Q3 2024 Willis Towers Watson Public Ltd Co Earnings Call

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Speaker Change: Good morning, welcome to the WTW third quarter 2024 earnings conference call. Please refer to WTWC.com for the press release and supplemental information that we're issued earlier today. Today's call is being recorded and will be available for the next three months on WTW's website.

Speaker Change: Some of the comments in today's call may constitute Ford-looking statements within the meaning of the private securities reform act of 1995. These Ford-looking statements are subject to risks and uncertainties.

Speaker Change: Actual results may differ material, leave from those discussed today, and the company undertakes no obligation to update these statements unless required by law.

Speaker Change: For a more detailed discussion of these and other risk factors, investors should review the forward-looking statement section of the earnings press release issued this morning, as well as other disclosures in the company's most recent form 10K in other filing the company has made with the SEC.

Speaker Change: During the call, certain non-gap financial measures will be discussed.

Speaker Change: For Reconciliation of the non-Gat measures, as well as other information regarding these measures, please refer to the earnings press release issued this morning 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.

Carl Hess: Good morning everyone. Thank you for joining us for WTW's third quarter 2024 earnings call

Carl Hess: Joining me today is Andrew Krasner, our Chief Financial Officer.

Carl Hess: We had another strong quarter, delivering 6% organic revenue growth driven by 10% organic growth in risk and broken and 4% in HWC.

Carl Hess: I adjusted operating margin expanded 190 basis points year over year to 18.1%.

Carl Hess: driven by operating leverage, continued cost discipline, and the success of our transformation program.

Carl Hess: taken together this resulted in adjusted deluded earnings per share of $2.93.

Carl Hess: A 31% increase first the third quarter of 2023.

Carl Hess: We also generated three cash flow of $87 million for the nine months ended September 30, up 14% year over year.

Carl Hess: While our gap results reflect the law student the accounting treatment of the pending sale of our transact business, which Andrew will discuss in more detail, are strong third quarter operating performance gave us momentum as we entered the fourth quarter.

Carl Hess: Our value proposition and powerful solutions continue to resonate in the marketplace. And our investments in talent and technology are helping fuel our continued strong performance at attractive returns.

Carl Hess: Alongside the support of demand and vermic work experiencing, these factors make us confident we will deliver on our 2024 targets.

Carl Hess: and more specifically within those targets as we mentioned last quarter, we do see some opportunities for stronger performance relative to our merging goals.

Carl Hess: Potential upside could come from better than expected productivity for investment in talent, the timely of transformation savings, continued expense management, and the possibility of rebounding global M&A activity.

Carl Hess: Now, let me share some details on our performance and development this quarter that highlight our strategic progress.

Carl Hess: In HWC, we achieved organic growth of 4% in the quarter, even as we continue to intentionally moderate growth in our transact business.

Carl Hess: While employment and wage growth slowed somewhat in various parts of the world, demand remains strong.

Carl Hess: Our HWC capitalized on this includes 6% in health, 3% in wealth and 7% in career.

Carl Hess: Corps growth and smart connections remain our focus. Resulting and continued growth in global benefits management, compensation benchmarking surveys, the risky activity, and total rewards assignments.

Carl Hess: We've also gained notable new appointments for benefit outsourcing, Reveneration Committee Advisory Services, our Retirely Health Care Exchange and Core Actual Services.

Carl Hess: These winds will add more than 50,000 new customers to our individual health care exchange from the state of Maryland, and they include a thing named Actuary to a major U.S. utility to a competitive bidding process where we unseated the 30-year income.

Carl Hess: Continued our track record of introducing breakthrough solutions to lead the market, we introduced several new solutions again this quarter.

Carl Hess: We designed the virtual captive to affect cost and risk mitigation strategies from employee benefits in more than 80 countries that can't be covered in a traditional captive insurance company.

Carl Hess: Our approaching corporates.aggregation and predictive analytics.

Carl Hess: We also developed a new workforce management proposition.

Carl Hess: and end the end solution to help organizations manage reductions in force.

Carl Hess: The proposition includes predictive modeling capabilities to achieve cost reduction targets while minimizing cash flow impacts and limiting the risk of unwanted turnover.

Carl Hess: It also includes effective change in communication management to support the organization's culture and sustain employee engagement.

Carl Hess: Our focus on smart connections across HWC has also continued to pay dividends as it did when we provided across business services to a gas company that was concerned by cost savings.

Carl Hess: Collegues across work in rewards, retirement, BDA and employee experience engaged with the company's HR and finance teams.

Carl Hess: to design and support a workforce separation program, move their retirees to our individual marketplace and transfer some of their retiree medical and life obligations to an insurance carrier.

Carl Hess: In another example, CRB recognized that in European technology, playing it going to an acquisition needed help with corporate risk and employee benefits. And so they introduced HWC.

Carl Hess: Together, the WTW team supported due diligence, strategic planning, and the integration of employee benefits and corporate brokerage services.

Carl Hess: Risk and Broken continue to grow at pace this quarter, delivering 10% organic growth on top of 10% growth in the prior year period.

Carl Hess: Our Specialization Strategy, Investments and Tellant and Technology, Strong Client, Retention Rate and Substantial New Business Generation all contributed to this excellent performance.

Carl Hess: Our specialty business is continue to generate the strongest growth in the segment.

Carl Hess: Our focus on specializations has enabled us to better address our clients complicated and ever-changing risk profiles and continues to be a primary driver of our strong organic growth.

Carl Hess: We also continue to make progress on our strategy to rapidly expand our NGA, NGU, Dad and Analytics, Affinity and Specialty Solutions by developing innovative products and services with strategic partners. Let me update you on the latest developments.

Carl Hess: First, Verita, our open market MGU in North America, has exceeded our growth expectations since its launch at the beginning of the year.

Carl Hess: The bolster are offering very tough recently partnered with Canopias US Insurance to introduce a new option called the client-edge facility.

Carl Hess: which will efficiently deliver additional needed property insurance capacity for large and complex risks as well as middle market risks.

Carl Hess: This new venture reflects very tough focus on bringing new, innovative, insured solutions to clients, brokers and capacity partners.

Carl Hess: Second, we announced the partnership with Tena, a top tier insurance infrastructure platform.

Carl Hess: This collaboration will enable us to bring our data in analytics tools and insurance advisory and brokerage expertise to the fast growing affinity insurance sector and [inaudible]

Carl Hess: Together with Kater, we're offering a administration for industry specialized platform to distribute tailored property, general liability, workers compensation, commercial auto and umbrella liability insurance solutions to a variety of sectors.

Carl Hess: Our special esteems will lead the product development and broker all insurance offerings.

Carl Hess: The third strategic partnership at our RFB segment announced this quarter was our co-block range agreement with the Jane Worry Company, which will focus on North American exposures of companies headquartered in Japan.

Carl Hess: Asian companies with unique risk management needs will now have access to WTW's vast carrier relationships and our specialty insurance skill set which will help them tailor solutions to address industry and geography specific risks.

Carl Hess: These strategic partnerships complement and strengthen our focus on specialization and expansion to high margin parts of the insurance value chain, which have been driving and will continue to drive margin to creative organic growth in our intake.

Carl Hess: Moving from growth to margins, both operating, level and transformation efforts were key contributors to margin expansion during the quarter.

Carl Hess: The transformation program realized $52 million of incremental annualized savings this quarter, bringing the total to $446 million in cumulative annualized savings since the program's inception.

Carl Hess: In addition to the direct margin impact transformation is made, the investments we've made in technology, processes, and infrastructure across the life of the program have better position us to drive further efficiencies and continue to operate a leverage well into the future.

Carl Hess: Finally, I want to update you on our portfolio management activities.

Carl Hess: For the following management has been a part of our strategy over the last three years as we worked to simplify our organization and focus on businesses with significant growth opportunities and strong margin and cash flow profiles that also align to our core capabilities.

Carl Hess: As an outsterole of this month, we entered into a definitive agreement to sell transact.

Carl Hess: Transact was WTW's only direct to consumer business and is sailed significantly simplifies our portfolio and our strategy by enabling us to focus on our core B2B and B2B to see activities.

Carl Hess: Dordablake, Investing Transact, also accelerates our progress toward our long-term free cash flow margin expansion goals.

Carl Hess: Andrew is going to walk through the financial and accounting details of the sale later.

Carl Hess: elsewhere in our portfolio, we acquired a minority interest stake in automos, a U.K. based wealth manager, which strengthens the existing strategic alliance between our wealth business and automos.

Carl Hess: At the most uses WTW's investment engine to provide its clients who are individual investors with a broad and diverse array of investment options that were previously only available to institutional investors.

Carl Hess: This expanded relationship with Atmos will allow WTW to penetrate the large and growing UK wealth market, which has an estimated market value of 2.2 trillion times.

Speaker Change: These strategic portfolio management actions, along with the partnership announcements I mentioned earlier, reflect our continued focus on reviewing our portfolio to ensure our businesses are well-line and strongly positioned to drive profitable growth.

Speaker Change: This does pails with our discipline capital allocation process through which we consider all our options to maximize shareholder value creation, including share repurchases, internal investments, and carefully considered strategic M&A.

Speaker Change: In closing, we're pleased for the third quarter performance, which reflects our team's focus and hard work to beat our client's needs with innovative ideas and efficiency.

Speaker Change: As we enter the fourth quarter, we're focused on executing on our strategic priorities.

Speaker Change: I'm encouraged and excited by the enthusiastic client response and the opportunities we see in the market. We have positive momentum and I'm confident we'll finish the year strong and achieve our objectives.

Speaker Change: and with that I'll turn the call over to Andrew.

Andrew Krasner: Thanks Carl, good morning and thanks for joining us today.

Andrew Krasner: In the third quarter, we delivered organic revenue growth of 6%.

Andrew Krasner: The justed operating margin expanded 190 basis points to 18.1% and adjusted deluded earnings per share were $2.93 and increased of 31% over the prior year. Our solid results continue to give us confidence in achieving our 2024 financial targets.

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 in less specifically stated otherwise.

Andrew Krasner: Health and Career Review Group 4% compared to the third quarter of last year. Our Health Business Generated Review Group is 6% for the Quinter, or 5% excluding both of the business activity.

Andrew Krasner: Dumpel Digit Growth International, along with Strong Growth in Europe, was driven by solid client retention, new local appointments, and the continued expansion of our Global Benefits Management Client portfolio. North America Generating Growth, the result of increased brokeraging income.

Andrew Krasner: We continue to expect high-synchle digit growth for the business for the year based on our pipeline and our expected commission stream.

Andrew Krasner: Well-fraving you, group 3% in the third quarter given by strong growth in our retirement business, primarily due to valuation working Europe. We also delivered solid growth in our investment business due to improvements in capital markets and growth from our life-site solution.

Andrew Krasner: Career delivered 7% growth for the quarter. Growth and compensation, benchmarking, participation, health, delivery, increased compensation survey sales and cost of data analytics and worker rewards. In employee experience, we saw growth in our sales of our onboard portal.

Andrew Krasner: Bendepitz delivery and outsourcing had a decline of 1% versus a third quarter of last year. As a reminder, BDNO faced a strong comparable disorder due to the timing of project working outsourcing during last year's third quarter, as well as a headwind related to previously mentioned client who insourced health and other benefits administration.

Andrew Krasner: and as we discussed last quarter, we have been deliberately moderating growth in our Medicare related businesses. As a result, for the year we are expecting BDNO to have low single digit growth with and without transact.

Andrew Krasner: HWC's operating margin was 24.7% and increase of 90 basis points compared to the prior year third quarter, primarily driven by transformation savings.

Andrew Krasner: Moving to risk and broken, third quarter revenue was up 10% on an organic basis, and operating margin expanded 240 basis points to 18.1%.

Andrew Krasner: This includes Book of Business Activity of $4 million versus $1 million in the prior year. Interesting come was up 4 million from the third quarter last year.

Andrew Krasner: Corporate risk of broken had a solid quarter, growing 10% with strong contributions across all geographies, including double digit growth and great Britain and our Western Europe and international regions.

Speaker Change: As Carl mentioned, our special C-Lines continued to be major contributors to the strong growth performance led globally by our facultative, crisis management and financial solutions businesses.

Andrew Krasner: We also saw a very strong performance by two of our learned specialty businesses, FNX and construction.

Andrew Krasner: Growth in CRB Great Britain was led by Facultative Financial Solutions Crisis Management, the next construction and aerospace.

Andrew Krasner: across the CRV Western Europe, we saw strong growth in our Phoenix and natural resource as businesses.

Andrew Krasner: Western Europe also had double-digit growth in a number of our countries in the region. North America CRB had solid growth supported by strong contributions from our construction, marine and natural resource businesses.

Andrew Krasner: Our international region had organic growth across all subregions led by double digital growth in Latin America and Asia and double digital growth in almost all of our specialty businesses as well as P&C retail and affinity.

Andrew Krasner: We continue to see the stabilizing and softening of global rates from the slowdown in the US inflation. Property, financial lines and commercial rates of decreasing. Casualty remains stable, but more conditions are increasingly difficult for motor risks and worth American exposures.

Andrew Krasner: Hurricane Milton did not seem to increase natural catastrophe rates, but its financial impact is still uncertain. Our specialty lines continue to stabilize, but with some increases in political risks and trade credit.

Moving on to our insurance consulting and technology business, revenue is up 7% with strong double digit growth in our technology practice, partially offset by continued tempered demand in the consulting practices.

Andrew Krasner: R&B's operating margin was 18.1% for the quarter, a 240-based is point increase over the prior year, third quarter, primarily due to operating leverage term by organic revenue growth and disciplined expense management, as well as transformation savings.

We continue to expect Mars and expansion for our envy for the full year, but as a reminder, in Q4, we will face headwinds from $14 million of book of business activity that occurred in Q4 of last year.

Now let's turn to the enterprise level results. At the enterprise level, the adjusted operating margin for the quarter was 18.1% a 190 basis point increase over prior year, primarily driven by operating leverage and the benefits of our transformation program.

We had 52 million of incremental annualized transformation savings, bringing the total to 446 million of cumulative savings since the program's inception.

Our unallocated net was negative 85 million for the third quarter. We continue to expect the full year 2024 balance to be relatively consistent with 2023.

Barring Exchange was a headwind to adjusted EPS of two cents for the quarter. At current spot rates, we expect foreign exchange should be a headwind of approximately six cents on adjusted EPS for the year.

Our US Gap tax rate for the quarter was 16.1% versus 15.5% in the prior year. Our adjusted tax rate for the quarter was 19.7% compared to 24.3% for the fur third quarter of 2023.

We've previously mentioned that we anticipated our adjusted tax rate for the year to be similar to our 2023 rate, excluding last year's one-time tax items, which was 22.4%.

Andrew Krasner: given our current position we now expect our adjusted tax rate to be moderately more favorable.

During the quarter we returned 294 million to our shareholders via share repurchases of 205 million and dividends of 89 million.

We continue to view chair-reproducers as an attractive use of capital to create long-term shareholder value and the central focus of our balanced approach to capital allocation.

As we mentioned previously, we continued continuously monitor our cash levels and more conditions to take advantage of opportunities to accelerate repurchases if the opportunity presents itself.

with that based on current market conditions and other relevant factors. We now respect share researchers for the year to be 900 million up from our previous estimate of 750 million.

As Carl mentioned, W.T.W. has entered a definitive agreement to sell the Transact Business. We believe this sale will help us sharpen our strategic focus, simplify our portfolio, and accelerate our progress towards our long-term free cash flow margin goals.

Andrew Krasner: and connection with the pending transaction, help for sale, accounting treatment, applies to transact assets and vulnerabilities.

The Financial Results are Transact, will continue to be reflected in our financial statements through the closing data to transaction, which is expected to be later in Q4 subject to regulatory approvals and customary closing conditions.

We do not expect the transactic impact our financial targets for the year as we anticipate booking approximately a full year financial results for transact.

The pending transaction resulted in pre-tapped losses and related impairment charges of over $1 billion each, which are reflected in the gap results for Q3. These are one-time non-cash charges and are not included in adjusted deluded earnings per share.

Trans-Ext stand-alone historical financial results are included in the supplemental slides. While I won't review those in detail now, I do want to highlight that we expect the sale to be a creative tourgantet group, adjusted operating margins and pre-castial of March.

We generated free cash flow of 87 million for the nine months and did September 30th, an increase of 100 million from the prior year. Primarily driven by operating margin expansion, partially offset by cash outflow of related to transformation and discretionary compensation payments.

We continue to be confident in our expectations of your year improvement in full year free cash flow margin. And given the sale of Transact, we expect to accelerate our progress towards our long-term free cash flow margin goal.

In closing, we are very pleased with our strong business performance and expect this momentum to enable us to achieve our 2024 targets. With that, let's open it up for Q&A.

Thank you, at this time we will conduct the question and session. As a reminder to ask a question, you will need to press star 1, 1 on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your question, please press star 1-1 again. We will allow one question and one follow-up per participant. Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from Greg Peters of Raymond James, your line is now open.

Hey, this is Mitch Rubin on behalf of Greg Peters. Thanks for taking my question. Can you clarify the impact of the sale of transact on Q3 organic results and free cash flow?

Good morning, Mitch. Thanks for your question. In Q3, Trans Act was a 70 basis point headwind on organic growth at the HWC level and 50 basis points at the enterprise level.

It's important to note that BDTO's results were uneven in the second half of the prior year.

Andrew Krasner: with 14% growth in Q3 and 3% growth in Q4. So the full year results will serve as a relevant comparison point for that specific business unit.

for 2025. We anticipate that excluding transact from our results will have a positive impact on our organic growth, adjusted operating margin and the free cash flow margin profile.

Thank you, as they follow up. Can you provide some additional color on the impact of new hires and growth and exposure units on organic growth inside risk and broken? Thanks.

Andrew Krasner: [inaudible]

Speaker Change: and our new hires were really pleased that the progress they made are part of that growth story, but they're only part of the majority of our growth is due to all our colleagues, including the new hires.

Speaker Change: Thank you. Our next question.

comes from a lease green span of Wells Fargo, your line's now open.

I think, good morning. So my first question, you know, Carl, you started off by saying, you were, you know, positive, there's a talent to this year's Marching Guide. And Andrew, you...

and the law-wared attacks guidance and up to the buyback guidance. But you might have not changed the EPS guidance for the year.

Andrew Krasner: Is there just some of the conservatism built in? You expect to be at the high end of the range? How do we think about these positive updates relative to?

Andrew Krasner: and the lack of changing the overall 2024 EPS guide.

So let me talk a little bit about margin guidance, at least in Andrew Kvalop on EPS. We had 190 basis points of margin expansion this quarter, that's 210 basis points expansion year to day. We're really pleased with our execution. We remain optimistic with where we're tracking within the margin guidance range.

Andrew Krasner: But we do continue to see opportunities for stronger performance relative to that guidance For example, you know better than expected productivity, or investment talent in both segments.

including Martin D. Heatherford just talked about with Bich.

The timing of transformation savings were continued to find opportunities for expenses without impacting growth and productivity. And there's the potential for rebounding global M&A activity that creates opportunities within both segments.

and all of those factors, Carl, could lead to out performance on the margin side. It's also important to keep in mind that there was a $4,000,000 book of business sale that happened in the Q4 of last year, so that would be a headwind as well as...

You know, the pacing and of transformation savings that really came through in the fourth quarter last year that also produced a bit of a tougher comparable.

Carl Hess: in terms of EPS, the least you were were...

Please with our execution year to date and last quarter raise the low end of our GPS target range.

Carl Hess: and given the momentum we see in the business or ability to execute, we're confident that we'll deliver GPS within that range.

you know in terms of you know any opportunity to outperform there that's really going to start with the outperformance on the adjusted operating margin that Carl just alluded to you know coupled with with greater top line growth.

Thanks, and then I follow up with on reports.

I appreciate right that you guys did up this year's guidance by 150.

and all of us, but...

and the ledger coming into.

who look at him on a cash that's here we have.

You know, they've burned out from, you know, Galagher E750, right? Something in the right, just on the head of the transvest, um, the vestiture, um, show, you know, when you think about all this cash coming into our, uh, Carl, I think you said, balance, the approach to M&A, so we should try to think about how you're going to balance, like, think about the repurchase and my assumption is.

Carl Hess: So...

So, at least, as we continuously evaluate our capital structure to ensure it's appropriate to take advantage of opportunities to deploy capital across peer-reportances and organic and inorganic investment opportunities.

So, you know, maintaining that flexibility really important to us and, you know, given where we were in the year and in our cast position and the progress on the pre-cast flow, you know, wanted to take advantage of helping the, the, the, the, the, the, the, the, the, the, the, the, the, the, for the year.

and maybe Carl, you want to talk a little bit about.

I mean, I think about this on it go forward based release

Carl Hess: I guess it will be that we've come a long way over the last three years, right? Since...

Carl Hess: that beginning of that period. We've stabilized the business. We rebuild our talent base. We've restored our client base and that's brought revenue growth to competitive levels. And at the same time, we've been able to return significant capital shareholders while transforming and simplifying this company.

and our allocation to capital allocation is also a moment.

We're in a far better place when we started and through those efforts, we're now in place to be able to execute and integrate organic opportunities. Across our industry, our peers have created value through M&A, and we believe M&A is a healthy opponent to a balanced approach to growth.

and we will continue to take a balance to approach to capital allocation and evaluate all of the options which do its work include a share by back as a central component of that strategy.

Thank you. Our next question comes from Rob Cox of Goldman Sachs, your line is now open.

Hey, thanks just following up on the organic growth questions. I mean, it appears that risking broking organic excluding investment in common book settlements might have accelerated in the quarter. You talk about what continues to drive the strong performance there and if you see anything that would lead you to believe.

Carl Hess: Grouth would be material, materialy different in the fourth quarter as you had into kind of your largest revenue quarter there.

We're really pleased with the 10% organic we did in our B-during the corner and you know to recognize that that's on top of a 10% top level in the prior period last year and Neither book business for interest income meaningfully impacted that organic growth rates.

Carl Hess: We continue to expect meaningful contributions from our strategic investments in talents. We mentioned earlier and platforms. And as we continue to pursue our fraternity in line with our specialization trade.

and within CRB, the 10% growth rate is Carl alluded to earlier really driven by new business, you know, both from the investments and talents that we've made in our existing talent base.

The retention was obviously a component there as well, but really want to stress the importance of the new business that we've had the last quarter. Rate did not have a being full impact, investment income did not have a being full impact and the book of business activity did not have a being full impact. So really strong growth profile on the up within CRB.

Carl Hess: within ICT, maybe there was 7% for the quarter that was really driven by the technology business which had double digit growth. And I'm going to note as we mentioned it was partially offset by temper demand and the consulting business.

Okay, thank you appreciate that color. And then as my follow up, I was hoping you guys could comment on what type of magnitude of the tax shield you might be expecting from the sale of the Transact Business. And kind of second, we sound like the tax rate is...

Carl Hess: Actually getting better this year, but could you comment on if you're seeing any potential pressure into 2025, given some of the global regulatory changes on taxes?

This was that there would be some impairment and other losses associated with that. For the most part those are going to be capital losses, so they can only be applied to the extent that there are capital gains.

and that is U.S. Pacific, so we would have to have U.S. Pacific, Pacific, capital gains to offset those.

and in terms of tax rate going forward, not going to get into guidance at this point, we'll cover that on our full year call early next year, but we do seek to make sure that we've got appropriate structures in place to manage risks around increasing tax rates.

Speaker Change: Thank you. Our next call is from Mark Hughes of True Securities, your line is now open.

Mark Hughes: Yeah, thank you. Carl, you talked about seeing better productivity from your new talent. And you've got a lot of capital.

Are you kind of redoing this acceleration and hiring that you did a couple of years ago post the transaction?

Something that's that you're pursuing or could you give us some sense of you know how that hiring pace has continued the last six to 12 months.

Yeah, so we're continuing to hire talent, Mark, but it's more opportunistically as we find people who are well aligned with what we're trying to pursue across our segments in terms of our business strategy. And I contrast that to a few years ago where we were really in rebuilding mode.

I think pretty much everyone on this call is well aware. We are rebuilt. That's great news and it's showing up in the numbers.

for hosting highly competitive growth rates.

Mark Hughes: but you know there is talent out there that I think we can be an excellent partner to and we'll continue to seek out those individuals and bring them on and continue to grow this organization organically.

And then Andrew, the Transformation Program.

Yeah, sure. We expect, you know, the cash, you know, to be, you know, relatively consistent with

and Carl Hess. We are looking at cash outflows that bleed over into next year from a timing perspective that will impact free cash flow and free cash flow margin as that plays out.

but that'll sort of wind its way out into Q1 and H1.

Thank you. Our next question comes from Mike Zaremsky of BMO. Your line is now open.

Hey, thanks. This is Charlie. I'm from Mike.

Speaker Change: I guess this quarter we've heard from some carriers talking about increased competitiveness in the London market. Can you talk about what you're seeing there and how you see it or whether you see it impacting CRB and the Global Alliance businesses?

Speaker Change: Yeah, so...

it's a I guess globally I'd say we're seeing a stabilizing to softening market and in the U.S. obviously the London markets

and E&S are part of that. We're seeing the impacts of a slowdown in inflation.

Commercial rates are starting to decrease, mostly in international countries and to a lesser extent in Europe and North America. Property rates certainly are decreasing. Financial lines are decreasing. Cyber had a short-term stabilizing impact from the CrowdStrike event, but it's quickly returned to decreasing.

Speaker Change: Q&A

The results across our various global lines do vary. I mean, construction stabilizing, unless there are specific issues concerned with a particular project. Marine is stabilizing, but marine liability is seeing high single-digit increases.

reflecting the unsettled geopolitical environment. We just don't view a rate as a significant headwind or tailwind across the portfolio in terms of it's been unpacked I guess the last several quarters. As we've said, our growth has been primarily driven by high retention rates.

and strong new business and I think reflect the success of our specialization strategy. That's going to really continue to differentiate us and help us make differences.

How should we think about, I guess, 4Q margins looking, depending on, I guess,

So it depends on when the deal closes.

don't expect it to have an impact on the full year in terms of, you know, the guidance range where we expect to land for the full year.

And as we mentioned going forward, it will be the elimination of a headwind on organic growth, margin, and pre-cash flow margin.

Speaker Change: Thank you.

Our next question comes from Peter Newton of Evercore ISI. Your line is now open.

Hi, thank you. Good morning. Carl, you mentioned some optimism coming from a rebound in global M&A activity. I'm just wondering, could you give us some more color on what your team is seeing today that's causing that optimism? Thanks.

Carl Hess: Yeah, I did use the word potential, so I'm not sure I'd phrase that as optimism, I'd just phrase it as openness too. We have seen an uptick in result in M&A activity in Europe, to a lesser extent in international. We've not seen that in North America.

Carl Hess: © transcript Emily Beynon

Okay, got it. Yeah. Thank you. That's helpful. And then for my second question.

On the continued tempered demand in consulting services, I'm just curious, you know, what the conversations with clients are like, you know, similarly, are you seeing any green shoots of this returning as well? And just any commentary on, you know, when you might expect this headwind to go away would be great. Thank you.

Okay, I think that comment you're referring to probably was regarding ICT over in the risk and broking. Do you want me to talk about HWC? I wasn't quite clear by the way you phrased it. No, that was for ICT. Yeah, thank you

Thank you.

Yeah, I mean, we are, you know, we're in continuously strong demand for our technology solutions and, you know, the way we've built ICT over the years is that a lot of the consulting

Carl Hess: works its way around the technology, so it's helping clients maximize the value they get in that technology. So, you know, when technology leads, consulting will often follow, but there are some areas within ICT that are

that can be sort of very cyclical and dependent on sort of various activity, including M&A and security issuance in conjunction with M&A by insurance companies. So, you know, we've been [inaudible]

Carl Hess: We adjust to them to make sure that we can keep the business pointed in the right direction. One of the things we've very successfully done over the last 10 or so years is actually change the mix between consulting and technology to be far more balanced and about 50-50.

which lowers the cyclicality of the business and makes it just a bit more resilient. That being said, some of the technology sales are recorded at the time of sale rather than spread over the life of the contract, so you have a little lumpiness in the results.

You know, that smooths its way out between quarters, but you might have some lumpiness within quarters.

Thank you. Our next question comes from Myer Shields of KBW. Your line is now open.

Speaker Change: Hi, I'm Jane Fulmier. Thank you for taking my question.

Speaker Change: My first question is on Transact.

Just wondering how would the removal of CENZAC's highly seasonal earnings pattern affect Wal-Mart's quality earnings going forward?

Yeah, so there's some information in the supplemental slides which we provided regarding the seasonality, which will allow a perspective on how that will impact us on a quarterly basis throughout the year.

Got it. Then my second question is, what elements of your specialization strategy do you see as most critical in maintaining the strong client retention rate in risk invoking?

Carl Hess: Oh

So I'd point out a few things, right? One is that our specialization is set aside mothers that

Every business operational financial decision is tied to that approach and that drives better outcomes for our clients because every person, every step in the process is focused on

Solving issues and providing products and services specific to that respective industry and geography. And as a result, we're able to tailor our solutions in a more focused manner, and that delivers enhanced value through industry-leading analytics and client engagement techniques.

It makes for a very attractive proposition for clients looking to manage their risks.

You know, and as part of that strategy, we have local specialties in each of our regions because there are different nuances and different dynamics that depend on geography.

For example, we've got industry verticals in real estate and hospitality and leisure in North America, given large client-based demand in that region. In Europe, where there's more of a demand for commercial auto insurance, we have local specialty teams for that particular segment. So it's all about the client, and that works a peach.

Carl Hess: Thank you.

Speaker Change: Our next question comes from Alex Scott of Barclays. Your line is now open.

Morning everyone, this is Justin on for Alex.

The first question was related to the Transformation Program. It seems as though, you know,

When we were looking at the savings, it's sort of coming, like,

The savings are sort of coming to an end from a spending and a savings perspective. So just curious about your thoughts as in terms of how we're thinking about how we should think about margins heading into 2025 in terms of the pace of margin expansion as sort of the transformation program sort of subsides over time.

Speaker Change: For more information visit www.FEMA.gov

Speaker Change: We're not going to give any guidance on 2025 at this point. We'll talk about that early next year as we normally do, but we do expect some continued tailwinds from the transformation program in terms of run rate savings generated this year converting to in-year savings through the early part of next year.

and Sandy about what we thought we could achieve.

during this three-year period, not the total margins improvement we thought we can get out of this organization. So we won't be done trying to drive margin and free cash flow margin improvement in subsequent years. We'll just be doing it as DAU rather than through a transformation.

Got it. Thank you for the color there. I guess I just had a quick follow-up question just on a high level on capital allocation.

I think there was comments earlier about sort of infusion of capital coming in for sort of the outs on the Gallagher deal and sort of this transaction.

Speaker Change: discussion. When we're sort of, and then sort of trying to triangulate that with sort of comments around, you know, being more opportunistic on hiring, repurchases slightly being...

Like does that sort of leave some opportunities for inorganic growth? I'm just curious how you guys are thinking about capital allocation heading into 2025

Speaker Change: Yeah, I talked a little bit about our thinking on M&A.

Speaker Change: As part of it, we've seen competitors.

of Create Value through M&A, and we think that opportunity is available to us as well now that we have gotten our house in simpler and better order.

through the Transformation Program. So if we can find a strategic opportunity that fits within our portfolio and helps us expand our reach across the value chains in which we operate, we will be interested. We'll be looking for opportunities to improve our business mix, to enhance operating and free cash flow marketing. This is something I think we'll be talking about.

I don't think, I know we'll be talking a bit more at Investor Day.

Thank you.

Speaker Change: Our next question

comes from Katie Sackis of Autonomous Research. Your line is now open.

Okay, thank you. Good morning.

I just wanted to ask about you guys' perspective on

specifically middle markets. We've seen, you know, quite a bit of pickup in some big name deal activity there and I'm curious what Willis' own strategy and approach towards the middle markets opportunity is as we think about, you know, the next year ahead.

Well, I mean we already operate in the middle market. So it's an area that you know, we're familiar with we see the attractive potential a lot of job creation and business creation occurs in the middle market and You know, so it's not not a new subject to us. I think it's where I begin we you know because a lot of

Economic creation occurs in the middle market. It's an attractive area to invest for growth.

and we've been doing that

organically as part of our strategy over the past several years and you know we watch for instance our HWC businesses

Speaker Change: begin to offer you repackage some of the intellectual capital that they've recently offered to large employers to service the middle market and I think going forward we'll continue to survey our opportunities including inorganic opportunities as well as I alluded to in some of the earlier questions.

Thank you for the color. And then really quickly on Transact, you know, it looks like the impact from the business on the group or enterprise level free cash flow margin is a little bit different from 2023 versus 2022. And thinking about, you know, the full year impact for this year.

Where would you guys say is the right place to contemplate that?

Speaker Change: So, the headwind for 2024 should be less than it has been historically, and that's largely driven by the intentional slowing of the growth there, which helps the free cash flow dynamic.

Speaker Change: for that business, and then, you know, once it's no longer part of the business portfolio, next year, you know, we'll have a more meaningful impact in terms of accretion to the free cash flow margin.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from Mark Marcon of Robert W. Baird. Your line is now open.

How do you think, you know, the health care consulting portion of the business is going to be impacted by the changes that could potentially happen one way or the other on that part of a business?

Yeah, so, I mean, over a short-term period in Dartmouth, Mark, you know,

So, you know, I think generally we see a beneficial effect from change, and that's not just across our health business, that can apply across our pensions, business, and retirement.

Well, our career business, you know, for instance, a transparency. So, I think we've, you know, over prior cycles like this, you know, generally change is our friend.

That's my suspicion. And then going on to the wealth side and specifically with regards to pension,

I'm sure you've seen all the news with regards to Boeing, and I'm just wondering to what extent that could end up spurring some actions on the pension side, particularly with regards to de-risking.

Speaker Change: So

I mean, starting with Boeing, I mean, there's no question that traditional pension plans have played an important role in the financial security of millions and millions of people around the world.

And, you know, the great shift we've had to define contribution is lots of unanswered questions.

But I think we're still seeing countries and employers trying to work their way through.

and WTW is well positioned to help employers.

sort of where to find out where they fit on that spectrum and to offer them the right solutions that are correct for their workforce. So I think, you know, we welcome the debate over what's the right pension plan for our workforce. We've been answering that question for plan sponsors for a long, long, long time.

With respect to the PRT outlook, I guess I'd say a few things.

Speaker Change: Um...

Speaker Change: First of all, the current interest rate environment has been driving demand for pension de-risking strategies where we assist our clients not just with the transaction but also the evaluation, the analysis and the preparation that goes through it.

This year we have seen more clients in North America take advantage of the favorable interest rate environment to initiate pension de-risking through bulk lump sums.

and alternate de-risking actions like annuity buyouts still remain attractive. We've been seeing these type of opportunities especially in Great Britain. In general, given the on average well-funded nature of pension plans,

and the interest rate environment. We are seeing continued activity here and we expect, you know, as the book on some activity may fall off of it, we'll see increases in other areas such as, you know, annuity purchase or retiree medical de-risking activity.

We'll probably talk a bit more about this as we go through.

Speaker Change: Thank you. I am showing no further questions at this time. I would now like to turn it back to Carl for closing remarks.

Thank you, and thank you once again for joining us today. And I'd like to thank WGW's colleagues. Their dedication in supporting our clients has helped us to deliver another strong quarter and has us on track to achieve our goals for 2024.

I'd also like to thank our shareholders for their continued support. We look forward to connecting with you all at our Investor Day in December. And happy Halloween, everyone.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.