acquisitions. Overall, we are pleased with our excellent first quarter results. We are a resilient company. We enter this crisis from a position of strength.
And with that, I'm happy to turn it back to Dan.
Thank you, Mark. And operator we're happy to take questions.
Thank you. And interest of addressing questions from as many participants as possible. We would ask the participants limit themselves to one question and one follow-up question. [Operator Instructions] We will now take the first question from Mike Zaremski from Credit Suisse. Please go ahead.
Hey, good morning, and thank you for the prepared remarks and the update on the guidance. My first question is regarding your outlook and other I guess, if revenues potentially declined by single-digits and earnings could very well then potentially also fall by single-digit, I think that's a pretty good outlook relative to past recessions or maybe I'm wrong, maybe you can kind of talk to -- are the dynamics different from for Marsh & McLennan this time around versus the past recession are there – are you -- the business less technical or are there more kind of levers in terms of cost reduction efforts that you can pull this time around versus recession a decade or plus ago? Thanks.
Thanks, Mike. Never thought I'd miss you guys. So, it's good to have some people on the telephone. I'm getting tired of looking at the same my team every morning. So, but, every crisis is different, Mike, it all has its own unique attributes and while there are parallels to draw, you can't get really focused on, it was like this last time, so it'll be like this time. I think the important thing is, MMC is really defensive and resilient, we're not immune to this kind of crises. But for us, the impact on manifests itself we produced the management consultants series services and lower premium growth due to the explosive decline.
And the explosive decline may be more significant than they were in the global financial crisis. But on the other hand, at that point in time rates were generally going down and now rates are generally going up. If the recovery is faster than we outlined in our scripted remarks, then we'll do better than our guidance. And if the downturn is deeper and more prolonged will do worse.
But the impact on us, we believe is manageable. And when I think about resilience, ever think about things like, clients are going to continue to buy insurance. They're going to continue to renew their health and benefits program. They're going to do their annual actuarial work. And so, that kind of thing a level of recurring revenue, recurring engagements that we have, will continue.
We mentioned that Oliver Wyman is expected to see the most significant negative revenue impact. But keep in mind, the cost structure, I have mentioned many times before the cost structure in Oliver Wyman is more variable than in the rest of the company.
And so, it helps us to mitigate the earnings impact because of the cost variable cost nature of OW. Now, if you mentioned, the financial crisis and just go back in time, RIS in 2008 was 0 they were flat, and in 2009 was a minus 1. And the Consulting division actually grew in 2008 and was down 7% in 2009. And OW, back in the last crisis contracted for six quarters consecutively, and then had a pretty strong rebound after that. And clearly when we looked at OW now, it's a completely different firm and certainly has been our best blower over that elongated period. But Mike, you have a follow up?
Yes, that's helpful. My follow up is, Dan, you talked about the extreme uncertainty regarding COVID-19 related losses, and I guess revenue impacts for the entire industry. I’m curious, what are you guys seeing and your teammates seeing in April regarding commercial P&C pricing, is it actually moving higher despite the economic pressures to begin the uncertainty? And maybe if there's any distinctions between M&A kind of small, medium sized agencies versus the largest clients that that'd be great too? Thank you.
Sure and I'll hand off to John and also to Peter to give me deeper commentary. But I'll just start by saying, we're an intermediary. We're insurance brokers and on the Marsh side of the house, we do everything we can to negotiate broad coverage terms and high quality, best site available sort of thing. And that's what we'll continue to do. That's our job until to us. We're not trying to strike a balance between insurance companies and our clients. We're an advocate for our clients. And these are tough times for a lot of our clients. And so, we're working hard to obtain the best terms as possible, because nobody wants to be paying premium increases at a time when cash is king.
And so, we're really focused on doing our best. And we expect in this kind of environment, there's a bit of a flight to quality. There's also higher levels of client with retention anticipated and probably softer new business as we go forward as we work through. But John you want to talk about the overall environment for COVID losses and how you're seeing the market today? We're going to be plugging john in a second. But what Peter Hearn let me go to you and talk a little bit about the reinsurance side.
Yes, Dan. The reinsurance market pricing was already increasing prior to COVID-19. It continues to increase. And so, we're looking at this as a continuation of a market that was already in transition principally in the United States more than in Europe. But, I would imagine the advent of COVID-19 that there'll be a reevaluation of risk throughout reinsurers’ entire portfolio.
So, April 1, we saw increases in Japanese risk, principally based on several years of Typhoon loss. In Florida, no doubt there will be a reevaluation of risk based on the loss free from events in 2017 and 2018, which Dan mentioned in his opening comments. But I would say in general, the reinsurance market has acted responsibly in their pricing to our clients based on exposure, based on loss experience and based on their overall relationship with them.
Okay, thanks, Peter. One other things that that we mentioned in our script is that we're entering the U.S. hurricane season. And so, this market is special. And the one thing that all companies want, but in particular insurance company see to some level of certainty with regard to, what loss has happened and how it's going to impact them. And because in a lot of ways, premium levels, at least on the rating side are determined by past losses is probably the primary determinant of what's going to happen to rates in the future is what happened to losses in the past. And COVID is really unique because it is a low developing catastrophe. So, we all know, it's going to be big. But, it's in real time right now. I mean, the losses are ongoing, and it's global. And so, on that standpoint, clearly we're going to be battling with insurers on rate levels, because in many areas, they're going to be seeking higher rate levels.
Okay, so next question, please.
The next question comes from Jimmy Bhullar from JP Morgan. Please go ahead.
Hi, good morning. So first, I just had a question on your exposure to a potentially sort of the debate that's going on, on business interruption. How do you sort of think about your exposure to claim of their client might think that they're covered for something and then the they're not I know, you had like $0.5 billion in dollar settlement in the last -- about 10 years ago, but can you give us any details on your own liability coverage redemption or the mix?
Well thanks Jimmy. Yes, I mean, the Alaska situation is completely different from this one. And so, really it doesn't apply. But, our role and principle focus as a broker is to advocate forcibly for policyholders, and doing our best to obtain broad coverage and in the event of a claim assisting them with recovery and so from that standpoint, that's what we do. We're on the client side of the table trying to develop outcomes. And as we mentioned in the script, this is going to be, a case-by-case sort of a basis This is a different wording out there. Some language is much clearer than others.
And so therefore, there will be different impacts as we go through advocating for clients. In terms of our own risk management practices over the last few years, we've streamlined our professional standards, we've conducted E&O training with thousands of colleagues, and we've instituted widespread limits of liability. So E&O is a large risk exposure to us. We are in the business of giving advice, but on that – but I think we are entering this crisis with consistency and controlsin terms of how we render that advice.
Okay, thanks. And then -- yes, on -- this is a different topic, and you discuss this in your comments as well. But as you did, and obviously did the virus is an evolving situation, but based on your views right now, Q3 is probably going to be weak, third quarter should be weak as well. Do you expect your drop and your results to be in the third quarter or is it more likely in 2Q and you think you're going to slowly be emerging out of it in the third quarter?
No, I think that the impact, generally in insurance, you have delayed impact geared up with renewal dates and that sort of thing. It's not immediate type of impact. I think we're going to feel headwind in parts of our business significant headwinds, both in the second and in the third quarter and I can't really say which one is likely to be more significant, when I look at the overall company and as we decide before, RIS to do reasonably okay, in this circumstances here. Mercer, we're thinking, it's going to be negative, most likely for the balance of the year. But overall, we think it's probably a modest decline for the year and there'll be proper pullbacks in OW. And in fact, at the end, we're very much focused not only in managing this crisis to the best we can, but also emerging from this crisis stronger than we otherwise would be. And so, we're not fighting every end for the second and third quarter. We're fighting for the next three years, and we're making sure that we're doing the right things now to ensure that we're positioned well.
That's clear. Thank you.
The next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.
Hi, good morning. My first question on going back to the outlook as well. So, you guys pointed to, modest decline in underlying revenue outlook and said that, EPS could decline by a similar amount. So, that would imply, that your margins would be fairly stable, it'll hold up pretty well for the year. I just want to confirm that I'm thinking about that right. And then Dan going back to some of your other comments. you guys imply a sharper declines within Consulting, so is it right to think that you would see more of a margin impact within Consulting and maybe RIS margins could hold up on better during the downturn?
Yes, you you're spot on Elyse, and I would just in general, we're not really focused on margin, we're focused more on issues around revenue and earnings. And margin will be an outcome of what happens on the top line to a large extent. But you're right on and thinking that based upon what we’ve said about RIS, it's likely that RIS's margin hold up and may even improve a bit. And on the other hand, it's likely the Consulting margin based upon what we said is going to occur with their revenue outlook, are going to reduce. And overall companywide, I can't make a call right now in terms of that. I do know I love streak. And we've had 12 years in a row of margin expansion, and so we won't give that one or two easily.
Okay, thanks. And then my second question on, you pointed to business in the second and the third quarter and it sounds like just in response to previous questions that, that there is a bit of a lag on the brokerage side. So, sounds like maybe third quarter weaker than the second quarter on Consulting on some of the weakness that you called out within Oliver Wyman and within Mercer, is that more immediate in nature? And so should we think about Consulting, kind of flowing on over in the next couple of quarters kind of, in my initial results might be to the same degree?
Yes, I think the way to look at it is, what's recurring revenue and what's more project related and that has more of an impact as to whether something falls in Consulting or something falls on the RSI side. On the RSI side there's a significant amount of recurring revenue, but parts of Mercer have a lot of recurring revenue as well. And so both of those recurring revenue pieces probably have a longer time horizon or a lag effect and so you will see an impact over the second and the third quarter as those businesses adjust. Areas which has non-recurring revenue, it could be done project related Consulting in Career within Mercer it could be most of Oliver Wyman is project related. Those will be faster decline, more immediate decline. And so you would be right in the second quarter in those parts of the business coming off. Next question please, operator.
The next question comes from Greg Peters from Raymond James. Please go ahead.
Good morning. My first question is on we've seen a number of companies in the insurance industry announced no layoff pledges. One of your peers has announced salary cuts. And there seems to be a level of social responsibility that is becoming increasingly more important. So, I'm curious about how you think that might impact things around cost saving initiatives and synergies, both currently and the future M&A.
So thanks, Greg. I mean, it's a really important question. And it's multifaceted. But, let me talk about it a little bit from our perspective. I mean, I -- we did talk about both Marsh and I that our visibility into our outlook is uncertain, so making decisions with so much uncertainty about outlook isn't easy. But those decisions are best done with clear eyes and the collective judgment of a seasoned team. So, we've spent a lot of time surveying the horizon. And in our view, as I was just mentioning, we're in a resilient business. Yes, it hold up pretty well. Some parts of Consulting are going to see meaningful pullback, but we expect them to come back strong as the economy recovers and so we've got many different levers on the expense side at our disposal.
We want to preserve flexibility and optionality for as long as we can. And we want to make decisions based on data scenario planning, stress testing, and we've got all kinds of capability within the firm in order to do that, and we recognize that there are different levers for different challenges. When we think about expense cuts, and our bonus pool it's primarily giving us levers to protect earnings, and by the way just as an aside, our bonus pool in 2019 was the largest in our history, so from that standpoint, bonus pools expense cuts are going to protect earnings as we go forward.
To us salary reductions and things like dividend cuts are levers to protect liquidity it's kind of like survival mode stuff. And we would -- we took some other actions, we secured additional assets and liquidity early in the crisis. We believe that that's going to help us manage through most scenarios to the slowdown in collections impact our cash flow.
And as we saw in the financial crisis, there was a slowdown in the collection cycle, but it is temporary, so solving that issue by reducing pays is an awfully blunt instrument, and it can have lasting implications, starting with the notion of battering trust with your colleague base by challenging them when they're in this difficult period and the snap back that all recurring cost, once pay is lifted back again it's just a couple of things that make it really problematic.
Also you can't just implement that kind of thing easily this Consultation rules in most countries and so doing some sort of broad base pay reduction programs are very difficult. And the impact oftentimes will fall most heavily and unfairly on the U.S. population and so based upon our outlook today, levers like pay cuts or dividend cuts are not necessary. We track daily cash activity so we can get early warning signs and we can react quickly if those levers are warranted, but I can't emphasize enough that we are managing this period very closely. We have never been more connected as an organization, the leadership team and I meet every day and we are watching new business, expenses, exposure, pricing, cash flows obsessively as a leadership team and we are calm and we are clear-eyed in this crisis. Our intention is that in terms of levers to avoid being late and pulling a lever, but also avoid doing something now that is harmful, and later proved to be unnecessary.
I want to pivot to the balance sheet. First its two parts that I'm just curious in the light all these get back and delay programs and premiums, if you could address the net receivable balance on your balance sheet and if you have any concerns on that. And then in the debt component, I know, you spoke in your opening comments about how you took down the $2 billion of revolver and then you paid off $500 million, but the long term debt piece increased from $10.741 billion at the end of the year to $11.231 billion and I don't understand why the long-term debt would have increased when you paid down $500 million. Thank you for your time.
Sure, let me hand over to Mark who will walk you through not only our approach on accounts receivables, but what we're looking like on the debt side. So, Mark?
Sure, there's a lot in that question. So, I'll try to hit all those points. First, just to hit a little bit on liquidity in the collection side how we feel we're positioned, Dan hit on a little bit of this, and then you go into a period like this. And you pull back and focus on the basis and liquidity and flexibility are definitely on that list. And so very early in the crisis, we jumped on this from both a financial perspective and an operational perspective.
So, I mentioned earlier, in addition to our $1.8 billion credit facility, we went out almost immediately, and secured an extra $1 billion short-term line of credit, just as additional firepower going into this period of uncertainty. And remember, we had $1.5 billion in cash on our balance sheet some of that was to pay for the insurance acquisition, but we've typically run about [$1.1] billion on average at any given point in time.
And so we've got substantial liquidity available to us as we enter this period. In terms of collections and visibility, we've operationalized around this like, as I said, this heightened visibility on the potential for a slowdown in collections. And in financial crisis, there was one. And so it's something we could anticipate. And Dan mentioned earlier, we've invested a lot in globally consistent systems and platforms and the finance area is one of those. So, having accounting platform and financial reporting platform uses very good visibility into accounts receivable balances, aging, trends, and all of our businesses are taking advantage of that.
And the other thing we're doing is we have pretty good visibility in our major countries and just daily catch deposit and cash flow activity. And so this is something that you can anticipate and prepare for and whether it's financially in terms of flexibility or operationally to try to mitigate any impact is, as best we can. We feel well prepared. Just a couple of things on what you said, we still have $800 million of capacity in our existing short-term credit facility, not even the [$1.1] billion.
So, not all of what you see in short-term debt there is revolver borrowing. And that's, we typically -- the increase we saw on short-term debt in the first quarter is what we typically see every first quarter, first quarter is when we pay out our bonus payments and we fund that through short-term financing. As I also mentioned, we were holding on to a little bit of extra cash for the Assurance acquisition.
And then just the increase in long-term debt that was just a move we made early in the year just to turn out a little bit of the short-term financing. We had and it’s a lot of flexibility we're building into and we built into our term structure just relating to the debt we raised as part of financing JLT. So, overall we have pretty substantial access to short-term liquidity and we feel like we're pretty well mobilized around, any risk associated with delay in the collection cycle.
Thank Mark. Next question, please.
The next question comes from Suneet Kamath from Citi. Please go ahead.
Thanks. Good morning. My first question is around the environment. I mean, typically, when we would see two large competitors merging, I would have thought that could have created some opportunities for the folks that are not distracted by a large deal. Just wanted to get your thoughts on that or is that something we shouldn't expect, given all the uncertainty related to the COVID-19 pandemic?
Well, I'm not going to comment on the potential merger between AON and Willis, I'll leave it to them to comment on it. We like our strategic positioning, we would not change position with any of our competitors. We believe that, we are set up very well, we're in the right countries, we've got the highest quality colleague base, we've got a client which would be the envy of any company in the world.
And so we think that, we'll be able to grow substantially in the future based upon the fact that we're the leading provider of services around risk strategy and people and we like the way we're set up. I do know, we've learned an awful lot about integrating activities over the course of the last decade, we've done a number of acquisitions and, of course, JLT was the largest acquisition in our history. And we had a terrific year, a remarkable year in 2019, even though we were doing a lot of integration work and that is down to the quality of the executive team and the matching of culture that existed.
They -- were the cultures were not identical, that's to be sure. But they're both high quality. They're both positive. They're both client focused. And so on that basis I really think that our fourth quarter demonstrate tick that box. JLT was a special acquisition for Marsh & McLennan and was the successful integration. We had 5% underlying revenue growth for the firm, but more specifically the places that really overlap the most with JLT is that Marsh at 5%, Guy Carpenter at 7%. And Mercer was 5%, but it was 8% underlying and health and so the quality of what we've been able to deliver, I mean, our adjusted operating income and almost $1.2 billion is a first quarter record for us.
And so we're thrilled. We were set up for a wonderful year in 2020 in -- okay, so now, like the rest of the world we're dealing with the crisis, but it doesn't take away from the fact that we are a stronger, more capable, more creative, more connected firm than we've ever been before.
Got it. It makes sense. And then the quick one for Mark, I think you had mentioned both the debt maturity in early 2021, as well as some term debt. So, just the thoughts on retiring those debt securities?
Yes, sure. The short answer is, we would expect to, pay those off through operating cash flows, notwithstanding the crisis and okay, that the -- that's changed our outlook. The second and third and fourth quarters for us is generally where we generate pretty substantial cash flows and we still anticipate that, at this point, based on what we see, we're going to have good cash generating through operations for the balance of the year.
Next question please.
The next question comes from Phil Stefano from Deutsche Bank. Please go ahead.
Yes, thanks. Dan, you talked about the expense levers that you have at your disposal to dial them back and trying to do so in a, prudent fashion, just given the outlook for where you think your things are going. I mean, it's not too far, but make sure they're far enough to have a positive impact. I guess when we think about these expense levers where is the expensive leverage you can pull more quickly than others. And have you thought about the extent to which maybe some expense levers don't come back, because if they're so easy to dial down this quickly, do we really need them as we think about business moving forward?
Yes, I mean, it's a great question because I think there are certain things that that are occurring which may actually last longer and maybe be permanent as we go forward. I mean things like flexible work arrangements may put our pressure on our real estate costs over time not in the short-term, but over time as an organization we have proven to ourselves and to our clients base that we can work from home, we can work remotely and do it effectively.
And so there's an awful I mean, I absolutely believe that more agile environment, more digital are going to be a part of our future and that would be a real positive.
Now in terms of expensive levers there’s several that you can pull. I mean, I start from the idea that we have a very significant bonus pool as I mentioned before in the last 2019 our bonus pool was the largest level in the aggregate in our history as a company.
And it's all here, net operating income, so we are team deep within the organization, is very aligned with shareholders and very aligned with the net operating income of the firm. And so it will be geared if the NOI is dropping while the bonus pool is not listed, and that's a wonderful lever, because it's variable, it's variable for a reason. And the other thing I would say is, we're a people business and while you may have less attrition in a recessionary environment, you still have attrition, and we thought in other recessions and we do not have a hiring freeze, in fact, we're hiring people every day, but we will control our hiring and we'll make sure that our executive team is very involved in making the decision that we want to make, but we'll manage our attrition that way and have some more control over that.
Clearly, significant pullback in the use of temps for contractors and things like T&E have fallen away a lot of marketing spent. The things like conferences, meetings, events over time, all things that that we have as levers which have largely already been pulled to some extent and you can always go deeper there. But, we're comfortable in what in how we're set up. I mean, at the end, we said that we think that that our overall revenue might be down modestly as a company for the year. And if so then our overall EPS will be down modestly as well. But it might be slightly better than what our revenue would go.
And that's the reason I follow-up and it's a quick one, but when you talk about the EPS being down modestly, if not slightly, but the correct base for that is [indiscernible] of 2019 adjusted EPS. Is that correct?
That's correct.
Okay, thank you, Dan.
Thanks.
I'd now like to turn the call back over to Dan Glaser, President and CEO of Marsh & McLennan Companies for any closing remarks.
Yes, hi. Thank you operator and I'd like to thank everyone for joining us on the call this morning. In closing, I want to applaud the tireless dedication of our 76,000 colleagues worldwide and the important role they played supporting their colleagues, clients and local communities. Times like these tested true character of an organization and the strength of individuals. And what I've seen from MMC in the past few months has been nothing short of amazing. So thank you all and have a good day.
That will conclude today's call. Thank you for your participation. You may now disconnect.