Q4 2024 Earnings Call Transcript

Good morning, and thank you for holding. Welcome to Aon plc's Fourth Quarter 2024 Conference Call. [Operator Instructions] I'd also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time. It is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated.

Information concerning risk factors that could cause such differences are described in the press release covering our fourth quarter 2024 results as well as having been posted on our website. Now it's my pleasure to turn the call over to Greg Case, CEO of Aon plc.

Good morning, everyone, and welcome to our fourth quarter and full year conference call. I'm joined by Edmund Reese, our CFO; and Eric Andersen, our President. As in previous quarters, we posted a detailed financial presentation on our website, which Edmund will reference in his remarks. We want to begin by sending our deepest sympathy to our colleagues, clients and all those impacted by recent disasters and in particular, the devastating wildfires in Southern California.

The destruction and loss of life are tragic events, and all of us at Aon are committed to supporting our clients, colleagues and partners during the response and recovery. Now turning to Aon. We're excited to be here this morning to discuss our strong performance in 2024. We had great execution in year one of our 3x3 Plan with all credit to our colleagues around the globe, which I will cover in more detail at the close of my comments. That execution is translating into winning more clients, expanding our relationships and keeping clients longer through improved retention.

And it shows in our financial results. For the full year 2024, we grew organic revenue 6%, total revenue 17%. We delivered strong margins and grew our operating income by 17%, driving 10% adjusted earnings per share growth and continued strong free cash flow. These results are a strong start to our 3x3 Plan.

And as we go into 2025, year 2, we remain well positioned to continue to deliver mid-single-digit or greater organic revenue growth, continued margin expansion in line with our historic performance, strong adjusted EPS growth, double-digit free cash flow growth and disciplined capital allocation. As we move forward, it's important to understand the environment in which our clients are operating and the external factors shaping client demand. Every day, our clients tells us that increasing volatility and complexity make decisions regarding risk and people issues more difficult. The challenges businesses face reflect a series of profound transitions across the mega trends of trade, technology, weather and workforce, which we saw reinforced by events throughout 2024 and which are firmly in place as we move into 2025. These four mega trends are causing significant challenges across every sector and every type of business.

At the same time, leaders worried that their organizations aren't moving quickly enough to address these risks. Our 3x3 Plan is anchored in meeting these intensifying client requirements, better serving our clients with the unique content, servicing capability and expertise needed to respond to these challenges. In this environment, for Aon, 2024 was a year of tremendous progress across all three pillars of our 3x3 Plan: Risk Capital and Human Capital, Aon client leadership and Aon Business Services, three commitments we're delivering over a three year period. First, we committed to leveraging our distinctive Risk Capital and Human Capital structure to unlock new solutions that address the evolving client demand discussed earlier.

In 2024, we created and delivered innovative solutions that integrate reinsurance and commercial risk data and analytics. Solutions using this connected capability are enabling clients to access capital more efficiently and make better decisions. Our work in the fourth quarter to help source $715 million of alternative reinsurance capacity for a major underwriter, and the record 30% increase in Aon Client Treaty capacity are just two examples of the power of Risk Capital. Similarly, in Human Capital, a global company with over 100,000 employees in more than 100 countries awarded us the mandate for their global benefits program.

Our global team brought together regional data and insights from analytic tools to deliver a comprehensive, globally consistent and compliant benefits offering. What was originally just a small Aon relationship in one jurisdiction is now an international relationship across every region they operate to support their colleagues in enterprise strategy. And this is just one example that demonstrates the unique value of our globally connected firm and differentiated data-driven advice and solutions. For Risk Capital, we also want to note and officially welcome John Neal to Aon.

We announced earlier this month that John will join us from Lloyd's as our Global CEO of Reinsurance and Global Chairman of Climate Solutions upon the completion of his commitments to Lloyd's. Not only will John's arrival bring an iconic industry leader to help focus on delivering our integrated Risk Capital capabilities to clients, but his addition also represents another strong testament to the power of our Risk Capital and Human Capital strategy. Our second commitment is to embed the Aon client leadership model across our enterprise client, large and middle market segments to strengthen and expand client relationships.

In 2024, we capitalized on our globally connected approach covering nearly 1,000 of our most critically important global clients within our Enterprise Client Group. These clients grew new business 5 points above the Aon average in 2024 as we increase penetration across solution lines and geographies. Third, we committed to and are accelerating Aon Business Services to establish a new standard for service delivery and innovation at scale. And we made progress and great strides in 2024, giving clients real-time insights to help them make better decisions.

From advanced analytics to customized dashboards, the tools that we launched this year are redefining client experiences and outcomes. In May, we debuted a new suite of risk analyzer tools, enabling our North American clients to receive exposure data, quantify loss potential and make better decisions based on total cost of risk. And we've seen great early traction with our analyzers, which continue to open doors, broad discussions with our clients and increase win rates. Let me highlight just a few of many examples.

Early in 2024, we released our Property Risk Analyzer. Through exposure profiles and data models, the tool stimulates the impact of insurance policy options to determine which risk should be retained versus transferred. In the fourth quarter, we launched the Cyber Risk Analyzer, enabling risk managers and brokers to better evaluate cyber risk and maximize insurance value. We also launched our Health Risk Analyzer, a solution that leverages predictive modeling, risk optimization and ongoing monitoring to help clients identify and manage costs and plan for a predictable risk accordingly.

At the same time, ABS retired nearly 300 applications and continues to drive greater efficiencies, which are foundational to our sustained margin expansion, which Edmund will describe. The result of meeting these milestones in 2024 is the delivery of highly distinctive capabilities and expertise that has created sustainable momentum for Aon. We also want to highlight the progress we're making with NFP. Eight months in, the business is performing very well, just as expected.

Integration is right on track. Producer retention is strong, and the acquisition is driving top line growth as we build on NFP's strong client relationships by bringing additional content capabilities and tools to the team. Clients have responded well to the potential for NFP under the Aon umbrella, giving us even more confidence in our ability to achieve our sales and cost synergy goals in 2025 and 2026. And against this operating backdrop, Aon closed the year with a strong fourth quarter that drove another year of financial performance aligned with our objectives. As we begin year 2 of the 3x3 Plan, we entered 2025 with momentum and have a strong foundation to build upon.

The progress achieved in 2024 demonstrated the potential of our strategy, and now we will advance each component to drive further success. Looking ahead, as we onboard recent hires, we're continuing to invest to support top line growth, particularly client-facing talent in prioritized growth areas and an innovative new technology-driven solutions enabled through Aon Business Services. In addition, the efficiencies we gained through Aon Business Services continue to support margin expansion. As a result, we expect to deliver another year of mid-single-digit or greater organic growth, continued margin expansion, strong adjusted EPS growth and double-digit free cash flow growth for 2025. To summarize and before I hand the call to Edmund for a more detailed review of our financials and outlook, we want to reinforce how excited our leadership team is for the opportunity ahead.

We're executing against our strategy through the 3x3 Plan. Our solutions are helping clients as they face increasing volatility and complexity in their businesses. We're delivering results, including mid-single-digit organic revenue growth, margin expansion and free cash flow growth in line with our long-term financial model in 2024. NFP is right on track. And finally, the significant progress we made in 2024 positions Aon for another strong year in 2025 to deliver on our client, colleague and financial objectives.

Of course, none of this would be possible without Aon's global team. And on behalf of Edmund, Eric and me, I will conclude my comments by first, reinforcing our foundational commitment to our team to ensure that Aon fosters a culture and work environment strengthened by the power of inclusion, built to attract, develop and retain the best talent in the world from all backgrounds. And second, just shout out a huge thank you to our 60,000 colleagues around the world for serving our clients with distinction and for making 2024 a tremendous year. Let me now turn to Edmund to walk through the financials and provide additional insight around our expectations for 2025. Edmund?

Thank you, Greg, and good morning, everyone. I'm excited to be here discussing the results from yet another strong quarter that caps strong full year 2024 performance and positions us to achieve our 2024 to 2026 3x3 Plan financial objectives. Before jumping into these results and providing 2025 guidance, I want to take a moment to highlight some critical milestones achieved in 2024 that demonstrate the strong progress that we've made toward our commitments. First, our full year performance is right in line with our objectives and guidance from mid-single digit or greater organic revenue growth, adjusted operating margin and free cash flow.

In particular, organic revenue growth reached 6% for the year, giving us confidence in our 3x3 Plan and our investments in hiring client-facing talent, developing client-facing ABS capabilities and expanding our Enterprise Client Group will support mid-single-digit or greater organic revenue growth. Second, we completed the acquisition of NFP, which expanded our presence in the $31 billion and fast-growing middle market. In 2024, we saw strong producer retention better than 2023, accretive top line financial results and $36 million in middle-market acquired EBITDA with a robust Q1 '25 pipeline, all in line with our expectations.

Third, we paid down $2.1 billion in debt and returned $1.6 billion in capital to shareholders through the dividend and share repurchases, lowering our leverage in line with our objectives and continuing our balanced capital allocation discipline. We are executing our plan. And these milestones emphasize that with year one of our 3x3 Plan complete, we have momentum. And continued execution gives us a high level of confidence in delivering on our 3x3 financial objectives, including a double-digit three year CAGR and free cash flow from 2023 to 2026. You can see from the financial summary on Slide 6 that full year total revenue increased 17% to $16 billion, and we delivered 6% organic revenue growth.

Adjusted operating income increased 17%, and adjusted operating margin was 31.5%, up 90 basis points relative to a '23 baseline that includes NFP. Adjusted EPS was up 10% to $15.60. And finally, we generated $2.8 billion of free cash flow, reflecting strong adjusted operating income growth and continued working capital improvements. Turning to the fourth quarter. Organic revenue growth was also 6%, marking a third consecutive quarter of growth at 6% or greater.

Adjusted operating margin was 33.3%, expanding 140 basis points relative to a '23 baseline that includes NFP, and adjusted EPS was up 14% to $4.42. Let's get into the details of these results, starting with organic revenue growth on Slide 8. In Q4, organic revenue growth of 6% was right on track and in line with our mid-single digit or greater guidance range. In Commercial Risk, organic revenue growth was 6% in Q4 and was broad-based, reflecting strength in our North American core P&C business, continued strong contribution from our International businesses and an uptick in construction as we're beginning to see the impact from specialty hires.

We also benefited from double-digit growth in M&A services as increased transaction activity continued to be a modest tailwind. Reinsurance organic revenue reached 6% in Q4 '24, growing over an elevated Q4 '23 on the back of continued strength in our strategy and technology group, strong treaty placements with existing clients and increased insurance-linked securities. Specifically, interest in catastrophe bonds continue to grow as investors seek unique asset classes with uncorrelated returns, and Aon is the leading industry provider in cat bond placements. Health Solutions grew 5% in Q4 '24, also against a high Q4 '23 comparable.

Growth in core health and benefits as well as in NFP executive benefits and pharmacy benefits was partially offset by lower revenue in talent solutions. Finally, Wealth Solutions delivered 8% organic revenue growth in Q4 driven by continued strong demand for pension risk transfer consulting, regulatory work from policy changes across the U.K. and EMEA and new clients and market performance in NFP. Our Q4 organic revenue growth was powered by new business, which contributed 12 points from both existing and new clients as well as a modest contribution from M&A services as I mentioned earlier. And with continued high retention in the mid-90s, supported by the increasing deployment of our ABS capabilities, as Greg mentioned, net new business drove the 6 points of organic revenue growth.

The net market impact from growth in exposures and rates was flat. Reinsurance did have a modestly negative rate impact in the fourth quarter, consistent with early views of 1/1 renewals as capital capacity, up 7% for the year, outstripped demand. We saw the lower rates in reinsurance offset with modest rate benefit across commercial, health and wealth. For the full year, each of the solution lines across Risk Capital and Human Capital were well within or above our mid-single-digit or greater growth objective, with Commercial Risk at 5% and all other solution lines growing at or above 6%.

And I'll add that if measured separately, NFP and Aon are both generating mid-single-digit organic revenue growth. Turning now on to margins on Slide 10. Adjusted operating margin for Q4 was 33.3%, expanding 140 basis points from our combined baseline with NFP. On a full year basis, adjusted operating margin was 31.5%, and we delivered 90 basis points of margin expansion relative to our combined baseline with NFP. We continue to drive adjusted operating margin expansion due to scale in our business, particularly through Aon Business Services, our continued portfolio management and the shift in mix to higher-margin businesses as well as ongoing expense discipline.

And importantly, the benefit from our restructuring initiatives to accelerate our 3x3 Plan. We ended the year $10 million ahead of our restructuring plan objective. And savings in the fourth quarter were $40 million, resulting in a $110 million of savings for full year '24. Restructuring savings contributed approximately 100 basis points in Q4, and approximately 70 basis points to full year margin expansion. Looking ahead, we continue to expect an incremental $150 million of savings in 2025, and are well on track to achieve our stated objective of $350 million of run rate savings in 2026. Our strong organic growth and the actions that we are taking through ABS to standardize our operations and integrate our platforms are setting the foundation for ongoing margin expansion through operating leverage in our business.

Moving to interest, other income and taxes on Slide 11. Interest expense of $206 million in the quarter was up $82 million versus last year primarily reflecting the issuance of $7 billion in debt to fund the NFP acquisition. We expect approximately $205 million of interest expense in Q1 '25. Other income expense was a $60 million benefit year-over-year primarily due to the favorable net impact of gains from balance sheet currency exposures and our hedging program. And finally, the Q4 tax rate was 17%, bringing the full year rate to 20%, with the year-over-year increase driven by growth in higher tax geographies, the unfavorable impact of discrete items and policy changes across the globe.

Let's now discuss free cash flow and capital allocation on Slide 12. We generated $2.8 billion of free cash flow in 2024, reflecting strong operating income growth and continued working capital improvements driven by the continued progress on our goal to improve days sales outstanding. While free cash flow was impacted in 2024 by extraordinary items, all of which we've previously communicated, including the NFP transaction and integration costs, restructuring and legal settlement expenses, we remain confident in underlying free cash flow growth. We continue to expect free cash flow to grow at a double-digit three year CAGR from 2023 to 2026. Our strong free cash flow allowed us to pay down $2.1 billion of debt in 2024 and coupled with earnings growth, lowered our debt-to-EBITDA leverage from 4.1x to 3.4x.

So we are right on track to achieve a 2.8x to 3x leverage ratio in Q4 2025, consistent with the objective that we set when we announced the NFP acquisition. Additionally, we remained active in M&A, continuing our targeted tuck-in acquisitions across priority areas, including continued middle-market acquisitions through NFP, which acquired $36 million in EBITDA in 2024 and has a healthy pipeline of expected closings in Q1 '25. Our independent and connected strategy is resonating in the marketplace. And we continue to expect to acquire $45 million to $60 million of EBITDA through NFP middle market acquisition in 2025. Finally, in 2024, we returned $1.6 billion in capital to shareholders, including $1 billion of share repurchases.

Our performance in 2024 is a great demonstration of our disciplined capital allocation model, beginning with strong free cash flow generation and capital allocation that balances high-return investments for growth with capital return to shareholders. I'll wrap up on Slide 13 with our 2025 guidance and a few concluding thoughts. In summary, our full year 2025 guidance is mid-single-digit or greater organic revenue growth, adjusted margin expansion, strong adjusted EPS growth and double-digit free cash flow growth. Let me highlight the drivers of each guidance point, starting first with organic revenue growth.

We expect mid-single-digit or greater organic revenue growth driven primarily from winning recurring new business from both new logos and existing clients, continued high retention and 0 to 2 points from the net market impact of rate and exposure. I'll note that our increased talent acquisition of revenue-generating roles in specialty areas and Enterprise Client Group hires, up 4% in 2024, is expected to contribute to organic revenue growth. Additionally, organic revenue growth is benefiting from our progress driving revenue synergies in NFP, and we remain committed to $80 million in NFP revenue synergies in 2025. Moving to adjusted operating margin.

We expect to deliver continued margin expansion in 2025. And as we model the drivers of margin expansion, there are four components to consider. First, the net impact of four additional months of NFP, given the late April 2024 closing, and achieving $30 million in OpEx synergies will dilute margins by 20 basis points. I'll note that the impact of four additional months of NFP will primarily be a Q1 impact with the remaining impact in April 2025. Second, the interest rate impact on investment income from fiduciary balances is expected to dilute margins by 20 basis points. Third, and as I mentioned earlier, we expect an incremental $150 million in restructuring savings, which would drive approximately 85 basis points of margin expansion.

Finally, we expect 35 to 45 basis points of margin expansion from the operating leverage in our business, given the progress that we've made in ABS to drive scale in our ongoing disciplined expense management. The net impact of these four items allows us to fund ongoing growth investments while still driving continued margin expansion in line with our historical performance. Given our outlook for mid-single-digit or greater organic revenue growth, adjusted margin expansion and accretive NFP performance, we expect to deliver strong adjusted EPS growth in 2025. This guidance reflects our continued strong operating performance, partially offset by an approximately $0.32 or 2-point EPS headwind from FX rates based on today's FX rates remaining stable.

It's also important to note that in Q1 '25, we estimate an approximately $110 million FX impact on total revenue and an approximately $0.16 or 3-point EPS headwind. Also embedded in this guidance is an expected tax rate of 19.5% to 20.5%, excluding any extraordinary discrete items. This tax rate considers the geographic mix of our growth and policy changes in the geographies where we are located. Additionally, we expect noncash pension and OIE to be $88 million compared to $48 million in 2024. This performance positions us for double-digit free cash flow growth in 2025, including over $300 million from NFP, driven by adjusted operating income growth and working capital improvements.

Additionally, we expect to continue to return capital to shareholders in 2025, including $1 billion in share repurchases. Our 2025 guidance demonstrates the strength of our business and financial model and prioritizes investments that support sustainable organic revenue growth. Our execution in ABS is supporting both top line growth and creating investment capacity through margin expansion. As a result, we expect to deliver strong adjusted earnings per share growth and to generate double-digit free cash flow growth.

And finally, we continue to have balanced capital allocation, investing in growth and returning capital to shareholders. And before closing, one logistical note. Effective this quarter, we will disclose adjusted operating income and adjusted operating margin for two operating segments: Risk Capital and Human Capital. Risk Capital includes Commercial Risk and Reinsurance, and Human Capital includes Health and Wealth.

These changes align our external reporting to our 3x3 Plan and how we go to market to serve clients. And they provide increased transparency to our investors on our ability to drive margin expansion across the enterprise. The changes do not impact Aon's reported revenue or consolidated results. And we will also provide recasted financials for the past three years in our 10-K, which will be filed and posted on our website in the coming weeks.

I will close with four messages. First, Aon delivered strong Q4 financial results to close out a strong 2024, in line with our financial guidance. Second, we are executing on our 3x3 Plan, including our investments in client-facing capabilities in Aon Business Services, middle-market expansion and priority hiring to drive continued strong performance. Third, with our 2025 guidance, we are well positioned to continue Aon's long track record of delivering mid-single-digit or greater organic revenue growth, adjusted margin expansion, strong adjusted EPS growth and double-digit free cash flow growth.

Finally, we continue to have balanced capital allocation priorities, investing in growth, while returning capital to shareholders. So with that, let's jump into your questions. Rob, I'll turn it back to you.

Thank you. [Operator Instructions] Thank you. Our first question today comes from the line of Andrew Kligerman with TD Securities. Please proceed with your question.

Hi, good morning. So on NFP, it sounds like eight months in, you've said the integration is on track. Edmund, you cited $45 million to $60 million in targeted acquired EBITDA this year. How does that $45 million to $60 million kind of stack up to past years, when NFP was independent?

And I'm most curious about how well integrated is the platform such that, you could do another big deal? Like if you were - how do I say, if you felt a nice opportunity was out there, would you be able to do it now? Or is this something that's going to take another six to 12 months before you're comfortable?

Well, Andrew, first of all, really appreciate the questions in the background. I want to focus on the here and now and NFP in particular, and get Eric to comment on this as he's leading this across the firms. Listen, we had such high expectations with NFP coming in, and they've really been exceeded on every front. This combination, the independent and connected has worked exceptionally well from a client leader standpoint.

And Eric can give some examples of that. The platforms have come together exceptionally well. Aon Business Services as it's connected to NFP has been extraordinarily positive. So from our standpoint, really from a revenue standpoint, organic standpoint, an operating standpoint, free cash flow standpoint, as Edmund described, feeling very, very good about the combination and all that's come with it, the access to the $31 billion market.

So from our standpoint, this has been absolutely terrific. It's eight months in, as Edmund highlighted, with a long way to go, but my gosh, are we making progress in every single aspect of this. But Eric, you're leading it day-to-day. What are your thoughts?

Sure, Greg. And Andrew, nice to be with you. I would say on the M&A piece on the historical context, it's similar to what they have done historically. They've always been very specific as they look to bring firms into their platform.

So it's a continued process in terms of what they've been doing historically. And we've just been excited to see the opportunities that have come our way. And a lot of it is about this independent and connected strategy that we've engaged, both within our firm, but also within the broader marketplace. And it's helping us identify M&A targets, people that want to come to us that understand, what we're doing around keeping the platform independent, but connecting it to the capabilities that Aon has.

And as Edmund and Greg both said, we saw some great growth across all three of their main core platforms. But - and maybe if I could, just to describe it for you, because I think it would help people to understand exactly what we mean by connected. Now we think about it in kind of three buckets. We've got the, let's call it, the utilization of the Aon network.

And just an example, one of the NFP clients is a major sports league, where they used our global broking center in London, accessing the Aon client treaty to get more capacity, for a challenging renewal that they were facing. I would say the other - the second one would be industry and product specialization where, as another example, NFP had a professional services client, who they were working in the health arena. And they were able to partner, with our team that had a focus in that industry in the risk area. And together, we're able to now provide risk capability services for that client.

And then the third is sort of cross risk capital, where they have an MGA that needed reinsurance support. And so, we were able to use Aon reinsurance capability to help the MGA that is part of NFP, get capacity and better reinsurance terms. So there's a lot happening. The connection between the teams, always hard to describe on a call like this, but the work and effort and energy, and positive intent around creating growth, and opportunities across the platforms has been, as Greg said, it exceeded our expectations and really looking forward to getting added in '25.

Got it. Thank you. And then my follow-up question is around Reinsurance Solutions. I mean that 6% organic growth was great, because it was on really tough comps.

And one of the areas you called out was the ILS market where you're number one. And I think on the call, maybe Edmund mentioned cat bonds. But it seems like ILS is really just proliferating. I mean you've got cyber bond now.

How big of our business relative to the overall revenues of reinsurance is ILS? And could that be a big driver of continued better than expected organic growth?

So I would say the ILS business, continues to be a very sort of boutique business within reinsurance in terms of the scale, of the traditional reinsurance treaties on property cat, and liability and specialty that you would know. I think one of the interesting things about the ILS market that we're so excited about, sort of fits underneath this Risk Capital framework. The ability to bring that type of capability, whether it's cat bond for property, whether it's cyber, as you mentioned, over into the corporate space and being able to sit down with a large corporate client, who has a huge real estate portfolio, very diversified in their own right, and have access to capital that's essentially driven by the ILS structure into the capital markets, just gives them another tool as they look to transfer risk across.

So the insurers are obviously still users, and continues to manage the tail risk on what you would call a cat bond. But you are seeing interest in the corporate market, on the primary market, looking at those types of structures, whether in the form of a parametric bond or an ILS cat bond. And that's just one of the examples, where the teams of reinsurance and insurance, are working closely together. But Edmund, what would you add?

Yes. Let me just add a point. The - relative to the overall portfolio, Andrew, it's a smaller component, but it is driving growth. And that's part of the beauty of the reinsurance business, but Aon overall is the broad-based growth that we're seeing.

So we saw a contribution from the ILS securities. We saw a contribution from our strategy and technology group. If you listen to my prepared remarks, you saw that I actually called that out first, in addition to our ongoing growth, with the largest part of our reinsurance business in treaty and in fact as well. So that dynamic is across each one of our solution lines, where it's broad-based, and we're seeing growth maybe incrementally in one area relative to the others.

But at the end of the day, it comes back to me - it comes back down to like our ability to be able to retain, these reinsurance clients and our ability to bring more capital solutions, and other options to the table for them to help be able to drive that growth. With our existing clients and bringing new clients to it. So that's the key thing, when we think about the overall growth impact, and profile for Aon moving forward.

Thanks much for the insights.

Our next question is from the line of David Motemaden with Evercore ISI. Please proceed with your question.

Good morning. I had a question on some of the components for the mid-single-digit, or greater outlook. And thanks, Edmund, for some of those. I guess I'm wondering, so zero to two points from the net market impact of rate and exposure.

Could you help me think through retention improvement efforts that might be a tailwind, to growth as well as what you guys have assumed, for a rebound in M&A services versus where it was in 2024?

Yes, yes. Sorry, I think Greg was on mute, maybe saying something there. So I'm going to jump in here on this, and Greg, are you back or...

Go ahead. Go ahead, Edmund, please.

Sorry about that. We're just - a little technical difficulty here. It's a great question, like the components of it. Your question was really on the retention.

It was on the M&A services, but organic revenue growth overall. So just a step back, but the key thing for me, first of all, is that we just finished a strong quarter and a strong year, 6% on organic revenue growth. That gives me a lot of confidence that what we're doing to be able to drive it, across the broad-based set of solutions that I just talked about, is a, it's a strong position to be in year one of our plan. But importantly, it's the momentum going in the fiscal 2025, and that's where your question begins.

What are the drivers with that? First, for me, it really is the new business and from existing clients and new clients. And the trends there are healthy, right? We just - I think I said in my remarks, Q4 ended with 12 points of contribution in that space, including the M&A service, which is modest right now given where it is.

And I've commented that you need superior growth, maybe four times the overall business to see - be a significant impact to our business, and it's modest right now. We're seeing pickup there. But the trends are healthy. 12 points of contribution from that new business, including M&A in Q4, 10 points in the full year, sort of 0.1. I think as you think about your modeling and the things that's going to sustain our growth, be aware of the priority hiring. We specifically called out the double-digit growth in construction.

We called out - or at least I'll call out now the double-digit growth that, I saw in energy. Those are areas that we've been focused and hiring on, and we're starting to see contribution from them as well. That will support our mid-single-digit organic growth. And then you just heard Eric just highlighting the strength in NFP, over the first month.

And so that point that we made about $80 million in synergies, that will also - that's one of the things that strengthens and gives us confidence in that mid-single-digit growth. I appreciate the fact that you brought up retention, because we've been seeing strengthening retention particularly in our commercial risk business, particularly in North America, given the work that Laurie and our leadership team in North America has been driving. So I expect continued mid-single 90s performance there. And I'll actually add the rollout of the ABS capabilities that Greg mentioned in his comments is also supporting that retention.

Now market impact is the thing that moves up and down. I think it's a reasonable assumption to have that it would be zero to two points impact this year here. And I think the early signs that we see from things like 1/1 renewals suggests that we're right in line with our plan here. So I just have super high confidence in margin, and top line growth.

And maybe I'll just turn it to Eric for any comments he'd add to that.

Sure. I think it sort of goes into the talent question, right, in terms of as you mentioned, the specific hires that we're making in growth areas around energy, around construction, around middle market. Where I think the culture and the message and the analytic tools that we are developing for clients, is actually drawing talent in. But when you think about the - going back to the retention question.

The reality is getting our 65,000 colleagues making sure that they're well trained, well supported either through industry specialization or product specialization, segmentation, all of that provides a better outcome for our clients. So when you think about the team and its expertise, and you match it with the tools that are being developed in ABS, followed by the service capabilities. All of that delivers the client experience that we're looking for, for them. And that comes across in the 3x3 strategy Greg was talking about in his opening remarks.

So I think when you put all that together, getting that strong foundation of client retention, is the key to growth and is the key to sort of long-term value creation for clients.

Great. Thanks. And then maybe, Edmund, just following up there on - you had commented that you're seeing strengthening retention in North America, within commercial risk. Is that back - or is that sort of at historic levels, below historic levels?

Is there continued room for improvement there specifically, just to get back to where we were historically? Or some elaboration on that point would be helpful?

Sure. Maybe - this is Eric. I'll take that one. Listen, there's always room for improvement in retention until it's at 100%.

And so, we're maniacally focused on making sure we are keeping all of our clients, and serving them all well. But to get to your direct question, is it back towards historical norms? The answer to that is yes. But we are looking - we're never satisfied with historical norms.

We're always trying to improve, which is what's driving the - when you think about 3x3 strategy and the Risk Capital, Human Capital framework, that's one of the reasons we did it. The ability to show a client, the global capability around capital on the risk side, it's the ability to connect the global network, and talk about talent and health and wealth together, to provide more value to clients. And then powered by a series of tools and capabilities that, are unmatched in the industry. You put that around a segmentation strategy, an industry-focused strategy, and that's a winning formula for us, and not only for clients, but for prospective people to join the firm.

And so, we feel good about the progress we've made in '24. There's always work to do, but we feel good as we're going into '25.

Thank you.

Our next question is from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi. Thanks. Good morning. My first question is on commercial risk, and I guess the setup into the Q1, right?

We've had a couple of brokers, right, that have flagged, I guess, seasonally softer Q1s in their retail brokerage businesses. But I would think for you guys, some of the items you mentioned, Edmund, like hiring coming online, et cetera, will help, but also you guys have an easier year-over-year comp. So do you think does the setup for Q1 seems seasonally stronger in commercial risk?

I think overall, Elyse.

Go ahead, Edmund.

I think overall, Elyse, there's nothing about our Q1 to highlight in terms of seasonality. The things that I'd point out within our guidance are just - on the top line, the FX impact that I pointed out in my prepared remarks, when we think about the interest rate impact on fiduciary investment income, which doesn't impact organic, but it does have an impact on total revenue. Those are the only two things that I would say, are out of normal sort of performance in Q1. Other than that, there's nothing that I'd highlight about seasonality or performance there.

And I captured it very well Edmund, at least step back for a second and you think about overall where we are from a growth standpoint. We are very committed to the mid-single-digit, or greater as you think about 2025 across the board. Again, just come back why at a macro level, look, we operate in a very diverse market across risk, retirement, health and talent, and that includes on the commercial risk front. The markets as we said, are growing.

And literally, these megatrends that we've talked about on various calls around trade, technology, wealth, weather and workforce are meaningful. They're real. Our clients are seeing them every day. And remember, the market is still relatively underpenetrated.

And you take all that and you essentially say demand is increasing, and we've got to be able to react to it. To react to it requires a connected response, and all that we're doing with 3x3. So literally, we are going to show up on Monday as Aon in the property symposium in Miami. It's going to be 500 clients strong. The entire property market is going to stand still for three days, with the biggest buyers and the biggest markets in the world, sitting there looking at the next iteration of our analyzer tool on the property side, and really talking about their strategies on property.

So for us, it's really about demand, and how it's evolved and about our capability to respond to it, and why we're committed to achieving the mid-single-digit, or greater and expect that through 2025.

Is the $45 million to $60 million of EBITDA from M&A from NFP that you mentioned, Edmund, is that included within your 2025 guidance?

Yes. Yes, it is, both on the revenue impact associated, with that is captured in the margin and the overall earnings growth as well. So all of that is embedded.

And then one last one. Sorry, go ahead.

No, go ahead. I'm sorry, Elyse, go ahead.

On the $1 billion, you guys gave the buyback for '25, and you said, right, you'll kind of be within your leverage target at the end of the year. So should we expect that maybe we could see a step-up in share repurchase in '26, just given right that you'll be done with leverage management actions post NFP?

Yes. So I mean, I'll start off by saying capital, free cash flow generation, in particular, was a point of strength for us in 2024, right? We are certainly focused on continuing to generate free cash flow in 2025. That's going to come from the operating income, that's going to come from the earnings. We're going to paydown the debt, get to the leverage ratio and be focused on that.

We think that allows us to have capacity as we think about the pipeline that we have in M&A right now, and still return that capital in '25 to shareholders. As we get through '25 and closer to 2026, we'll come and give guidance on that point more - with more detail.

Thank you.

Our next question is from the line of Jimmy Bhullar with JPMorgan. Please proceed with your question.

Hi. First, I just had a question on your financial guidance. It seems like you're fairly specific on organic growth and on cash flows, but somewhat vague on EPS growth. So just trying to think about what strong EPS growth means. Does it mean double-digits? Or if not then just like, maybe highlight some of the key points that could make it be double-digits, or fall short of that?

Yes. And in fact - look, I think that the guidance that we gave is quite detailed when you tick through it. We gave such detailed guidance, because we have such high confidence in the plan. So I just talked about the organic revenue growth component.

And if you think about what I said in the prepared remarks about margin expansion, that's quite detailed, four components that should net between 80 and 90 basis points of margin expansion. So that gives you a sense there on the operating side of the business. We talked about organic revenue growth. I gave you four items that's quite clear on the margin expansion that should net to 80 to 90 basis points, which is right in line with our historical performance.

To continue with EPS, I think there are a couple of other things to keep in mind, the non-operating items. The FX impact, a $0.32 or two points headwind, the OIE impact for pension that drives into it. And you should be able to get, depending upon your assumption for mid-single-digit organic revenue growth, or greater organic revenue growth, you should be able to get to an adjusted EPS number. So look, again, I think that is quite detailed guidance, because we have a high level of confidence in that plan.

The guidance corresponds with it. So we're excited, to continue to execute, and we think we're right on track to be able to hit our 2025, and our overall 3x3 objectives.

And Jimmy, just if I could add to that a little bit. First, I just - I do want to step back, Edmund's point around the insight and the guidance provided, as we've completed the year really, is a substantial step-up from what we were before. So credit to Edmund and the finance team for sort of bringing that perspective in view. It really does help you decompose in a more effective way.

And as Edmund said in his comments, it's intended fully to give you more confidence in our ability, to continue to maintain what have been decade-long trends in terms of operating improvement. And you see that. You do step back, think about it, all the different challenges and opportunities that Edmund teed up, we've encountered those for the last decade plus. And if you think about it, it's 11% free cash flow growth and 11% EPS growth over a decade plus in the context of movements in FX, and movements in interest rates, and movements in inflation, and movements in the market.

And so, we want to give you as much transparency as we can, but be confident we're going to work the play to do what we do, to drive client and colleague impact. But the yield and outcomes around financial performance. And that's what you'll see us do.

And then maybe a follow-up on your long-term strategy for share buybacks. Is there a change going forward than what you've done in the past? I guess in 2025, you are sort of going to be deleveraging. But beyond that, should we assume that you're going to be fairly consistent in terms of deploying capital towards buybacks? Or is the balance going to be more shifting for M&A, or other uses?

Listen, I want Edmund to comment on that specifically. But just for backdrop, step back, Jimmy, remember our view, we're focused on clients and colleagues, with an outcome and a yield that comes out of that, is driven by free cash flow and free cash flow growth. And that's the 11% number for the decade plus. Part of that is capital allocation, absolutely central.

So your question is exactly right, but step back and understand our orientation, is what it has always been. It's a return on invested capital, cash-on-cash return. We're making allocations inorganic. We're making allocations in buyback, in M&A and building the strength of our firm.

And in doing so, we're going to drive the yields that I just described. So for us, that hasn't changed at all, and we'll continue to evaluate and drive what we do based on that orientation. What we hope you come away with, is a renewed enthusiasm for what the 3x3 Plan has done for that. The investment in Risk Capital and Human Capital creates real opportunity for us.

Enterprise client and Aon client leadership creates real opportunity for us. And then really, ABS is such a unique asset that we have cultivated for seven-plus, eight-plus years that, is now really coming online as part of the 3x3 Plan, all of which is, we think, going to generate extraordinarily strong free cash flow, again, reinforced by NFP. So from our standpoint, we've got a lot to do with a great free cash flow pool coming online. And we'll take the same approach, we've always taken in the context of overall allocation, as things come along.

But Edmund, what would you add to that? You're coordinating this and orchestrating.

Not much, Greg, because I think you hit it, when you said there's been no change to the capital allocation policy right here. We are, to your point, very much focused on investing for growth and capital return to shareholders and having that balance right. So in 2025, we're clearly going to be focused on getting back to the leverage objectives that we want. But we think the free cash flow strength gives us capacity, to evaluate weight, the right opportunities that meet our strategic criteria, and meet our financial criteria and if not, return that capital back to our shareholders.

That has worked for our shareholders and benefited our shareholders long before I came here. So we're certainly not changing that.

Thank you.

Thank you. Our next question is from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your questions.

Hi, good morning. This is Charlie on for Mike. First question, does the tax rate guidance contemplate OECD Pillar Two agreements? And is there still uncertainty around tax rates there in the coming year? Thanks.

Yes, there's always uncertainty around tax. But let me just maybe step back. And the short answer to your question, is it contemplates what we know today. Obviously, this is an environment that's changing.

And so it contemplates what we know today. When you step back, though, the complexity of operating in 120 countries, our tax rate really just comes down to growing in those higher-tax geographies. Germany is at 33%, Australia is at 30%. Canada is at 27%.

The impact of discrete is the number two item, and there's a long tail for the impact of tax returns from prior years and recently, the policy changes, like the ones that you were just mentioning. The complexity, though, in calibrating those three items over multiyear time periods, that complexity is real. But to a point that Greg made earlier, we took some extra time. We thought through the scenarios, because we had an objective to getting to a target range for tax that we're confident in, and that we feel comfortable sharing externally.

And that range is 19.5% to 20.5%, which is right in line with 2024 and captures all that we know today. The key point from my perspective is that allows us to continue to grow internationally, which means more resilient earnings for us. And that tax rate still allows us to invest. So we feel comfortable with that range given all the work that we've done and what we know today.

If more reveals itself, we'll come back and let you know.

And Charlie, just reinforces the - if you think about historically, our capability on the balance sheet capital side and what's happening in this category too, it's been very, very strong. And what Edmund and the team have done has really provided a level of clarity, with a 19.5% to 20.5% guidance for 2025, which is a first for us. Really, it gives you a way to kind of think about the modeling of this. With the best reflection that we've got, reflecting historical strength and our ability to adapt as the world continues to evolve.

You've highlighted where it might evolve, and we'll see how it plays. But for now, we're very comfortable with this. And again, kudos and credit to our broader finance team, on the work they did to pull this off, and get this in front of you.

Thanks, that's very helpful. Maybe just going back to free cash flow growth this year. Could you go through some of the puts and takes? I think you have more accelerating Aon United spend ahead of you, maybe have some integration costs that don't recur.

I think there was a legal settlement this year, but any other items we should be thinking about in the context of the double-digit free cash flow guidance?

You did a great job of hitting the items. Maybe just to round it all out, so obviously, the operating income growth, the working capital. I start with those two items. You hit the extraordinary items when you talked about the integration charges, and that is winding down, but there's still some impact from that.

Of course, we don't have the legal expense charge that you talked about. And there will still be Aon United charges. Remember, when the team gave information on that, we said roughly about just about $410 million between '25 and '26 when you think about the overall $900 million that we have. The key item I'd add to what you said is the NFP contribution.

We committed to $300 million in 2025 - free cash flow from that. And so I think about that as well. Put all those items together, it gives us high confidence in the double-digit growth in 2025.

And Charlie, remember, take a step back for a second. We began 3x3 as you think about where we closed 2023. And we have essentially said, we are committed to double-digit growth from 2023 to 2026 and beyond. But the 3x3 period was '24, '25 and '26. So as you sort of think about the puts and takes in the middle, if you want to make the math simple, step back, look at the baseline from 2023, think about what double-digit means. And we are absolutely committed to that outcome as we finish 2026 with momentum going into 2027 and beyond.

So it's an easy way to kind of step back and really understand where we are and how we think about free cash flow growth. And it absorbs all the puts, and takes sort of in the middle that make that happen. So be confident in that and what Edmund's described, is what happened in 2024 just reinforced that confidence, as we think about double-digit from '23 to '26 and then beyond.

Thank you.

Thank you. Our last question comes from the line of Rob Cox with Goldman Sachs. Please proceed with your questions.

Hi, thanks. Good morning. And thanks for the comments on the construction and energy hires, Edmund. Correct me if I'm wrong, but I think you said 4% growth in specialty revenue-generating roles, or something similar.

I'm curious how does that translate into the organic increase in talent, for revenue-generating roles and overall Risk Capital? And if you could talk about how that compares to Aon's history and sort of what you expect going forward?

Rob, I don't think we're going to end up going sort of into all those details. Take a step back, what you take away from this is, we're investing in priority areas. And it is the pieces that Edmund highlighted around energy and construction, but it's also in health and a number of other areas, very, very, very high priority areas for us. And we're going to continue to do that.

You've seen them begin to come online. Edmund described it takes some time here, 12 to 18 months, but they're coming online. But this isn't a one-time thing for us. What Edmund's described as a machine and an engine, which generates free cash flow, we're going to continue to allocate to priority hires in frontline areas that matter for us.

And also remember, when someone comes into Aon, this is not about just another person on the line. We want them to have content capability, the tools to actually amplify what they do as they come in. And that's really what the analyzers give us, and the service gives us and ABS gives us. So for us, this is a priority Edmund highlighted.

Eric emphasized it as well. It'll continue to sort of reinforce. It isn't fully online now, but you'll see it coming over the course of the next '25 and '26 and '27 and beyond. We're excited about it.

It's still relatively small in the scheme of things. But it's not -- it's meaningful in terms of sort of the 4% addition to sort of overall capability. And you see that, by the way, in Risk Capital, in reinsurance and in commercial risk and priority areas. You see it in health.

You see it in retirement and talent in the priority areas, too. So it really is across the board, and we're going to continue to drive this on an ongoing basis.

Thanks. That's very helpful. And then as a follow-up, I wanted to switch to reinsurance. I know you guys called out the lower reinsurance rate impact in the quarter, but we're still able to strongly outgrow that.

If I recall correctly, Aon is overweight property reinsurance, because of Benfield. Do you think reinsurance solutions, can continue to grow at similar levels, as we get into the bigger revenue quarters that, are kind of more driven by treaty renewals?

I would say certainly our ability to grow globally as it's truly a global business is something the team has been very focused on, certainly for the last five years that we continue to be optimistic about the future of reinsurance as we go into 2025, both in the property cat space, as you mentioned, but also in what we do for casualty and specialty and facultative and strategy and technology. It's really become a fully built portfolio of capability, not just property cat. So you should think about it as broader offerings, and broader capabilities than just property catastrophe. Certainly, there is a market impact as you're alluding to, and I think you probably heard.

I would just say that clients react to declining markets differently, their ability to do buydowns. Aggregate covers, sideways covers, top-up programs where they may have pulled back a bit based on pricing. So it's a pretty dynamic market, and clients to optimize their portfolios, as they look at the amount of spending they can win in. But we're excited about it going forward.

And Rob, only one point to add, which is embedded in our plan, and in our guidance that we gave, are these dynamics that Eric is discussing with the weighting of the portfolio and what happens on the rate and exposure side associated with it. So with all of that in mind, we feel very confident in the mid-single-digit, or greater organic revenue growth is where I'd leave on that point.

Great. Thanks for all the color.

Thank you. I would now like to turn the call back over to Greg Case for closing remarks.

Just wanted to thank everyone for joining us on the call today. We appreciate it, and look forward to next quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.