Willis Towers Watson PLC Q4 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : My first question is just kind of thoughts on overall margin improvement. I know you said 100 basis points in R&B. There was no guide other than improving within HWC, and obviously, unallocated costs can fluctuate. So can you just kind of go through the headwinds and tailwinds to margin improvement and how you think about overall margin improvement in '25?

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Thanks. And then my follow-up is on capital management, right? I know you guys kind of were talking to this more balanced approach, right, stemming from Investor Day. I still would have thought the buyback might have been higher just given the TRANZACT proceeds, the Willis re-earnout is coming and you're still strong -- current cash position and free cash flow generation. So can you just spend a little bit more time walking us through how you came up with [$1.5 billion]? And then in terms of deal activity, M&A right is now part of the equation. Is these smaller things? Just help us think through what transactions Willis might consider.

Question: Gregory Peters - Raymond James - Analyst : Good morning, everyone. For the first question, I'll focus on free cash flow. It seems like there's going to be some moving pieces in 2025. So maybe -- you did reference some of them in your comments. Maybe we can go back and go into a little more detail on what's going to happen. And then also related to that, you have this longer-term objective of 16% -- on the conversion ratio. Can you just update us on your perspective for that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 04, 2025 / 2:00PM, WTW.OQ - Q4 2024 Willis Towers Watson PLC Earnings Call

Question: Gregory Peters - Raymond James - Analyst : Thanks for the detail. I guess the other question I had is sticking on the commentary you had. You mentioned in your prepared remarks foreign exchange headwinds. You also talked about the reinsurance joint venture. Could you provide us some perspective on the geography of where these are going to show up inside your reported financials? I guess the foreign exchange is going to be evenly spread out between the two segments, but I'm curious how the reinsurance headwind is going to show up in your financials. And is there any seasonality issues that we should be considering when we think about foreign exchange and reinsurance costs?

Question: Andrew Kligerman - TD Cowen - Analyst : Hi, good morning. So in your strategy, with the departure of Michael Chang recently and then some big, big hires to replace him, and I think you added some other people, as I've heard. And then on the call, I heard -- and one of the kind of hallmarks while he REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 04, 2025 / 2:00PM, WTW.OQ - Q4 2024 Willis Towers Watson PLC Earnings Call was at WTW was to build out that specialization program. And Carl, I thought I heard you say that you want to expand specialization into new geographies. So just to confirm, it sounds like specialization is still very prominent part of your plan. And could you elaborate on what you mean by new geographies, what areas that might be. And if that means that your net hiring will be pretty robust as a result.

Question: Andrew Kligerman - TD Cowen - Analyst : That's great. So that's exciting expansion. And then just thinking about what you've done in the last two, three years with hires, is there still a tailwind from that as those producers kind of mature into their new roles at WTW? Or has that generally kind of matured and your growth will be based on what you're doing now and expanding into new geographies and the like?

Question: Rob Cox - Goldman Sachs - Analyst : Hey, thanks. I had a question on the reinsurance JV. Could you just talk about the dollar amount, cash outflows that you'd expect there annually? And sorry if I miss this, but if you could just confirm that that would not impact the free cash flow.

Question: Rob Cox - Goldman Sachs - Analyst : Okay, got it. That's helpful. And I just wanted to ask on Health, excluding the book of business sales, it sounds like organic growth was still 15%, which is much stronger than peers. Just curious what is driving that growth and if any of the large new business wins that you had touched upon there is kind of contributing to any of the forward growth.

Question: Alex Scott - Barclays Capital Inc. - Analyst : Hey, good morning. First one I have for you is on just the M&A environment. It seems like maybe opportunities with larger companies that are maybe getting too large to stay in the private market are accelerating. And I'd just be interested in, if that's what you're seeing, if you have interest in doing something larger and just how to think about that in the context of what I thought was a pretty sizable buyback actually. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 04, 2025 / 2:00PM, WTW.OQ - Q4 2024 Willis Towers Watson PLC Earnings Call

Question: Alex Scott - Barclays Capital Inc. - Analyst : Thanks. That's helpful. And maybe for the second one, just your thoughts on the pricing environment and how we should think about that into 2025 compared to 2024? And I know you guys have given high-level guidance that sort of includes all of that, but maybe just some extra texture around the pricing environment and how that's evolving.

Question: Alex Scott - Barclays Capital Inc. - Analyst : Yeah, typically risk and broking, yeah, sorry.

Question: Paul Newsome - Piper Sandler Companies - Analyst : Hi, good morning. It's actually Paul Newsome. But you picked up my first name first. I was hoping you could add, similar to what you talked about with the risk and broking comment about the sort of environmental environment for pricing and competition. We hear a lot about health insurance inflation but it's kind of tough to translate that back to your Health and Wealth and Career business as well. But maybe if you could kind of expand upon that, is there a way that you [did this within] Risk and Broking business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 04, 2025 / 2:00PM, WTW.OQ - Q4 2024 Willis Towers Watson PLC Earnings Call

Question: Paul Newsome - Piper Sandler Companies - Analyst : That's great. Maybe for a second question, we could switch to your middle-market property casualty business. You've long had a middle-market platform. I'm just curious, at this point, are there geographies within that middle-market platform that are particularly strong or particularly lacking in general as you look towards trying to expand that middle-market platform? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 04, 2025 / 2:00PM, WTW.OQ - Q4 2024 Willis Towers Watson PLC Earnings Call

Question: Mark Hughes - Truist Securities - Analyst : Andrew, the 18.4% normalized free cash, is that recapped or the capitalized software cost. It looks like it's about 110 bps. Does that already include that headwind?

Question: Mark Hughes - Truist Securities - Analyst : So as a baseline, we might take that 110 bps out, call it, [17.3%]. Is that fair?

Question: Mark Hughes - Truist Securities - Analyst : Okay. And then, Carl, you mentioned how political regulatory activity may be helpful for your business. Could you expand on that a little bit?

Question: Josh Shanker - BofA Global Research - Analyst : Yeah. Thank you very much. Carl, I really appreciate your around the world visit with Paul. I want to talk about that a little bit. In terms of the economic sensitivity of the business, is it more revenue sensitivity? Or is it margin sensitivity? You have a business with a lot of very talented people who in hard time just can't produce as much, but you want to keep them for the recovery. How should we see recessionary impact on revenues versus recessionary impact on margins?

Question: Josh Shanker - BofA Global Research - Analyst : Great. And in terms of two things that we are sort of worried about, there's some concern about the potential for recession. There's also maybe more at the forefront, it concerns about inflation. Confronted with both recession and inflation simultaneously, did the two net each other out in the way that your revenues are generated? Or is one a bigger impact on your faith than the other?

Question: David Motemaden - Evercore ISI - Analyst : Hey, good morning. I had a bigger picture margin question just around the natural operating leverage for the enterprise, just sort of growing revenues faster than expenses. I believe in 2021, and I know I'm going back, but back then, you guys had called out around 70 basis points a year of natural operating leverage, but the mix has changed a bit since then. So I'm wondering if that still stands as a good baseline to consider before thinking about some of the other moving pieces here in 2025. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 04, 2025 / 2:00PM, WTW.OQ - Q4 2024 Willis Towers Watson PLC Earnings Call

Question: David Motemaden - Evercore ISI - Analyst : Okay. Great. Thank you. And then just wanted to follow up on what sort of hiring and what sort of employment growth within the Willis employee base you guys saw in 2024. I think it was like 2% to 3% in 2023, if I look at just headcount growth. How was that in 2024? And is that sort of like a good run rate to think about how you guys are expecting to grow headcount and maybe more specifically, producers into 2025?

Question: Meyer Shields - Keefe, Bruyette & Woods, Inc. - Analyst : Two small modeling questions. First, I'm a little unclear. When you talk about the $1.5 billion of share repurchases, is that the baseline assuming no inorganic activity, but if there is any (inaudible) that goes down, or does that $1.5 billion take some into account?

Question: Meyer Shields - Keefe, Bruyette & Woods, Inc. - Analyst : Okay, thanks for the clarification. And then I think, Carl, you mentioned some timing issues in Career. Is there any way of ballparking the impact on either revenues or margins? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 04, 2025 / 2:00PM, WTW.OQ - Q4 2024 Willis Towers Watson PLC Earnings Call