Aon : Q1 FY 2025 Conference Call Transcript

Published: 2025-04-25 19:47:17 ET AON

Corrected Transcript

25-Apr-2025

Aon Plc (AON)

Q1 2025 Earnings Call

Total Pages: 20

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Aon Plc (AON)

Corrected Transcript

Q1 2025 Earnings Call

25-Apr-2025

CORPORATE PARTICIPANTS

Gregory C. Case

President, Chief Executive Officer & Director, Aon Plc

Edmund J. Reese

Executive Vice President & Chief Financial Officer, Aon Plc

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OTHER PARTICIPANTS

Andrew Kligerman

Meyer Shields

Analyst, TD Securities

Analyst, Keefe, Bruyette & Woods, Inc.

Elyse Greenspan

Jimmy S. Bhullar

Analyst, Wells Fargo Securities LLC

Analyst, JPMorgan Securities LLC

David Motemaden

Cave Montazeri

Analyst, Evercore ISI

Analyst, Deutsche Bank Securities, Inc.

Paul Newsome

Analyst, Piper Sandler & Co.

MANAGEMENT DISCUSSION SECTION

Operator: Good morning, and thank you for holding. Welcome to Aon Plc's First Quarter 2025 Conference Call. At this time all parties will be in listen-only mode until the question-and-answer portion of today's call. I'd also like to remind all parties that this call is being recorded. If anyone has 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.

Gregory C. Case

President, Chief Executive Officer & Director, Aon Plc

Good morning, and welcome to our first quarter earnings call. I'm joined by Edmund Reese, our CFO. As in previous quarters, we posted a detailed financial presentation on our website, which Edmund will reference in his remarks. We want to start by acknowledging our colleague and friend, Eric Andersen. We announced last month that Eric transitioned from his role as President to serve as a Senior Advisor, and in his 28 years with Aon, Eric played a significant role in advancing our Aon United strategy and he's been a leader helping execute our 3x3

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Aon Plc (AON)

Corrected Transcript

Q1 2025 Earnings Call

25-Apr-2025

Plan to deliver more value to our clients and positioning Aon for continued growth. Thank you, Eric, for your leadership and friendship.

Turning to our financial performance, we continued to build momentum in year two of our 3x3 Plan, and our execution is translating into results that are fully in line with our financial objectives. Our team delivered another quarter of mid single-digit growth with organic revenue growth of 5%. With this organic growth and the addition of NFP, we delivered 16% total revenue growth, a 38.4% margin, contributing to 12% adjusted operating income growth and adjusted EPS of $5.67. And finally, we generated $80 million in free cash flow and returned $397 million in capital to shareholders. Notably, we also announced that we're increasing our quarterly dividend by 10%, the 15th consecutive year of dividend growth.

The quarter's strong operating performance marks the start to 2025, on track and right in line with our expectations. Importantly, we achieved these results in an unpredictable and turbulent business environment that is creating greater complexity for our clients. Within the four megatrends that we referenced, trade, technology, weather and workforce, trade is currently and clearly top of mind. Today, tariffs have had limited direct impact on our business and financial results. Over the medium term, while there could be impact to client discretionary spending, we believe the demand benefit is also meaningful given the trust we've established with our clients, positioning us to support and help them adapt to new trade rules and to mitigate risk and capture new opportunities.

But for many clients, tariffs have challenged the global landscape, posing a significant risk. And against this challenge, we are arming clients with real-time insights they need to make better decisions. A few examples include, using our Supply Chain Risk Diagnostic tool to advise clients on effectively diversifying or reconfiguring their supply chain operations. We're tailoring credit solutions like political risk insurance, surety bonds and trade credit insurance, advising on human capital issues like restructuring employee stock grabs. Further, our expertise and ABS capabilities are helping clients fortify their operations to maintain stability despite trade disruptions. Ultimately, our unique and connected capability and the increased complexity of the global trade environment is driving demand for Aon's advice and solutions.

On our Q4 call we highlighted that on the back of strong performance in year one of our 3x3 Plan, we were entering 2025 with great momentum, and we've continued to execute in the first quarter. Using ABS capabilities to expand with and better serve clients, attracting client facing talent in priority areas, and utilizing exceptional NFP capability to accelerate middle market growth, which today reached the one year anniversary as part of Aon. And specifically on NFP, we couldn't be more thrilled to have NFP as part of the Aon family. As we reflect on this year one milestone, we highlight that the business continues to perform in line with high expectations. Our progress guided by the principle of independent and connected, is right on track.

Producer retention continues to be higher than pre-deal, and the NFP acquisition engine continues to add high quality middle market EBITDA through targeted acquisitions with a strong pipeline for the remainder of 2025. This quarter is a testament to the power of the combined NFP and Aon, as we absorb the peak impact of an increased share count from the transaction. With the acquisition now annualized, we expect NFP's contribution to become even more meaningful as we progress through 2025. Further, on the important people front, we made significant progress on our talent investment by hiring in priority areas like construction and surety. Colleagues are choosing Aon because they see the power of our capability and connected firm, enabled by ABS to win new clients and better serve existing clients.

Finally, to connect all the dots with one specific client example, we expanded our relationship with a major Risk Capital client who was facing soaring healthcare costs due to high-cost climate. We won their human capital

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Aon Plc (AON)

Corrected Transcript

Q1 2025 Earnings Call

25-Apr-2025

mandate using our Health Risk Analyzer to provide insights and predictive analytics on the client's future claims, helping them manage both their risk and benefits budget. This example highlights the strength of our 3x3 Plan to drive financial results. As we look ahead, while it's clear we're operating in a complex economic environment, we remain confident in the resilience and strength of our business and financial model. We have a track record of sustained performance across bull markets, recessions, economic shocks and changing political landscapes.

And in fact, our integrated solutions and Aon United strategy bring differentiated and substantial client benefit in periods of greatest uncertainty. We view the current environment as an opportunity to further strengthen our client relationships and reinforce Aon as a trusted advisor. In our daily interactions with clients, we have not seen a pullback in demand. Rather, we see an increase in clients looking for guidance and offerings to navigate the increasing complexity of their business challenges. And as a result, we are reaffirming our 2025 full year guidance, including mid single-digit or greater organic revenue growth, margin expansion, strong earnings growth and double-digit free cash flow growth.

To summarize, we want to reiterate our conviction about the opportunity ahead. Aon's advice and solutions are even more valuable to clients as they navigate increased complexity in their businesses. We continue to see momentum across our business and the high-quality talent we attract to the Aon to the progress we're making to attack the $31 billion middle market opportunity, to major wins with both new and existing clients, and we remain on track to deliver against our 2025 financial goals. Of course, none of this would be possible without our global team. We want to thank our 60,000 colleagues around the world for their commitment to excellence and innovation. Your extraordinary leadership and hard work is what enables us to deliver for our clients.

And finally, and to focus further on our long-term strategy and opportunity, we hope you can join us for our Investor Day on June 9. Evan and I and the senior executives leading our 3x3 Plan look forward to sharing details about Aon United as a powerful asset that will continue to drive sustainable long-term growth and create value for our shareholders. It promises to be a very productive event.

Now, I'll turn the call to Edmund for more detailed review of our financials and outlook. Edmund?

Edmund J. Reese

Executive Vice President & Chief Financial Officer, Aon Plc

Thank you, Greg, and good morning, everyone. I'm excited to be here discussing the results for the first quarter of 2025. Before jumping into the details, it's important to filter the quarterly noise, both within our first quarter results and within the uncertainty of the broader macroeconomic environment and emphasize the signals from Q1 that reinforce our confidence in the fundamentals of our business and financial model, supporting our full year 2025 guidance and ongoing long-term growth. First, our Q1 performance underscores our commitment to making the investments that support sustainable mid single-digit or greater organic revenue growth, investing in hiring client- facing talent, strengthening and accelerating our ABS capabilities, and increasing our Aon Client leaders to expand with our existing clients.

Organic revenue growth reached 5% for the quarter, with retention tracking 1 point better than Q1 2024 and market impact from pricing and exposures reflecting some pressure but slightly better than our expectations and still within our estimated range. Second, relentless execution on our accelerating Aon United restructuring program, notably in ABS, is creating 85 basis points of margin expansion in the quarter, creating capacity to fund the investments that I just referenced, and strengthening the foundation for ongoing operating leverage from scale benefits. Third, we continued our balanced capital allocation discipline, remaining on track to meet our leverage objective, while simultaneously continuing our middle market tuck-in acquisitions to drive growth, and returning $397 million in capital to shareholders through the dividend and share repurchases.

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Aon Plc (AON)

Corrected Transcript

Q1 2025 Earnings Call

25-Apr-2025

Additionally, our continued focus on portfolio management positions us to further strengthen our capital position, double down on growth in our core business and sustain healthy capital returns to shareholders. So the drivers of full year 2025 growth, investing for sustainable organic revenue growth, continued margin expansion and our strong capital position remains stable, and we are executing our plan. Despite the uncertainty in the macroeconomic environment and the noise in the first quarter, specifically from FX given the dollar is 3% to 7% stronger than it was in Q1 2024 where we have currency exposure, [indiscernible] (00:10:59) additional impact on margin from NFP, higher interest and shares driven by the acquisition of NFP, all items that we communicated as part of our 2025 guidance. We have a high level of confidence in delivering on our financial objectives and achieving full year results in line with our 2025 guidance.

So now turning to the first quarter results in the financial summary on slide 6, you see that total revenue increased 16% to $4.7 billion, and we delivered 5% organic revenue growth in the quarter. Adjusted operating income margin was 38.4%, down 130 basis points as we recognize the impact of NFP in the Q1 2025 results. Adjusted EPS was $5.67, reflecting the impact of higher interest in shares. And finally, we generated $84 million in free cash flow. So let's get into the details of these results, starting with organic revenue growth on slide 8. Organic revenue growth reached 5% in Q1 2025, continuing to be in line with our mid single-digit or greater guidance range. In Commercial Risk, organic revenue growth was 5%, with the biggest contribution coming from our international P&C business. Additionally, the growth reflected continued strength in our North American core P&C business.

And while deal activity was slower than expected, when entering the year, we had a modest tailwind from M&A services relative to Q1 2024. Reinsurance with 4% organic revenue growth was driven by growth in treaty placements and double-digit growth in both facultative placements and insurance-linked securities. This growth was partially offset by the impact of a multiyear extension, with a significant client at higher limits and adjusted commission. Looking ahead to the second quarter, we expect softer market conditions with April 1 property rates in both the US and Japan down 5% to 20%. Importantly, we expect full year organic revenue growth in line with our mid single-digit or greater objective as we see a strong second half driven by higher limits at July 1 renewals, continued growth in our international facultative placements, and strength in our strategy and technology group.

Health Solutions also delivered 5% growth, driven by a double-digit increase in our core health and benefits business, which was particularly strong in our international markets. The growth was fueled by net new business and market conditions that continue to simulate rising healthcare costs. In talent, we saw high single-digit growth in our advisory business, offset by lower data analytics sales, which were impacted by our data delivery schedule. We still expect our talent business to deliver mid single-digit or greater full year growth. And finally, Wealth was our highest growing solution line in the quarter, generating 8% organic revenue growth, primarily driven by NFP asset inflows and market performance, and continued regulatory work across the UK and EMEA. I will note that, in the second quarter we will be growing over an elevated Q2 2024.

Our Q1 organic revenue growth continued to be powered by new business, which contributed 9 points from both existing and new clients. Retention was 1 point better than the year ago, with Commercial Risk steadily improving as we deploy our Risk Capital analyzers, supporting a net new business contribution of 4 points to organic revenue growth. The net market impact which measures the impact of exposures and rate, contributed 1 point to organic revenue growth, squarely within our 0 to 2-point estimated range. Reinsurance was flat as rate declines were mitigated with increased sideways coverage, and rate pressure in Commercial Risk was offset with limit and coverage increases across our book. Also Wealth had positive net market impact as we continue to see increasing cost in Health and positive market impact in Wealth.

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Disclaimer

AON plc published this content on April 25, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on April 25, 2025 at 23:46 UTC.