MITRE MINING CORPORATION LTD (MMC) — Q1 2020 Earnings Call Transcript

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 headwinds. 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 being 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 taking early steps towards 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. And I expect some of how we are adapting through this period will benefit us over the longer term. I want to share some insight about how we are operating in the crisis. The safety and well-being of our colleagues is our first priority. We 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 want 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. This has proven invaluable in our response to this crisis. Within days, we were able to pivot close to 100% to 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 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 for colleagues' interests is first and is guided by our values and aspirations as a company. This doesn't mean we are 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 at the Midwest regional headquarters for MMA. So far in 2020, we announced three MMA acquisitions, and in just 10 years MMA has grown into a leading mid-sized business platform in the U.S. approaching $2 billion in revenue with 7,200 colleagues in 150 offices. I am inspired by the hard work, dedication, and focus of our colleagues during 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 the integration of colleagues, culture, and financial system are behind us. We are well along the way on technology. Our strong first-quarter results are evidence that the initial period of choppiness from the acquisition is over. We emerge as a stronger, more diverse company, with more capabilities and geographic depth. We are a unified firm globally, 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 these partnerships to accelerate economic recovery and restore a more resilient global economy in the future. Mercer is helping clients assess updated pension costs and funding level projections and investment portfolio options. We've been advocating for short-term pension funding relief to help businesses address near-term cash challenges and protect jobs. In Oliver Wyman, we are helping clients with their crisis response, navigating the impact on demand and supply, as well as working through financial and liquidity challenges. We've developed a proprietary tool called the pandemic navigator that helps companies predict future COVID-19 developments, 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, and a dozen major financial services companies across various sectors. In summary, I am proud of how our company is responding to this crisis. Let me spend a moment on current property and casualty 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% and global financial and professional lines were up 26%, while global casualty rates were up 5% on average. Keep in mind however, our index uses 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 us to fully understand it. It affects nearly every country and it also led to a simultaneous asset stock. What we do know is there will be significant losses in lines such as event cancellation, travel, D&O, workers compensation, credit lines, and political risk. The potential for other losses, business interruption or otherwise makes the overall loss difficult to estimate at this time. The determination of coverage for the virus will be policy-by-policy. However, we think legislating retroactive coverage is a step too far and will challenge the very notion of insurance. Declining exposure unit due to the economic fallout from COVID-19 will put downward pressure on premiums, although it will vary greatly by industry and by line of business. In some cases, carriers are offering or considering proactive premium adjustments, although to-date it is limited in commercial lines. In some market regulators are looking for mandated refunds. Turning to reinsurance, the April 1 renewals are largely focused on Japan. Following a couple of years that have been the worst the Japanese typhoon activity has experienced in recent times. Japanese insurers paid significant increases to renew their capacity excess of loss covers. The rates and other loss-free lines were stable. The upcoming June 1 renewals are largely focused on Southeast U.S. wind exposure. Many renewal placements are expected to face upward rate pressure from continued loss created by 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 and Insurance Services and Consulting. Total revenue was $4.7 billion, up 14% or 5% on an underlying basis. Underlying growth was strong in both segments with Risk and Insurance Services up 5% and Consulting up 3%. Adjusted operating income increased 15% versus a year ago to $1.2 billion. The adjusted operating margin increased 80 basis points to 27%. Adjusted earnings per share increased 8% versus a year ago to $1.64, reflecting strong underlying growth and margin expansion. Even though COVID-19 will impact our results for the remainder of the year, our strong first-quarter performance is evident that we enter this period in a position of strength and able to manage through this difficult environment. Moving to 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 at our disposal 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. Although the current crisis will impact our performance this year, we faced it 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 and Insurance Services, first-quarter revenue was $2.9 billion, up 20% compared to a year ago or 5% on an underlying basis. Adjusted operating income increased 20% to $932 million and our adjusted operating margin expanded 90 basis points to 34.5%. In March, 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. In international, underlying growth was solid at 4%. EMEA was up 4%, representing the highest underlying growth in that region in 12 quarters, led by strength in Continental Europe and 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 market. Health grew 8% on an underlying basis, the strongest growth since the fourth quarter of 2015, reflecting solid performance across the portfolio, and Career grew 2% on an underlying basis. At Oliver Wyman, revenue in the quarter was $511 million, which was flat on an underlying basis. After a good start to the year, we saw the beginning of the virus-related impact in 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 versus $271 million in 2019. Foreign exchange presented 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 the 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 that the impact will be relatively modest. Our outlook for 2020 has obviously changed in light of the current crisis. We want to share how we think our performance could develop but have to emphasize that we have less visibility into how our results could unfold over the next few quarters than at any time we can remember. Our view is based on our outlook today. And it goes without saying that conditions 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 the underlying revenue for the full year with the deepest declines in the second and third quarters. At Marsh, we still see the potential for modest underlying revenue growth for the year, although the second and third quarters will be challenging. We believe Guy Carpenter will see mid-single-digit underlying growth for the year, with a stronger first half and a weaker second half. We currently expect Mercer could see underlying revenue 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 discretionary expenses across the firm. Our earnings will benefit from these actions as well as the continued contribution from JLT synergies. Based on this, if our revenues are within 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 has clearly changed in light of the current environment. While we intend to maintain our dividend, it is unlikely we will grow the dividend double digits this year. On the fourth-quarter call, we indicated that we did not expect any share repurchases in the first half of 2020. At this point, we do not expect to repurchase shares this year. We remain focused on deleveraging, although the pace of debt pay down will ultimately depend on our cash flow generation in the current environment. Total debt at the end of the first quarter was $13.6 billion, compared with $12 billion at the end of 2019. This increase in debt is primarily due to short-term borrowings to fund seasonal cash needs, which are highest in the first quarter. We were also holding additional cash at quarter end to fund the purchase of Assurance Holdings and an M&A acquisition that closed on April 1. Our next scheduled debt maturities are in December 2020 with $700 million of senior notes maturing, 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 enter this crisis from a position of strength. And with that, I'm happy to turn it back to Dan.

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

Hey, good morning, and thank you for the prepared remarks and the update on the guidance. My first question is regarding your outlook and whether revenues could potentially decline by single digits and earnings could also potentially fall by single digits. I think that's a pretty good outlook relative to past recessions, or maybe I'm wrong. Could you talk to whether the dynamics are different for Marsh & McLennan this time around versus past recessions? Are the business dynamics less technical or are there more levers in terms of cost reduction efforts that you can pull this time around versus a recession a decade or plus ago? Thanks.

Thanks, Mike. I 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. But, every crisis is different, Mike; it all has its own unique attributes. While there are parallels to draw, you can't really get focused on it being like this last time. I think the important thing is, Marsh & McLennan 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 explosive decline. The explosive decline may be more significant than it was in the global financial crisis. But on the other hand, at that point in time, rates were generally going down, and now rates are generally going up. If the recovery is faster than we outlined in our scripted remarks, then we'll do better than our guidance. And if the downturn is deeper and more prolonged, we will do worse. But we believe the impact on us is manageable. When I think about resilience, we understand that clients will continue to buy insurance. They're going to continue to renew their health and benefits programs. They will do their annual actuarial work. So, that kind of recurring revenue, recurring engagement 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—a cost mentioned many times before—is more variable than in the rest of the company. This helps us mitigate the earnings impact given the variable cost nature of Oliver Wyman. If you mention the financial crisis, RIS in 2008 was flat, and in 2009 was a minus one. The Consulting division actually grew in 2008 and was down 7% in 2009. Oliver Wyman contracted for six quarters consecutively in the last crisis and then had a pretty strong rebound after that. When we look at Oliver Wyman now, it's a completely different firm and certainly has been our best performer over that elongated period. But 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 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 that are beginning to emerge? Any distinctions between M&A small, medium-sized agencies versus the largest clients would be great to hear too. Thank you.

Sure, I'll hand off to John and also to Peter to provide deeper commentary. But I'll start by saying, we are an intermediary. We're insurance brokers, and on the Marsh side, we do everything we can to negotiate broad coverage terms and high-quality, best available pricing for our clients, and that's what we’ll continue to do. We expect that in this kind of environment, there’s a bit of a flight to quality. There are also higher levels of client retention anticipated and likely softer new business as we progress. So, we're working hard to obtain the best terms possible for clients because nobody wants to be paying premium increases at a time when cash is king. Now, John, you want to talk about the overall environment for COVID-19 losses and how you're seeing the market today?

Yes, Dan. The reinsurance market pricing was already increasing prior to COVID-19, and it continues to increase. We are looking at this as a continuation of a market that was already in transition, principally in the United States more than in Europe. I would imagine the advent of COVID-19 will lead to a reevaluation of risk throughout reinsurers’ entire portfolio. So, April 1, we saw increases in Japanese risk, principally based on several years of typhoon loss. In Florida, there will also be a reevaluation of risk based on the losses from events in 2017 and 2018. However, I would say in general, the reinsurance market has acted responsibly in their pricing to our clients based on exposure, loss experience, and their overall relationships with them.

Okay, thanks, Peter. One other thing that we mentioned in our script is that we're entering the U.S. hurricane season. The insurance companies are seeking certainty with regard to the losses that have happened and how they're going to impact them. Premium levels are primarily determined by past losses, which is the primary factor influencing rates in the future. COVID-19 is unique because it is a slowly developing catastrophe. We all know it's going to be big, but it's happening in real-time right now. The losses are ongoing, and it’s global. This situation means we're going to be battling with insurers on rate levels, as insurers are going to be seeking higher rate levels.

Okay, so next question, please.

Hi, good morning. My first question is regarding your exposure to the ongoing discussion around business interruption claims. How do you assess your exposure with claims clients might think they’re covered but then they’re not? I know you had a $0.5 billion settlement in the last 10 years. Can you provide any details on your own liability coverage or the mix?

Thanks, Jimmy. The Alaska situation is completely different from this one, so it really doesn't apply. Our role and principle focus as a broker is to advocate strongly for policyholders and do our best to obtain broad coverage and assist clients with their recovery in the event of a claim. From that standpoint, that's what we do. We're on the client side of the table, trying to develop outcomes. As we mentioned in the script, this will be a case-by-case basis. This is a different wording out there. Some language is much clearer than others, and therefore, there will be different impacts as we advocate for clients. Regarding our own risk management practices over the last few years, we've streamlined our professional standards, conducted errors and omissions training with thousands of colleagues, and instituted widespread limits of liability. Errors and omissions is a large risk exposure for us. We are in the business of offering advice, and we are entering this crisis effectively.

Thank you. I want to shift topics here, as you've mentioned in your comments. You pointed out that the situation with the virus is changing, but based on your current perspective, you indicated that the third quarter is likely to be weak as well. Are you anticipating that the decline in results will be more pronounced in the third quarter, or do you think it will be greater in the second quarter, with a gradual improvement in the third quarter?

I think that the impact, generally in insurance, has a delayed effect based on renewal dates and other factors. It's not an immediate type of impact. I think we're going to feel significant headwinds in both the second and third quarters. I can't really say which one will be more significant overall. As we decide before, the Risk and Insurance Services division may do reasonably okay given these circumstances. Mercer is likely to see negative impacts for the remainder of the year. Overall, we anticipate modest declines for the year and there will be proper pullbacks in Oliver Wyman. We are very focused not only on managing this crisis to the best of our ability but also on emerging from it stronger than we otherwise would be. Thus, we are not just strategizing for the second and third quarter; we're strategizing for the next three years.

That's clear. Thank you.

Hi, good morning. My first question is on your outlook as well. You pointed to a modest decline in underlying revenue outlook, stating that EPS could decline by a similar amount. That would imply your margins would be fairly stable and hold up pretty well for the year. I want to confirm that I'm thinking about that right. And, Dan, going back to your other comments, you implied sharper declines within Consulting. Is it correct to think that you would see more margin impact within Consulting, while perhaps RIS margins could hold up better during the downturn?

Yes, you’re spot on, Elyse. We are generally not focused on margin; we’re focused more on revenue and earnings issues. Margin is largely an outcome of what happens on the top line. But you're correct to think that, based on what we've said about Risk and Insurance Services, it's likely their margin will hold up and may even improve a bit. On the other hand, Consulting margins are likely to decline based on revenue outlook. I cannot make a call right now for the overall company, but I do know we've had 12 consecutive years of margin expansion, so we won't give that up easily.

Okay, thanks. My second question is on the anticipated business in the second and third quarters. It sounds like, based on previous questions, there is a bit of a lag on the brokerage side. Should we expect that the third quarter will be weaker than the second quarter, or is the weakness in Consulting more immediate? Should we think about Consulting results flowing over into the next couple of quarters in a similar fashion to the initial results?

Yes, the way to look at it is by considering what's recurring revenue and what's more project-related. This has more of an impact on whether something falls into Consulting or on the Risk and Insurance Services side. On the Risk and Insurance Services side, there's a significant amount of recurring revenue. However, parts of Mercer also have a lot of recurring revenue as well. So, both of those segments will probably have a longer time horizon and a lag effect, and you'll see impacts in the second and third quarters as those businesses adjust. Areas with non-recurring revenues, such as project-related Consulting in Career within Mercer, and most of Oliver Wyman, are more immediate and will experience faster declines. So you are correct that we expect declines in those areas in the second quarter. Next question, please, operator.

Good morning. My first question is regarding the social responsibility emerging within the insurance industry since several companies announced no layoff pledges. One of your peers announced salary cuts. How do you think this impacts cost-saving initiatives and synergies, both currently and for future M&A?

Thanks, Greg. It's a really important question that's multifaceted. We've spent a lot of time surveying the horizon. In our view, we are in a resilient business. Yes, it holds up pretty well. Some parts of Consulting may see a meaningful pullback, but we expect them to come back strong as the economy recovers. We have many different levers on the expense side at our disposal. We want to preserve flexibility and optionality for as long as we can. We want to make decisions based on data, scenario planning, and stress testing. When we consider expense cuts, our bonus pool primarily gives us levers to protect earnings. Our bonus pool in 2019 was the largest in our history, which aligns the interests of our team with shareholders. Salary reductions are levers to protect liquidity, almost like survival mode decisions. Reductions in pay can have lasting implications and risks exacerbating trust issues within the workforce, along with challenges related to legality and compliance across various countries. Based on our current outlook, levers like pay cuts or dividend cuts are not necessary. We track daily cash activity to get early warning signs and can react quickly if those levers are warranted. We are managing this crisis closely, meeting daily as a leadership team, and watching many factors closely. We're determined to make choices that are beneficial in both the long and short term.

I want to pivot to the balance sheet. I have two parts. Firstly, can you address the net receivable balance on your balance sheet and whether you have any concerns related to that? Secondly, regarding the debt component, you discussed the $2 billion credit facility; after paying off $500 million, why did long-term debt increase from $10.741 billion to $11.231 billion?

Sure. Let me hand over to Mark who will walk you through our approach on accounts receivables and debt management. So, Mark?

Sure, there's a lot in that question, so I'll try to address all those points. First, on liquidity and the collection side, it’s as Dan mentioned, it's a heightened focus. A couple of things come to mind. During times like this, liquidity and flexibility are very much on our radar. Very early in the crisis, we secured an extra $1 billion line of credit to add firepower. Remember, we also had $1.5 billion in cash some of which was reserved for the Assurance acquisition, but we've typically maintained about $1.1 billion. Thus, we have substantial liquidity at our disposal. Regarding collections and visibility, we've operationalized this focus. We've invested in globally consistent systems that provide good visibility to aging accounts receivable across all our businesses. We're able to monitor potential slowdowns in collections. There was a slowdown during the financial crisis but it proved temporary. We are also seeing trends daily. On short-term debt, the increase we saw this quarter is typical; the first quarter typically sees higher short-term borrowings since we pay out bonuses. We've also had additional cash reserved for the purchase of Assurance Holdings. To clarify the long-term debt, the increase you see is mainly due to our strategy of restructuring short-term financing into long-term debt, which maximizes flexibility. Overall, we feel well prepared in terms of cash flow generation.

Thank you, Mark. Next question, please.

Thanks. Good morning. My first question is about the environment. When you see two large competitors merging, it could create some opportunities for others that aren't distracted by such large deals. Do you think that will be the case or should we not expect that, given the uncertainty related to COVID-19?

Well, I’m not going to comment on the potential merger between AON and Willis. I'll leave it to them to address. We like our strategic positioning; we wouldn't change places with any of our competitors. We believe that we are well situated, in the right countries, have the highest quality colleagues, and a client base that would be the envy of any company in the world. We think we will be able to grow substantially in the future, as we are the leading provider of risk strategy services. We've learned a lot about integrating activities over the last decade, having done a number of acquisitions, with JLT being the most significant. We had a remarkable year in 2019 while managing integration, highlighting the quality of our executive team and the cultural match. The main elements of integration with JLT are behind us, and we are stronger and more capable than we were before.

Got it. Makes sense. One quick one for Mark. You mentioned debt maturity in early 2021; could you give some thoughts on retiring those debt securities?

The short answer is we would expect to pay those off through operating cash flows. We anticipate good cash generation through operations for the rest of the year, notwithstanding the crisis changing our outlook.

Next question, please.

Thank you. Dan, you discussed the expense levers at your disposal and how to dial them back in a prudent manner. When we think about expense levers, which ones can be pulled quickly, and have you thought about the extent to which some expense levers might not come back if they are easily adjustable?

Yes, it's a great question because certain actions occurring during this crisis may have lasting implications for the future. For instance, flexible work arrangements could put pressure on real estate costs over time. We have demonstrated that we can work from home effectively. Thus, an agile, digital environment is likely to be part of our future. As for the expense levers, we have significant variability in our bonus pool, which was the largest in our history in 2019. This is a variable lever since our bonus pool aligns with net operating income. There’s also our approach to hiring; while we’ve been hiring actively, we will control that and involve the executive team in decisions. Additionally, we’ve reduced spending on temps and cut back travel and entertainment expenses. We’re comfortable with our setup and anticipate that, overall, if our revenue declines modestly this year, EPS will also decrease modestly but might improve slightly when considering revenues.

And just a follow-up on that: when you mention EPS being down modestly, is that in reference to 2019 adjusted EPS? Is that correct?

That's correct.

Thank you, Dan.

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 have played in 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 Marsh & McLennan in the past few months has been nothing short of amazing. Thank you all, and have a good day.