Aon plc (AON) Earnings Call Transcript & Summary

Good morning, and thank you for holding. Welcome to Aon plc's First Quarter 2025 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 is my pleasure to turn the call over to Greg Case. CEO of 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 adviser, 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 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 continue to build momentum in year 2 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 contributed 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 mega-trends that we reference, trade, technology, weather and workforce. Trade is currently and clearly top of mind. To date, 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 and advising on Human Capital issues like restructuring employee stock grants. 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 1 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 1-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 1 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 absorbed 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 is facing soaring health care costs due to high-cost claimants. We won their Human Capital 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 landscape. And in fact, our integrated solutions, 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 adviser. 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, that Aon advice and solutions are even more valuable to clients as they navigate increased complexity in their business. We continue to see momentum across our business, from the high-quality talent we're attracting to 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. Edmund and I and the senior executives leading our 3x3 Plan look forward to sharing details about Aon United as a powerful asset, and how we'll continue to drive sustainable long-term growth and create value for our shareholders. We promise this to be a very productive event. Now I'll turn the call to Edmund for a more detailed review of our financials and outlook. Edmund?

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 '24 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 acquisition to drive growth and returning $397 million in capital to shareholders through the dividend and share repurchases. 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 '24, where we have currency exposure, 3 months of additional impact on margin from NFP, higher interest in 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 and 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 '25 results. Adjusted EPS was $5.67, reflecting the impact of higher interest and 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 '24. 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 U.S. 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 stimulate rising health care 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 U.K. 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. Health and Wealth had positive net market impact as we continue to see increasing cost in Health and positive market impact in Wealth. And one final point on revenue, first quarter fiduciary investment income was down 15% versus last year to $67 million as the increase in average balances was more than offset by lower interest rates. And as a reminder, we do not include fiduciary investment income in our organic revenue growth calculation. On Slide 9, adjusted operating income was up 12% for the quarter to $1.8 billion. Adjusted operating margin was 38.4% in the first quarter, in line with expectations and down from 39.7% in Q1 '24 reflecting the impact of the NFP acquisition, which closed in late April 2024 as well as the interest rate impact on investment income from fiduciary balances. Adjusted operating margin continued to benefit from the scale in our business, particularly through Aon Business Services and from a restructuring initiative to accelerate our 3x3 Plan. Specifically, restructuring savings in the first quarter were $40 million, which contributed approximately 85 basis points to adjusted operating margin. Looking ahead, we continue to expect $150 million of savings for the full year 2025 and are well on track to achieve our stated goal of $350 million of run rate savings in 2026. Our organic revenue growth and the actions we are taking through Aon Business Services to standardize our operations and integrate our platforms are creating capacity to fund our growth investments, and setting the foundation for ongoing margin expansion through operating efficiencies and scale in our business. We remain committed to driving full year adjusted operating margin expansion of 80 to 90 basis points in 2025. Moving to interest, other income and taxes on Slide 10. Interest income of $5 million was $23 million lower than last year when we earned interest on funds utilized in the NFP acquisition. We expect interest income to be negligible in Q2 '25 compared to the $31 million in Q2 '24. Interest expense of $206 million was up $62 million versus last year, reflecting $7 billion in higher debt driven by the NFP acquisition. We expect $209 million of interest expense in Q2 '25. Other expense increased $23 million year-over-year, primarily due to higher noncash pension expense. And finally, the Q1 tax rate was 20.9%, 160 basis points lower than Q1 '24, reflecting the geographic mix of income growth and the favorable impact of discrete items. Our tax guidance for the full year remains at 19.5% to 20.5%. Turning now to free cash flow, and capital allocation on Slide 11. We generated $84 million of free cash flow in Q1, reflecting strong operating income growth and DSO improvements, partially offset by higher incentive interest and restructuring payments. We continue to expect double-digit free cash flow growth in 2025 and a double-digit 3-year CAGR on free cash flow from 2023 to 2026. In the quarter, our leverage ratio was 3.5x, and we continue to be on track to achieve a 2.8 to 3x leverage ratio in Q4 of 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 middle market acquisitions through NFP which acquired $19 million in EBITDA in Q1. The pipeline remains strong, especially with opportunities in Commercial Risk, and we continue to expect to acquire $45 million to $60 million of EBITDA to NFP middle market acquisitions in 2025. Finally, we returned $397 million in capital to shareholders through the dividend and $250 million in share repurchases in Q1. Additionally, and as Greg mentioned, in April, we increased our quarterly dividend by 10% to $0.74 per share, marking 15th consecutive annual dividend increases reflecting the strength of our business and financial model and our confidence in achieving double-digit free cash flow growth. I will conclude my prepared remarks on Slide 12 with our 2025 guidance and some final thoughts. The first quarter 2025 performance signals a start to the year that is right in line with our expectations. We are executing our 3x3 Plan and have momentum that is being reflected in our first quarter results. We're moving the noise and elevating what matters for our full year 2025 guidance let me highlight the following: we achieved 5% organic revenue growth in the first quarter, meeting our objectives. So we are reaffirming our mid-single-digit or greater 2025 full year guidance for organic revenue growth. We continue to get scale benefits through ABS. We are achieving our restructuring goals and we continue to actively manage the portfolio, so we are still expecting and reaffirming 80 to 90 basis points of margin expansion for the full year 2025. We also continue to expect strong earnings growth for the full year. And I will note that we are excited that today marks the 1-year anniversary of the NFP acquisition. And as a reminder, the late April '24 close will impact Q2 '25 margin and earnings just as we expected. For modeling purposes, we are estimating 15% to 18% adjusted EPS growth in Q2 '25. And finally, our earnings growth, including NFP, will contribute to double-digit free cash flow growth in 2025 and a double-digit 3-year CAGR for '23 to '26. Our guidance demonstrates the strength and resiliency of our business and financial model. We are prioritizing investments that support sustainable organic revenue growth. Our execution in Aon Business Services is supporting top line growth, creating investment capacity and delivering margin expansion. We expect to deliver strong earnings per share growth and to generate double-digit free cash flow growth, and we continue to have disciplined capital allocation, balancing between high-return growth investment and capital return to shareholders. Finally, as Greg mentioned, my 60,000-plus colleagues and I are excited to host an Investor Day on June 9, our first in 20 years, and I look forward to your participation. So with that, Rob, let me hand it back to you and we'll jump into questions.

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

So you just -- Edmund just mentioned the 1 year kind of anniversary of having acquired NFP. It sounds like things are going really well there. Now that you've got this year under your belt, how are you feeling? Can you give us a little color on the M&A pipeline? I know in the slides, it mentions that it's robust. I mean, any statistics? Could you do a big acquisition, if you feel that there's the right one out there? I mean how are you thinking about M&A for NFP as we move into -- through 2025?

Andrew, thanks for the question. And listen, I'm really looking forward to this one. There's a -- you step back, the overall capital allocation piece, and Edmund can comment on this as well, is really what drives what we do. It drives everything around capital allocation. We're always looking for opportunities to strengthen the firm and reinforce what we do from a return on invested capital standpoint. And the good news is, I'll tell you, it's been a great year with NFP. It's been terrific to have them as part of the overall Aon family. A lot of good things happening in the middle market with lots of opportunities there, as you're indicating, and we're certainly looking at that. And we're certainly going to continue to execute on the programmatic work that we've been doing from an acquisition standpoint, just a superb engine in place at NFP. But there's a broad set of opportunities we'll continue to look at. You'll note we're making substantial organic investment in the firm. we're making investments on the M&A front as well as other areas as well. So look for us to continue to do that. And suffice it to say, we see lots of opportunities. And we'll always continue to evaluate those in the context of everything that's going on around capital allocation including the debt paydown. But Edmund, what else would you add?

Yes. Yes. Greg is exactly right. There's tons of opportunity on the M&A front. But your question is about 2025. And in 2025, as part of our disciplined capital allocation. You know the prime objective for us, the #1 objective is to get back to our leverage ratio target. And I think we're well on track to do that in Q1 -- I'm sorry, in Q4 2025. That's the first step. We're very excited the fact of just increasing the dividend in the remaining capacity is what we'll look to analyze the opportunities that Greg is talking about to ensure that they fit within our overall strategy, our 3x3 Plan and have the right financial return criteria, before we deploy capital to M&A. And of course, we're going to continue to balance capital return to shareholders. So in 2025, the key point is I think we have the right free cash flow generation to get to the right place, from a leverage ratio standpoint, we have the free cash flow that allow us to continue to get $45 million to $60 million in M&A in the middle market space through NFP and the rest. This year, we take a focus on capital return to shareholders.

Got it. And then with respect to Commercial Risk Solutions, a really solid 5% plus organic revenue growth I think you mentioned that the market impact was flat in the release. Could you give a little color around the backdrop of how pricing influenced the 5% plus, how exposures influenced the 5% plus. It seems one of your competitors reported a deceleration in that area in organic growth and investors felt a little concerned. So I'd like to get a little sense of what these different market impacts are more granularly? And then why you feel so confident that you could continue to do? And I know it's for the whole organization, but more focused on CRS. Why you think you can do 5% or mid-single or better?

Andrew, excellent question and a lot to unpack there because you really talked about Commercial Risk overall for Aon, and then within the context of that, what's going on in Commercial Risk pricing. So maybe we'll take a -- first start governing thought with Aon and maybe go to pricing Andrew if you're okay with that, and I'll get Edmund to chime in here as well. First, you're absolutely right. We -- as we reflect on the first quarter, we're very pleased with the progress. And what's under the hood for us is really what's most prevalent. And it's another quarter, as you described, of organic revenue at 5%, it really does reflect though new business and strong retention. That's really the drivers of it. And Edmund mentioned some of the market impact was limited, but held steady within our expectations. This was growth for us, by the way, across all major geographies. Strength in core P&C and especially in international, fantastic. But more than anything, Andrew, it really is we're seeing traction on what we're doing with the 3x3 Plan. And this is Risk Capital really delivered through Aon client leadership and powered by Aon Business Services. And these are our risk analyzers. They're opening doors, broadening discussions, frankly, increasing win rates for us in RFPs. Same on retention. I have been talked about 1 point increase in retention. This is driven by service enhancements that are substantial, like the certificate platform that we've talked about before. And then the impact of hiring, which is just beginning to really have effect in terms of where we are. We continue to invest and drive that. So for us, we feel very good about the overall program and progress. And what Q1 did for us in Commercial Risk and really did across the board is just highlight progress and reinforce our conviction around mid-single-digit or greater for the year. So that's the overall business. And maybe Edmund comment on that a bit, and then we'll turn back to Andrew's key point on pricing.

Yes. Sure. I mean, Greg, I think you hit all the points on the Commercial Risk. When we -- even when we go back to the key points on pricing, I think the answer is very much similar in that the growth here is driven primarily by new business. That was 10 points in the quarter when we think about Commercial Risk. And the retention, I talked about that being better sequentially and year-over-year, better than last quarter and better than the year before. And a lot of that is driven by the investments in the deployment of our analyzers, as Greg just said, helping in RFPs. That's driven by our EC -- our enterprise client group going on and expanding with our relationships. And despite the pressure in clients on certain lines. The outlook in the second half is that we continue to have strength in Commercial Risk, particularly as we think about the hires that we've been doing, priority areas like construction, which we think will pick up in the second half and the actions we're taking to drive the limit and coverage increases that offset any modest pricing impact. So we're going to continue to focus on that net new business and the retention component of it.

And then -- so Andrew, does that answer your question on the Aon front? Then I want to come to pricing specifically because I don't want to miss that.

Yes. That was perfect.

Okay. All right. Let's go to pricing for a minute. And listen, we just want to offer a couple of things here. First, because it's been -- it's part of all the conversations, it seems of late. And look, typically, Andrew, everybody is on unit pricing. That's the sole topic. We'll continue to remind everyone it's unit price and insured values. This is sort of the market impact. That's what Edmund was describing before. We came into the quarter kind of 0 to 2 expectations were at 1. I do want to highlight irrespective of what's going on currently, the long-term trends here, long-term trends. This is critical, are increasing in terms of levels of risk. So this is cyber, supply chain, weather, social inflation. So at a macro level, the need is increasing. So that has implications on sort of overall demand and pricing. Having said that, we also want to be explicit. It's been described by my colleagues as kind of the current market really reflects the current trading environment. And that's generally more buyer friendly. And so generally, because there is no really macro market here, it's a bunch of micro markets, property rates are softening a bit, particularly in large property in the U.S. and a little bit more in Asia Pacific as well. And that's really, by the way, not surprising, and that's where the big increases were. A bit softer on the financial line side in cyber as well overall. The exception, by the way, Andrew, on the other side is things like U.S. auto and excess casualty, which again, lots of different reasons why that's going up and increasing. And then we would say middle market, similar conditions on the stresses, absolutely. Maybe it's slightly more muted because the segment doesn't have the same peaks and valleys as some of the large market pieces, but certainly the same pressures. But we also -- as we always do, we're working with clients to understand the conditions and improve their programs, change limits, buy coverages they lost in the hard market, reduce -- all those things you can imagine, Andrew, we're working on. And then one of the things that was interesting is alternative risk transfer continues to be highly prevalent. And the work we're doing with Reinsurance in the Commercial Risk arena on alternative risk transfer is substantial. But net-net, as it relates to Aon, I just want to finish with Edmund's point, for us, it's about client wins and retention. And that's exceptionally strong and the 3x3 Plan has really supported us, which is why in this environment, we're reinforcing our conviction around mid-single-digit or greater. But that's a little more color on the pricing side.

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

My first question is on Reinsurance. I know Edman, you mentioned a multiyear extension that I think had a negative impact in the quarter. I was hoping to get more details and quantification there? And then I think you pointed to some softer conditions in the second quarter. So I guess, is the expectation Q2 could be similar to Q1. And then things pick up in the back half. I was hoping to kind of flush those -- both of those things out relative to Reinsurance?

So maybe, Elyse, if you don't mind, there's a little macro point on kind of the overall Reinsurance and what the first quarter told us, because it's one of the themes that sort of Edmund's started with is really understanding kind of the underlying kind of performance factors that we saw in Q1. There's obviously a lot of noise for us as we closed NFP and did all the pieces around that. But Reinsurance, no different than Commercial Risk, exceptionally positive in terms of what we saw and what's indicated for the rest of the year, which is why, again, we are at same expectation, mid-single-digit or greater. And net-net, think about what's going on in Reinsurance right now for us. We're building on core momentum. And really, this is what we do at a segment level with our clients, but really differentiating on analytics. And what we've invested in, in Aon Business Services and with Risk Capital has been really, for us, meaningful, real tour de force. We're winning more than ever before in this context on the Reinsurance and the Commercial Risk side. And this Risk Capital construct is also meaningful. The level of cat bonds and parametric work we're doing is exceptional and driven by Risk Capital. And the Strategy and Technology Group, Edmund mentioned also reinforcing and driving progression. And so the 4%, which 7% in the first quarter of last year, it's treaty placements, as Edmund described, it's double-digit growth in facultative. It's another double-digit growth on insurance-linked securities. So in net-net, strong progression overall. And then I'll just highlight Edmund mentioned the piece around the multiyear extension. This was a phenomenal outcome for this client. This was a massive -- let me just say, massive program. And what we did is what we always do. We talk about value creation and what we're trying to do on their behalf, and then we get paid on value. By the way, it affects timing sometimes. And in this case, in Q1, it affected timing. But overall, the impact for this client was huge. The impact for Aon is huge. We're excited about this progression, but it showed up in Q1. But you shouldn't confuse the Q1 impact with the overall year opportunity and sort of what it's going to look like over time, and that gets us back to mid-single-digit or greater. So anyway, that's a bit of a background. But Edmund, anything else you'd add and make sure we cover this.

I just want to emphasize the last point that you made, we obviously don't have the continued impact -- client impact, which is an extremely positive thing for us exactly what we want to do, extend and expand with our clients. So Elyse, I want to be clear in your question that you shouldn't expect that impact, obviously, to carry over into Q2. And while we do have line of sight into, just as you've heard others talk about the U.S. and Japan April 1 renewals. I think the strong performance that we had in Q1 ex that extension, you should see flow over into Q2. And then when we go out in the second half of the year. This is a business where we do have line of sight. We can see sort of like where we're tracking. And when I look at the second half of the year, the July 1 renewals, we have good line of sight to, and that looks strong, increased limit. We also see the continued growth in our international facultative placements, one of the things that was very strong in Q1 as well in the STG group. So I think Q2 through Q4 should be in line with our mid-single-digit guidance in the overall year in line with that as well.

And then my follow-up question is on free cash flow. I just wanted to -- well, a, confirm right, that it's double-digit growth, right, on -- I think it's on the reported $2.8 billion from '24. So I guess the NFP contribution will help Aon get to the double digits. I just want to make sure that I'm thinking about the free cash flow growth off of the right base and what the message is. And is there any seasonality to the back 3 quarters that we need to think about in terms of hitting that double-digit target for the full year?

The short answer is yes. You hit it exactly right that we are talking about the baseline of 2024, double-digit growth. I think you'll see growth, that double-digit growth, a contribution from NFP but also our core operating performance and the continued improvement that we have on DSO. There's two things in Q1. You asked the question about seasonality. So there are two things I'll point out to you in Q1 that's going on. We still have the integration costs from NFP. We have restructuring payments. I called that out related to our AAU Program, and we have higher incentives. We've been hiring more. We had strong performance in Q2 '24, and it's typically our lowest quarter of free cash flow in Q1. That's what I would call out from seasonality. But as we go into the back half of the year, you have two things correct. You have the right denominator, the right starting baseline. You have the NFP contribution, but I'd also add the contribution from the core performance of the business, both on the working capital side and the operating income side.

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

I believe -- I think it was Edmund, you'd spoken about some of the hires. And I know you guys added, I think it was 4% new hires in certain revenue-producing roles last year. And it sounded like we haven't really gotten the contribution from those new hires in the first quarter here. It doesn't sound like it's really going to come next quarter, but you're really pointing to the second half. So I'm wondering if you could just elaborate on some of the headcount growth and the productivity enhancement as we think about the cadence of the organic growth within Commercial Risk?

Yes. Look, first -- the first point I'd make is that we're a growth company, and so we're committed to making the investments in the headcount. We did talk about that growth number last year in '24. And frankly, we want to do better than that as we come into 2025. And we're off to a great start in the right areas, in areas like health, construction, those places coming into '25. I think it's still -- the short answer to your question is still too early to see the exact impact. And let me maybe be a little bit more specific with that. When we look at the Q1 vintages from 2024, we're now in months 12 to 15 for those vintages, still early. I talked about starting to see the impact on contribution to growth between months 18 to 24 and beyond as we look at it. But the early signs suggest that the average revenue for these early vintages are coming in at a profitable high return, and I expect that they'll soon be a contribution to the organic revenue growth. We did point out in Q4, we saw growth in some of those priority areas that was quite strong in construction and energy. So all the signs are suggesting that we continue to lean into the investment for priority hires in these areas as we move forward. And we'll share information as we see the metrics evolve.

And two things I'd just add to that, David, if I could, is two messages embedded in Edmund's comments. One is this is a continuing process around priority areas. And those will evolve over time, but we are going to continue to drive in a continuous process. The second is you don't hear us backing up on margin as it relates to this. This is literally -- we're making these investments in the context of everything else we're doing. We're covering them with ABS capability and efficiency that comes with the positive pieces around revenue with ABS as well. And so for us, this is just part of an investment we are now prepared to make on an ongoing basis. It strengthens our firm, and reinforces accretion on the top line, but also in performance in OI. And finally, the piece I'd just highlight is, listen, we're not bringing these folks in as account. They're coming in to be better. When we actually identify capability and in priority areas, it's kind of how do we use our analyzers and our retention and all the pieces that come with this essentially not bigger, not bigger, better. And by the way, that's one of the reasons people are excited to be part of the firm when they see the $1 billion spend on Aon Business Services and the analyzers and the service pieces, it's why we've been able to attract talent in some of these areas. But it's important you understand the investment in the context of our overall strategy.

Got it. And then -- maybe just another question, more of a numbers question, just on the margin. So I guess I'm just wondering a bunch of noise with the NFP deal and sort of resetting the base. Could we get sort of the combined margin base for, I guess, as we should think about it for the first quarter? Just given the time of 2024 and how much sort of core margin improvement or lack thereof there would have been this quarter sort of on a combined basis? I know, Edmund, you had called out the 85 basis points from cost saves, but I was hoping to just get a little bit more color there as we think about the ramp-up over the next several quarters?

I want to give you the short answer, just so that we can clarify it's not the lack thereof, as you just mentioned there. Adjusting for the 3 months of NFP would have had us at over 100 basis points of margin expansion in Q1. Think about that relative to 90 basis points in '24, think about that relative to the decade before '24 being at 126 basis points. So continued margin expansion is what you're seeing in our business when you take a look at the impact of NFP there. The areas that focus on are exactly what we gave in the 2025 guidance. And I would say those areas, those four areas that I talked about are right in line with what we are expecting or slightly better. We talked about the NFP impact 3 additional months in Q1, 4 additional months for the year, offset by the OpEx synergies diluting margins by 20 basis points. There's no reason to think that we are not going to do -- be at those levels or better. The second impact we talked about was the interest rate impact on fiduciary investment income. If you look at the rate, the average rate on fiduciary investment income, that was 110 basis points lower in the quarter. So that margin impact was right in line with the 20 basis points that we talked about there. I did point out in my prepared remarks the continued performance on the restructuring from AAU, so 85 basis points there. That's exactly what we said in the guidance. And then I think just the operating leverage. Greg made an extremely important point, his second point in the last answer about ABS creating capacity to fund investments. That's the operating leverage in our business. That's what I think is 35 to 45 basis points. And that's why we're confident in reaffirming and maintaining the 80 to 90 basis points. So I think the way you think about it is that we are, in fact, expanding both in the core business and in NFP given the margin synergies.

The next question is from the line of Paul Newsome with Piper Sandler.

Just want to revisit a couple of the major topics here. The first one, and I apologize if I missed it, was the NFP, was it accretive to organic growth in the quarter? And I guess as sort of a better question, did it have a bigger impact in the retirement benefits businesses versus commercial? Because if I recall that its business was weighted more towards the health business than it was in the P&C business.

Paul, I appreciate it. Thanks for the question. Listen, as we step back, just to reiterate, it's been an amazing year. NFP has brought such great capability and content. It's been great to watch NFP connect with Aon, Aon to connect with NFP, and we've seen meaningful opportunities in new client situations, in existing client situations as NFP is utilizing Aon Client Treaty and some of the capabilities we've got, but also as Aon has benefited from the incredible client connections that NFP has as well. And so this is a long-winded way of saying, listen, this is about Aon. So in the end, yes, there was 5% organic contributions from NFP, fantastic contributions from Aon, fantastic. But more important, Q1 for us was an indicator of what's to come. That's true on the 3x3 and the Analyzers and the core business is also true on the NFP front. So it was really across the board, good contribution on the NFP front, good contribution on the overall Aon front. And really across the board in terms of businesses, Commercial Risk, Wealth and Health all across the pieces. So we're not going to be breaking out NFP as a construct because there's just too much connectivity that's happening, and the connectivity is not worth parsing. We essentially want to reinforce connectivity as opposed to break out separate pieces. And this is the beauty of independent and connected. Independent in the day-to-day in the field and what's happening in the leadership and the M&A engine and all the pieces around that, really connected from the standpoint of content and capability in ways that actually helps our producers do more with clients every day. So just suffice it to say, all contributed, all on track and all -- we're very excited about the high expectations we had as we came into the year.

Great. And then revisiting pricing a little bit, one of the questions of the quarter for the industry has been what appears to be differentiating behavior between large account commercial and small and mid. And I'm just curious if you have any thoughts upon that, if that was indeed what you're seeing as well within your book? And if you think that, that's a potential continuing trend in the future?

Yes. We would say -- Paul, the point I was trying to make before, Andrew's question was really around, look, generally, the trading conditions are softer in specific areas, property, financial lines, cyber, with some exceptions, as I said on the auto side and the casualty side, of course, on the other piece. We saw similar trends, similar trends in mid-market slightly more muted, although they have their moments, but slightly more muted just given that there was not as much peaks and valleys overall. I would bring you back though to the macro points around the long-term trends, all the things that are happening, cyber, supply chain, climate, weather, social inflation. These affect the middle market, too. I mean our middle market clients, as we're finding with NFP, very sophisticated set of needs. And when you can bring real solutions to them, they matter and they matter even more in the current environment. So I think directionally, you probably have -- we would agree. But the nuance matters because it shows up one client at a time. And it's why we've been -- we have success because we can bring solutions in a very specific, tailored way on a client-by-client basis. But generally, I'd say you're directionally right.

Our next questions are coming from the line of Meyer Shields with KBW.

I appreciate the outlook in terms of tougher comp for Wealth Solutions in the second quarter, and I guess, the back half of the year. I was hoping you could add a little color in terms of the specific businesses and underlying factors that were so strong in the first quarter of this year. But what is it that actually drove the investments growth?

Well, listen, if you come back, Meyer, we've loved our -- it's been fantastic, what the teams have been able to do over really a multiyear period. Again, I would come back on the Wealth side, start with macro trends, then talk about the Aon team and what the drivers of success are. And remember, by the way, this business overall is kind of 2/3 retirement, 1/3 investments. The investments business has a core investment piece, but it also has an advisory piece embedded in it as well. So that's kind of the macro business. But think about the macro trends. It's retirement readiness. 20% of the world is ready for retirement. That is a massive -- it's a massive challenge for the world as this evolves, if we can address retirement readiness, huge. Second, wealth transfer, if you think about sort of what's going on also very, very substantial. And then the piece you can't lose is the regulatory challenges that seem to come up a year after year after year. And so from our standpoint, we've got an amazing team across each one of those pieces. Now even stronger on the NFP front. And the team is exceptional. And the drivers of the success for us has been much like it was on the Commercial Risk side, new business and retention, new business and retention. It really is client leadership. And we -- new capabilities, new clients and then retaining them longer. The second big piece is pension risk transfer. So you've seen us do some things in that arena that really no one else has been able to do in the U.S. and the European and the U.K. theater in particular. And then finally, on the core retirement side, which everyone comes back and says, this is the challenge on defined benefit to defined contribution, and it is in the fullness of time. But my gosh, in its current world with the regulatory challenges, it really creates the opportunity for us to help clients think about that overall strategy. So those are the very specific things that are really driving success on the Wealth side. And Edmund's quite rightfully talked about some of the pressures in Q2 as sort of be mindful of those. But the team has done a phenomenal job progressing here, and we're looking forward to continued success.

Okay. That's very helpful. If I can switch gears. You talked about the individual, I guess, multiyear extension within Reinsurance. And Greg, you described that as a really good deal for the client, which is what you should be doing. Does that mean that we should expect other such deals, not necessarily with this client but others?

Listen, we've come back, Meyer, is philosophically, this is -- by the way, just answer specifically, this is a very unique situation. Let me just stress, very unique and very substantial in terms of both the size and the value creation that we brought forward. So for us, we're always looking for innovative ways to think about how to bring value to clients. And if you think about Aon's history, we will never be low price. We're not going to be low price. We're going to be high value. We cost $1, and we can prove to a client, we give them back $2, and we can quantify that they actually understand it. They can touch it. They can feel it. They know it either affects volatility, which is value creation, our actual costs, et cetera. Meyer, that's how we go. By the way, if our competitor comes in and says they're $0.50, but can only return $0.52. If a client believes that and understands it, they go with us, if they don't believe it, they don't. Our analytics make us stronger and stronger in that regard. In this case, very unique. Let me just add, very unique and very substantial. We went from kind of the more annual periodic piece to a very long-term engagement that enables us to do some things on their behalf that is -- they're exceptional. And so it was really in that context, we did what we would call great value creation, and we got recognized for that value. So I think this was, for us, great outcomes on both sides. And we'd love to do more of these in a way that really can add to this kind of value, but this is a very -- as I said it, the last time, a very unique situation. The downside is, it had some pressure in timing, and you saw that in the first quarter. But so be it. We want to do a try on government clients.

Greg. It had pressure in Reinsurance in the quarter. We have a diversified business across multiple solution lines, Commercial, Reinsurance, Health and Wealth. And the reason that we're still able to deliver the mid-single digit is because of that. Because we're operating across solution lines because we're operating in multiple countries because we have the operating leverage in our business. And so when the opportunity comes to grow with the client in a significant way and still be able to deliver our results, of course, we're going to jump on that.

The next question is from the line of Jimmy Bhullar with JPMorgan.

So a question for Greg. I know you affirmed your guidance, but obviously, there's been a lot of volatility in the macro and geopolitical environment. So just wondering where if any, there are changes in your expectations for your various businesses versus early in 2025? I know there's a lot of optimism about Capital Markets activity picking up. That hasn't happened and now inflation is higher. But just if you could touch on your major businesses and where maybe you're more optimistic, where you're seeing some headwinds?

Yes. I appreciate that, Jimmy, and I'll start, and Edmund can add some color as well. Listen, the trauma is real. You're seeing it every day. I would remind though, you step back, remember, Jimmy, we've been talking for quite some time about increased volatility. And we talked about -- we call it four mega-trends trade, technology, weather and workforce. And remember all those -- now it was before the -- that was before tariffs, and this has been substantial. They're all there. They all continue to drive volatility and, in many respects, create risk for clients, which means demand if we can help them understand that volatility and do something about it. Clearly, today trade is at the forefront, no doubt about that. Clients are sitting there essentially saying, look, we don't only have to understand what's going on, we got to do something about it. If COVID taught us anything, in action is not a productive option. You've got to do something, you've got to have a plan. So we're engaging it really is across every one of our businesses really on the Risk Capital side, Commercial and Reinsurance, on the Human Capital side, with our talent business, health, even retirement, and we're active with clients. And we're helping them trying to understand the complexity and then what they can do about it. So I described the supply chain diagnostic, our analyzers, Jimmy, in terms of how to help them understand what's going on. I mean we just did a massive -- the biggest parameter, I think the biggest parametric on a severe convective storm that's ever been done for a big steel company. And it really was in the face of this new set of risks that are on the horizon, and how they can deal with that. And so for us, we're tailoring solutions against this. Now there are no doubt there are puts and takes here and there will be pressures on areas of discretionary spend. So we should recognize that, that will come, and that will be real. But it's also offset in many respects by what I'm just describing, our ability to react to client demand. And so for us, we step back right now -- and look, the world has changed a lot even in the last 30 days in terms of pressure. But we look at where the world is right now, and we will say, listen, we feel we have conviction about mid-single-digit or greater growth. We are not changing guidance based on what we've seen in the first quarter. And some of the underlying factors that we really see on the positive side, we talked about on the call, around what's happening with our 3x3 Plan. All those are good in that context, that's where we are. And we said, Jimmy, that's across the board. That's Reinsurance, that's Commercial Risk. That's what we're doing in Health, and that's what we're doing in Wealth. So for us, we see opportunities everywhere. We see the challenges, they're real. But against that said, we also see mid-single-digit or greater, and that's what we're focused on, and that's the mission to achieve, and that's what -- that's our guidance as of today.

I mean I'm just going to give you some -- I agree with Greg's point about mid-single-digit or greater. When we think about confidence in the second half and go through our solution lines, Specifically, it will continue to come through the new business and the retention. Construction, core P&C, the NFP pipeline and synergies. Those things are improving as we look in the second half of the year, and we'll have meaningful contribution. In Reinsurance, I mentioned earlier the July 1 renewals with more limit. Again, we have line of sight there, the international facultative. In the Health Solution line, we have the core benefits, remember, we just said that was double digit in three out of our four regions and 9% in the other. So we continue to expect benefit and growth there as well as now getting the benefit of the talent business as we recognize revenue in data and analytics. And on the Wealth side, I think we have great line of sight for Q2 on the asset component that Greg was talking about, but that regulatory component, pension risk transfer and the strong retention, those are the things that are driving growth in the second half of the year. And of course, we'll see some benefit from the investment hires. When I think about that and the absence of the headwinds that we had in Q1. It's really important to think about 13 points of EPS headwind, from the increase in interest and the increase in shares from the NFP acquisition. Those things won't be there as we go around in the year. And so that together is what gives us confidence in the second half of the year and while we're reaffirming the guidance here.

Got it. And then just on the performance of the NFP business, if you could just comment on how it's tracked versus what you would have expected? Because if we look at the contribution to revenues from acquisitions and dispositions, both in RIS and in Health, it was lower this quarter than it's been the last few quarters, and NFP is obviously a big number there. But any comments on the performance of the acquired business?

Jimmy, I'll just start macro levels, as we said before, listen, we had high expectations, and they've been exceeded in terms of what we're trying to do. Underlying connectivity, the old thesis around independent and connected exactly as we'd hoped, the retention on the producer side, phenomenal. Again, ultimately, this is all about how our clients facing individuals see more opportunity as we brought the firms together. And that's what we continue to work on. We have work to do, no doubt about it. But we've made great progress. And at an underlying level, as Edmund has highlighted throughout the call, we just reiterated, as all this comes together, we're going to deliver. It's going to be together more accretive from a revenue standpoint, accretive from an operating standpoint and certainly accretive from a free cash flow standpoint. So for us, all those things have come together and that we feel fantastic about kind of the work in the first year and this first anniversary and looking forward to continuing with the strategy in the middle market.

Our final question today is from the line of Cave Montazeri with Deutsche Bank.

First question is on the Investor Day, the first one in 20 years. I'm just wondering, is there something specific that you think The Street is under-appreciating maybe in terms of like the power of the Aon United platform, your ABS capabilities or the 3x3 Plan? Or is it a new approach to communication and maybe we should expect more regular Investor Days going forward?

I don't know, Cave, on more Investor Days. One every 20 years might be the right answer. We'll see. But listen, we're really excited about this. And I really hope those listening who have an interest can come. This for us is we think there's something here around next-generation client experience. We spent 15 years working on a platform on a connected global firm. We made no apologies. When we connect our global firm, we call it Aon United, but we're not kidding. We're talking about single brand, single opco, single P&L, done some things that have really been difficult strides to get us coordinated. When we coordinate well on the behalf of clients, we win more, we do more with them, we keep them longer. What's happened though in the 3x3 Plan is we saw an opportunity to massively accelerate that. And the acceleration gets borne out in something we call a next-generation client experience, full stop. And Risk Capital and Human Capital are an organization to sort of think about innovation at a client level, and we've seen many examples of that. But that wasn't enough. We needed a way to deliver it at a client level, that's Aon client leadership, and that wasn't enough. We needed Aon Business Services. We needed the power of a way to look across data, embed the work we've done on AI and now generative AI, which we have done. And we think we've come to a place, Cave, in which this next-generation client experience is real and powerful. And we didn't want to do it at the beginning of the 3x3, so we had a year ago by. So we're essentially going to update you on that next-generation client experience and where we are. The specific tangible places where we think it's changing the way clients actually do what they do and help make them better. And so for us, we don't -- I'm probably telling my voice, we're pretty excited about this step change. It builds on the Aon United thesis around a connected global firm, but a massive acceleration. That's why we bet the $1 billion. It's why we put $1 billion at work to reinforce Aon Business Services to innovate around Risk Capital, Human Capital and deliver it through Aon client leadership. So you're going to see that mechanics. We're going to provide as much detail as we can. Probably have a few clients that are talking about how it's different and how it's potentially useful for them as they think about running and driving their businesses. And we hope you enjoy it. And then we'll see what happens. Maybe you can give us your thoughts on sort of how frequently we might do that. But in the meantime, we're excited about June 9 and hope you can join us.

Yes. No. Looking forward to it. My follow-up question should be an easy one. Edmund, the second quarter EPS guidance that you gave of 15% to 18% EPS growth. Is that -- is the baseline the $2.93 reported? Or is there any adjustments we need to make to the starting point?

That is the baseline. That's exactly right. And look, we are an annual company. We're going to continue to focus on full year guidance and we think the long-term drivers of growth are all stable. I gave that Q2 guidance because we do have the unique situation I recognize and appreciate from a modeling standpoint given the timing of the NFP close. And so you do have the right baseline and hopefully, the Q2 is helpful.

I'll now turn the call back over to Greg Case for closing remarks.

I just wanted to say we appreciate everyone joining us and look forward to June 9 and our next discussion. Thanks so much.

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