Marsh & Mclennan Companies, Inc. (MRSH) Q1 2020 Earnings Call Transcript

Welcome to the Marsh & McLennan 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 risks 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 you 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 lifetime. This is, first and foremost, a human tragedy with the health and livelihood of virtually everyone around the world 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 a quick return to life as we knew it. However, recent data shows that our response to the crisis is helping to flatten the curve. We can already see some parts of the world take early steps toward recovery. Businesses are working at multiple levels to get the 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. 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 moved 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 has proven invaluable in our response to this crisis. Within days, we were able to pivot to 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 for 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 to put colleagues' interests 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 improves. 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 as 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 that 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 systems 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. 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 to address pandemic risk. Marsh and Guy Carpenter are bringing policyholders, insurers and governments 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 relief to help businesses address near-term cash challenges and protect jobs. At 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 and 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%; global financial and professional lines were up 26%; while global casualty rates were up 5% on average. Keep in mind however, our index uses a large account business where we typically earn 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 it to be fully understood. It affects nearly every country and it also led to a simultaneous asset shock. 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, makes the overall loss difficult to estimate at this time. The determination of coverage for the virus will be policy-by-policy. We think legislating retroactive coverage is a step too far and will challenge the very notion of insurance. Declining exposure units 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 adjustments, although to date it is limited in commercial lines. In some markets regulators are looking for mandated refunds. Turning to reinsurance, the April 1 renewals were largely focused on Japan following a couple of years that were the worst the Japanese typhoon activity experienced in recent times. Japanese insurers paid significant increases to renewals of their capacity excess of loss covers. 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 in both Risk & 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 evidence that we enter this period in a position of strength and are able to manage through this difficult environment. Moving 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 have strong control over our cost base and have leverage that our disposition to manage in the near term. For the full year, if underlying revenue declines moderately, we could see 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 are well positioned 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 and capital management. Looking at Risk & 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 Marsh, revenue in the quarter was $2.1 billion with underlying growth of 5%. Growth in the quarter was broad-based and driven by strong new business and renewals. 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. International underlying growth was solid at 4%. EMEA at 4%, representing the highest underlying growth in that region in 12 quarters, was led by strength in Continental Europe and in the 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 markets. 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 impact at Oliver Wyman in March. Adjusted corporate expense was $54 million in the quarter. Our other net benefit credit was $64 million in the quarter. 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 item in 2020 versus $271 million in 2019. Foreign exchange was 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 adjusted 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 accounting for 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. 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. It goes without saying that conditions could turn out 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 and recessionary conditions persisting through the year. Based on these forecasts and our internal analysis, our current view is that we could see a modest decline in 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 decline 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 subsided and the global economy 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 continued contribution from JLT synergies. Based on this, if our revenues are 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 prudent 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 paydown 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 at quarter-end to fund the purchase of Assurance Holdings, an M&A acquisition that closed on April 1. Our next scheduled debt maturities are in December 2020 when $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, 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 entered this crisis from a position of strength. And with that, I'm happy to turn it back to Dan.

Thank you, Mark. Operator, we're happy to take questions.

Thank you. And in the 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. 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. If revenues potentially declined by single-digits and earnings could very well then potentially also fall by single-digits, I think that's a pretty good outlook relative to past recessions — or maybe I'm wrong — maybe you can kind of talk to whether the dynamics are different for Marsh & McLennan this time around versus the past recession? Are there more levers in terms of cost reduction efforts that you can pull this time around versus the recession a decade or more 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 team every morning. Every crisis is different; it has its own unique attributes, and while there are parallels to draw, you can't be overly focused on the last crisis as a template. The important thing is MMC is really defensive and resilient. We're not immune to this kind of crisis, but for us the impact manifests itself in reduced management consulting services and lower premium growth due to the economic decline. The decline may be more significant than it was in the global financial crisis. On the other hand, at that time rates were generally going down and now rates are generally going up. If the recovery is faster than we outlined in our remarks, then we'll do better than our guidance. And if the downturn is deeper and more prolonged, we'll do worse. But the impact on us we believe is manageable. When I think about resilience, I think about the fact that clients will continue to buy insurance, they'll continue to renew their health and benefits programs, they'll do their annual actuarial work. That recurring revenue and 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 in Oliver Wyman is more variable than in the rest of the company, and that helps mitigate the earnings impact because of the variable cost nature of OW. If you look back at the financial crisis, RIS in 2008 was flat and in 2009 down 1%. The Consulting division actually grew in 2008 and was down 7% in 2009. Oliver Wyman contracted for six consecutive quarters and then had a pretty strong rebound after that. Oliver Wyman today is a completely different firm and has performed well over that period. Mike, do 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 and your teammates seeing in April regarding commercial P&C pricing — is it actually moving higher despite the economic pressures? And maybe if there's any distinctions between small and midsize agencies versus the largest clients, that'd be great too. Thank you.

Sure. I'll hand off to John and Peter to give deeper commentary. But I'll 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. That's our job. We're not trying to strike a balance between insurance companies and our clients; we're an advocate for our clients. These are tough times for a lot of our clients, and so we're working hard to obtain the best terms possible because nobody wants to be paying premium increases at a time when cash is king. We expect in this kind of environment there's a bit of a flight to quality. There's also higher levels of client retention anticipated and probably softer new business as we go forward. John, do you want to talk about the overall environment for COVID losses and how you're seeing the market today? And Peter, we'll ask you to comment on the reinsurance side.

Dan, the reinsurance market pricing was already increasing prior to COVID-19. It continues to increase. 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. The advent of COVID-19 will lead to a reevaluation of risk across reinsurers' portfolios. On April 1 we saw increases in Japanese renewals, principally based on several years of typhoon losses. In Florida, there will be a reevaluation of risk based on the losses from 2017 and 2018. In general, the reinsurance market has acted responsibly in their pricing to clients based on exposure, loss experience and their overall relationships.

One other thing we mentioned in our prepared remarks is that we're entering the U.S. hurricane season. All companies want, and in particular insurance companies, some level of certainty with regard to what loss has happened and how it's going to impact them, because premium levels — at least on the rating side — are primarily determined by past losses. COVID is unique because it is a loss that is developing in real time. We all know it's going to be big, but the losses are ongoing and it's global. On that standpoint, clearly we're going to be negotiating with insurers on rate levels, because in many areas they're 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. First, I had a question on your exposure to the business interruption debate. How do you think about your exposure if a client thinks they're covered and then they're not? I know there was a $0.5 billion settlement years ago, but can you give us any details on your own liability coverage, E&O exposure or the mix?

Thanks, Jimmy. The situation you're referencing is different from this one, so it's not directly applicable. Our role and principal focus as a broker is to advocate for policyholders, to obtain broad coverage and in the event of a claim to assist with recovery. We're on the client side of the table working to develop outcomes. As we mentioned in our prepared remarks, determinations will be case-by-case because wording differs across policies; some language is much clearer than others. Regarding our own risk management practices, over the last few years we've streamlined our professional standards, conducted E&O training with thousands of colleagues, and instituted widespread limits of liability. E&O is a large risk exposure to us since we are in the business of giving advice, but we entered this crisis with consistency and controls about how we render that advice.

Okay, thanks. On a different topic: you discussed the outlook and indicated Q2 and Q3 will be weak. Do you expect the drop in results to be concentrated in Q3, or more in Q2 with a slow emergence in Q3?

I think the impact will be felt in both the second and third quarters. In insurance, there's often a delayed impact tied to renewal dates, so it's not immediate. We expect headwinds in parts of our business in both Q2 and Q3; I can't definitively say which will be worse. RIS may do reasonably okay, Mercer is likely to be negative for the balance of the year, and Oliver Wyman will see significant pullback. We're focused on managing the crisis and emerging stronger. We're making decisions now with an eye toward the next three years, ensuring we're positioned well.

The next question comes from Elyse Greenspan from Wells Fargo. Please go ahead.

Hi, good morning. My first question on the outlook: you pointed to a modest decline in underlying revenue and said EPS could decline by a similar amount, which would imply margins hold up well for the year. Can you confirm that's the right way to think about it? Also, you imply sharper declines within Consulting — is it fair to think Consulting margins will be more impacted while RIS margins hold up better during the downturn?

Yes, Elyse, that's right. We're focused on revenue and earnings; margin will be an outcome. Based on what we've said about RIS, it's likely RIS margins will hold up and may even improve. Consulting margins, given the revenue outlook, are likely to decline. Company-wide, I can't fully call it now, but we've had 12 years in a row of margin expansion, and we don't give that up easily.

Thanks. My follow-up: given the lag on the brokerage side, should we think Consulting's decline is more immediate, and will flow through over the next couple of quarters?

Yes. Think about what's recurring versus project-related. Consulting and parts of Mercer have recurring revenue, which have a longer time horizon, so you'll see impacts in Q2 and Q3 as they adjust. Project-related work, which is a significant part of Oliver Wyman and some parts of Mercer Career, will decline more immediately. So you will see faster declines in those project-based areas in Q2.

The next question comes from Greg Peters from Raymond James. Please go ahead.

Good morning. My first question: we've seen a number of companies in the insurance industry announce no-layoff pledges. One of your peers announced salary cuts. Social responsibility seems increasingly important. How do you think that might impact cost-saving initiatives and synergies, both currently and for future M&A?

Greg, it's a really important question. Decisions made in uncertainty should be done with clear eyes and the judgment of a seasoned team. We've spent a lot of time scenario-planning and stress-testing. We're in a resilient business and while some parts of Consulting will see meaningful pullbacks, we expect them to rebound. We have many levers on the expense side at our disposal. We want to preserve flexibility and optionality for as long as we can. We will make decisions based on data, scenario planning and stress testing. Bonus pools are one lever to protect earnings; our bonus pool in 2019 was the largest in our history, and adjusting the bonus pool is a variable lever that protects earnings. Salary reductions and dividend cuts are levers to protect liquidity. We secured additional liquidity early in the crisis to help manage through scenarios. A hiring freeze is a blunt instrument and has ramifications; pay reductions can have lasting implications on trust and are difficult globally. Based on our outlook today, levers like pay cuts or dividend cuts are not necessary. We track daily cash activity and can get early warning signs and react quickly if those levers become warranted. We're managing this period very closely; the leadership team meets every day and we are watching new business, expenses, exposure, pricing and cash flows obsessively. Our intention is to avoid being late in pulling a lever, but also avoid doing something now that is harmful and later proved unnecessary.

I want to pivot to the balance sheet. First, in light of premium deferrals and delay programs, can you address accounts receivable on your balance sheet and if you have any concerns? Second, on the debt component: you repaid $500 million, but long-term debt increased from $10.741 billion at year-end to $11.231 billion. Why would long-term debt increase when you paid down $500 million?

Mark will walk through our approach on receivables and the debt changes. Mark?

There's a lot in that question, so I'll try to hit the key points. First, on liquidity and collections: very early in the crisis, we focused on liquidity and flexibility. We secured an extra $1 billion short-term line of credit in addition to our $1.8 billion credit facility, and we had $1.5 billion in cash at quarter-end, some of which was to pay for the Assurance acquisition. We typically run about $1.1 billion on average in cash and have substantial liquidity available. On collections, we've operationalized heightened visibility on the potential for a slowdown. We have globally consistent systems and platforms in finance that provide good visibility into accounts receivable balances, aging and trends. Our major countries provide daily cash flow activity. We feel well prepared. Regarding short-term debt, we still had $800 million of capacity in our existing short-term credit facility at quarter-end. The increase in short-term borrowings in the first quarter is typical because Q1 is when we pay out bonuses and we fund that through short-term financing. As I mentioned, we held extra cash for the Assurance acquisition. The increase in long-term debt was a move we made early in the year to adjust our term structure and convert some short-term financing into longer-term debt. We raised debt as part of financing JLT, and overall we have substantial access to short-term liquidity and feel well mobilized around any risk associated with delays in the collection cycle.

Thank you, Mark. Next question, please.

The next question comes from Suneet Kamath from Citi. Please go ahead.

Thanks. Good morning. My first question around the environment: typically when there is a large competitor merger, you'd expect opportunities for firms not distracted by a large deal. Is that something we should expect, or is it unlikely given the uncertainty related to the pandemic?

I won't comment on other companies' potential transactions. We like our strategic positioning and would not change because of competitors. We are set up well: right countries, high-quality colleagues, and clients. We believe we will be able to grow substantially in the future. We've learned a lot about integrating activities over the last decade. JLT was a special acquisition and a successful integration. We had 5% underlying revenue growth for the firm, and places that overlap with JLT performed well: Marsh at 5%, Guy Carpenter at 7%, and Mercer health at 8%. Our adjusted operating income of almost $1.2 billion is a first-quarter record. We were set up for a strong 2020, and now like the rest of the world we are dealing with the crisis, but that doesn't change we are a stronger, more capable, more creative, more connected firm than before.

Got it. Quick one for Mark: you mentioned the debt maturity in early 2021 and the thoughts on retiring those debt securities?

The short answer is we expect to pay those off through operating cash flows, notwithstanding the crisis. The second, third and fourth quarters are generally when we generate substantial cash flows and at this point we still anticipate good cash generation for the balance of the year.

Next question, please.

The next question comes from Phil Stefano from Deutsche Bank. Please go ahead.

Thanks. Dan, you talked about expense levers to dial back prudently. Where is the expense leverage you can pull more quickly than others? Have you thought about whether some expense levers won't come back because if they're so easy to dial down quickly, do you really need them going forward?

Great question. Some changes may be permanent. Flexible work arrangements may put pressure on real estate costs over time; we've proven we can work remotely effectively. There are many levers: our bonus pool is a significant variable lever — our bonus pool in 2019 was the largest in our history and it's tied to operating income. Attrition and controlled hiring are levers: we're hiring selectively but will control hiring and leverage natural attrition. Cuts in use of contractors, T&E, marketing spend, conferences and events are levers and have largely already been pulled to some extent. We're comfortable with how we're set up. If the company revenue is down modestly for the year, EPS could be down modestly as well, but it might be slightly better than revenue would indicate.

Quick follow-up: when you talk about EPS being down modestly, is the correct base 2019 adjusted EPS?

That's correct.

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, 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 test the true character of an organization and the strength of individuals. 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.