Q4 2023 Willis Towers Watson PLC at Earnings Call
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Operator: Good morning. Welcome to the WTW fourth quarter and four-year 2023 earnings conference call. Please refer to www.wtwco.com for the press release and supplemental information that were issued earlier today. Today's call is being recorded and will be available for the next three months on WTW's website.
Speaker Change: Good morning, welcome to the W. T W fourth quarter and for year 2023 earnings Conference call.
Speaker Change: Refer to W. T. W. C O dot com for the press release and supplemental information that were issued earlier today.
Speaker Change: Today's call is being recorded and will be available for the next three months on W. Tw's website.
Speaker: Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Such forward-looking statements are subject to risk and uncertainty. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law.
Speaker Change: Some of the comments in today's call may constitute forward looking statements within the meaning of the private Securities Reform Act of 1995.
Speaker Change: These forward looking statements are subject to risks and uncertainties.
Speaker Change: Actual results may differ materially from those discussed today and the company undertakes no obligation to update these statements unless required by law.
Speaker: For more detailed discussion of these and other risk factors, investors should review the forward-looking statements section in the earnings press release issued this morning, as well as other disclosure in the most recent Form 10-K and other Willis Towers-Watson SEC filings. During the call, certain non-GAAP financial measures may be discussed. For reconciliations of the non-GAAP measures, as well as other information regarding these measures, please refer to the most recent earnings release and other materials in the investor relations section of the company's website. I'll now turn the call over to Carl Hess, WTW's Chief Executive Officer. Please go ahead, sir.
Speaker Change: For more detailed discussion of these and other risk factors investors should review the forward looking statements section in the earnings press release issued this morning as well as other disclosure in our most recent Form 10-K, and other Willis towers Watson's SEC filings.
Speaker Change: During the call certain non-GAAP financial measures may be discussed.
Speaker Change: For reconciliations of the non-GAAP measures as well as other information regarding these measures. Please refer to the most recent earnings release and other matures and Nebraska Investor Relations section of the company's website.
Speaker Change: I'll now turn the call over to Carl Hess W. Gw's Chief Executive Officer. Please go ahead Sir.
Carl Hess: Good morning, everyone. Thank you for joining us for WTW's fourth quarter and full year 2023 earnings call. Joining me today is Andrew Krasner, our Chief Financial Officer. WTW ended 2023 on a strong note and has begun 2024 with solid momentum as we continue to execute on our grow, simplify, and transform strategic priorities. In the fourth quarter, our world-class solutions and maturing investments in talent helped generate robust organic revenue growth, and our transformation program and expense discipline drove adjusted operating margin expansion and solid adjusted diluting earnings per share growth. Our performance steadily improved throughout 2023, and today, WTW is stronger, more resilient, and better positioned to achieve our goal. We delivered 6% organic revenue growth in the fourth quarter with an adjusted operating margin of 34.2%, up 180 basis points over the prior year. Adjusted diluted earnings per share were $7.44, an 18% increase year-over-year.
Carl Hess: Good morning, everyone. Thank you for joining us for W. TWD <unk> fourth quarter and full year 2023 earnings call. Joining me today is Andrew Krasner, our Chief Financial Officer.
Carl Hess: W. Tw ended 2023 on a strong note and has begun 2024 with solid momentum as we continue to execute on our growth simplify and transform strategic priorities.
Carl Hess: In the fourth quarter, our world class solutions, and maturing investments and talent helped generate robust organic revenue growth.
Andrew Krasner: And our transformation program and expense discipline drove adjusted operating margin expansion and solid adjusted diluting earnings per share growth.
Andrew Krasner: Our performance steadily improved throughout 2023 and today at Wdw as stronger more resilient and better positioned to achieve our goals.
Andrew Krasner: We delivered 6% organic revenue growth in the fourth quarter with an adjusted operating margin of 34, 2% up 180 basis points over the prior year.
Andrew Krasner: Adjusted diluted earnings per share were $7 44 and.
Andrew Krasner: An 18% increase year over year.
Carl Hess: For the full year, we had organic revenue growth of 8% above our mid-single-digit target. We also drove 110 basis points of year-over-year margin expansion to achieve an adjusted operating margin of 22%, fulfilling our commitment of annual margin, adjusted to diluted earnings per share for $14.49, an 8% increase over the past year. We believe these results are the product of our strong global client model, our strategic investments in talent and technology, and our team's hard work and relentless focus on being best-in-class. The progress we see within WTW and the enthusiastic response we're receiving from clients gives us confidence that our strategies, our people, and our investments are aligned with areas that we believe to be the greatest opportunities to drive sustainable, profitable growth and create shareholder value over the long term.
Andrew Krasner: For the full year, we had organic revenue growth of 8% above our mid single digit target.
Andrew Krasner: We also drove 110 basis points of year over year margin expansion to achieve an adjusted operating margin of 22% fulfilling our commitment of annual margin expansion.
Our adjusted Diluting earnings per share were $14 49.
Andrew Krasner: An 8% increase over the prior year.
Andrew Krasner: We believe these results are the product of our strong global client model, our strategic investments in talent and technology and our team's hard work and relentless focus on best in class delivery.
Andrew Krasner: The progress we see within Wdw and the enthusiastic response, we are receiving from clients give us confidence that our strategies our people and our investments are aligned with areas that we believe to be the greatest opportunities to drive sustainable profitable growth.
Andrew Krasner: And create shareholder value over the long term.
Andrew Krasner: Let me take a few minutes to share the progress we've made and the opportunities ahead of us across our segments.
Carl Hess: Throughout 2023, our specialization strategy in risk and broking was a key driver of growth for both the segment and the enterprise. Our specialty businesses continue to have significantly higher growth than the rest. This growth, driven in large part by improved client retention, expansion of existing client relationships, and our strength and ability to attract new clients and win back old ones, has validated our specialization. As a result, specialization continues to be our primary strategic focus in our administration.
Andrew Krasner: Throughout 2023, our specialization strategy and risk and broking was a key driver of growth for both the segment and the enterprise.
Andrew Krasner: Our specialty businesses continue to have significantly higher growth than the rest of the segment.
Andrew Krasner: This growth driven in large part by improved client retention and expansion of existing client relationships and our strength and ability to attract new clients and win back old ones.
Andrew Krasner: Validated our approach.
Andrew Krasner: As a result specialization continues to be our primary strategic focus in RMB.
Carl Hess: It allows us to create value for clients by tailoring solutions that close gaps in their risk management. Together with digitization, data, and analytics, we can create efficiencies that enable us to provide more timely and effective insurance. Our approach to specialization is tailored to each geography in which we operate.
Andrew Krasner: Allows us to create value for clients by delivering solutions that close gaps in their risk management profile.
Andrew Krasner: Together with Digitization and data and analytics, we can create efficiencies that enable us to provide more timely and effective insurance services.
Our approach to specialization is tailored to each geography in which we operate in 2023, we built our 12 industry verticals in North America that process is now complete with colleagues processes and infrastructure supporting that alignment.
Carl Hess: In 2023, we built out 12 industry verticals in North America. That process is now complete with colleagues, processes, and infrastructure supporting that alignment. Given the success we've seen to date, we're in the process of launching this industry model across Western Europe, and we'll build out more industry verticals in our international region in 2024. This model, together with our global reach, has us positioned to win an outsized share of complex mandates, such as our recent win of a multi-year construction project for a key player in the European energy sector, our cutting-edge data analytics, and We're also making good progress expanding into new and differentiated revenue streams, such as our new managing general underwriter, Veritas, which is growing steadily since its initial launch in September. In just the fourth quarter of 2023, we've onboarded brokers, found premiums, and received submissions from both external and our own brokers. In 2024, we'll focus on expanding our MGA and MGU strategy to additional geographies.
Andrew Krasner: Given the success, we've seen to date, we're in the process of launching this industry model across Western Europe, and we'll build out more industry verticals in our international region in 2024.
Andrew Krasner: This model together with our global reach has us positioned to win an outsized share of complex mandates such as our recent win of a multi year construction project for a key player in the European energy sector.
Andrew Krasner: Our cutting edge data and analytics and our ability to bring together superior industry and product expertise from our specialist teams across several countries set our proposal.
Andrew Krasner: We're also making good progress expanding into new differentiated revenue streams, such as our new managing general underwriter, Erica which is growing steadily since its initial launch in September.
Andrew Krasner: In the fourth quarter of 2023, with Onboarding brokers down premiums and receive submissions for both external and our own brokerage clients and.
Andrew Krasner: In 2024 will focus on expanding our MGA and MDU strategy to additional geographies.
Carl Hess: In addition to expanding our business platforms and offerings at Risk and Broking, we're continuing to invest in our people to win new business. Our colleagues who joined us during 2022 and 2023 have become increasingly productive and have brought our talent base back to full strength, as evidenced by the segment's strong organic revenue growth in the second half. Accordingly, we're now focused on strategic and opportunistic talent.
Andrew Krasner: In addition to expanding our business platforms and offerings and rescue broking, we're continuing to invest in our people to win new business.
Andrew Krasner: Our colleagues, who joined US during 2022, and 2023 have become increasingly productive and have brought our talent base back to full strength as evidenced by the segment's strong organic revenue growth in the second half of 2023.
Andrew Krasner: Accordingly, we're now focused on strategic and opportunistic talent investments.
Carl Hess: These investments should enhance our present capabilities in the lines of business and geographies that we believe offer the greatest growth and profitability. We expect these efforts to continue throughout 2024 and beyond. Furthermore, we see opportunity for continued strong new business growth as we work closely to help clients manage a complex and challenging risk environment marked by increasingly costly national disasters, social inflation, and geopolitical. In HWC, we've leveraged the strength of our portfolio, driving growth through and across health, wealth, and career, and BD&O. We've made significant progress by staying focused on our core businesses, by making connections across the organization where it adds value for clients, and by simplifying how we do business. For example, we maintained or improved client retention rates across all of HWC, including excellent 98% retention for our retirement and out. We added dozens of clients for our signature package solutions, like our LifeSite Master Trust and Global Benefits Management Authority. We expanded our relationships with more than 1,500 clients to include at least one new service.
Andrew Krasner: Investments should enhance our capabilities in the lines of business and geography that we believe offer the greatest growth and profitability potential.
Andrew Krasner: We expect these efforts to continue throughout 2024 and beyond.
Andrew Krasner: Furthermore, we see opportunity for continued strong new business growth as we work closely to help clients manage a complex and challenging brisk environment marked by increasingly costly natural disasters, social inflation and geopolitical conflicts.
Andrew Krasner: And each WC, we've leveraged the strength of our portfolio driving growth through with across health wealth and career and bdnf.
Andrew Krasner: We've made significant progress by staying focused on our core businesses by making connections across the organization, where it adds value for clients and by simplifying how we work.
Andrew Krasner: For example, we maintained or improved client retention rates across all of <unk>, including excellent 98% retention rates for our retirement and outsourcing businesses.
Andrew Krasner: We added dozens of clients for our signature package solutions like our lifestyle Master Trust and global benefits management offerings.
Andrew Krasner: We expanded our relationships with more than 1500 clients to include at least one new service offerings.
Carl Hess: And we increase the size and scope of our hub teams in key centers around the world to enhance capacity. Our intense focus on cross selling and making it simpler to do business with us is paying off, across industries and services. More clients are coming to WTW for a full suite of solutions, just to mention a few from the, We had a software development firm move its global benefits consulting and brokerage work to WTW and appoint us to support their employee experience through our Embark portal and our Engage software. A major global financial corporation's simple survey request turned into a multi-year engagement that included supporting the client with attracting and retaining talent and the delivery of a fully integrated total reward solution using one of our portals. We also leveraged our existing pension actuarial and outsourcing relationship with a leading regional health system in support for a rollout of major changes to their health and benefits program, which included the creation of a temporary health and welfare service. We're confident HWC will provide a solid foundation for growth in 2020. And, as we've discussed on prior calls, complexity in the human capital landscape continues to increase, and finding the right solutions to our clients' unique needs in this environment requires a holistic, integrated, and consultative approach.
Andrew Krasner: And we increased the size and scope of our hub teams in key centers around the world to enhance capacity and consistency.
Our intense focus on cross selling and making it simpler to do business with us is paying off.
Andrew Krasner: Across industries and services more clients are coming to Ww for a full suite of solutions just to mention a few from this quarter.
Andrew Krasner: We had a software development firm move its global benefits consulting and brokerage work to WCW add to point us to support their employee experience through our embark portal and our engage software.
Andrew Krasner: A major global financial Corporation's simple survey request turned it into a multi year engagements for us that includes supporting the client with attracting and retaining talent and the delivery of a fully integrated total reward solution using one of our ports.
Andrew Krasner: And we leveraged our existing pension actuarial and outsourcing relationships with a leading regional health system into swaps support for a rollout of major changes to their health and benefits program, which include the creation of a temporary health and welfare Service Center.
Andrew Krasner: We're confident each WC, we will provide a solid foundation for growth in 2024.
Andrew Krasner: And as we've discussed on prior calls complexity in the human capital landscape continues to increase and finding the right solutions to our clients' unique needs in this environment requires a holistic integrated and consultative approach.
Carl Hess: Our ability to move quickly and deliver the right resources at speed helps our clients take advantage of changing conditions and create meaningful opportunities for each of you. I'll highlight two trends we see as tailwinds for 2024 in our health business. Clients are continuing to look for ways to address the increasing cost of health care around the world, and their lawyers turn to us for help with more effective plan management and specialties that can improve their population.
Andrew Krasner: Our ability to move quickly and deliver the right resources at speed helps our clients take advantage of changing conditions and create meaningful opportunities for each of UC.
Andrew Krasner: I'll highlight two trends, we see a tailwind for 2024.
Andrew Krasner: Our health business.
Andrew Krasner: Clients are continuing to look for ways to address the increasing cost of healthcare around the world.
Andrew Krasner: They are turning to us for help with more effective plant management and specialty solutions that can improve their population's health status.
Carl Hess: And in our retirement business, clients are increasingly looking to capitalize on the change in the rate environment by de-risking their pension plans through annuity buy-ins and buy-outs. With the funded status of the largest US corporate pension plan having ended 2023 at 100%, we expect this trend will support growth in that business. We also expect our growing momentum with smart connections to continue into 2024 and also extend to cross-selling between our colleagues. We continue to arm all our colleagues with a solid understanding of our full range of services and the tools to identify and facilitate cross-segment opportunities. Two large client wins in the fourth quarter illustrate the power of a P&C insurance solution at a major media company that originated with one of our retirement colleagues and a multi-year health benefits design administration and broking engagement that began with a benefits review arranged by a CRB.
Andrew Krasner: And in our retirement business clients are increasingly looking to capitalize on the change in the rate environment by Derisking their pension plans through annuity buy ins and buyouts with.
Andrew Krasner: With the funded status of the largest U S. Corporate pension plans, having ended 2023 at 100%. We expect this trend will support growth in that business during 2024.
Andrew Krasner: We also expect our growing momentum with smart connections this quarter to continue into 2024 and also extends to cross selling between our two segments.
Andrew Krasner: We continue to arm all our colleagues with a solid understanding of our full range of services and the tools to identify and facilitate cross segment opportunities.
Andrew Krasner: Two large client wins in the fourth quarter illustrate the power of this approach.
Andrew Krasner: Our P&C insurance solution or a major media company that originated with one of our retirement colleagues and a multi year health benefits design administration and broker engagement that began with the benefits review a range by a CRB column.
Carl Hess: The progress we've made in enhancing our growth engines at HWC and R&B over the past two plus years is also enabling us to drive increased margin. During the fourth quarter, we saw continuing improvement in productivity and a heightened focus on cost. Similarly, our transformation program continues to drive a significant benefit to our bottom line, enabling us to finish the year strong and to lay the foundation for another year of adjusted operating We realized $37 million of incremental annualized savings from our transformation program during the fourth quarter, bringing the total to $337 million in cumulative annualized savings since the program began. Thanks to the success and momentum of the program, we have been able to identify additional savings and accordingly are raising our cumulative run Looking ahead, we're confident that we're on the right path to achieve our 2024 targets of continued single-digit organic revenue growth, leading to at least $9.9 billion in total revenue and adjusted operating margins of 22 and a half to 23 and a half percent. Adjusted diluted earnings per share of $15.40 to $17 and additional improvement in free cash loan.
Andrew Krasner: The progress we've made in enhancing our growth engine that each WC at RMB over the past two plus years is also enabling us to drive increased margin expansion.
Andrew Krasner: During the fourth quarter, we saw continued improvement in productivity and a heightened focus on cost discipline.
Andrew Krasner: Similarly, our transformation program continues to drive a significant benefit to our bottom line, enabling us to finish the year strong and to lay the foundation for another year of adjusted operating margin expansion.
Andrew Krasner: We realized $37 million of incremental annualized savings from our transformation program during the fourth quarter, bringing the total to $337 million in cumulative annualized savings since the program's inception.
Andrew Krasner: Thanks to the success and momentum of the program, we have been able to identify additional savings and accordingly, our raising our cumulative run rate transformation savings target from 380 million to $425 million by.
Andrew Krasner: By the end of 2024.
Andrew Krasner: Looking ahead, we're confident that we're on the right path to achieve our 2024 targets of continued mid single digit organic revenue growth leading to at least nine 9 billion in total revenue.
Andrew Krasner: Adjusted operating margins of 22, 5% to 23, 5%.
Andrew Krasner: Adjusted diluted earnings per share of $15 $40 to $70 and additional improvement in our free cash flow margin.
Andrew Krasner: Andrew will touch on our 2024 guidance in more detail. In closing, our performance in 2023 reflected our hard work to grow, simplify, and transform our business over the past two plus years. I'm proud of the progress we've made and excited about the opportunity. Based on our momentum and our healthy pipeline, I'm confident we can deliver continued sustainable and profitable growth in 2024 and beyond. I want to thank our colleagues for their dedication, service, and continued commitment to our clients and to WTW. And with that, I'll turn the call over to you. Thanks, Carl. Good morning, and thanks for joining us today.
Andrew Krasner: Andrew will touch on our 2024 guidance in more detail shortly.
Andrew Krasner: In closing our performance in 2023 reflected our hard work to grow simplify and transform our business over the past two plus years.
Andrew Krasner: I am proud of the progress we've made and excited about the opportunities ahead.
Andrew Krasner: Based on our momentum and our healthy pipeline I am confident we can deliver continued sustainable and profitable growth in 2024 and beyond.
Andrew Krasner: I want to thank our colleagues for their dedication service and continued commitment to our clients and TWU tw.
Andrew Krasner: And with that I'll turn the call over to Andrew.
Andrew Krasner: Thanks, Carl Good morning, and thanks for joining us today as Carl mentioned, we finished the year with strong momentum putting us in a solid position to achieve our 2024 targets and I would like to share. Some further details on our financial results.
Andrew Krasner: As Carl mentioned, we finished the year with strong momentum, putting us in a solid position to achieve our 2024 target. And I'd like to share some further details on our financial performance. We delivered organic revenue growth of 6% in the fourth quarter, bringing the full year growth rate to 8%. The ramp-up in productivity of our investment hires, our specialization strategy and risk and broking, and the ongoing demand for our benefits and human capital services and HWC continue to fuel the strong top line. Alongside this robust growth, we also drove margin expansion for both the quarter and full year at the enterprise level and in each of our segments. The result was adjusted diluted earnings per share of $7.44 for the quarter and $14.49 for the year.
Andrew Krasner: We delivered organic revenue growth of 6% in the fourth quarter, bringing our full year growth rate to 8% the ramp up in productivity of our investment hires our specialization strategy and risk and broking and the ongoing demand for our benefits and human capital services in H WC continue to fuel the strong topline growth.
Andrew Krasner: Alongside this robust growth. We also drove margin expansion for both the quarter and full year at the enterprise level and in each of our segments. The result was adjusted diluted earnings per share of $7.44 for the quarter and $14 49 for the year.
Andrew Krasner: Next I'll spend some time reviewing our segment results.
Andrew Krasner: Note that to provide comparability with prior periods all commentary regarding the results of our segments will be on an organic basis, unless specifically stated otherwise.
Andrew Krasner: Next, I'll spend some time reviewing our segment results. Note that to provide comparability with prior periods, all commentary regarding the results of our segments will be on an organic basis unless specifically stated otherwise. Health, Wealth, and Career generated revenue growth of 4% compared to the fourth quarter of last year and finished the year with 6% growth. Going into 2024, we feel confident in the outlook and expect another year of similarly positive results for the segment. Revenue for Health increased 6% for the quarter, or 5% when excluding the impact of some modest book of business activities. We delivered solid growth across all regions, driven by increased brokerage income and the continued expansion of our global benefits management client portfolio in Europe and internationally. Wealth grew by 5% in the fourth quarter.
Andrew Krasner: Health wealth and career generated revenue growth of 4% compared to the fourth quarter of last year and finished the year with 6% growth.
Andrew Krasner: Going into 2024, we feel confident in the outlook and expect another year of similarly positive results for this segment.
Andrew Krasner: Revenue for health increased 6% for the quarter were 5% when excluding the impact of some modest book of business activity, we delivered solid growth across all regions driven by increased brokerage income and the continued expansion of our global benefits management client portfolio in Europe and international.
Andrew Krasner: Wealth grew 5% in the fourth quarter retirement growth was driven by increased project work related to Derisking activity in North America as well as additional project work the pension brokerage in Europe.
Andrew Krasner: Investments also contributed significantly to growth for the quarter, reflecting new client acquisitions and higher fees.
Andrew Krasner: Career delivered 6% growth in the quarter driven by increased compensation survey sales executive compensation and Board Advisory services and project work related to employee experience.
Andrew Krasner: Retirement growth was driven by increased project work related to de-risking activity in North America, as well as additional project work in pension brokerage in Europe. Investments also contributed significantly to growth for the quarter, reflecting new client acquisitions and higher fees. Career delivered 6% growth in the quarter, driven by increased compensation survey sales, executive compensation and board advisory services, and project work related to the employee experience. Benefits delivery and outsourcing generated 3% growth in the quarter. The increase was driven by higher volumes and placements of Medicare Advantage and Life Policies in our individual marketplace business and increased project activity and benefits outcomes. HWC's operating margin increased 150 basis points compared to the prior fourth quarter to 40.5%, primarily driven by transformation. For the full year, HWC's operating margin increased 190 basis points over the prior year to 28. Risk and Broking Revenue was up an exceptional 12% on an organic basis for the fourth quarter. Interest income was $27 million for the quarter, up $17 million from the fourth quarter last year.
Andrew Krasner: Benefits delivery and outsourcing generated 3% growth in the quarter. The increase was driven by higher volumes and placements of Medicare advantage and life policies and our individual marketplace business and increased project activity and benefits outsourcing.
Andrew Krasner: <unk> operating margin increased 150 basis points compared to the prior fourth quarter to 45%, primarily driven by transformation savings for the full year <unk> operating margin increased 190 basis points over prior year to 28%.
Andrew Krasner: Risk and broking revenue was up an exceptional 12% on an organic basis for the fourth quarter inter.
Andrew Krasner: Interest income was $27 million for the quarter up $17 million from the fourth quarter last year note that beginning with Q1 2024 results. We plan to include the impact of investment income on organic growth at the segment and enterprise levels in our materials.
Andrew Krasner: For the full year risk and broken grew 10% organically, we are expecting mid single digit or better organic revenue growth for the segment in 2024 with continued contributions from our investments in talent and platforms as we identify and pursue opportunities in line with our specialization strategy.
Andrew Krasner: Corporate risk and broking had another strong quarter growing 12% and continuing the organic revenue growth trajectory, we have seen in the business over the last couple of quarters.
Andrew Krasner: Higher levels of new business activity improved client retention and increase renewable revenue from rate increases drove robust organic revenue growth.
Andrew Krasner: Note that beginning with Q1 2024 results, we plan to include the impact of investment income on organic growth at the segment and enterprise levels in our materials. For the full year, risk and broken grew 10% organically. We are expecting mid single-digit or better organic revenue growth for the segment in 2024 with continued contributions from our investments in talent and platforms as we identify and pursue opportunities in line with our specialization strategy. Corporate risk and broking had another strong quarter, growing 12% and continuing the organic revenue growth trajectory we have seen in the business over the last couple of quarters; higher levels of new business activity, improved client retention, and increased renewal revenue from rate increases drove robust organic growth. Our specialty lines continue to be major contributors to the strong growth performance, led globally by natural resources, facultative, FinEx, financial solutions, crisis management, and construction.
Our specialty lines continued to be major contributors to the strong growth performance led globally by natural resources Facultative Phoenix financial solutions crisis management and construction.
Andrew Krasner: Strong growth across CRB in Europe was led by PNC retail facultative natural resources and Fedex.
North America CRB benefited from strong new business in construction and natural resources Marine Aerospace real estate and hospitality and leisure as we saw strong demand in the industries in which we specialize.
Andrew Krasner: Our international region also contributed with exceptional organic growth, including strong growth across all sub regions led by Latin America.
Andrew Krasner: And the insurance consulting and technology business revenue was up 8% over the prior year period on top of a strong comparable driven by increased sales in technology solutions, including strong new business and higher project activity.
Andrew Krasner: <unk> operating margin was 32, 9% for the fourth quarter, a 460 basis point increase over the prior year fourth quarter, we continue to see our hiring efforts yield strong results and rising productivity driving greater operating leverage.
Andrew Krasner: The margin also benefited from transformation continued expense discipline and tailwind from increased interest income, partially offset by some modest foreign exchange activity and investments in people and technology platforms.
Andrew Krasner: Strong growth across CRB in Europe was led by PNC Retail, Facultative, Natural Resources, and Finesse. North America CRB benefited from strong new business in construction, natural resources, marine, aerospace, real estate, and hospitality and leisure, as we saw strong demand in the industries in which we specialize. Our international region also contributed with exceptional organic growth, including strong growth across all sub-regions led by Latin America.
Andrew Krasner: For the full year <unk> operating margin increased 60 basis points over prior year to 21, 8% as Carl mentioned, we plan to continue to Opportunistically invest in talent and strategic initiatives in this segment in line with our previous announcement.
Andrew Krasner: For 2024, we continue to expect margin expansion on a full year basis, given the business seasonality and uncertain pacing of the investments. Please note that the scale of RMB margin expansion may vary from quarter to quarter.
Andrew Krasner: At the enterprise level adjusted operating margin for the quarter was 34, 2% a 180 basis point increase over prior year for the full year, we saw a 110 basis points of margin improvement to 22% the.
Andrew Krasner: In the insurance consulting and technology business, revenue was up 8% over the prior year period, on top of a strong comparable, driven by increased sales and technology solutions, including strong new business and higher project equity. R&B's operating margin was 32.9% for the fourth quarter, a 460 basis point increase over the prior year fourth quarter. We continue to see our hiring efforts yield strong results and rising productivity, driving greater operating margin. The margin also benefited from transformation, continued expense discipline, and tailwinds from increased interest income, partially offset by some modest foreign exchange activity and investments in people and technology. For the full year, RMB's operating margin increased 60 basis points over the prior year to 21.8%.
Andrew Krasner: The benefits of our transformation program drove a large part of our margin expansion for the year, we had $37 million of incremental annualized transformation savings for the fourth quarter, bringing the total to $337 million since the program's inception.
Andrew Krasner: As Carl mentioned, we are raising our transformation savings target to $425 million by the end of 2020 for.
Andrew Krasner: The additional savings will primarily come from technology modernization and process optimization, which we expect to further reduce our cost structure and help unlock additional long term growth and cost savings opportunities.
Andrew Krasner: The total amount of cost to achieve is now estimated at $1 <unk> 5 billion.
Andrew Krasner: Along with their direct return on investment these additions through the transformation program will serve as a catalyst for additional improvement by creating an infrastructure from which to drive further efficiencies.
Andrew Krasner: As Carl mentioned, we plan to continue to opportunistically invest in talent and strategic initiatives in the segment in line with our previous investments. For 2024, we continue to expect margin expansion of full year basis. Given the business seasonality and uncertain pacing of the investments, please note that the scale of RMB margin expansion may vary from quarter to quarter. At the enterprise level, adjusted operating margin for the quarter was 34.2%, a 180 basis point increase over the prior year.
Andrew Krasner: Our unallocated net was $296 million for the full year 2023, an increase of $31 million over prior year, primarily due to a headwind from a onetime favorable items reflected in the prior year balance.
Andrew Krasner: Foreign exchange was a <unk> <unk> tailwind on adjusted EPS for the quarter and a 6% headwind for the year at current spot rates, we expect foreign exchange to have a <unk> <unk> headwind on adjusted EPS for 2024 with no impact in Q1.
We recorded $109 million in pension income for 2023 relatively in line with our expectations for 2024, we expect $88 million in pension income with the decrease driven by market performance and interest rate movements.
Andrew Krasner: For the full year, we saw 110 basis points of margin improvement to 22%. The benefits of our transformation program drove a large part of our margin expansion for the year. We had $37 million of incremental annualized transformation savings for the fourth quarter, bringing the total to $337 million since the program's inception.
Andrew Krasner: Our U S GAAP tax rate for the quarter was 15, 7% versus 17, 7% in the prior year, our adjusted tax rate for the quarter was 19, 1% compared to 22, 2% for the fourth quarter of 2022.
Andrew Krasner: Our U S GAAP tax rate for the year was 16, 8% versus 15, 4% in the prior year and lastly, our adjusted tax rate for the year was 29% consistent with prior year.
Andrew Krasner: As Carl mentioned, we are raising our transformation savings target to $425 million by the end of 2024. The additional savings will primarily come from technology modernization and process optimization, which we expect to further reduce our cost structure and help unlock additional long-term growth and cost savings. The total amount of costs to achieve is now estimated at $1.125 billion.
Andrew Krasner: Notably there were nonrecurring items in Q4, which resulted in onetime tax items in our 2023 adjusted tax rate. Excluding these benefits our adjusted tax rate would have been 22, 4% and our adjusted diluted EPS would have been $14.22. We.
Andrew Krasner: Along with their direct return on investment, these additions to the transformation program will serve as the catalyst for additional improvement by creating an infrastructure for which to drive further efficiency. Our unallocated net was $296 million for the full year 2023, an increase of $31 million over the prior year, primarily due to a headwind from a one-time favorable item reflected in the prior year balance. Foreign exchange was a two cent tailwind on adjusted EPS for the quarter and a six cent headwind for the year.
Andrew Krasner: Our full year adjusted tax rate in 2024 to be closer to our 2023 adjusted tax rate. Excluding these one time benefits.
Andrew Krasner: In 2023, we returned nearly $1 4 billion to our shareholders with share repurchases of $1 billion and dividends of $352 million. We continue to execute a disciplined capital allocation strategy and currently view share repurchases as an attractive use of capital to create long term shareholder value. We expect to continue repurchasing our shares.
Andrew Krasner: In 2024 under our current share repurchase authority of which approximately $1 3 billion remains we expect approximately $750 million of share repurchases in 2024 subject to market conditions among other relevant factors.
Andrew Krasner: At current spot rates, we expect foreign exchange to have a two cent headwind on adjusted EPS for 2024 with no impact in Q1. We recorded $109 million in pension income for 2023, relatively in line with our expectations. For 2024, we expect $88 million in pension income with a decrease driven by market performance and interest rates. Our US GAAP tax rate for the quarter was 15.7% versus 17.7% in the prior year. Our adjusted tax rate for the quarter was 19.1% compared to 22.2% for the fourth quarter of 2022. Our U.S. GAAP tax rate for the year was 16.8% versus 15.4% in the prior year.
Andrew Krasner: We generated free cash flow of $1 2 billion in 2023, representing a free cash flow margin of 12, 6% above our target of 12%.
Andrew Krasner: Prove it from the prior year was driven by the non recurrence of onetime headwinds reflected in the comparable period operating margin expansion and improvement in transact cash flow. These improvements were partially offset by increased transformation program related costs.
Andrew Krasner: Turning to our 2024 financial targets, we continue to expect mid single digit organic revenue growth as we work towards our revenue goal of $9 9 billion plus we expect our adjusted operating margin to expand toward the high end of the 22 and a half to 23, 5% range. We also expect to deliver on our adjusted diluted earnings.
Andrew Krasner: And lastly, our adjusted tax rate for the year was 20.9%, consistent with the prior year. Notably, there were non-recurring items in Q4, which resulted in one-time tax items in our 2023 adjusted tax rate. Excluding these benefits, our adjusted tax rate would have been 22.4%, and our adjusted diluted EPS would have been $14.22.
Andrew Krasner: Per share target of $15 42 to $17.
Andrew Krasner: Finally, we expect incremental improvement in our free cash flow margin.
Andrew Krasner: Our results for the fourth quarter and full year 2023 are Testament to our continued strategic progress our operational execution and our colleagues relentless focus on serving our clients. We are very pleased with our performance and expect our momentum to continue into 2024 as we focus on delivering on our targets.
Andrew Krasner: We expect our full-year adjusted tax rate in 2024 to be closer to our 2023 adjusted tax rate, excluding these one-time benefits. In 2023, we return nearly $1.4 billion to our shareholders through share repurchases of $1 billion and dividends of $352 million. We continue to execute a disciplined capital allocation strategy and currently view share repurchases as an attractive use of capital to create long-term shareholder value. We expect to continue repurchasing our shares in 2024 under our current current share repurchase authority, of which approximately 1.3 billion remains.
With that let's open it up for Q&A.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen to ask a question. Please press star one on your telephone and then wait to hear you name them now.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: We ask that you limit yourself to one question and one follow up please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Our.
Speaker Change: First question comes from the line of Gregory Peters with Raymond James Your line is open.
Greg Peters: Good morning, everyone.
Greg Peters: I'm going to say that it does feel like you finally stabilize the platform last year. So.
Greg Peters: It does it should bode well for your future.
Greg Peters: On on.
Greg Peters: On the mid single digit guidance.
Greg Peters: Outlook for 'twenty four.
Andrew Krasner: We expect approximately $750 million of share repurchases in 2024, subject to market conditions, among other relevant facts. We generated free cash flow of $1.2 billion in 2023, representing a free cash flow margin of 12.6%, above our target of 12%. The improvement from the prior year was driven by the non-recurrence of one-time headwinds reflected in the comparable period, operating margin expansion, and improvement in transacts cash flow. These improvements were partially offset by increased transformation program-related costs.
Inside risk and broken can you give us a sense of how you think that.
Greg Peters: Benefit on new business.
Greg Peters: Or versus.
Greg Peters: Rate increases is going to run through.
Greg Peters: The risk and Broking line, and then on the health wealth and career.
Greg Peters: The BDO line was a little weak in the fourth.
Greg Peters: Lower in the fourth quarter can you talk.
Greg Peters: About your outlook there.
Greg Good morning, and thank you for that.
Greg Peters: Matt.
Speaker Change: So starting with RMB.
Greg Peters: Let me begin with the effective rate.
Greg Peters: We frankly don't view as a significant headwind or tailwind across the portfolio in terms of how it matters for 2023 and going into 2024.
Andrew Krasner: Turning to our 2024 financial targets, we continue to expect mid-single-digit organic revenue growth as we work towards our revenue goal of $9.9 billion. We expect our adjusted operating margin to expand toward the high end of the 22.5 to 23.5% range. We also expect to deliver on our adjusted diluted earnings per share target of $15.40 to $17.00. Finally, we expect incremental improvement in our free cash flow model. Our results for the fourth quarter and full year 2023 are a testament to our continued strategic progress, our operational execution, and our colleagues' relentless focus on serving our clients. We are very pleased with our performance and expect our momentum to continue into 2024 as we focus on delivering on our targets. With that, let's open it up for Q&A. Thank you. Ladies and gentlemen, to ask a question, please press star 1-1 on your telephone and then wait to hear your name announced.
Greg Peters: The markets remain mixed in terms of what's going on.
Greg Peters: <unk>.
<unk>.
Greg Peters: Effective however, the investment we've made over the last few years and talent and the reorientation of the business towards specialization is what we feel is really made a difference for us and will continue to differentiate us going into 2024, I mean, our approach to specialization.
Greg Peters: Sets us apart from others in the industry.
We've constructed this around.
Greg Peters: Specialized businesses.
Not just practices focused around industry divisions alright.
These are businesses with matched or even global P&L dedicated personnel directly responsible accountable and that just ties to our specialization approach, which has resulted in our global lines growing much faster than our overall book as we talked about earlier.
Greg Peters: With respect to each WC.
Speaker Change: Looking forward.
We're very confident in our pipeline and we do anticipate should we choose to have mid single digit revenue growth in 2024.
Greg Peters: To withdraw your question, please first start 1-1 again. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Gregory Peters with Raymond James. Your line is open.
Speaker Change: Current human capital landscape is highly complex as a result of rising healthcare costs of changing interest rate environment.
Speaker Change: Engine Derisking activity and we see these trends as tail wins for 'twenty four.
Carl Hess: Good morning, everyone, and I say that it does feel like you finally stabilized the platform last year or so. It should bode well for your future, on the mid-single digit, guys. I'll look for 24.
Speaker Change: And as we mentioned in our opening remarks, we expect our growing momentum with our connection strategy to continue in 2024 and needs increased cross selling opportunities will be another HW you'd see revenue tailwind.
Andrew Krasner: Inside Risk and Broke. How, benefit on new and, or, versus. Great. Run. The Risk and Broking Line, and then on... Health, Wealth, and Career, a lot lower in the fourth quarter. Can you talk?
Speaker Change: Okay that makes sense.
Speaker Change: Wanted to pivot.
Speaker Change: So the free cash flow margin expectations slide 22 of your investor deck.
Speaker Change: And what I'm focused on is that 16% plus long term objectives and.
Carl Hess: about your... Greg, good morning, and thank you. So, starting with R&D, let me begin with the effect of rates, which we frankly don't view as a significant headwind or tailwind across the portfolio in terms of how it's mattered for 2023 and going into. The markets remain a bit mixed in terms of what's going on. However, you know, the investment we've made over the last few years in talent and the reorientation of specialization is what we feel has really made a difference for us and will continue to differentiate us going into 2024. I mean, our approach to specialization sets us apart from others in the industry. We've constructed this around specialized businesses, not just practices, focused around industry divisions. And these are businesses with national or even global P&Ls, dedicated personnel, directly responsible for, and accountable. And that just ties to our specialization approach, which has resulted in our global lines growing much faster than our overall book, as we talked about earlier. With respect to HWC,
Speaker Change: Yeah.
Speaker Change: Just looking for some more color inside some of those comments that you made in the slide about where you can get some positive benefits from negative benefits and.
Speaker Change: When you think about getting to that 16% is that like a five year target of 10 year target or what kind of what kind of parameters are you putting alarm management around that objective.
Speaker Change: Yeah, Hey, Greg Thanks for the thanks for the question.
Speaker Change: A 12, 6% margin in 2023.
Speaker Change: That was good progress on a year over year basis, we do expect incremental improvement in 2024, as we work towards the long term free cash flow margin target.
Speaker Change: We expect to see that margin improvement in 2024 and beyond really through three main factors. So so first of all spending greater profitability as a result of driving margin expansion.
Speaker Change: We intend to do this not just through transformation and operating leverage but also by improving our business mix.
Speaker Change: For example, deepening our footprint in the.
Andrew Krasner: Looking forward, we're very confident in our pipeline, and we do anticipate HWTC is going to have mid-single-digit revenue growth in. You know, the current human capital landscape is highly complex as a result of rising health care costs and a changing interest rate environment that affects pension de-risking activity. And we see these trends as tailwinds for 2024. And as we mentioned in our opening remarks, we expect our growing momentum with our Spark Connection strategy to continue in 2024. And these increased cross-selling opportunities will be another HWC revenue tailwind. Now, I wanted to pivot. Cash Flow, Margin Expectancy. Buster, and what I'm focused on is that 16% plus long-term objective. I'd like to add some more color to some of those comments that you made on the slide about where, positive Benefits, think about getting to that. Is that like a five-year target, a ten-year target, or? Kind of. Yeah. Hey, Greg, it's Andrew.
Speaker Change: The area of Mcas and use things of that nature.
Speaker Change: The second piece is the abatement of the transformation related spend.
Speaker Change: We're expecting the first half of 2025.
Speaker Change: The third piece is an improved cash conversion.
Speaker Change: <unk> business.
We expect to be positive within the next few years.
Speaker Change: It's going to come as a result of the maturation of the business as well as the.
Speaker Change: Changing the product mix.
Speaker Change: Within that business.
Speaker Change: Over the near term progress.
Speaker Change: Some of those factors is going to be temporarily offset by cash investments in HW seeing in RMB from product development to support future growth.
Speaker Change: Things like our bite sized business, where we continue to invest.
Speaker Change: New ICT software and I also mentioned the FJ MCU business is an example of that.
Speaker Change: Thank you.
Speaker Change: Please standby for Rod next question.
Speaker Change: Our next question comes from the line of Elyse Greenspan Greenspan with Wells Fargo. Your line is open.
Elyse Greenspan: Hi, Thanks My first.
Elyse Greenspan: Sure.
Elyse Greenspan: The EPS guidance you guys reaffirm the guidance that you gave us in July but it sounds like you expect to come in at the high end of the operating margin target.
Andrew Krasner: Thanks for the question. You know, the 12.6% margin in 2023, you know, that was good progress on a year-over-year basis. We do expect incremental improvement in 2024 as we work towards the long-term free cash flow margin target. You know, we expect to see that margin improvement in 2024 and beyond through three main factors. So, the first one's going to be greater profitability as a result of driving margin expansion. We intend to do this not just through a transformation in operating leverage but also by improving our business mix. You know, for example, deepening our footprint in the area of MGAs, MGUs, things of that nature.
Elyse Greenspan: And pension I believe is a little bit favorable relative to the midpoint of the guide guidance update last summer so why not.
Our tightened the range towards the upside do you feel like.
Elyse Greenspan: Comment could come in towards the upside of the range and maybe this is.
Elyse Greenspan: Some level of conservatism to start the year.
Speaker Change: Yeah. Thanks for the thanks for the question Elyse, So we remain confident.
Elyse Greenspan: EPS target range of 15 to $17 24 that we had set out.
Speaker Change: As you haven't been laid out in our supplemental materials.
Speaker Change: You can see the puts and takes there.
Speaker Change: Proportion coming from operating income.
Speaker Change: Along with the increase in the share repurchase activity that we mentioned about $750 billion.
Andrew Krasner: The second piece is the abatement of transformation-related spend, which we're expecting through the first half of 2025. The third piece is improved cash conversion in the transact business, which we expect to be positive within the next few years. You know, that's going to come as a result of the, you know, maturation of the business, as well as the improvement, you know, changing the product mix within that business. Over the near term, progress on some of those factors is going to be temporarily offset by cash investments in HWC and R&B for product development to support future growth. Things like our Lifesize business, where we continue to invest in new ICT software, and I also mentioned the Thank you.
Speaker Change: Spectrum there.
The offset there and as you mentioned some of the reduced pension income to be better.
Speaker Change: And sure headwinds as well as the.
Speaker Change: The increase in interest expense and adjusted tax rate when we talked through all of those puts and takes we felt.
Speaker Change: Still very confident about landing within the range there.
Speaker Change: Thanks, and then my second question is on the share repurchase guidance.
Speaker Change: So Andrew I think you said $750 million and 24.
Speaker Change: <unk> It sounds like you guys bought back in 'twenty three yet.
Speaker Change: Your free cash flow conversion should improve right.
From the 23 level and then I guess, even though it's not 24 of that late in the first half of 'twenty five like you guys I believe should receive $750 million from the Willis we earn out so why would it.
Andrew Krasner: Please stand by for our next question. Our next question comes from the line of Elyse Greenspan. Greenspan with Wells Fargo.
Elyse Greenspan: Your line is open. Hi, thanks. My first question is on the EPS guidance. You guys reaffirmed the guidance that you gave us in July, but it sounds like you expect to come in at the high end of the operating margin target. And, you know, the pension, I believe, is, you know, a little bit favorable relative to the midpoint of the guidance update last summer. So why not, you know, increase it, you know, or tighten the range towards the upside? Do you feel like, you know, you could come in towards the upside of the range and maybe achieve some level of conservation stars?
Speaker Change: Buybacks be more that $750 million and 24.
Speaker Change: Is M&A part of the equation.
Speaker Change: Just trying to square the free cash flow improvement at the lower level of buyback in 'twenty four.
Speaker Change: Sure.
Speaker Change: $750 million raises our expectation for the year.
Speaker Change: The debt level is lower.
Speaker Change: And at 23.
Speaker Change: We did a $1 billion you.
Speaker Change: You have to keep in mind throughout 'twenty three we took on some incremental leverage in may.
Andrew Krasner: Yeah, thanks for the thanks for the question, Elyse. So we remain confident in the EPS target range of $1540 to $17 for 24 that we had set out. You know, as we laid out our supplemental materials, you can see the puts and takes there, a meaningful portion coming from operating income, you know, along with the increase in the share repurchase activity that we mentioned, about $750 million expected there. You know, the offset there is, as you mentioned, and Thanks. And then my second question is on the Sherry Purchase Guidance. So, Andrew, I think you said seven hundred and fifty million and twenty four.
Speaker Change: Throughout the year capitalized on the opportunity to buy more shares when there is pressure.
Speaker Change: On the stock price.
Speaker Change: $750 million is not necessarily static continuously.
Speaker Change: Continuously monitor cash levels market conditions, and if the opportunity presents itself to accelerate our share repurchases will take advantage of it just like we did last year.
Speaker Change: We continue as you might expect to evaluate all our options for capital allocation.
Speaker Change: These have which does include share buybacks internal investments and carefully considered strategic M&A as part of that to ensure that we're maximizing value creation for our shareholders.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Robert Cox with Goldman Sachs. Your line is open.
Robert Cox: Hey, Thanks for taking my question, maybe a similar question.
Elyse Greenspan: That's lower than what you guys bought back in twenty three. Yet, you know, your free cash flow conversion should improve right from the twenty three level. And then, I guess, even though it's not a twenty four event right in the first half of twenty five.
Robert Cox: <unk> received on free cash flow in some ways, but.
Robert Cox: If I exclude the $430 million or so cash restructuring charges. This year I get to a free cash flow margin over 17% in 2023.
Andrew Krasner: Right. You guys, I believe, should receive seven hundred and fifty million from the Willis re-earnout. So why would buybacks be more than seven hundred and fifty million in twenty four? Or, you know, is M&A part of the equation? trying to square the free cash flow improvement. You know, the lower level of buyback. Sure. The 750 million rise is our expectation for the year. That level is lower than at 23, where we did a billion.
Robert Cox: Is that correct and when you think ahead to a future where our restructuring spend is zero.
Robert Cox: On the track transact free cash flow drag has improved.
Robert Cox: Could there be meaningful upside to the 16% long term free cash flow margin target I am I thinking about that correctly or are there any headwinds I'm not considering.
Speaker Change: Yes, I think generally over a long term I think youre thinking about the math correctly, there Rob focus you on the <unk>.
Andrew Krasner: You have to keep in mind that throughout 23, we took on some incremental leverage in May and throughout the year capitalized on the opportunity to buy more shares when there was pressure on the stock price. The 750 million is not necessarily static. We continuously monitor cash levels, market conditions, and if the opportunity presents itself to accelerate share repurchases, we'll take advantage of it just like we did last year. We continue, as you might expect, to evaluate all of our options for capital allocation, as we always have, which includes share buybacks, internal investment, and carefully considered strategic M&A as part of that to ensure that we're maximizing value creation for our shareholders. Thank you.
Speaker Change: Simple after the 16% that we've got our.
In our materials that are in our long term objective there.
Speaker Change: It does take time for some of those headwinds to abate.
Speaker Change: Think about transact for example of that.
Whether that turns free cash flow positive.
Speaker Change: It's still a drag on free cash flow margin right, because it's not necessarily converting at the same rate as the rest of the business.
Speaker Change: And of course the <unk>.
Speaker Change: And there.
Speaker Change: We'll continue to grow as well so there's other dynamics that factor into that to the margin calculation.
Speaker Change: Okay, Thanks, and just a follow up on expenses.
Speaker Change: Expenses, and they're asking broking business.
Robert Cox: Please stand by for our next question. Our next question comes from the line of Robert Cox with Goldman Sachs. Your line is open. Hey, thanks for taking my question. Maybe a similar question to one you've already received on free cash flow in some ways, but if I exclude the $430 million or so cash restructuring charges this year, I get to a free cash flow margin of over 17% in 2023. Is that correct? And when you think ahead to a future where restructuring spend is zero and the transact free cash flow drag has improved, wouldn't there be meaningful upside to the 16% long-term free cash flow margin target? Am I thinking about that correctly, or are there any headwinds I'm not considering?
Speaker Change: Could you talk about the incremental expense savings in the quarter versus last quarter. Some of the things that you started to enact.
Speaker Change: Last quarter, and then just some more color on how sustainable are those savings are outside of the transformation program.
Speaker Change: Yes.
Speaker Change: We talked about I think ongoing expense discipline across across the platform, that's not just specific to RMB, but.
Speaker Change: We balance.
Speaker Change: The focus on expenses with the revenue growth to make sure of that.
Speaker Change: We're looking to generate.
Speaker Change: Operating leverage.
The transformation savings across across the platform.
Speaker Change: Obviously.
Robert Cox: I think, you know, generally, you know, over the long term, I think you're thinking about the math correctly there, Rob, and focusing on the, you know, plus symbol after the 16% that we've got, you know, in our materials, in our, in our long-term objective there. You know, it does take time for some of those headwinds to abate.
Speaker Change: Been heavily investing in that business, which has weighed on that reserve.
Speaker Change: During the year.
Karl I think I'd add to that I guess.
Karl: As we've highlighted in prior quarters, we have.
Our substantial investment in that business principally in talent.
Karl: Now that our talent basis back to full strength right, we're concentrating on strategic and opportunistic hires to capitalize on the opportunities. We see ahead as the geography.
Andrew Krasner: You know, think about Transact, for example, if when that turns free cash flow positive, it's still a drag on free cash flow. It's still a margin, right, because it's not necessarily converting at the same rate as the rest of the business. And of course, you know, the revenue there can, you know, continue to grow as well. So there's other dynamics that factor into the margin. Okay, thanks.
Speaker Change: For the greatest potential for profitable growth alright, So I think it's just a.
Speaker Change: Momentum story at this point as opposed to a rebuilt story, which leads to a smoother pattern expense growth.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Michael <unk> with BMO. Your line is open.
Michael: Great Good morning.
Michael: Now back to the free cash flow and thanks for all the color.
Carl Hess: And just to follow up on expenses and the risk in the broking business, could you talk about the incremental expense savings in the quarter versus last quarter, some of the things that you started to enact last quarter, and then, you know, just some more color on how sustainable those savings are outside of the transformation program. Yeah, there's, you know, we talked about, I think, ongoing expense discipline across the platform. That's not just specific to R&B, but, you know, we balance, you know, the focus on expenses with revenue growth to make sure that, you know, we're looking to generate operating leverage on top of, you know, the transformation savings across the platform. And obviously, you know, we've been heavily investing in that business, which has, you know, weighed on that for certain parts during the year. Carl, anything you'd add to that?
Michael: I believe you guys had one of the offsets was.
Michael: No.
Michael: Cash investments in product development, So I guess should we be looking at.
Michael: Your historical Capex ratio divided by revenues.
Michael: I guess are you alluding to maybe now it would be.
Michael: <unk> it.
Michael: Maybe you kind of rise to two at.
Michael: A bit of a higher level.
Michael: And it is currently one of the offsets that I want to just.
Michael: Splitting hairs in terms of some of your commentary.
Michael: Yes.
Michael: It's a good question just just on the.
Michael: I'd say on the margin rate, we would expect it to.
Michael: Increase.
Michael: A little bit and just recall right. It has been somewhat depressed.
Michael: From a spend ratio perspective over the last couple of years.
Michael: Obviously, there has been.
Michael: Meaningful uptake as it relates to transformation spend in Capex.
Michael: <unk> <unk> capex as we continue to build out the platform and invest for the future.
Carl Hess: Yeah, I guess, you know, as we've highlighted in prior quarters, we have made a substantial investment in that business, principally in talent, right? And now that our talent base is back to full strength, right, we're concentrating on strategic opportunistic growth to capitalize on the opportunities we see ahead and the geographies that we offer the greatest potential for profitable growth, right? So I think it's just a momentum story at this point as opposed to a rebuild. Leads to a Thank you.
Michael: A lot of saw temporary offset to some of the tailwind that I mentioned earlier.
Speaker Change: Okay that makes sense.
Speaker Change: Uh huh.
Speaker Change: Good color on the AWP segment, specifically I was it was it was interesting to hear.
Retirement I know.
Speaker Change: <unk> has a leading defined benefit.
Speaker Change: Retirement solutions segments.
Speaker Change: I think historically you guys have talked about that being kind of a.
Not not as high of a growth rate or maybe not.
Speaker Change: Much of a long term grower, but it sounded like you said in the near term.
Michael Zaremski: Please stand by for our next question. Our next question comes from the line of Michael Zaremski with BMO. Your line is open.
Speaker Change: Because of the environment that it is a growing business, which is kind of a tailwind to 'twenty four I just want to make sure im understanding.
Andrew Krasner: Now back just to free cash flow, and thanks for all the color. You know, I believe, you know, you said one of the offsets was, you know, Cash Investments and Product Development. So I guess, should we be looking at, you know, your historical CapEx ratio divided by revenues? And, you know, I guess, are you alluding to maybe, you know, it'll maybe kind of rise to a bit of a higher level than it is currently, one of the offsets that I wanna, or my splitting hairs in terms of some of your commentary. Yeah, yeah, no, it's a good question.
Speaker Change: Those comments correctly.
Speaker Change: Yes, yes, I think you've got that right right. We see several factors working for us going forward and we do have the market leading.
Speaker Change: Retirement business alright.
Speaker Change: Given the economic environment, we find ourselves in and the funded status of our pension clients enjoy alright, there still remains a substantial appetite for de risking strategies and with funded positions are better than they are.
Speaker Change: It's going to do that is increasing and we're well equipped to help our clients that journey. In addition, the investments we've made in growing areas of the pension landscape such as the lifestyle business Andrew talked about just earlier have enabled our growth.
Andrew Krasner: Just on the, I'd say on the margin..........
Carl Hess: A little bit. You just recall, right? It's been somewhat depressed from a Spend ratio perspective over the last couple of years. Obviously, there's been a meaningful uptick as it relates to transformation spend and CapEx, but BAU, CapEx, as we continue to build out the platform and invest in the future, would be a modest off, temporary offset to some of the tailwinds that I mentioned. Okay, that makes sense. And I'm, really good color on the HWC segment.
A number of economies, where these strategies master trusts are an attractive place.
Speaker Change: Our.
Speaker Change: Corporate clients to gain efficiencies in the prevention of retirement.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Mark Hughes with tourists Securities. Your line is open.
Mark Hughes: Yeah. Thanks, Good morning, I Wonder if you could just talk a little bit about the transact what youre experiencing flows this quarter. The BDO business organic growth was below average for the business as a whole did you see any.
Carl Hess: Specifically, it was interesting to hear about retirement. I know Willis has a leading defined benefit retirement solutions segment, which I think, you know, historically, you guys have talked about that being kind of a, you know, not as high of a growth rate or maybe not, you know, much of a long-term grower. But it sounds like you said, in the near term, because of the environment, it is a growing business, which is kind of a tailwind for 24. I just want to make sure I'm understanding those comments correctly. Yeah, yeah, I think you've got that right, right?
Mark Hughes: Change in that market.
Mark Hughes: And does it influence your long term outlook for the business.
Speaker Change: Well I guess the way we look at it.
Speaker Change: We run transact for our growth opportunities if they are profitable growth opportunities.
Speaker Change: And if the spend we're seeing that necessary to generate.
Speaker Change: Our policy Commission.
Speaker Change: It is an economically sensible, we just don't do it so we manage that business I think balancing.
Speaker Change: <unk> and profits in this year found ourselves in a place where we've.
Speaker Change: We've made I think very sensible choice given the conditions.
Carl Hess: We see several factors for us going forward, and we do have the market-leading Retirement Business. Given the economic environment we find ourselves in and the funded status our pension clients enjoy, right, there still remains a substantial appetite for de-risking strategies, and with funded positions, more information. Thank you. We're well-equipped to help our community. In addition, the investments we've made in growing your company and John Deere have enabled our growth in a number of economies where these strategies, you know, master trusts are an attractive place for corporate clients to gain efficiency. Thank you.
Speaker Change: And just to add one thing to that if you recall we had.
Speaker Change: So.
Speaker Change: Revenue time into Q3 from that business, which I think we had mentioned on the last call. So that did factor into the quarterly growth rate within that component of HW seeing.
Speaker Change: I think the best way to think about it is if you look at the full year growth rate really representative of where we expect the business to head in the future.
Speaker Change: Understood.
Speaker Change: Strategic client engagement.
Speaker Change: It was the motivation for that and are there any particular verticals that you think are most promising.
Mark Hughes: Please stand by for our next question. Our next question comes from the line of Mark Hughes with Truist Securities. Your line is open. Yeah, thanks. Good morning.
Speaker Change: Okay.
Speaker Change: Yes, I think youre, referring to the large complex account.
Speaker Change: Is that right.
Speaker Change: Yes, that's right.
Speaker Change: Yes.
Speaker Change: We think the combination of our global footprint, our specialization approach and our industry, leading analytics offer a compelling proposition to clients facing.
Carl Hess: I wonder if you could just talk a little bit about the Transact business, what your experience was this quarter, and the BDO business. Organic growth was below average for the business as a whole. Did you see any kind of change in that market? And does it influence your long-term outlook for the business? Well, I guess the way we look at it is, you know, we run transactions for growth opportunities if they're profitable growth opportunities. And, you know, if the spend we're seeing that's necessary to generate, you know, a policy commission is economically sensible, we just don't do it.
Speaker Change: The challenge is that this macroeconomic environment and leaving two alright. So the extent, we can help our clients manage things like natural disaster social inflation geopolitical.
Speaker Change: Conflicts right, our customized tools and our specialist approach can help ensure that clients get the best return for their premium dollar across their entire portfolio of risks that's what that's all about.
Carl Hess: So, you know, we manage that business, I think, balancing growth and profit. This year, we found ourselves in a place where we made, I think, a very sensible choice given, And just to add one thing to that, if you recall, we had some revenue time into Q3 from that business, which I think we had mentioned on the last call. So that did factor into the quarterly growth rate within that component of HWC. So I think the best way to think about it is if you look at the full year growth rate, really representative of where we expect the business to head in the future. Then there was strategic client engagement. What was the motivation for that?
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of David Mcmahon with Evercore ISI. Your line is open.
David Mcmahon: Hi, Thanks, Good morning, I had a.
David Mcmahon: Question.
David Mcmahon: You guys had called out I think it was about a 200 basis points adverse impact to free cash flow margins from transact in 2022.
David Mcmahon: Could you just level set us on.
David Mcmahon: How much of a drag that was in 2023.
David Mcmahon: And then it sounds like you guys are expecting.
Carl Hess: And are there any particular verticals that you think are most promising? Yeah, I think you're referring to the large, complex account, team. Is that right? Yeah, Yeah, I mean, we think the combination of our global footprint, our specialization approach, and our industry-leading analytics offers a compelling proposition to clients facing the challenges that this macroeconomic environment can lead them to. All right, so to the extent that we can help our clients manage things like natural disasters, social inflation, geopolitical conflicts, our customized tools, our specialist approach can help ensure that clients get the best return for their premium dollar across their entire portfolio. That's what that is.
David Mcmahon: You know it to be free cash flow positive in the near term, which is a little sooner than I had expected. So if.
David Mcmahon: If you could just talk about what's driving that it would be helpful.
Speaker Change: Yes, sure we had about.
Speaker Change: 60 basis point.
Speaker Change: Year over year improvement in the free cash flow.
Speaker Change: Sure.
Speaker Change: Margin drag.
Speaker Change: From that business.
Speaker Change: So quite pleased with the progress that we've made there as that business matures and as we think through.
Speaker Change: The portfolio of products within within transact.
Speaker Change: B B.
Speaker Change: Drivers of getting to free cash flow positive within that business over the next few years as is more focus on it.
David Motemaden: Thank you. Please stand by for our next question. Our next question comes from the line of David Motemaden with Abercore ISI. Your line is open. Hi, thanks. Good morning.
Speaker Change: The product portfolio different products have different cash conversion profiles. So we seek to balance that appropriately as Carl mentioned, we run that business for profitable growth. So we're always making trade off decisions there.
Andrew Krasner: I had a question. You guys had called out, I think it was about a 200 basis points adverse impact on free cash flow margins from Transact in 2022. Could you just level set us on how much of a drag that was in 2023?
Speaker Change: As part of that.
Speaker Change: And the business will continue to mature.
Speaker Change: So we think.
Speaker Change: That will be a contributor to getting us to free cash flow positive within that business as well.
Speaker Change: Got it that's helpful. Thank you.
Andrew Krasner: And then, you know, it sounds like you guys are expecting it to be free cash flow positive in the near term, which is a little sooner than I'd expected. So if you could just talk about what's driving that, it would be helpful. Yeah, sure.
Speaker Change: And then maybe.
Speaker Change: Just Carl you had mentioned.
Speaker Change: The specialty businesses have higher growth.
Speaker Change: Then the rest of the RMB segment could you just put some numbers around that in size, how big your specialty businesses are.
Andrew Krasner: We had about a 60 basis point year-over-year improvement in the free cash flow margin drag from that business. So, you know, I'm quite pleased with the progress that we've made there as that business matures and as we think through, you know, the portfolio of products within Transact. You know, the drivers of getting to free cash flow positive within that business for the next few years are, you know, more focused on the product portfolio; different products have different cash conversion profiles. So we seek to balance that appropriately.
Speaker Change: And what sort of growth rate.
They're growing at organically.
Speaker Change: Yes, so I mean, what.
Speaker Change: What we classify as our specialized businesses, our global lines of amount to about half of the.
Speaker Change: Portfolio.
Speaker Change: The CRB business.
Speaker Change: And I think we've used.
Speaker Change: Nearly twice the growth rate.
Speaker Change: Our way of looking at it. So I think you can back into the relative math on that.
Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Andrew <unk> with TD <unk> TD Cowen Your line is open.
Carl Hess: As Carl mentioned, you know, we run that business for profitable growth. So we're always making trade-off decisions there as part of that. And, you know, the business will continue to mature. So we think, you know, that will be a contributor to getting us to free cash flow positive within that business as well.
Speaker Change: Okay.
Andrew Krasner: Good morning.
So that R&D growth was an exceptional number at 12% so im kind of curious going forward.
Andrew Krasner: Looking at new hires.
Speaker Change: I think you said that.
Speaker Change: You'd be strategic and opportunistic.
Speaker Change: How should we think about new hires next year in terms of.
Andrew Kligerman: That's helpful. Thank you. And then maybe, you know, Carl, you had mentioned the specialty businesses had higher growth than the rest of the R&B segment. Could you just put some numbers around that and size how big your specialty businesses are and what sort of growth rate they're growing at organically? Yeah, so, I mean, what we classify as our specialized businesses, our global lines, amount to about half of the portfolio for the CRB business, and I think we've used nearly twice the growth rate. Here we have it; you can back into the relative math.
Speaker Change: Is it going to be flat up a little down a little and then just on the strategic client engagement that you just touched on again.
Speaker Change:
Speaker Change: It's still not quite clear on how that helps the specialty groups I mean does it does it slow them down because now you've got new people involved in the in the process or.
Speaker Change: Just wanted to make sure that.
Speaker Change: Our understand how that's going to help boost the specialty as opposed to.
Speaker Change: Make it a little more complicated.
Speaker Change: Sure. Thanks, Ed Good question.
Speaker Change: Questions, maybe I should say first of all with respect to.
Carl Hess: Thank you. Please stand by for our next question. Our next question comes from the line of Andrew Kligerman with TD Cohen. Your line is open. Hey, good morning.
Speaker Change: Talent acquisition plans.
Ed: You're correct I said, we're focusing on strategic and opportunistic hiring.
Ed: John I think Adam Garden has done a fabulous job over the last couple of years.
Ed: Building back this business to both strengthen.
Ed: But we're always going to be across all of our talent.
Ed: We can find people who are attracted to our proposition you can add value.
Carl Hess: So that R&D growth was an exceptional number at 12%. So I'm kind of curious, going forward, looking at new hires. Carl, I think you said that you'd be strategic and opportunistic. How should we think about new hires next year in terms of, is it going to be flat, up, a little down, and then just on the strategic client engagement that you just touched on again? Um, still not quite clear on how that helps the specialty groups. I mean, does it slow them down?
Ed: Revenue, we're going to be and continue to invest in that talent base.
Ed: <unk>.
Ed: With regarding to.
Ed: The bias would be sorry.
Ed: The bias would be slightly up in new hires then set how I should take the strategic the opportunistic approach.
Ed: I think that.
I would anticipate that we're going to continue to be on look out for talent in the way we have right.
Ed: Last several quarters right.
Ed: We don't hire just for the sake of hiring after we got.
Speaker Change: Got it we can add value.
Speaker Change: With regard to our strategic client engagement I think I'd look at it. This way we're trying to deliver best in class service to our client base and that involves making sure we understand their risks better than anybody else and that is a specialization and then it's fulfilling their needs right.
Carl Hess: Because now you've got new people involved in the process, or do you just want to make sure that... or understand how that's going to help boost the specialty as opposed to making it a little more complicated? Sure. Thanks, Eric, for the question. Questions, maybe I should say.
Carl Hess: First of all, with respect to talent acquisition plans, you're correct. I said we're focusing on strategic and opportunistic hiring. You know, we've done, I think Adam Gerard has done a fabulous job over the last few months of building back this business to full strength. But we're always gonna be on the hunt.
Speaker Change: And <unk>, which is equally important.
Speaker Change: So I view this as an and not a button.
Speaker Change: And what are the primary focuses of of the.
Speaker Change: Strategic.
Speaker Change: The engagement concept is really going to be a focus of the industry vertical but in particular think about fortune 1000 type clients.
Speaker Change: Clients were risk profiles may be more expensive and more complex than other organizations.
Carl Hess: If we can find people who are attracted to our proposition, who can add value and revenue, we're going to be and continue to invest in that talent base. With referring to, the bias would be slightly higher in new hires. Then, is that how I should take the strategic, the opportunistic approach? I think that I would anticipate that we are going to continue to be on the lookout for talent the way we have, right? We don't hire just for the sake of it.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Our next question comes from the line of Iran. Kunal with Jefferies. Your line is open.
Kunal: Thank you good morning, everybody.
Kunal: I guess my first question actually goes back to <unk> question earlier on the call.
Kunal: When when we see guidance and we see some of the underlying pieces move a bit, namely we're seeing higher expectation of.
Carl Hess: Got it, with regard to our strategic claim. I think I'll look at the We're trying to deliver best-in-class service to our client base, and that involves making sure we understand their risks better than anybody else, and that is a special and then it's fulfilling their needs, right? There's client, which is equally important. So I view this as an and, not a but.
Kunal: Cost saves from from restructuring and at the same time, we see the EPS and margin guidance essentially remain unchanged.
Kunal: I just want to make sure and again going back to Lisa's question is there a degree of conservatism in there or are you seeing some offsets potentially that are keeping you at the.
Carl Hess: And one of the primary focuses of the strategic client engagement concept is really going to be a focus on the industry verticals, but in particular, you know, think about, you know, Fortune 1000 type clients where the risk profiles may be more expansive and more complex than other organizations. Thank you. Please stand by for our next question, which comes from the line of Yaron Kinar with Jeffries. Your line is open. Thank you. Good morning, everybody.
Kunal: The unchanged EPS guidance.
Speaker Change: Yes, I think it's probably a little bit of both.
Speaker Change: There.
Speaker Change: We want to make sure that we are focused on delivering on our commitments for 2024.
Speaker Change: And we talked about some of the puts and takes that we expect to play through through 2024 as well.
Speaker Change: Okay.
Speaker Change: Maybe.
Speaker Change: A little bit on what the variables would be that would get you to the upper end versus the lower end of that guidance, what the main variables that you foresee today.
Yaron Kinar: I guess my first question actually goes back to Elyse's question earlier in the call. You know, when we see guidance and we see some of the underlying pieces move a bit, namely, where we see higher expectations of cost savings from restructuring, and at the same time, we see the EPS and margin guidance essentially remain unchanged. I just want to make sure, and again, going back to Elyse's question, is there a degree of conservatism in there? Or are you seeing some offsets potentially that are keeping you at the unchanged EPS guidance? Yeah, I think it's probably a little bit of both.
Speaker Change: Yes, I think the biggest driver there is going to be organic growth right because that will drive incremental operating leverage above maybe what our current expectations might be.
Speaker Change: So I think that will be the biggest the biggest factor there.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Mark Hughes: Our next question comes from the line of Mark Mccall with Baird. Your line is open.
Mark Hughes: Good morning, Thanks for taking my questions.
Mark Hughes: Two questions first on.
Mark Hughes: On the specialty lines.
Andrew Krasner: We want to make sure that we are focused on delivering on our commitments for 2024. And, you know, we talked about some of the puts and takes that we expect to play through through 2024, as well. Okay, and can you maybe elaborate a little bit on what the variables would be that would get you to the upper end versus the lower end of that guidance?
Mark Hughes: You said, you're basically generating two extra growth.
The general lines.
Mark Hughes: To what extent or how long do you think you can keep up that higher level of growth on the specialty lines. In other words are they still relatively new in the market.
Mark Hughes: This is truly differentiated and it's going to enable you to continue to gain a lot of share.
Mark Hughes: Or did we have a boost because of the talent additions and things will settle out so how should we think about that from a longer term perspective.
Andrew Krasner: What are the main variables that you foresee today? I think the biggest driver there is going to be organic growth, right, that that'll drive incremental operating leverage above maybe what our current expectations might be. So I think that would be the biggest factor there. Thank you. Please stand by for our next question. Our next question comes from the line of Mark Marcon with Bayer. Your line is open. Good morning.
Mark Hughes: So part of this is strategic right in that we are focusing on these businesses and that's where we are continue to invest and we see a return there.
Mark Hughes: We've been a specialist broker for nearly 200 years alright, So I would argue that it's not likely to play itself out over the next couple we've been doing this very successful for a very long time the.
Mark S. Marcon: Thanks for taking my questions. There are two questions. First, on the specialty lines, you said you're basically generating 2x the growth of the general lines. How, to what extent, or how long do you think you can keep up that higher level of growth on the specialty lines? In other words, are they still relatively new in the market, and this is truly differentiated, and this can enable you to continue to gain a lot of share? Or did we have a boost because of the talent additions, and things will settle out?
A differentiator for us to remember is that we're actually organizing the business around this as opposed to on the side of someone's desk and that enables us to focus on delivering enhanced value through superior analytics and client engagement.
Mark Hughes: We think has a very attractive proposition, we don't see that abating.
Speaker Change: Great and then can you just talk a little bit about.
Speaker Change: The pension and retirement business.
Speaker Change: How much of a boost could we ended up getting with <unk>.
Carl Hess: So how should we think about that from a longer-term perspective? So part of this is strategic, right, in that, you know, we are focusing on these. That's, return there.
Speaker Change: The change in rates and the ability to derisk.
Speaker Change: And then to what extent does the are you getting any additional engagements just in terms of the news that IBM made with regards to their shift in policy.
Carl Hess: You know, we've been a specialist broker for nearly 200 years. Okay, so I would argue that it's not likely to play itself out over the next couple. The differentiator for us, remember, is that we're actually organizing the business around this as opposed to on the side of someone's desk. And that enables us to focus on delivering, you know, enhanced value through superior analytics, which we think has a very attractive proposition. But we don't see that.
Speaker Change: So we do see the.
Speaker Change: Macro economic environment, and where the funded position of pension plans are as stimulating demand for buy ins and buyouts that we've talked about and not just necessarily transacting on them, but the analysis that goes into them and the preparation. So that we do think that is.
Speaker Change: Helpful for us and our clients going into 2024.
Carl Hess: Right. And then could you just talk a little bit about, you know, the pension and retirement business? You know how much of a boost we could end up getting with the change in rates and the ability to de-risk, and then to what extent are you getting any additional engagements just in terms of the news that IBM made with regard to their shift? So, I mean, we do see the macroeconomic environment and, you know, where the funded position of pension plans is stimulating demand for buy-ins and buy-outs, as we've talked about, and not And some of that, you know, will be episodic, right, as clients take on de-risking transactions. So it's not going to be, you know, any one pattern throughout the year.
Speaker Change: We.
Speaker Change: And some of that will be episodic right.
Speaker Change: As clients.
Speaker Change: Take out de risking transaction, so its not going to be a one pattern throughout throughout the year.
Speaker Change: And with respect to the.
Speaker Change: The client Youre alluding to.
Speaker Change: It gets reopened their defined benefit plan.
So.
Speaker Change: There is interest out there at least examining this on behalf of other plan sponsors who may be similarly, situated.
Speaker Change: We are well poised and well positioned to help clients with that evaluation.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Meyer Shields with Keefe Bruyette <unk> Woods. Your line is open.
Meyer Shields: Great. Thanks, two quick questions first.
Meyer Shields: I can tell you talked about having 12 vertical and I was hoping you could sort of outline how much of the fortune 1000.
Meyer Shields: That 12 vertical represent.
Meyer Shields: So I don't think that maps quite right for instance, one of our industry verticals focuses around alternative capital with your private equity right. So this isn't necessarily a public equity strategy nor is it confined to the large market right.
Carl Hess: Yeah, and with respect to the client you were alluding to, who, you know, I guess, reopened their defined benefit plan, you know, this is where there's interest out there in at least examining this on behalf of other plan sponsors who may be similar, are well-poised, and well-positioned. Thank you. Please stand by for our next question, which comes from the line of Maya Shields with Keith, Brett, and Woods.
Meyer Shields: The industry verticals stretch down to smaller organizations as well so the answer is there a significant coverage across.
Meyer Shields: Corporate America with our industry verticals.
Meyer Shields: Some of them are quite broad and some of them are quite focused on areas, where we think we can deliver particular value say hospitality.
Maya Shields: Your line is open. Great, thanks. Two quick questions. First, Paul, you talked about having 12 verticals, and I was hoping you could sort of outline how much of the Fortune 1000 those 12 verticals represent. So I don't think that maps quite right.
Meyer Shields: Okay.
Speaker Change: Okay, No fair enough.
Speaker Change: Second and I'm not really sure how to ask this question, but you talked about how Adams brought back.
Speaker Change: The.
Speaker Change: Staffing to full levels could we see full productivity from from that group overall in the fourth quarter of 23 over the course of 2023 or is there still some momentum for for the newest.
Carl Hess: For instance, one of our industry verticals focuses on alternative capital, which is private equity. It is not necessarily a public equity strategy, nor is it confined to the large market. We see industry verticals stretched down to smaller organizations as well. So the answer is there's significant coverage across corporate America with our industry verticals. Some of them are quite broad, and some of them are quite focused on areas where we think particular value is added, you know, say hospitality. Okay, no, fair enough.
Cadre too.
Speaker Change: And productivity with that margin.
Speaker Change: Very much the latter we do see.
Speaker Change: We're very happy with the progress that both our existing colleagues and our new colleagues have made.
Speaker Change: We do see increased productivity as being part of the picture for our last cohort suppliers, yes.
Carl Hess: Second, and I'm not really sure how to ask this question, but you talked about how Adams brought back the staffing to full levels. Did we see full productivity from that group overall in either the fourth quarter of 2023 or over the course of 2023? Is there still some momentum for this newest cadre to expand productivity or expand margin? Very much the latter.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Josh Shanker with Bank of America. Your line is open.
Joshua Shanker: Yes. Thank you very much for fitting me again I just wanted to ask a question Greg was asking at the beginning about the difference in the growth rates of the various segments.
Joshua Shanker: Aggregate the growth seems pretty orderly, but by segment there seems to be a lot of volatility should we expect in the coming quarters that the segment organic growth rates will be volatile. So it the right way to think about how your business operates or should we expect there to be a general run rate, where there is a true.
Carl Hess: We do see, while we're very happy with the changes both our existing colleagues and our newer colleagues have made, we do see increased productivity as being part of the picture for our last cohort of hires. Thank you.
Joshua Shanker: Please stand by for our next question. Our next question comes from the line of Josh Shanker with Bank of America. Your line is open. Thank you very much for putting me on the end.
Joshua Shanker: <unk> from the previous quarter that might influence the next quarter.
Speaker Change: Yes, I think you're I think you're asking about sequential.
Speaker Change: Growth rates parts of our business our seasonal I mean, do you have timing things would play out.
Andrew Krasner: I just want to go back to a question Greg was asking at the beginning about the difference in the growth rates of the various segments. In aggregate, the growth seems pretty orderly, but by segment, there seems to be a lot of volatility. Should we expect in the coming quarters that the organic growth rate of each segment will be volatile? Is that the right way to think about how your business operates?
Speaker Change: <unk> really between quarters.
Speaker Change: Year to year, so that is something to keep in mind and that is why we tend to focus on full year full year growth rates for our businesses.
Speaker Change: Does the seasonality is shown in 2023 represent a seasonality that we should consider in the 'twenty 'twenty four year.
Speaker Change: But for the most part I think throughout the year, we did call out a couple of.
Andrew Krasner: Or should we expect there to be a general run rate where there's a trend from the previous quarter that might influence the next quarter? Yeah, I think you're asking about sequential growth rates. You know, parts of our business are seasonal, and we do have timing things which play out periodically between quarters of your year. So that is something to keep in mind.
Speaker Change: Unusual things for example, the.
Speaker Change: Timing of BDO between Q4, Q3 revenue and I think there were a couple of other things.
Speaker Change: Throughout the year and of course, you've got to think about the impact of the.
Speaker Change: Book sales, where we had so swings in some of the quarters they were larger about space, but.
Speaker Change: Expect to be through that largely going forward.
Speaker Change: Thank you.
Andrew Krasner: And, you know, that is why we tend to focus on full year, full year growth rates for our. Does the seasonality shown in 2023 represent a seasonality that we should consider in the 2024 year? But for the most part, I think throughout the year, we did call out a couple of unusual things. For example, the timing of BDO between Q4 and Q3 revenue. And I think there were a couple of other things, you know, throughout the year.
Speaker Change: Please standby for our next question.
Our next question comes from the line of Mike Ward with Citi. Your line is open.
Michael Ward: Hey, guys. Thanks, good morning.
Michael Ward: Was just curious.
Michael Ward: The margin guide relatively consistent but you've spoken to some incremental savings.
Michael Ward: So just wondering if we should think about those savings maybe being offset by some costs.
Andrew Krasner: And of course, you got to think about the impact of book sales where we had some swings in some of the quarters where there were larger amounts of those, but you know we expect to be through that largely going forward. Thank you. Please stand by for our next question. Our next question comes from the line of Mike Ward with Citi. Your line is open. Hey, guys, thanks. Good morning.
Michael Ward: Could that actually benefit.
Michael Ward: Five margins.
Speaker Change: Yes, so as I had mentioned.
Speaker Change: As it regards with regard to the 24 margin target, we do expect to be towards the higher end of that range.
Speaker Change: There's obviously some benefit from incremental savings that we talked about.
Michael Ward: I was just curious, the margin guide, relatively consistent, but you know, you've spoken to some incremental savings. So I was wondering if we should think about those savings maybe being offset by some costs. Could that actually benefit 2025 margins? Yeah, so as I had mentioned, as regards the 24 margin target, we do expect to be, you know, toward the higher end of that range. You know, there's obviously some benefits from the incremental savings that we talked about, and the investments that we're making are really for future growth opportunities, but they also will help us, you know, unlock additional operating leverage opportunities in the future. So we do think they'll be continual tailwinds beyond 2024 for some of the investments we're making now this year. Okay, thanks. And then you spoke to some of the book games in the quarter.
Speaker Change: Ed.
Speaker Change: Investments that we're making are really for.
Speaker Change: Future future growth opportunities, but also will help us unlock additional.
Speaker Change: Operating leverage opportunities in the future. So we do think it will be.
Speaker Change: Continued tailwind beyond 2024 for some of the investments we're making.
Speaker Change: Now this year.
Speaker Change: Okay. Thanks.
Speaker Change: And then you.
Speaker Change: You have spoken to some of the bookings in the quarter.
Speaker Change: I'm wondering if you could talk about where attrition is running.
Speaker Change: 2024 is kind of a normal year.
Speaker Change: Just curious how much of a headwind we should expect this year for bookings.
Speaker Change: No we expect to return.
Speaker Change: Back towards our historical normal levels. So we don't expect any significant headwinds or tailwind from.
Speaker Change: From bookings going forward.
Speaker Change: I would just add sort of thinking about attrition over all levels of the company, we are back down to well within the range we've had historically.
Andrew Krasner: I'm wondering if you could talk about where attrition is running and if 2024 is kind of a normal year. Just curious how much of a headwind we should expect this year for book. No, we expect to return back to our historical normal level, so we don't expect any significant headwinds or tailwinds from hurricanes coming. I would just add sort of thinking about attrition at the overall level for the company. You know, we are back down to, you know, well within the. So he's very manageable. Thank you.
Speaker Change: So a very manageable situation for us.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Brian Meredith with UBS. Your line is open.
Brian Meredith: Yeah. Thank you put me in Carl I'm, just curious on.
Brian Meredith: On the 10% organic growth for the year and RMB, you mentioned that was new business and it was retentions as a way to kind of parse that out and how much of the kind of growth was client retention.
Andrew Krasner: Please stand by for our next question. Our next question comes from the line of Brian Meredith with UBS. Your line is open. Yeah, thank you. For me and Carl, I'm just curious, on the 10% organic growth you had for the year in R&B, you mentioned that it was new business and it was retentions. Is there a way to kind of parse that out? And how much of the kind of growth was client retention? Are you back to your historical client retention levels? Or is there more room for that to improve?
Brian Meredith: Back to kind of your historical client retention levels or is there more room for that to improve.
Brian Meredith: We are back which is great to see and that is the result of superior client service I think on behalf of many many many colleagues.
Brian Meredith: I do not rest on our laurels, but its pretty nice to be where we are.
Brian Meredith: Our performance New business has been just really first rate and.
Brian Meredith: Very proud of the effort. The team has made representing what we can do with GW on the marketplace.
Brian Meredith: We are back. Great, and many, many more. I do not want to rest on our laurels. We are performing to new business. I'm very proud of the effort that is made to represent what we can do as a great company. Thank you. And then the second question, I'm just curious with your 2024 outlook, what is your baseline assumption with respect to, you know, economic growth and inflation, as you kind of look out? Do you expect things to continue the way they are? Any type of change?
Speaker Change: Great. Thank you and then second question I'm, just curious with your 2020 for outlook.
Speaker Change: What are your kind of baseline assumption with respect to economic growth and inflation as you kind of look out do you expect things to continue the way they are any type of change.
Speaker Change: I think continue the way they are operating.
Not looking too far back in the mirror on that one, but we're not sort of anticipating incredible economic dislocation.
Carl Hess: Um, I think they should continue the way they are operating, but not looking too far back in the mirror. We're not sort of anticipating an incredible economic dislocation, nor are we sort of looking to... and Thank you. I am showing no further questions in the queue.
Speaker Change: Nor are we sort of looking towards the incredible geopolitical dislocation, but we do recognize there's a lot of volatility out there.
Speaker Change: That is not.
Speaker Change: Not necessarily great for our clients, but it does mean that.
Speaker Change: There is more opportunities for us to help them manage that volatility.
Speaker Change: Thank you.
Speaker Change: I'm showing no further questions in the queue I would now like to turn the call back over to Carl Hess for closing remarks.
Carl Hess: I would now like to turn the call back over to Carl Hess for closing remarks. So, thank you all again for joining us. I appreciate all of our WTW colleagues globally who have worked tirelessly to help us end the year on such a strong note. I am proud of everything we've achieved in 2023. I look forward to us keeping up the momentum. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. The phone is ringing.
Carl Hess: So thank you all again for joining us I appreciate all of our WT W colleagues globally, who work tirelessly to help us in the year on such a strong note I am proud of everything we've achieved in 2023 I look forward us keeping up the momentum 2024.
Carl Hess: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Carl Hess: [music].
Carl Hess: Okay.
Carl Hess: Yes.
Carl Hess: [music].
Carl Hess: Okay.
Carl Hess: Okay.
Carl Hess: [music].
Carl Hess: Yes.
Carl Hess: Sure.
Carl Hess: [music].
Carl Hess: Okay.
Carl Hess: Sure.
Carl Hess: [music].
Carl Hess: Yes.
Carl Hess: Okay.