Arthur J Gallagher : First Quarter 2025 CFO Commentary

Published: 2025-05-01 17:04:57 ET AJG

Published on 05/01/2025 at 17:04

CFO Commentary

May 1, 2025

ARTHUR J. GALLAGHER & CO. - CFO COMMENTARY - MAY 1, 2025

This communication is subject to, and you are urged to carefully read, the cautions set forth at the beginning of this communication. All estimates, unless specifically stated otherwise, do not include the pending acquisition of AssuredPartners.

ACTUAL

ESTIMATES ON MARCH 20, 2025

ESTIMATES ON MAY 1, 2025

BROKERAGE SEGMENT Q1 2025 2025 Quarterly Full Year 2025 2025 Quarterly Full Year 2025

Q1: ($0.03)

Q2: ($0.01)

Q3: ($0.03) Q4: $0.01

Q1: ($15 million) Q2: very little impact Q3: ($20 million) Q4: $5 million

Approx. ($0.06)

Approx. ($30 million)

nep

Q2: $0.01 Q3: ($0.01) Q4: $0.02

Approx. ($0.01)

Q2: $20 million Q3: very little impact

Q4: $25 million

Approx. $27 million

nep

Foreign Currency Impact on Earnings Per Share

(shown as an adjustment to prior year numbers)

Foreign Currency Impact on Revenues

(shown as an adjustment to prior year numbers)

Integration Costs Per Share

Workforce & Lease Termination Costs Per Share

($0.03)

($17.8 million)

$0.13

$0.05

EBITDAC Margin, as adjusted 43.4% (1)

Full year organic > 4%, possible to expand full year margin

Amortization of intangibles

$163 million pretax (2)

$163 million pretax (3) $652 million pretax (3)

$177 million pretax (3) $694 million pretax (2),(3)

Depreciation - Recurring

Change in Estimated Earnout Payable - Recurring Rollover Revenues from Acquisitions

$33 million pretax $33 million pretax $132 million pretax $34 million pretax $135 million pretax

$13 million pretax $13 million pretax $52 million pretax $11 million pretax $46 million pretax

--------------------------------------- See table on page 6 ---------------------------------------

Adjusted Effective Tax Rate

25.6%

----------------------- 24.5% to 26.5% ----------------------

Earnings from continuing operations attributable to noncontrolling interests

RISK MANAGEMENT SEGMENT

$4.5 million Q1: $5 million Q2 to Q4 :$1 million

Approx. $8 million Q2 to Q4 :$1 million Approx. $8 million

Workforce & Lease Termination Costs Per Share

Foreign Currency Impact on Revenues

(shown as an adjustment to prior year numbers)

Foreign Currency Impact on Earnings Per Share

(shown as an adjustment to prior year numbers)

very little impact

Q1: ($1 million) Q2: ($2 million) Q3: ($4 million) Q4: $1 million

nep

Approx. ($6 million)

nep

very little impact

Q2: ($1 million) Q3: ($3 million) Q4: $1 million

Approx. ($5 million)

nep

$0.00

($1.5 million)

$0.01

EBITDAC Margin (before reimbursements), as adjusted 20.5% Approx. 20.5% Approx. 20.5% Approx. 20.5% Approx. 20.5%

Amortization of intangibles

$6 million pretax

$6 million pretax $24 million pretax

$7 million pretax $27 million pretax

Depreciation - Recurring $10 million pretax $10 million pretax $40 million pretax $10 million pretax $40 million pretax

Rollover Revenues from Acquisitions ------------------------------------------- See page 6 -------------------------------------------

Adjusted Effective Tax Rate 26.6%

OTHER

Weighted Average Multiple of EBITDAC for Tuck-in Acquisition Pricing 11.5x

Notes

Yellow highlighted rows will be presented as adjustments to GAAP earnings. All estimates related to foreign currency are based on April 30, 2025 exchange rates.

------------------------ 25% to 27% -----------------------

------------------------ 10.0x to 11.0x ------------------------

------------------------ 25% to 27% -----------------------

------------------------ 10.0x to 11.0x ------------------------

First quarter 2025 adjusted EBITDAC margin would be 40.9% excluding approximately $143 million of interest income revenues earned on the proceeds received in December 2024 related to the AssuredPartners Financing.

First quarter 2025 Brokerage Segment amortization expense of $163 million excludes approximately $41 million of expense related to the decision to exit a couple small, non-core operations.

As we complete more acquisitions, for every dollar we spend, increase amortization by about 1% of the purchase price per quarter. In addition, interest expense will increase if the acquisition was financed, in whole or part, with debt.

nep = no estimate provided

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ARTHUR J. GALLAGHER & CO. - CFO COMMENTARY - MAY 1, 2025

(5) Estimated 2025 interest and banking costs include the impact of the

AssuredPartners Financing of approximately $48 million after‐tax per quarter.

2024 and 2025 consist of operating results related to Gallagher's investments in

new clean energy projects. Pretax earnings are presented net of amounts attributable to noncontrolling interests.

The quarterly impact related to unrealized foreign exchange remeasurement gains (loss) is the following:

Unrealized FX

Period 2024 2025

1Q $ 0.6 $ (23.0)

2Q (2.2)

3Q (14.9)

4Q 16.4

Total $ (0.1)

Gallagher incurred transaction‐related costs, which include legal, consulting, employee compensation and other professional fees associated with completed, future and terminated acquisitions. Adjustments primarily relate to the acquisition of the Willis Towers Watson treaty reinsurance brokerage operations, the acquisitions of Buck, Cadence, and Eastern, all of which closed in 2023, Woodruff Sawyer, which closed on April 10, 2025, and the pending acquisition of

Adjustments in third quarter 2024 include costs associated with tax matters.

Notes:

1st Quarter

Interest and banking costs

Clean‐energy related (1) Acquisition costs Corporate (2)

Reported 1st quarter Transaction‐related costs (3) Total Adjustments

Interest and banking costs

Clean‐energy related (1) Acquisition costs Corporate (2)

Adjusted 1st quarter

2nd Quarter

Interest and banking costs

Clean‐energy related (1) Acquisition costs Corporate (2)

Reported 2nd quarter Transaction‐related costs (3) Total Adjustments

Interest and banking costs Clean‐energy related (1) Acquisition costs Corporate (2)

Adjusted 2nd quarter

3rd Quarter

Interest and banking costs

Clean‐energy related (1)

Acquisition costs Corporate (2)

Reported 3rd quarter

Transaction‐related costs (3) Legal and tax related (4)

Total Adjustments

Interest and banking costs Clean‐energy related (1) Acquisition costs Corporate (2)

Adjusted 3rd quarter

4th Quarter

Interest and banking costs

Clean‐energy related (1) Acquisition costs Corporate (2)

Reported 4th quarter

Clean‐energy related (1)

Transaction‐related costs (3)

Total Adjustments

Interest and banking costs Clean‐energy related (1) Acquisition costs Corporate (2)

Adjusted 4th quarter

Full Year

Interest and banking costs

Clean‐energy related (1) Acquisition costs Corporate (2)

Reported Full Year

Corporate legal entity restructuring Clean‐energy related (1)

Transaction‐related costs (3) Legal and tax related (4)

Total Adjustments

Interest and banking costs Clean‐energy related (1) Acquisition costs Corporate (2)

Adjusted Full Year

CORPORATE SEGMENT

Page 4

2024

RECONCILIATION OF REPORTED TO ADJUSTED

Pretax

Earnings (Loss)

Income Tax

Benefit (Expense)

Net Earnings

(Loss) Attributable

to Controlling Interests

$ (93.1)

$ 24.2

$ (68.9)

(1.9)

0.5

(1.4)

(4.7)

0.8

(3.9)

(56.9)

51.9

(5.0)

(156.6)

77.4

(79.2)

3.2

(0.5)

2.7

3.2

(0.5)

2.7

(93.1)

24.2

(68.9)

(1.9)

0.5

(1.4)

(1.5)

0.3

(1.2)

(56.9)

51.9

(5.0)

$ (153.4)

$ 76.9

$ (76.5)

$ (95.0)

$ 24.7

$ (70.3)

(2.2)

0.4

(1.8)

(7.3)

1.2

(6.1)

(41.6)

24.6

(17.0)

(146.1) 50.9

(95.2)

2.8 (0.5)

2.3

2.8

(0.5)

2.3

(95.0)

24.7

(70.3)

(2.2)

0.4

(1.8)

(4.5)

0.7

(3.8)

(41.6)

24.6

(17.0)

$ (143.3)

$ 50.4

$ (92.9)

$ (93.7)

$ 24.4

$ (69.3)

(1.9)

0.5

(1.4)

(15.2)

2.6

(12.6)

(58.5)

28.3

(30.2)

(169.3)

55.8

(113.5)

8.9

(2.3)

6.6

‐

3.5

8.9

1.2

10.1

(93.7)

24.4

(69.3)

(1.9)

0.5

(1.4)

(6.3)

0.3

(6.0)

(58.5)

31.8

(26.7)

$ (160.4)

$ 57.0

$ (103.4)

$ (93.7)

$ 24.4

$ (69.3)

0.3

(0.1)

0.2

(24.8)

5.1

(19.7)

(31.9)

18.8

(13.1)

(150.1)

48.2

(101.9)

(2.3)

0.6

(1.7)

17.3

(2.6)

14.7

15.0

(2.0)

13.0

(93.7)

24.4

(69.3)

(2.0)

0.5

(1.5)

(7.5)

2.5

(5.0)

(31.9)

18.8

(13.1)

$ (135.1)

$ 46.2

$ (88.9)

$ (375.5)

$ 97.7

$ (277.8)

(5.7)

1.3

(4.4)

(52.0)

9.7

(42.3)

(188.9)

123.6

(65.3)

(622.1)

232.3

(389.8)

(2.3)

0.6

(1.7)

32.2

(5.9)

26.3

‐

3.5

29.9

(1.8)

28.1

(375.5)

97.7

(277.8)

(8.0)

1.9

(6.1)

(19.8)

3.8

(16.0)

(188.9)

127.1

(61.8)

$ (592.2)

$ 230.5

$ (361.7)

2025

RECONCILIATION OF REPORTED TO ADJUSTED

Pretax

Earnings (Loss)

Income Tax

Benefit (Expense)

Net Earnings

(Loss) Attributable

to Controlling Interests

$ (159.5)

$ 41.5

$ (118.0)

(1.8)

0.5

(1.3)

(26.4)

3.4

(23.0)

(94.6)

88.6

(6.0)

(282.3)

134.0

(148.3)

23.1

(3.1)

20.0

23.1

(3.1)

20.0

(159.5)

41.5

(118.0)

(1.8)

0.5

(1.3)

(3.3)

0.3

(3.0)

(94.6)

88.6

(6.0)

$ (259.2)

$ 130.9

$ (128.3)

2025 ESTIMATES

ON MARCH 20, 2025 (5)

Net Earnings (Loss) Attributable to Controlling Interests

Range Low to High

$ (120.0)

$ (115.0)

(2.0)

(1.5)

(4.0)

(3.0)

(20.0)

(16.0)

(146.0)

(135.5)

(120.0)

(115.0)

(2.0)

(1.5)

(4.0)

(3.0)

(20.0)

(16.0)

$ (146.0)

$ (135.5)

$ (125.0)

$ (120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(20.0)

(16.0)

(152.0)

(141.5)

(125.0)

(120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(20.0)

(16.0)

$ (152.0)

$ (141.5)

$ (125.0)

$ (120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(20.0)

(16.0)

(152.0)

(141.5)

(125.0)

(120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(20.0)

(16.0)

$ (152.0)

$ (141.5)

$ (125.0)

$ (120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(20.0)

(16.0)

(152.0)

(141.5)

(125.0)

(120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(20.0)

(16.0)

$ (152.0)

$ (141.5)

$ (495.0)

$ (475.0)

(8.0)

(6.0)

(19.0)

(15.0)

(80.0)

(64.0)

(602.0)

(560.0)

(495.0)

(475.0)

(8.0)

(6.0)

(19.0)

(15.0)

(80.0)

(64.0)

$ (602.0)

$ (560.0)

2025 ESTIMATES

ON MAY 1, 2025 (5)

Net Earnings (Loss) Attributable to Controlling Interests

Range Low to High

$ (125.0)

$ (120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(21.0)

(17.0)

(153.0)

(142.5)

(125.0)

(120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(21.0)

(17.0)

$ (153.0)

$ (142.5)

$ (125.0)

$ (120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(21.0)

(17.0)

(153.0)

(142.5)

(125.0)

(120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(21.0)

(17.0)

$ (153.0)

$ (142.5)

$ (125.0)

$ (120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(21.0)

(17.0)

(153.0)

(142.5)

(125.0)

(120.0)

(2.0)

(1.5)

(5.0)

(4.0)

(21.0)

(17.0)

$ (153.0)

$ (142.5)

$ (493.0)

$ (478.0)

(7.3)

(5.8)

(38.0)

(35.0)

(69.0)

(57.0)

(607.3)

(575.8)

20.0

(493.0)

(478.0)

(7.3)

(5.8)

(18.0)

(15.0)

(69.0)

(57.0)

$ (587.3)

$ (555.8)

The following provides certain information related to Gallagher's investments in limited liability companies that own or owned 35 clean coal production plants, which produced refined coal using

proprietary technologies owned by Chem‐Mod. We believe that the production and sale of refined coal at these plants qualified to receive refined coal tax credits under IRC Section 45 through 2019 for the fourteen 2009 Era Plants and through 2021 for the twenty one 2011 Era Plants. The underlying operations of those investments where Gallagher has a controlling ownership interest are consolidated. Gallagher plans to utilize tax credit carryforwards that should favorably impact operating cash flows.

($ in millions)

12 2009 Under long‐term production contracts during 2019 and prior periods

2 2009 Not in active negotiations for long‐term production contracts during 2019

Actual 2024

Sunset in 2019

Sunset in 2021

$ (6.1)

Actual 2024

$ 91.4

2025

Estimates

Sunset in 2019

Sunset in 2021

minimal

Estimated Annual

Greater than $180m

2026 & Beyond

Estimates

Sunset in 2019

Sunset in 2021

minimal

Estimated Annual

Greater than $200m

21 2011 Under long‐term production contracts during 2021 and prior periods

$ 711.3

March 31, 2025

* 2025 and 2026 & beyond estimates include the operating results of new clean energy investments.

** Future estimated net after‐tax cash flows, including 2025, and 2026 & beyond are dependent upon the magnitude of U.S. taxable income generated in the future and may vary materially, higher or lower, from the estimates provided. Potential future changes in domestic and international tax policy have not been contemplated in these estimates.

All estimates set forth above regarding the potential future earnings and after‐tax cash flow impact of our clean energy investments are subject to significant risks. Please refer to the cautionary statement on page 2 of this communication and Gallagher's filings with the SEC, including Item 1A, "Risk Factors" in its most recently filed Annual Report on Form 10‐K and any subsequently filed Quarterly Reports on Form 10‐Q for a more detailed discussion of these and other factors that could impact the information above.

Page 5

Disclaimer

Arthur J.Gallagher & Co. published this content on May 01, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 01, 2025 at 21:02 UTC.