Yahoo Finance Brown & Brown (BRO) Q3 2018 Earnings Conference Call Transcript
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Brown & Brown (NYSE: BRO)
Q3 2018 Earnings Conference Call
Oct. 23, 2018 8:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Brown & Brown Inc. third-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 questions given in 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 third quarter and are intended to fall within the safe harbor provisions of the securities laws. Actual results or events of the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors. Such factors include the company's determination as it finalizes its financial results for the third 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 properly 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.
This relevance to Brown & Brown's consummation and integration of the acquisition from Hays Companies. Additional discussion of these and other factors affecting the company's business 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 the 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, future events or otherwise. In addition, there 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 measure can be found at the company's earnings press release or in the 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, sir.
Powell Brown -- President and Chief Executive Officer
Thank you, Hanna. Good morning, everyone, and thanks for joining us for our third-quarter 2018 earnings call. Before we get into results for the quarter, I wanted to make some comments regarding our announcement yesterday about the pending acquisition of the Hays Companies. Hays is a $200 million-plus broker based in Minneapolis, Minnesota.
They started de novo in 1994 and have grown organically almost exclusively. Their team is led by Jim Hays and Mike Egan. Over half of their business in the employee benefits area with the remaining in commercial and personal lines. You've heard us regularly talk about the importance of cultural fit.
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Both our firms share a deep commitment to serve our customers best interest and we both understand that our teammates are our most important differentiator. We collectively are committed to a decentralized sales and service model. We'll get into more detail about the transaction later in the presentation. I'm now on Slide 4.
Let's get into the results for the third quarter. We delivered $530.9 million of revenue, growing 11.6% in total and 1.4% organically. Excluding the impact of the new revenue standard, our total revenues for the quarter grew 6.5%. I'll get into more details in a few minutes about the organic growth for each division.
Our EBITDAC margin was 33.5%, which is flat versus the prior year, but benefited from a 300 basis points from a new revenue standard. Andy will discuss the movements of our margins later. Our net income per share for the third quarter of '18 increased to $0.38 from $0.27 in the third quarter of the prior year, driven by an ongoing benefit from federal income tax reform and the impact of the new revenue standard. As we've said in the past, we do have fluctuations quarter to quarter in our organic revenue or margin, but over the year, the ups and downs typically net out.
Our third-quarter results are a good example of this where organic revenue growth and margin came in slightly lower than previous quarters. Based upon what we can see right now, we expect Q4 to be more in line with our performance on a year-to-date basis, excluding the impact of storm-related activity. We're very pleased to have completed 10 acquisitions with annual revenues of approximately $47 million during the quarter and have closed over $98 million of annualized revenues year to date prior to yesterday's announcement. Two weeks ago, our board of directors approved our dividend increase of 6.7% for the 2018-'19 year.
This represents the 25th year of consecutive growth in our dividend, something we're very proud of. We had top line and earnings-per-share growth for the quarter and have a lot of momentum across the business. Our newest teammates who joined us via acquisitions will help us expand our capabilities and increase our geographic footprint and most importantly, deliver more creative risk management solutions for our customers. Later in the presentation, Andy will discuss in more detail our financial results, excluding the impact of the new revenue standard.
I'm on Slide 5. Before we get into detail of our divisional performance, I want to make some comments about exposure units, rates, storm claim activity, capital in the market and our investment initiatives. First though, our thoughts and prayers are with everyone affected by hurricanes Florence and Michael. As we've done in the past and we'll do in the future, we're focused on helping our insureds work through these challenging times.
Consistent what we've been seeing for a number of quarters, the middle-market economy continues to do well. Our customers are feeling good about their prospects going forward and are continuing to invest in their businesses. We're monitoring the continued rise in interest rates and whether this will affect the positive momentum, especially in portions of our business tied to construction and housing. While we're not seeing something specific today, if interest rates continue to increase over the coming quarters, we expect there will be additional volatility in the market that will cause some slowdown in exposure unit growth.
Rates, as you know, and we've talked about for most lines, continue to be flat. That means for any one account, you can have a slight increase or a slight decrease, the exceptions continue to be with commercial automobile, which is up three to seven, and all sides employee benefits accounts, which continue to experience some upward rate pressure. The line we consistently see down is worker's compensation, which is generally down the 1% to 3%. Cat property rates for the quarter remained generally flat with some downward pressure on the best accounts and upward pressure on those with poor loss experience.
As we've mentioned previously, carriers don't want to lose renewals, but are willing to walk away from them if the pricing doesn't match their risk appetite. We're not seeing a significant number of claims in our Wright Flood business related to hurricanes Florence and Michael and therefore, not expecting claim revenue to be anywhere the levels we realized last year. We will see some claim activity within our services segment in the fourth quarter as there are some wind-related property claims. We mentioned earlier that we're pleased with our level of acquisition activity for the third quarter and the first nine months of '18.
We've been very -- we were very active last year and remain very active this year. We've not changed our metrics or what we're willing to pay. The overall landscape remains very competitive and as of now, we don't see a significant change in the level of capital flowing into the market. We are pleased with the progress of our investments in technology in our core commercial program.
As we've mentioned previously, Q3 represented the continued investment phase for our core commercial program and we continue to expect margin improvement for this program in Q4. I'm going to now Slide 6. Let's talk about the performance of our four segments. We mentioned earlier the lumpiness we can experience in organic revenue growth in certain quarters and we experienced that dynamic in the retail segment in the third quarter, which grew 2% organically.
We experienced some incremental lost business for this quarter and our new business was not as high as anticipated. We believe this is in an isolated incident to the third quarter. This is why we often look at year-to-date results to gauge our performance, as any one quarter does not make a trend. On a year-to-date basis, our organic growth in retail is 2.8%, which is 30 basis points higher than the same period for the prior year.
Our national programs segment decreased 3.3% organically. This was driven by approximately $5 million of claims processing revenue recorded in the third quarter of '17, with a minimal amount of claims processing revenue recorded in Q3 of this year. Isolating this change, our organic revenue would be flat to slightly positive for the program segment. As we discussed in our Investor Day last month, for the quarter, our lender plate business experienced a slowdown in organic revenue due to continued improvement in the economy and we had a couple of programs experiencing downward revenue pressure due to changes in risk appetite by our carrier partners.
Our wholesale brokerage segment had another strong quarter, with organic revenue growth of 7.7%, driven by the expansion in all lines of business. We continue to be pleased with the consistent organic growth of this segment. Way to go, Tony Strianese and the entire wholesale team. Our services segment delivered 2.1% organic revenue growth for the quarter and we realized growth across most businesses.
We did experience lower claims processing revenue compared to 2017, which has partially offset organic revenue growth experienced by other business in this segment. Let me now turn it over to Andy, who will discuss our financial performance in more detail.
Andy Watts -- Chief Financial Officer and Treasurer
Yes. Hey, Hanna, by any chance, is there some background noise by you that someone can mute there? It's overriding part of the call, please?
Operator
It's the only line open, sir.
Andy Watts -- Chief Financial Officer and Treasurer
OK, thank you. I appreciate it. Good morning, everybody. On the following slides, we'll discuss our GAAP result and then our adjusted results excluding the impacts of acquisition earn outs and the impact of the new revenue standard.
As a reminder, we've excluded the impact of the new revenue standard for the calculation of organic growth in order to provide a better comparison with the prior year. We plan to use this format for the remainder of 2018, then in 2019, we'll be on a comparative basis. Over onto Slide No. 7.
This presents our GAAP and certain non-GAAP financial highlights. For the third quarter, we delivered total revenue growth of 11.6% and organic growth of 1.4%. Our income before income tax increased by 14.5% and our EBITDAC grew by 11.8%, both of which were positively impacted this quarter by the new revenue standard. Our net income grew by 39.8% and our diluted net income per share increased by 40.7% to $0.38, versus $0.27 in the third quarter last year.
The growth in our financial metrics, except organic revenue growth, was impacted by the adoption of new revenue standards this year. We'll discuss more of this in a few minutes. The growth in net income and diluted net income per share in excess of revenue growth was primarily driven by our lower effective federal tax rate that resulted from tax reform last year. For the quarter, our effective tax rate was 25.5%, as compared to 39% last year with our effective tax rate benefiting from the 14% decrease in the statutory federal corporate income tax rate.
For the year, our expectations is for our effective tax rate to be in the range of 26% to 26.5%. Our weighted average number of shares outstanding decreased approximately 1% compared to the prior year. This was driven primarily by the share repurchases we initiated last year and completed in the first quarter of this year. And lastly, our dividends per share increased to $0.075, or $0.10 compared to last year.
Over to Slide No. 8. This slide presents our results after removing the change in estimated acquisition earn-out payables for both years and the impact of the new revenue standard, which results in the most comparative basis. For the quarter, our revenues increased by 6.5%.
Income before income tax decreased by 3.6%. And EBITDAC decreased by 2.9%. Our net income grew by 17.7% and diluted net income per share was $0.31, as compared to $0.26 in the prior year, growing 19.2%. In a few slides, we'll talk through the components of our margin change year over year.
For the quarter, the impact of the new revenue standard was higher than we estimated, driven by the timing and size of renewals along with a one-time adjustment. Later, we'll talk about the fourth-quarter and full-year expectations for the new revenue standards. Moving over to Slide No. 9.
This slide presents the key components of our revenue performance. For the quarter, our total commissions and fees increased by 11.6% as compared to the prior year. Our contingent commissions increased $10.8 million as compared to the prior year, which was driven almost entirely by the adoption of the new revenue standard. As a reminder, we'll now recognize contingent commissions upon the effective dates of the underlying policies throughout the year rather than when we received for our previous treatment.
For the fourth quarter, we're not expecting any changes to the range of expected contingent commissions versus what we communicated last quarter. Guaranteed supplemental commissions were up slightly year over year and we're not impacted by the adoption of the new revenue standard. Core commissions and fees increased by $43.8 million. When we isolate the $28 million impact of the new revenue standard, $14.4 million of which impacts core commissions and fees and excluding the net impact of M&A activity, our an organic revenue growth was 1.4%.
Moving over to Slide No. 10. To provide some additional insight to the components of our EBITDAC margin, we've included a walk of our quarterly EBITDAC margin from last year to this year and highlighted the main drivers. The new revenue standard positively impacted our current quarter margin by 300 basis points.
As we discussed in previous quarters, we're in the investment phase for our core commercial program that we launched in July of 2017. The investment this quarter impacted our margin by approximately 20 basis points, which is in line with the expectation we previously communicated. We expect a slight margin improvement in the fourth quarter of this year. As we mentioned, during last year's third-quarter call, we experienced a one-time benefit associated with foreign exchange within our wholesale segment.
This represents about a 20-basis-point impact on the prior year. During the quarter, we realized about a 30-basis-point impact to our margin as non-cash stock-based compensation costs have increased due to our continued incremental financial performance and higher retention of teammates. While both of these are beneficial, they will continue to increase stock compensation cost over the coming quarters. For the current quarter, the impact of the net change in gains or losses on disposal was about 60 basis points related to the sale of certain offices, where last year there was a gain, and this year, there was a net loss.
Other is a combination of one-time items, business mix, some timing and a lower organic growth for the quarter. Similar to our earlier comments, we can have variability on a quarterly basis. As a reminder, we had approximately $5 million of additional claims revenue in the third quarter of last year, which had above average margins. And finally, as we mentioned during our investor day conference, certain of our recent acquisitions will initially be slightly dilutive to our margin, which we experienced during the quarter.
Consistent with our historical performance, we'll work to increase the margin for these acquisitions over time. On the following slides, we presented the results for our business segments on an as-reported basis as well as excluding the impact of the new revenue standard. A reconciliation by segment is included in the appendix of the presentation. We'll go ahead and start on Slide No.
11 with retail. The primary effect for the third quarter of adopting new revenue standard was an increase in contingent commissions of $3.5 million. For the third quarter, our retail segment delivered total revenue growth, excluding the new revenue standard of 9% and 2% organic revenue growth. As discussed earlier, the quarters can be lumpy at times and therefore it's helpful to look at a year-to-date organic growth, which is 2.8% versus 2.5% for the same period last year.
Our EBITDAC margin for the quarter, excluding new revenue standard, declined by 280 basis points, driven by increased intercompany allocations for technology as well as our investment to upgrade our agency management systems. Both of these initiatives are in line with our expectations. Also, we mentioned earlier, we recognized increased non-cash stock-based compensation costs as our equity plans are performing higher than expected and the lower organic growth and some one-time items impacted our margins for the quarter. Over to Slide No.
12. For the fourth quarter, our total revenues increased by 12.4% in our national programs segment. This growth was primarily impacted by the new revenue standard. The impact was the recognition of approximately $6 million of revenues and profit related to contingent commissions in the third quarter that otherwise would have been recognized in other quarters.
We also had a nonrecurring adjustment of $8 million related to the new revenue standard. Excluding the impact of the new revenue standard, total revenues decreased by 1.2% and declined 3.3% organically. As discussed earlier, the organic revenue decline was primarily due to approximately $5 million of lower flood claims revenue recognized this year as compared to last year. During the quarter, we recognized minimal revenue associated with hurricanes Florence and Michael.
Based upon what we know right now, we expect a minimal amount of revenue from these -- from claims in the fourth quarter of this year. This will probably be in the range of $500,000 to $1 million. As a reminder, we recognized approximately $22 million of revenue in the fourth quarter of 2017 associated with hurricanes Harvey and Irma. Excluding new revenue standard, EBITDAC decreased by 6.5%, impacted by the lower claims processing revenue, which have higher than average margins.
The continued investment in our core commercial program and the loss recorded associated with the sale of a small program. Excluding these items, the segment delivered underlying margin improvement due to continued discipline, management expenses. For the quarter, our income before income tax increased 45%, impacted by the new revenue standard and lower inter-company interest expense and partially offset by the EBITDAC drivers we just mentioned. Moving over to Slide No.
13. The impact of the new revenue standard on the wholesale segment was minimal for the quarter. Excluding the impact of the new revenue standard, the wholesale brokerage segment delivered total revenue growth of 8.8% and organic revenue growth of 7.7%. Our EBITDAC margin, excluding the new revenue standard, decreased by 60 basis points for the quarter.
As discussed during the earnings call for Q3 of last year, we recognized a one-time benefit related to foreign exchange. Excluding this item, we delivered underlying margin improvement driven by strong organic revenue growth and disciplined expense management during the quarter that offset increased expenses associated with inter-company technology allocations and non-cash stock-based compensation costs. Our income before income tax margin increased by 30 basis points, impacted by the same factors contributing to the EBITDAC margin along with lower inter-company interest. Over to Slide No.
14. The services segment, excluding the new revenue standard, delivered revenue growth of 12% and organic revenue growth was 2.1%. The incremental increase in total revenues was driven by an acquisition we completed during the quarter. Our organic growth was driven by performance in most of our businesses, which was partially offset as we recognized minimal claims revenue associated with hurricanes Florence and Michael as compared to the same period last year.
Based upon the claims we received to date, we do not anticipate material revenues from these two storms in the fourth quarter of 2018 and would expect our organic revenue growth to be impacted by approximately $3 million year over year. For the quarter, our EBITDAC, excluding new revenue standard, decreased 1% due to new client onboarding costs, lower claims activity and a new acquisition that has a margin lower than the divisional average. Over to Slide No. 15.
We've included an updated outlook for the fourth quarter and a full year associated with new revenue standard. As a reminder, the implementation in new revenue standard will primarily impact our retail segment on a quarterly basis as we used to recognize revenue based upon the latter of when billed or effective. Topic 606 requires a company to recognize revenue when earned. For the third quarter, we estimated the positive impact upon revenues to be in the range of $4.5 million to $8.5 million and the actual impact was $24.5 million.
This difference was driven primarily by the timing and size of renewals within the retail segment and the adjustment we mentioned earlier within the national programs segment. We estimated the impact upon income before income taxes to be in the range of $7 million to $9 million and the actuals were $23.4 million. Our updated outlook for the fourth quarter is a decrease in revenues of $3 million to $7 million and a decrease to income before income taxes of zero to $5 million. As we mentioned earlier, we're not projecting any change to the estimated impact upon contingent commissions for the fourth quarter versus what we communicated last quarter.
For the full year, we expect revenues to increase $17.5 million to $21 million and the income before income taxes to increase $16 million to $21 million as a result of implementing the new revenue standard. With that, let me turn it back over to Powell for closing comments as well as comments on our pending acquisition of Hays.
Powell Brown -- President and Chief Executive Officer
Thanks, Andy. Great report. We'd like to share some additional information about the Hays Companies and the financial structure of the deal. The Hays business is a very -- a very diversified across many industries and over 50% of the revenues are from employee benefits.
Combined, we'll have an employee benefits business with annualized revenues of approximately $430 million to $440 million in revenue, increasing our employee benefits business over 35%. The business operates in 21 states with 32 locations and has a team of over 700. Their largest offices are in Minneapolis, Milwaukee, Boston, Kansas City and Dallas. The addition of these new teammates will give us a great mid-west presence, help us further increase our organic growth, increase our capabilities and provide additional solutions for our customers.
The Hays Companies serves customers in all segments but primarily focuses on the upper middle market. They have a proven track record of starting new businesses, developing talent, growing their business organically. This year, they're projecting to deliver revenues of approximately $205 million. With the addition of Hays, the revenues for our total company will increase over 10% and the total revenues for our retail segment will increase approximately 20%.
From a leadership perspective, Jim will become our vice chairman of the Brown & Brown and join our board of directors. He will report to me. Mike Egan will become a senior leader of Brown & Brown and continue to lead the Hays Companies. We're really excited to have both of these talented gentlemen join our senior leadership team.
I'm on Slide No. 17. Let's talk about a strategic rationale why we're purchasing Hays. This is a growth business that helps us accentuate their offerings in the upper middle market accounts base.
Their average organic growth for the past five years has been approximately 6%. They have over 700 excellent teammates with a strong leadership team. Their footprint is very complementary to our existing footprint as we did not have a large presence in the Midwest. We also have the opportunity to combine resources in order to enhance our capabilities and provide more solutions to our current and future customers.
With the acquisition of Hays, we also increased our capabilities within the employee benefits, data analytics and certain industry segments. Our cultures are very similar. We have an entrepreneurial spirit and we sell and service locally, but also leverage the capabilities of the broader organization. We believe the combination of Brown & Brown and the Hays Companies will allow us to deeper our carrier relationships and scale our operating platforms.
All of these will help us drive additional growth in margins over the coming years. From a financial standpoint, we're paying $705 million at close with $605 million in cash and $100 million in common stock and the equity will have a five-year holding period. There will also be a potential $25 million earn-out that's based on the obtainment of certain revenue and profit targets. We plan to buy back shares to offset the dilution associated with this transaction over the next three years.
We will finance the transaction initially through a combination of cash as well as debt from our $800 million revolver. Then we expect to term a portion of the initial purchase price on a multitranche debt. Our projected gross debt-to-EBITDA ratio for 2019 will be 2 times. As we stated during our Investor Day, we're comfortable with up to 3 times gross debt-to-EBITDA ratio.
Therefore, we still have sufficient headroom as well as access to capital for future acquisitions. We anticipate paying down any floating interest debt with a cash generated from the business over the coming years in order to lower our interest cost and increase the earnings per share impact. We anticipate incurring one-time integration costs of $8 million to $12 million spread over the next three to four years in order to deliver incremental value and improve our combined margins. We're targeting to deliver combined annual EBITDAC synergies in the range of $10 million to $15 million over the next four to five years.
There are a combination of revenue and expense synergies with scaling of our operating platforms. For 2019, we anticipate the revenues generated from Hays will be in the range of $210 million to $220 million and will generate approximately $47 million to $53 million of EBITDAC. The addition of Hays will drive incremental revenue growth of over 10% and EBITDAC growth of over 8%. In summary, we're pumped about the addition of the Hays Companies to the Brown & Brown team.
In closing, we have good momentum in the business and I want to thank our 9,100-plus teammates for all their efforts and look forward to welcoming all of our new teammates at Hays. The economy remains positive and there's a lot of hiring in most communities across the United States. This is a good thing for Brown & Brown. With the latest interest rate increase and talks of further rates increases over the coming quarters, we're watching closely how this may impact the growth of exposure units.
As we head into the fourth quarter, we expect overall premiums to remain flattish, a technical term. Except for the lines we've discussed previously. There's still too much capital-seeking investments in the insurance market. On the M&A front, we would expect it to remain very competitive.
We have had, and continue to have good inventory of acquisition candidates. You've heard me say this before. We remain optimistic that we'll be able to acquire more firms that fit culturally and make sense financially. Please note, we continue to be actively involved in the M&A space now and moving forward.
No one on this call or any one out there should think because of the Hays acquisition, we're slowing down. Investment in long term, the profitable growth of our business remains a key focus. We discussed during our investor day how innovation, technology, Insurtech will be key parts of our strategy in the future. So our technology investments and launching our new core commercial program are just several key examples to this strategy.
Lastly, we're really excited about the combination of Brown & Brown and Hays and what we can do together. Our combined team will create an even more powerful group of almost 10,000 teammates that will be able to deliver industry-leading solutions for our current and future customers. With that, let me turn it over to Hanna for the Q&A session.
Questions and Answers:
Operator
Thank you, sir. [Operator instructions] Our first question is from Elyse Greenspan from Wells Fargo. Please go ahead. Your line is open.
Elyse Greenspan -- Wells Fargo Securities -- Analyst
Hi, good morning. To start, I have a couple of questions on the Hays acquisition. You guys gave us a lot of financials, which is very helpful. First off, the accretion figures that you guys provided, the $0.02 to $0.03 per share, I guess, Powell, I think you said that you guys were going to buy back the stock that you issued over three years.
So is that assuming, a third, a third, a third in terms of when you're going to kind of buyback those shares that are issued there?
Powell Brown -- President and Chief Executive Officer
No.
Andy Watts -- Chief Financial Officer and Treasurer
I think we'll just buy them over the three-year period, Elise, but we're not scheduling to buy it at a pro rata amount.
Powell Brown -- President and Chief Executive Officer
And by the way, that accretion, as you know, is a GAAP accretion, not just cash. It's important.
Elyse Greenspan -- Wells Fargo Securities -- Analyst
Yes. And then just in terms of some of the other financials, the revenue and expense synergies there. Can you break down kind of where you think it might skew one way versus the other? And then the integration costs, I'm assuming you guys are going to pull that out of adjusted earnings. Can just verify that, Andy?
Andy Watts -- Chief Financial Officer and Treasurer
Yes. Let's touch on the expenses first, we'll come back to the synergies. Yes, we'll call those out over time if, in any one quarter, they're materially -- again, we're looking at the integration cost. It will be more heavily weighted from years two through four.
We'll have a little bit in 2019, but consistent with what we've done on other larger acquisitions, we normally break things out for the first year. But if it's so warranted, we'll call that out for the impact on the margins. And then on the synergy on the benefit front, it's really weighted both combination of revenue and expenses.
Powell Brown -- President and Chief Executive Officer
Remember, they have been investing actively in their business like we have. So growth opportunities and production and once again, we're excited about the ability for us to leverage some of their capabilities and them to be able to leverage some of our capabilities. So that's a good thing, Elise. We're really pleased about that.
Andy Watts -- Chief Financial Officer and Treasurer
Yes, and we wouldn't want anybody to think that we're doing the transaction for cost synergies. That is not why we're buying the business. This is a high-growth business and we're looking to continue to see that growth in the future.
Elyse Greenspan -- Wells Fargo Securities -- Analyst
OK. Great. And then in terms of -- Powell, you kind of alluded to in a couple of sections in your remarks about higher interest rates and the impact that could have in the economy. What about higher interest rates and the impact that that could potentially have on private equity interest in the brokerage space? Have you seen any kind of slow down as you looked at deals more recently or do you expect to see a slowdown if interest rates continue to rise?
Powell Brown -- President and Chief Executive Officer
Well, that's a logical comment, Elise. And I'd like to think that we're logical and you're logical, but not all -- PE is not always logical. It would seem to indicate that would happen if in fact there was continued upward pressure or increases in interest rates. PE continues to be very active in the space.
You've heard me say before. I think there will always be an element of PE in our industry. I believe, at last count, there's 29 PE firms that are in the space. So there's lots of people that are trying to get in and be in and then flip things and blah, blah, blah.
We don't -- we know that hope is not a good business strategy, but I would say that if, in fact, interest rates go up, we would think it would actually change some of their buying patterns, but until at which time we see that, I don't believe it.
Elyse Greenspan -- Wells Fargo Securities -- Analyst
OK. Great. And then one quick question on the quarter. You guys alluded to timing in the retail book and pointing us toward the year-to-date figure thinking about organic.
Did you see timing impact more on the employee benefit side or in the commercial side? Or was that -- is that a comment that you would make toward both of those businesses in the quarter?
Powell Brown -- President and Chief Executive Officer
I would say it was both of the businesses during the quarter, Elise. And at the end of the day -- and I know I alluded to this, but we had -- we're not making any excuses, but we had some business that just didn't close and so we anticipate good new business in Q4. But once again, we've got to be in Q4 to see that happen. But yes, I think it's in both businesses, benefits and P&C.
Elyse Greenspan -- Wells Fargo Securities -- Analyst
Yes. Thanks so much. I appreciate the color.
Powell Brown -- President and Chief Executive Officer
Thank you.
Operator
We will now move to our next question from Mike Zaremski from Credit Suisse. Please go ahead. Your line is open.
Michael Zaremski -- Credit Suisse -- Analyst
OK, great. Good morning. I had a question on thinking about the margins directionally. If we kind of think out to 2019 -- not, I think previously investors were biased, maybe a little upwards due to less headwinds from the -- you guys have talked about the IT investments and then also the new compensation program won't be a headwind anymore, and I know Hays, if we can think about -- excluding Hays, I know Hays will be very material and have an impact, but the ex the Hays acquisition, is that still the right way to think about the business toward margins directionally for next day? Because I know there's a lot of moving parts.
Powell Brown -- President and Chief Executive Officer
Well, I think -- the short answer is yes, I think that's the right way to think about it, but I would say, it's important to know that how we invest in businesses today and going forward will impact the overall trajectory and so you said that Hays is a material part of retail. It's $200 million part of $1 billion. So it's going to be $1.2 billion of revenue. So it is meaningful.
And we're looking for businesses, as you've heard us say, that fit culturally and make sense financially. We cannot stress that enough. And remember, we're doing this forever. The private equity is short term.
So they don't care about the cultural implication. They just get it together and try to spin it. And so in the case -- some of the businesses that we buy will have higher than average margin -- our average margins, some will have lower than average margins, but each of them will add to our capabilities and our talent, both in production, service capabilities, marketing, and leadership.
Michael Zaremski -- Credit Suisse -- Analyst
That's helpful. And the next question is, thank you for pointing out the potential impact for rising interest rates on the construction industry. Could you -- at a very high level, maybe size up what percentage of your, I don't know if it's maybe revenues, is construction-related?
Powell Brown -- President and Chief Executive Officer
Yes, the answer is we haven't given out specific industry types and break out, but I would tell you, and this is a purely off the top of my head, it's probably somewhere in the 6% to 10% of our retail business.
Michael Zaremski -- Credit Suisse -- Analyst
OK. Thank you for that. And then lastly for Andy. The tax rates coming in at about a point lower than the prior guidance.
Just curious, is this kind of a sustainable level as we're thinking long term? Or it'll kind of fluctuate a little bit up and down?
Andy Watts -- Chief Financial Officer and Treasurer
Yes, thanks for the question, Mike. So for the quarter, we ended up at 25.5%. That was impacted by true up that we did in our foreign repatriation. Like many companies, everyone was doing their best estimates at the back end of last year.
That was about $1.6 million or so. So if we take that out, our effective rate would have been kind of that mid 26 range. That's why we're kind of thinking 26% to 26.5% now on a full-year basis. We think that's a pretty good number, but one of the areas that we've got to continue to look at is exactly what Hays will do for our taxable footprint across the United States.
And then we continue to have states that are raising their rates as was indicative of New Jersey this year making a retro back to one-one. Maine has also changed their approach on unitary. So we continue to watch. There'll be some moments underneath, but I think, at least from our standpoint, 26%, 26.5%, pretty good market right now.
Michael Zaremski -- Credit Suisse -- Analyst
OK. Thank you for the color.
Operator
Our next question is from Kai Pan from Morgan Stanley. Please go ahead your line is open.
Kai Pan -- Morgan Stanley -- Analyst
Thank you. Good morning. First question on Hays. This is the largest deal in your history, 10% of your revenue.
So what do you think this deal different from your private -- previous deals and can you comment on potential opportunity for this deal and the potential execution risk, such as sort of the system integration or revenue -- any revenue overlap between offices and also can you comment on your evaluation of the deal as well?
Powell Brown -- President and Chief Executive Officer
OK. So good morning, Kai. That's multiple questions. First of all, as I said, we're pumped about Hays joining our team and as we said, there really a upper middle market business.
They have great capabilities in both employee benefits and property and casualty. And so, number one, I will tell you that we have some things that we think can help them in some of those businesses and they definitely have some things in the employee benefits and some of their capabilities that can help us. So No. 1, I think this is a one-and-one equals three or more.
That's the goal and I believe that is the case, No. 1. No. 2, they have an enormous number of talented people that bring additional collective learning or knowledge to our system.
And so when you work with Brown & Brown and our companies, we're trying to leverage that knowledge to the best interest of our customers and/or our prospects. So it enhances, quite honestly, our institutional knowledge. That's No. 2.
No. 3, they operate in -- most of their offices are in places where we don't have offices. And so it's very complementary, and particularly in the Midwest, as you've heard me say. We don't have an office in -- and we have a small office in Minneapolis.
We don't have an office in Milwaukee. We don't have an office, a retail office in Kansas City. We don't have an office in Dallas. So all of a sudden, we're expanding into markets that we want to be in, that we haven't been in in the past.
As it relates to the valuation, I think it -- everyone on this call will have their own perceptions of what we have paid for this transaction. Let me make an observation as it's stated and then let me make an observation longer term. No. 1, the market drives the price and so one might say this is a full price for an acquisition and it is a very high-performing, high-quality cultural fit for Brown & Brown, No.
1. No, 2, we don't think about it in an isolated period of time in one year or more, we're thinking about what one on one means three years and five years and more down the road. And not unlike some of our other larger transactions, each one of those brought new capabilities that made us a better organization and made it -- helped us build out our offerings to our customers. So I can't stress it enough to say that we're very pleased that the Hays team and Brown & Brown are coming together and I look forward to meeting all of their teammates in short order.
And we look forward to welcoming them onto the team officially sometime early -- well, sometime next month, subject to HSR approval.
Kai Pan -- Morgan Stanley -- Analyst
Thank you so much for all those thoughts. And I have a few follow-up questions. No. 1 is national programs, the organic growth, underlying is flattish.
You cited a few headwinds. Do you see the headwind persist or you can see improvements in term of -- like organic growth in national programs?
Andy Watts -- Chief Financial Officer and Treasurer
Hi, Kai, it's Andy here. Yes, we're anticipating headwinds in the fourth quarter. If you remember back to our Investor Day, we had made comments on the front, specifically on three areas. One is make sure, take into the consideration the year-on-year impact of lower flood claims.
And we mentioned earlier, we have about $22 million. Last year, we're only anticipating half-a-million to $1 million fourth quarter of this year. The next item was around our lender place business and again, that's countercyclical. So as the economy continues to improve that business won't see the same level of organic.
So that will have some downward pressure. And then we had also mentioned that we had a couple of carriers that are changing risk appetite for two of our programs. That will persist for probably a couple of quarters and then we'll work through that. So we will definitely expect negative organic growth in the fourth quarter for national programs, OK?
Kai Pan -- Morgan Stanley -- Analyst
OK. Great. My last one on the new accounting standard. It seems like the number just keep moving around, understanding it's a new standard for everybody, but if you look at full year, our regional expectation is that will not impact the full year earnings just moving among the quarters.
But now, your forecast is that the full year pre-tax earnings going to be anywhere between $16 million to $21 million. So that's pretty meaningful. So I just wonder, could you give a little bit more color on that and is that is the run rate that is now pulling forward for next year -- next year results we're building on top of this?
Powell Brown -- President and Chief Executive Officer
Yes, I think good point on it, Kai, around the complexity of this standard and probably not dissimilar to a lot of companies out there is there was a tremendous amount of effort put into it and they were estimates based upon the best information at the time as we went through it. One of the items that we talked about this quarter was an $8 million adjustment that we had in national programs and that was just, as we kind of continued to learn more. That we would not expect to continue on. We had also estimated what we thought the contingents would be for the year.
And again, we just have -- we have to estimate what we think they're going to be 12 months from now not knowing the actual loss experience underneath. So as that continues to develop and I think we'll get better on that refinement over time. But no, we would not expect, on a regular basis, once we kind of get this embedded that we would have that level of uptick each year. So I think this is just part of kind of this first-year implementation.
Kai Pan -- Morgan Stanley -- Analyst
And so to be clear, is that there would not be any sort of like a reversal in 2019?
Powell Brown -- President and Chief Executive Officer
No. We would not expect anything less materiality reversal or even positive year on year.
Kai Pan -- Morgan Stanley -- Analyst
That's great. Well, thank you so much.
Powell Brown -- President and Chief Executive Officer
Sure. Thank you.
Operator
We will now move to our next question from Greg Peters from Raymond James. Please go ahead.
Charles Peters -- Raymond James -- Analyst
Good morning, everyone, and thank you for the call. I wanted to follow up on Hays Companies acquisition. It has to have been a very coveted M&A target in the marketplace. So Powell, maybe you could talk a little bit about the process and how competitive it was and how many other players were interested in the company.
Sort of, give us the lay of the landscape there.
Powell Brown -- President and Chief Executive Officer
OK. Well, I think the first time that we met Jim was 18 years ago. And our chief acquisitions officer, Scott Penny, met him then and then I met Jim and several of the senior leaders several years ago. And have spent time socially around each other in business settings and kind of been talking over the last couple of years.
And so at the end of the day, culture is equally as important to them as it is to us. And so when you really get right down to it, I always tell people, If you're thinking about selling your business, go out and talk to some people who you think might fit. Find the one that there's a cultural fit and then go get in a corner and negotiate what a fair price is. And that would be a good way to describe what this is.
And so we have -- I mean, I can't speak upon the number of people that have called them because number -- lots of people call them all the time and talk to them about their business. But at the end of the day, this was not a traditional process with a banker. And we cultivated this over the last several years and we feel really good about it.
Charles Peters -- Raymond James -- Analyst
And the -- and so just as a follow-up, if I look at Slide 17 and you provide some benchmarks of performance for 2019, and you include integration costs to be spread out over a couple of years in combined synergies. When I think about the combined synergies of $10 million to $15 million, should I assume that those are reflected in the EBITDAC guidance for '19? Or is that $10 million to be $15 million to be realized over a multiyear period?
Powell Brown -- President and Chief Executive Officer
It's the latter.
Andy Watts -- Chief Financial Officer and Treasurer
Yes. And Greg, we'll have -- most of those, they're more weighted out toward kind of years three, four and five. It will take a while to kind of build into those.
Charles Peters -- Raymond James -- Analyst
Right. So the final question on the Hays Companies -- and I know some of the previous analysts have had questions about your consolidated EBITDAC margin and underlying EBITDAC margin. It looks like this transactions going up cost to maybe up 100 basis points of EBITDAC margin near term. Am I missing something there? Or should I start benchmarking my margin off of this lower level?
Powell Brown -- President and Chief Executive Officer
That's 100 basis points in retail.
Charles Peters -- Raymond James -- Analyst
Right.
Powell Brown -- President and Chief Executive Officer
Yes, the answer to the question is you're thinking about it correctly, that's correct.
Charles Peters -- Raymond James -- Analyst
Perfect. And Powell, I can't help myself. Do you guys think you might change your reporting structure? Are you going to drop this all into retail and just let it rip?
Powell Brown -- President and Chief Executive Officer
No. I don't anticipate us changing. I want to make sure I understand what you're saying...
Charles Peters -- Raymond James -- Analyst
Well, the reporting -- the four segments that you report, I mean, now that you've got a substantial benefits business, maybe you might want to break out your benefits business on top of the other pieces?
Powell Brown -- President and Chief Executive Officer
Yes. No, we're not planning on that.
Andy Watts -- Chief Financial Officer and Treasurer
Yes. This will just be a region inside the retail.
Charles Peters -- Raymond James -- Analyst
OK. Thank you for those answers. And then I just wanted to -- one follow-up on the retail segment and I was looking at your commentary you provided on Slide 11. And one of the items, when you talk about the revenue results, it sort of caught my attention was the last two words of the statement there was, "lost business".
Could you provide some color around that? Because it's usually not something I would associate with Brown & Brown. So maybe you can bridge the gap there.
Powell Brown -- President and Chief Executive Officer
Sure. Well, let's put it this way. You would -- I think you would agree that you would think brutal honesty when you think Brown & Brown. So we're not trying to make any excuses.
We lost some business in our businesses and that can be either from acquisition. It can be a decision, a loss of relationship, it could be all kinds of different things, Greg. But at the end of the day, we just call it what it is and so we didn't grow the business, we didn't write much new business and/or we lost a little more business than we thought we would lose. So we lose business, just like any other broker.
We try to, obviously, work really hard not to lose business and we want to keep the customers that we have. But don't -- I don't want you to take something out of that like we're trying to force out or something. I think it's more brutal honesty. It is what it is.
We lost some business and it impacted our numbers. That's how I think you should think about it.
Charles Peters -- Raymond James -- Analyst
So it's more of an anomaly rather than some broader trend? So I think that's a message you're trying to deliver, correct?
Powell Brown -- President and Chief Executive Officer
That's exactly right. Based upon what we can see, it's a Q3 thing and we're on to Q4 and we're doing our thing.
Andy Watts -- Chief Financial Officer and Treasurer
Greg, we had this in previous quarters where just one quarter, you'll have it. So just nothing unusual on trend or anything.
Operator
We now move to our next question from Mark Hughes from SunTrust. Please go ahead.
Mark Hughes -- SunTrust Robinson Humphrey -- Analyst
Yes Thank you. Good morning. Two quick ones. The fourth-quarter claims revenue from last year, was it $22 million in national accounts and then $3 million in services? So $25 million total?
Andy Watts -- Chief Financial Officer and Treasurer
So yes, it's $22 million in national programs and then we had a little over $4 million in services last year. So we have about $26 million in total. We think we'll have half the ...
Mark Hughes -- SunTrust Robinson Humphrey -- Analyst
No, no.
Andy Watts -- Chief Financial Officer and Treasurer
Go ahead, Mark.
Mark Hughes -- SunTrust Robinson Humphrey -- Analyst
So the technology investment and the EBITDAC WAC you don't refer to the technology investment but in a number of these segments you point to it, was there some offsets somewhere? How should I think about that?
Andy Watts -- Chief Financial Officer and Treasurer
Yes, so the offset was in corporates that's why we say it's allocations between corporate and the divisions because we had built the investment cost up in corporate now, getting that out to the divisions in the segments. And then we did not call anything out for the third quarter in the WAC is to the impact on technology was minimal. So again, it's just kind of performing right in line with what we had expected as well as what we talked about on previous calls. We had a little bit of downward pressure on margins versus second quarter.
We said it would probably be around flat for the third quarter with a little bit of lift in the fourth quarter and minimal impact on the full year. So we seem to be right in line.
Mark Hughes -- SunTrust Robinson Humphrey -- Analyst
Thank you.
Operator
We will now take our next question from Yaron Kinar from Goldman Sachs. Please go ahead.
Yaron Kinar -- Goldman Sachs -- Analyst
Good morning, everybody. A couple of questions on the Hays acquisition. So first, when you talk about revenue growth there, are you expecting any revenue creepage from the deal? Any maybe slowdown due to execution or do you think that the 5%, 6% growth rate over the last few years can be maintained over the next three to five years?
Powell Brown -- President and Chief Executive Officer
Well, we would sure like to see that be the case and we're not anticipating it slowing down, but Yaron, I'm sorry. We don't -- we feel good about the trajectory and what's going on, borrowing something we're not aware of.
Yaron Kinar -- Goldman Sachs -- Analyst
OK. And then on the margin side. Once you get past this initial three, four years, do you think that the Hays business can achieve the margins that retail is currently generating?
Powell Brown -- President and Chief Executive Officer
The answer to the question is, true middle market retail is a higher margin business than upper middle market and more specifically, large accounts. And so the answer to the question is, over time, their margin will go up because they will become even more efficient because they've invested in production talent and service and marketing talent, which is not at full capacity today. Having said that, we look at the business holistically and as we said earlier, it's going to have a approximately 100 bps impact in the year one. And then over time, as we achieve collective synergies, that the overall will improve.
So we feel good about the margin trajectory going forward. That's how we'll answer that question.
Yaron Kinar -- Goldman Sachs -- Analyst
OK, I appreciate it. And then maybe one final one. Can you talk a little bit about the IT and systems there? I know you guys have been investing a lot in improving and updating your systems. Do they need additional work on their systems today? Is it easy to integrate your existing systems with theirs? Any color on that would be helpful.
Powell Brown -- President and Chief Executive Officer
Sure. So the short answer is they have a very talented group of IT people on their team, number one. Number two, they are currently on the agency management system that we are converting retail to. That does not mean that they're on the same version, I don't think, but they're on the same agency management system.
So that's a positive. Number three, just getting converted over -- I know this sounds like basic things, but to Office 365 and some of our systems, it takes time. But what I will say is if you're asking the question, are they in the Stone Age relative to IT? The answer is no, they're not. And so we're excited about some of the things that they've done and how we can learn from them and vice versa, in that particular space.
Yaron Kinar -- Goldman Sachs -- Analyst
OK. So whatever investments in systems they may still need it as part of your integration cost estimates?
Powell Brown -- President and Chief Executive Officer
That is correct.
Yaron Kinar -- Goldman Sachs -- Analyst
OK. Thank you very much.
Powell Brown -- President and Chief Executive Officer
Thank you.
Operator
Our next question is from Josh Shanker from Deutsche Bank. Please go ahead.
Joshua Shanker -- Deutsche Bank -- Analyst
Yes, thank you for holding the call late and taking my question. I just wanted two questions. One was a follow-up on Kai's, you mentioned $8 million of unexpected revenue associated with the change in revenue standard in the national programs business. I was just trying to better understand what that was and you say that that should be $8 million, that increases at a normal CAGR in the 3Q of the fewer.
I just want to understand exactly what was going on there.
Powell Brown -- President and Chief Executive Officer
Good morning, Josh. Yes. No, that was just a one-time adjustment that we had based upon estimations underlined on the billing of customers do a -- definitely, we do not anticipate seeing that next year. That is a one-time item.
Joshua Shanker -- Deutsche Bank -- Analyst
So there's a $8 million headwind to think about in 3Q -- in '19 modeling, that's, right?
Powell Brown -- President and Chief Executive Officer
From a total revenue, that did not go into the organic calculation though.
Joshua Shanker -- Deutsche Bank -- Analyst
OK. And then on tax, obviously, some discrete items in the quarter. Do you have any thoughts on 2019 tax rate?
Powell Brown -- President and Chief Executive Officer
Not right now other than the comments that we made earlier. What we really like to do is get through year-end and figure out exactly what kind of our footprint looks like with Hays coming in and doing kind of all of our year-end true-ups and then once we release earnings for the fourth quarter, we'll give an update for '19.
Joshua Shanker -- Deutsche Bank -- Analyst
OK. Thank you very much.
Powell Brown -- President and Chief Executive Officer
Thanks, Josh.
Operator
Our next question is from Bob Glasspiegel from Janney Montgomery Scott. Your line is open. Please state your question.
Robert Glasspiegel -- Janney Montgomery Scott -- Analyst
Yes, good morning everyone. Just a couple of tag in questions on the Hays deal. Whenever you buy something, you're going to be buying companies that have lower EBITDAC margins, the new given your best in industry margin. What are some of the things you could point to besides scale that's inherent in their current run rate of margins? And what's the path to a -- how long does it take you to get it traditionally, a company the size, which I guess, you haven't done it this big, but how long does it take to get the company to the margins where you wanted to be?
Powell Brown -- President and Chief Executive Officer
Well, let me back up for one second. This is a business that, as I said, grew pretty much organically from zero to $200-plus million since 1994. So that's very impressive to us and I think it would be to anybody, yourself included, relative to just growing a business, just going out and getting the right people and getting new customers and doing the right thing. So that's number one.
Number two, we don't want to do actually that actually changes their ability to continue to grow. We want to do things to enhance their ability to grow as part of our organization. So as I've said earlier, we like to think about you selling service locally but you leverage the capabilities of the organization nationally to the benefit of our customers. What we typically see, Bob, is generally speaking, in any kind of earn-out, you have kind of a float up over time of some efficiencies that they achieve, that might be a possibility of purchasing power as a combined business.
In some instances, whether it be technology or something else that we're doing, supplies, it can be something that we can do one and one equals three, where we have a product where they may be able to sell, more business than they had previously in a certain industry type. There can be a whole bunch of different ways to do that, but we think it's just like anything else, it's over a couple of year period that they actually approve and we do too.
Andy Watts -- Chief Financial Officer and Treasurer
And Bob, on our comments Bob, it's Andy here. Our comments that we made earlier, as we said, the synergies out of this, we won't see until kind of years three, four, and five. We'll kind of take that long to all build into itself. We wouldn't suggest that you put all those in your model in years one and two, just for clarity.
Robert Glasspiegel -- Janney Montgomery Scott -- Analyst
Got it. And do they have a richer comp plan than yours or is it -- would roughly comparable and you will have the principles super incentivized with your note provisions, which is a smart way to do it. So what could assume there will be extra incentivized with the commissions, plus the earn-outs over the five-year period. Is that a fair assumption?
Powell Brown -- President and Chief Executive Officer
That's a fair assumption.
Robert Glasspiegel -- Janney Montgomery Scott -- Analyst
And their comp plan is reasonably comparable to yours?
Powell Brown -- President and Chief Executive Officer
Remember, they're -- in the upper middle market, it is similar to some of our larger account businesses, yes. That's how I would say it.
Andy Watts -- Chief Financial Officer and Treasurer
Yes. Bob, they created a performance-based incentive plan. We really like it. We don't see any reason why to change that plan right now.
It seems to work really, really well for the business.
Robert Glasspiegel -- Janney Montgomery Scott -- Analyst
Great. And last question. How much debt did you say -- so you're going to put on? And what rough rates should we look to and when we model?
Powell Brown -- President and Chief Executive Officer
Yes, we'll probably take on somewhere around $550 million to $600 million in debt, just dependent upon cash that's on the balance sheet and timing. And right now, we're estimating interest rate of 4 3/4. Hopefully, we'll get less than that, but rates are taking up right now.
Robert Glasspiegel -- Janney Montgomery Scott -- Analyst
And any amortization that's going to go through the -- that you could quantify or any more depreciation?
Powell Brown -- President and Chief Executive Officer
Yes, if you look back on Page 29 of the deck, we put right in estimated amortization. Yes.
Robert Glasspiegel -- Janney Montgomery Scott -- Analyst
Cool. Thank you.
Powell Brown -- President and Chief Executive Officer
Thank you.
Operator
Our next question is from Meyer Shields from KBW. Please go ahead.
Meyer Shields -- Keefe, Bruyette & Woods -- Analyst
Great. Thanks, and thanks for your patience.I just a few quick modeling questions. One, given its employee focus, is there a distinct seasonality in Hays' revenues?
Andy Watts -- Chief Financial Officer and Treasurer
Not that we're aware of. But just -- as their business in general, I think to Powell's comment, no. But keep in mind, Meyer that the revenue recognition rules will absolutely move revenue between quarters. So what we're doing -- as we're working with their team right now on implementation of rev rec was when we released earnings at the end of the year, we will come back and provide quarterly guidance, but expect their revenues into a year will definitely move quite a bit around.
So we'll give some guidance on that, OK?
Meyer Shields -- Keefe, Bruyette & Woods -- Analyst
OK, that's great. Second, on the $8 million national programs revenue-recognition issue, are there any offsetting expense that also should not recur next year?
Andy Watts -- Chief Financial Officer and Treasurer
Nothing of material size there.
Meyer Shields -- Keefe, Bruyette & Woods -- Analyst
And OK. And then finally, within retail, so there was a slowdown in organic growth, but you're still running close to 3%. Was there any unwind of compensation accruals through the first half of the year in the third-quarter expenses?
Andy Watts -- Chief Financial Officer and Treasurer
No.
Meyer Shields -- Keefe, Bruyette & Woods -- Analyst
OK. Perfect. Thank you so much.
Operator
We'll now take the final question -- my apologies we'll now take a question from Adam Klauber from William Blair.
Adam Klauber -- William Blair & Company -- Analyst
Thanks. Good morning. The $100 million of stock, how many producers is that going to, and did I hear correctly, that's allotted for five years?
Powell Brown -- President and Chief Executive Officer
Yes. No. No. 1, the distribution of that, we're not talking about openly, and yes, it's a five-year lockup.
Adam Klauber -- William Blair & Company -- Analyst
OK. So if you're not talking about that specifically, how are the producers being locked up?
Powell Brown -- President and Chief Executive Officer
The senior leadership of Hays has got a plan worked out with the individuals that are driving the business forward. But once again, if we told you, then it would be in the public and our competitors would try to use that against us. So suffice it to say, that we feel comfortable with the plans that they have in place to continue to drive retention of people and accounts.
Adam Klauber -- William Blair & Company -- Analyst
OK. That's fair. And then as far as the Hays' EBITDAC margin, I think you said 22%, 24%. Typically, with the larger deals these days, investment bankers tend to add in adjustments, sort of pre put in cost-savings.
Is that 22%, 24% Hays' historic margin? Or does that include some of the bankers' add back-ins and our cost-savings?
Powell Brown -- President and Chief Executive Officer
Well, let me make sure that we're saying the same thing. Number one, the bankers are very good marketers, but we also understand what the numbers are, real or not. There was not an investment banker involved in this. So those numbers are our numbers, our collective numbers together.
So if you were to go out and see a deck of something on one of these deals that somebody's pitching, they will make the margin look substantially higher than it is or could be. So any adjustments in the pro forma, we, collectively, with the senior leadership at Hays, are both very comfortable with and those are real numbers.
Adam Klauber -- William Blair & Company -- Analyst
OK. Thanks. That's good to hear. Thanks.
Operator
And we have a follow-on question from Yaron Kinar from Goldman Sachs. Your line is open.
Yaron Kinar -- Goldman Sachs -- Analyst
Just one quick one on modeling. I think you said that you'd have the $3 million headwind in the fourth quarter in services revenues. Is that an absolute number? Or is that just a base off of what you still expect to get some offset growth, mainly are you talking about a $40 million or a number that you should be generating in the fourth quarter in services? Or would it be a $40 million base that will still be offset by some growth?
Andy Watts -- Chief Financial Officer and Treasurer
Yes. I think about it as the -- whatever you're projecting for the fourth quarter, then pull $3 million off of that.
Yaron Kinar -- Goldman Sachs -- Analyst
OK. OK, and then one final follow-up. The 22% to 24% EBITDAC margin that you're expecting for Hays next year, that does not include the combined synergies? Is that correct?
Andy Watts -- Chief Financial Officer and Treasurer
Yes. As we've talked about, Yaron, we're forecasting a minimal synergies in the years one and two or in sometimes three through five. We'll have some kind of integration cost next year. Most of those will be in two through four.
Yaron Kinar -- Goldman Sachs -- Analyst
OK, so.
Powell Brown -- President and Chief Executive Officer
Let me also -- let me point out one thing, Yaron. I know you know this, but this is a GAAP-accretive deal in year one and it is an asset purchase. So there are -- that is, obviously, a very positive thing for the team here. So I just want to make sure that you have that.
I know you knew that, but I want to make sure everybody else out there knows that, too.
Yaron Kinar -- Goldman Sachs -- Analyst
I appreciate it. I guess, I'm just -- I want to make sure that I'm thinking about it correctly. So beyond the GAAP accretion and the 22% to 24% does incorporate some minimal integration costs and some minimal combined synergy estimates in it for next year?
Andy Watts -- Chief Financial Officer and Treasurer
No. It has a little bit of integration cost. It has no synergies or benefits in it.
Yaron Kinar -- Goldman Sachs -- Analyst
OK. Thank you very much.
Andy Watts -- Chief Financial Officer and Treasurer
Thank you.
Operator
Ladies and gentlemen, that concludes our question-and-answer session. So I'd like to turn the constant back to you, Mr. Powell, for any additional or closing remarks.
Powell Brown -- President and Chief Executive Officer
Thank you, Hanna. We appreciate your time today. We're excited about the Hays transaction and we look forward to talking to you again after Q4. Good day.
Bye-bye.
Operator
[Operator signoff]
Duration: 77 minutes
Call Participants:
Powell Brown -- President and Chief Executive Officer
Andy Watts -- Chief Financial Officer and Treasurer
Elyse Greenspan -- Wells Fargo Securities -- Analyst
Michael Zaremski -- Credit Suisse -- Analyst
Kai Pan -- Morgan Stanley -- Analyst
Charles Peters -- Raymond James -- Analyst
Mark Hughes -- SunTrust Robinson Humphrey -- Analyst
Yaron Kinar -- Goldman Sachs -- Analyst
Joshua Shanker -- Deutsche Bank -- Analyst
Robert Glasspiegel -- Janney Montgomery Scott -- Analyst
Meyer Shields -- Keefe, Bruyette & Woods -- Analyst
Adam Klauber -- William Blair & Company -- Analyst
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