Arthur J. Gallagher & Co. Q2 FY2025 earnings call

• Brokerage segment insights: Organic growth across retail, wholesale and reinsurance. P/C insurance market rational, property down 7%, casualty lines up 8% overall. Client business activity solid, no broad economic downturn signs.
• Risk Management segment: Solid new business revenue, good client retention.
• Mergers and acquisitions: Made terrific progress on Assured Partners transaction, expect to complete in third quarter. Completed 9 new mergers in second quarter, around $290 million of estimated annualized revenue, pipeline has around 40 term sheets signed or being prepared, representing around $500 million of annualized revenue.
• Culture: Spent time with thousands of colleagues, including 500 college students in Gallagher internship program, confident sales culture will remain strong.

Brokerage segment

• Reported revenue growth was 17%, organic growth was 5.3%. Within retail operations, U.S. organic was 5%, property a bit below and Benefits a bit above; international operations (U.K., Canada, Australia, New Zealand) collectively around 3%, U.K. a bit above and Canada a bit below 3%. Reinsurance, wholesale and specialty businesses had total organic of nearly 7%, including 5% organic from Gallagher Re and more than 7% organic from wholesale and specialty businesses. Adjusted EBITDAC margin expanded 334 basis points to 36.4%. Full year '25 Brokerage segment organic expected in the 6.5% to 7.5% range.

Risk Management segment (Gallagher Bassett)

• Second quarter revenue growth was 9%, including organic of 6.2%. Full year '25 organic expected in the 6% to 8% range. Second quarter adjusted EBITDAC margin was 21%, full year margin still seen around 20.5%.

• Brokerage segment full year '25 organic in 6.5% to 7.5% range, next two quarters around 5% plus.
• Risk Management segment full year '25 organic in 6% to 8% range, full year margin around 20.5%.
• Assured Partners transaction expected to close in third quarter, still expects first year to be accretive.
• Long-term outlook includes AI projects, centralization of back-office services, and acquisition pipeline feeding productivity improvements.

• Interest rate outlook uncertainty may cause clients to accelerate or delay policy purchases.
• Property rates further decreases or large CAT event could influence organic growth.
• Casualty rate trends uncertain.
• Dollar exchange rate fluctuations can create noise in corporate segment results.
• Assured Partners transaction review ongoing带来不确定性.

Q: What was the date that you guys sent the information, the HSR information to the DOJ and responded to that request? And did you get a timing agreement there? Or is it just a 30-day clock that starts once you gave them all the information?

A: We aren't going to give out dates that we did this or did that. We are done responding to their second request, and we do continue to engage with them and respond to certain inquiries. And so the review is ongoing. So I'm not going to get into any more real details about timing. But our evaluation of where we stand, given the give and take back and forth and given the relationship is that we'll be in a position to close the transaction during the third quarter.

Q: With the 5% brokerage outlook for the back half, are you assuming a continuation of just pricing trends that we saw in Q2 and just the slowdown in property in June? And then if I recall from the June IR Day, you were talking about some benefits business that was getting pushed to the back half. Is that still the expectation? And then what quarter are you expecting that might come on?

A: We see the next 2 quarters in the 5-plus range, too, not to be -- not to quibble over picking at one single number. And yes, I think that there's some risk and opportunity with the life business. We'll see how that comes out. Obviously, sometimes those policies incept depending on interest rates, with what's happening with the Fed holding tight right now, your guess might be as good as mine about whether they accelerate to close or whether they try to wait until a little longer, maybe into next year to actually incept those policies. So there is some dependency on those large and lumpy life cases. Other things is those picks are based on what we're seeing in the property environment right now, what we're seeing in the casualty environment right now. And again, some of that's influenced a little bit by the timing that we had coming out of the first quarter with such a great first quarter. There's a little headwind to that in the third and the fourth quarters. Overall, though, our business, we're excited about it, and we think that we could be in that 6.5% and 7.5% range for the year. And we are heavier in the second quarter on property than we are the next two.