Good morning, and welcome to the WTW Second Quarter 2025 Earnings Conference Call. Please refer to wtwco.com for the press release and supplemental information that were issued earlier today. Today's call is being recorded and will be available for the next 3 months on WTW's website. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release issued this morning as well as in the most recent Form 10-K and other subsequent WTW SEC filings. During the call, certain non-GAAP financial measures may be discussed. To provide direct comparability with prior periods, all commentary regarding the company's revenue growth, results will be on a non-GAAP organic basis unless specifically stated otherwise. For reconciliations of the non-GAAP measures as well as other information regarding these measures, please refer to the most recent earnings release and other materials in the Investor Relations section of the company's website. I'll now turn the call over to Carl Hess, WTW's Chief Executive Officer. Please go ahead.

Good morning, everyone. Thank you for joining us for WTW Second Quarter 2025 Earnings Call. Joining me today is Andrew Krasner, our Chief Financial Officer; Julie Gebauer, our President of Health, Wealth and Career; and Lucy Clarke, our President of Risk & Broking, are also joining us for our Q&A session. In the second quarter, we delivered 5% organic growth, 150 basis points of adjusted operating margin expansion and adjusted EPS of $2.86, up roughly 20% year-over-year. Through our focused execution, these results were in line with our expectations for the quarter, and we remain on track to deliver on our full year financial objectives. Our solid first half results underscore the progress we have made advancing the strategic objectives we introduced at our Investor Day last December. Our strategy to accelerate performance, enhance efficiency and optimize our portfolio continues to be a key driver of our results, especially in the face of a dynamic macroeconomic environment. We remain committed to our strategy and its execution, and we are confident in the value it will continue to generate. I want to sincerely thank all WTW colleagues for their commitment in executing these objectives. Last quarter, we highlighted the impact of heightened geopolitical and macroeconomic uncertainty in our business, noting near-term headwinds in some of our consulting businesses, especially for discretionary projects as well as potential longer-term tailwinds when conditions improve and clients begin responding more assertively to change. There were positive signs of improvement as the quarter went on, as capital markets rebounded and our businesses adapted to changes in demand and buyer sentiment. Clients are increasingly turning to us to help address the many people, risk and capital issues they're facing amidst rising global trade, inflation and geopolitical uncertainty. We feel positive about both our outlook and our ability…

Thanks, Carl. Good morning, and thanks, everyone, for joining us today. In the second quarter, we delivered solid organic revenue growth of 5% and expanded adjusted operating margin by 150 basis points year-over-year to 18.5% or 100 basis points of year-over- year improvement when excluding the tailwind from the divestiture of TRANZACT. Adjusted diluted earnings per share were $2.86, which is an increase of approximately 20% over the prior year. As a reminder, we completed the divestiture of TRANZACT on December 31, 2024. And for the full year 2025, this will create a $1.14 headwind to adjusted diluted earnings per share. As Carl discussed, our solid second quarter results reflect the strong foundation we've built and the benefits of the investments in talent and technology we've made recently. Our strategy continues to resonate with clients and colleagues, and our businesses are highly resilient despite the uncertain operating environment. We are relentlessly focused on our strategic objectives, long-term shareholder value creation and the financial framework outlined at Investor Day. Turning to our segment results. Health, Wealth & Career revenue grew 4% compared to the second quarter of last year. We saw a sequential improvement in growth and a strengthening pipeline during the quarter, although clients remain cautious about the macro environment. 4% growth for the second quarter is in line with our expectations, and we remain on track to deliver mid-single-digit growth and margin expansion for HWC in 2025. As a reminder, the vast majority of HWC's business is recurring with only a small portion being more economically sensitive and discretionary. Our Health business achieved strong growth of 8% this quarter or 9% growth, excluding the impact of interest income and gain on sale activity. All regions saw robust growth driven by double-digit increases outside of North America and solid performance…

[Operator Instructions] Our first question comes from Rob Cox with Goldman Sachs.

So I wanted to ask about HWC organic. I think, you mentioned there's more positive signs of improvement as the quarter went on and there was guidance for acceleration in a couple of the businesses there. So net-net, are you thinking about HWC growth accelerating a bit from here? And can you talk about the drivers?

Thanks, Rob, for the question. So HWC grew 4% compared to the second quarter last year, and that was in line with our expectations. We're seeing demand remains strong for our global benefits management for pensions, for outsourcing, where we won many notable new appointments that I mentioned earlier, right? We feel confident in our pipeline, and we continue to expect that HWC is going to have mid-single-digit organic revenue growth and margin expansion for the full year.

And it's Andrew. I can briefly touch on HWC's growth and then would want Julie to comment on what she's seeing. As it relates to Health, this continues to be a key strategic focus area for us. We're capturing market share and seeing strong growth play out, as Julie has highlighted in the past. Health saw an organic growth of 8% in Q2 where that would have been 9%, excluding interest income and gain on sale activity. And notably, we delivered 8% in the first half of the year with strong growth across all of our regions. So we're on pace for high single digits this year. We're also seeing strong demand for wealth, which generated 3% organic growth from strong growth in the retirement business, specifically for our LifeSight solutions and our pension advisory and brokerage services. So we continue to see strong growth trajectory for our investment business as well. And putting those things together, we think of these as long-term accelerators of growth, and we continue to expect low single digits there for 2025. We continue to be confident about our pipeline in HWC and would expect the segment to maintain mid-single-digit revenue growth and margin expansion in 2025 and over the longer term. Maybe, Julie, do you want to comment about what you're seeing in HWC?

Sure, Andrew. I'd actually like to start with an overview across HWC, and that is that clients are carrying on with their recurring and required work, and that is most of what we do. Clients are also starting up new project work. It's typically related to managing cost and risk, and it includes support for corporate transactions plus some work on specific employee attraction and retention issues that clients are facing. Now there are puts and takes across our businesses, so I'd like to go into more detail for each business area. Starting with Health. It is worth noting that this is the fifth quarter in a row where our growth has been either at the upper bound of mid-single digits or at high single digits or actually even more. And we expect that to continue at least for the rest of 2025. And that's because health care inflation hasn't abated. In the U.S., our latest estimates are for increases of 10% or more, and that's due to several things, like prescription drug costs are increasing significantly, and there are more high-cost claims. On that latter point, we had one client recently tell me that a patient had a $3.5 million claim for gene therapy. Clients are facing similar challenges around the world. And so of course, they're responding. They're doing things like taking their health plans out for competitive bids. They're evaluating specialty solutions and also considering more significant design changes. And these are all things that we can help with. So we've got a strong pipeline, and we're confident in delivering high single-digit growth for the year. Now in Wealth, beyond the core work that Andrew mentioned, clients are focusing on using pension surplus. They're focused on derisking and they're focused on adapting to new legislation. Andrew also…

Awesome. Moving on to Risk & Broking, I think, high single digits, again, core organic growth there. Are we basically at steady state contributions from the talent investments at this point? And is growth -- does that make growth really a function of the core specialization strategy? Or would you say there's still an extra lift relative to normal from the timing of talent investments?

So I mean, again, we're pretty pleased with the 6% growth we delivered in R&B. That was on top of a 10% growth for the comparable quarter of the prior year. CRB delivered 6%, right, 7% excluding book of business sales and investment income, and that was on top of 11% comparable in the prior year. And we attribute this to our specialization strategy, as we talked about our investments in talent, technology and innovation, new business wins and strong client retention continue to help move things forward. I mean, Lucy, any commentary on the growth and the talent perspective?

Yes, sure. Thanks, Carl. Rob, thanks for the question. Yes, we are encouraged by the 6% organic growth in the quarter, 7% in CRB ex book of business sales and investment income. And combined with the strong results from the first quarter, we think we're in a good position to meet our full year goals. So the growth has been driven by new business. It's been driven by client retention, the impact of the investments we've made in people, which you noted and technology, both paying off as well as the specialty strategy. We don't see any end to the progress that we're going to make on the specialty strategy. We remain well equipped to support our clients as they manage the ongoing volatility from trade and geopolitical challenges. We're also continuing to expand our market presence, strong wins across the globe, including the Middle East, Carl highlighted that during his prepared remarks. As a result, we're confident of achieving mid- to high single-digit growth organic in R&B. Just for a few further specifics, the strong growth we have in our specialty businesses continues to outpace the rest of CRB, growing at double digits for the quarter. It's important to remember that it's growing at that rate because the strategy resonates with clients, it works for them, and we believe that, that helps with the competitive edge. So yes, the approach is working. It's a key driver of growth in R&B, and we expect that to continue.

Our next question comes from Charlie Lederer with BMO.

Andrew, you made some comments about free cash flow. I'm wondering if you can unpack second quarter performance and how we should think about the magnitude of free cash flow margin improvement over the balance of the year? Any puts and takes you could quantify would be helpful.

Yes, absolutely. So for the first half of the year, we generated free cash flow of $217 million. While that's $88 million below the prior year, it primarily reflects the headwinds we called out in our prepared remarks. Specifically, that was the increased compensation and cash tax payments, the timing impact from the redesign of the key retirement program and the absence of $63 million of TRANZACT- related cash inflows that benefited the first half of last year. Those more than offset the gains from the transformation initiatives and underlying margin expansion. But looking ahead, we see a more favorable setup in the second half. The key headwinds from the first half, namely the incentive comp and the retirement program redesign are now behind us, and we expect a meaningful tailwind in the second half of '25 from the absence of both transformation program cash outflows and the TRANZACT business, which adversely impacted free cash flow results in the prior year. So here's how we think about sort of the full year view of free cash flow. So first, we had free cash flow of $217 million through the first 6 months. Two, 2024 second half normalized free cash flow, so excluding the headwinds from transformation in TRANZACT was about $1.2 billion. We expect improvement on that $1.2 billion driven by organic growth, higher margins and working capital management. And lastly, we do not anticipate any additional cash tax payments on the Willis Re earn-out in 2025 or beyond. So putting all of that together, we remain confident in our ability to deliver free cash flow margin expansion in 2025, and we see additional opportunity to build on that momentum in the years beyond.

That's helpful. I know you just touched on the impact of investments in talent, but I just wanted to follow up. It seems like we've been seeing headlines in the insurance media about heightened competition for insurance brokerage talent. I'm wondering if you guys would agree with that being a theme in today's marketplace and how you're feeling about it and any actions you're taking?

Thanks for the question. I'm not sure we see that as particularly a new thing. It's something we've been aware of and frankly capitalizing on for the past several years. Others may have woken up to talent being the key driver for this business. We believed in it for a long time. So we're staying focused on executing our strategy and making sure we have the right talent in place to support that. Currently, our approach is more opportunistic and strategic aimed at enhancing our ability to achieve sustainable and profitable growth and create value. Lucy, do you want to talk about what we're expecting to see recent hires?

Yes. Sure. Thank you. Thanks, Charlie. As Carl mentioned, we have been complementing our existing talent by making strategic hires in the areas where we think they'll be most impactful within specialty or within geography in CRB since 2021. It was a deliberate systematic hiring strategy, identified and executed by our existing talent and a key part actually of grow, simplify and transform, the strategy set out by Carl and Andrew, and my predecessor, Adam Garrard for Risk & Broking. It is a strategy that has proven successful for us. We will continue to execute on that strategy. I would also just mention our specialty approach, it's not only a meaningful contributor to organic growth, but it is a key reason we're attracting the right talent in the market. We expect strong growth to continue in our specialty businesses, which is outpacing the average of the rest of the business because the strategy works for clients and it resonates with our people. So yes, identifying and attracting talent to complement our existing talent base will continue to be a really important part of our future strategy.

Our next question comes from Elyse Greenspan with Wells Fargo.

My first question on, within the guidance, I saw you guys lowered the cost for the Bain and Willis joint venture. I think it's now expected to be $0.20 for the year, right? And I think prior was $0.25 to $0.35. So I guess my question there is, are you guys behind original hiring plans? Or is there some other factor related to the change in guide there? And will you guys be ready to transact with that entity by January 1, 2026?

Yes, sure. It's Andrew, I'll take the first part. So the launch is progressing in line with our expectations. The revised estimate is simply due to having better insight into the expense picture for the remainder of the year. So we're very satisfied with the progress made so far and continue to be excited about our reentry into the reinsurance space.

Yes. And remember, Elyse, this is a new launch. We're still in the start-up phase. We're focusing right now on building out the infrastructure, hiring new talent, and we'll update you on our plans for entering markets when there's more to share. That being said, right, we're really pleased with the progress we've made so far and remain really excited about our return to reinsurance.

And then my second question is just on margins. It sounds like the 100 basis points of margin expansion is the expectation for the full year within R&B. And can you just walk us through like the drivers that you see to achieve that improvement? And then I'm assuming that you guys also at the enterprise level, reaffirmed the overall margin improvement. So is there anything related to operating leverage or margin expansion that you would point out now that we're beyond the transformation savings?

Yes, sure, it's Andrew. Why don't I start with the R&D piece of that? So during the quarter, we improved margins in our R&D segment by 100 basis points before FX, which had a negative 40 basis point impact. So that's on top of Q1 with margin improvement of over 100 basis points. So despite headwinds from excess FX and investment income, R&B had first half margin expansion of 90 basis points. And while we're not guiding a specific number for the full year, our commitment to deliver the 100 basis points of annual margin expansion over the next 3 years has not changed. And our first half performance indicates we're on track to achieve that goal. And that's driven by operating leverage as well as other operational efficiencies, including the deployment of our global broking platform and workflow optimization, I think, which we touched on during the prepared remarks. Maybe, Lucy, you want to add some more color there?

Yes. Sure, Andrew. Thank you, Elyse. Just in terms of the drivers for R&B, one is, of course, the continued impact of the enterprise delivery organization. This has played a key role in centralizing activities across the enterprise. And for one thing, it helps ensure that like our teams are focused on doing the right work in the right places. And as Carl mentioned in his prepared remarks, it's also been a real foundational place to work on our stronger AI capabilities. In CRB, we're using AI to ingest and interpret unstructured data, accelerate workflows and just reducing manual effort. Our specific technology investments in R&B, global broking platform, our global placement strategies and a number of other like digital automation and workflow optimization initiatives are driving productivity across the business, improving client service and operational efficiency. As you know, we have targeted mid- to high single-digit organic revenue growth and we are also confident of being able to deliver operating leverage on that growth. We have room to grow in every specialty line we're in and in every geography. As we discussed at Investor Day, we're also taking deliberate steps to improve our business mix. We're trying to expand into higher growth, high-margin markets, both organically and inorganically. Those initiatives will help us to deliver sustainable margin improvement and contribute to operating leverage. So efficiency gains, operating leverage, those will be the key drivers of the 100 basis points of average annual margin expansion in each of the next 3 years, and we remain confident in our ability to execute on that.

Yes. So speaking a little bit about the enterprise, Elyse, I mean, our expectations have not changed. We still expect to deliver margin expansion for the year. And I'll let Andrew sort of dive into some margin expectations in more detail.

Yes. Thanks, Carl. And I'll just start off by saying the 150 basis points of adjusted operating margin expansion we delivered this quarter was in line with our expectations. That growth was really driven by strong organic growth and enhanced efficiencies, which drove greater operating leverage. We also had a 50 basis point tailwind from the divestiture of TRANZACT, which was mostly offset by headwinds in investment income and currency. Like Carl said, our margin expansion outlook remains unchanged. As we communicated at our Investor Day, the financial framework, we're committed to driving continued annual margin expansion through efficiency and operating leverage. I already talked about the 100 basis points of average annual margin expansion in R&B. That, coupled with building on HWC's strong track record of margin expansion, as you have seen this quarter is what will get us there. I think for the full year, the key drivers of that margin expansion will be a combination of the operating leverage, the enhancing efficiency. You've heard, I think, about our WE DO strategy, which is set up to continue to drive efficiencies and further streamlined processes, which I think gives us a really strong foundation alongside our business mix and portfolio optimization efforts to really drive sustainable annual margin expansion for WTW going forward.

Our next question comes from Mark Hughes with Truist Securities.

You had mentioned in the Health that outside of North America, your growth was quite strong, up in the double digits. Was that attributable to any kind of macro volatility, tariffs, that sort of thing? Or is that more just underlying momentum?

For outside of North America, our health growth was driven by momentum, as you suggested, and the very significant health care cost inflation that organizations are experiencing outside of the U.S.

Very good. And then I think in HWC, you mentioned the trajectory through the quarter was good. You saw a strengthening pipeline. Any similar observations about Risk & Broking, just how that progressed through the 3 months?

Yes. We're expecting to continue to deliver mid- to high single-digit organic growth throughout the balance of the year and in the medium to long term.

Our next question comes from Katie Sakys with Autonomous Research.

I wanted to dial in on ICT growth expectations over the balance of the year. I understand it's just one of many moving pieces and that there can be a lot of lumpy transactions that influence growth in the line. But in terms of thinking about the rest of this year, what are you guys thinking might drive higher organic growth? And what assumptions are you making about client spend management as you look into the next 6 months?

Yes. First, let me take a bit of a step back, right, just give everyone a quick refresher on some key points about ICT. It represents about 11% of the segment, and it's focused on delivering top-tier technology solutions and trusted consulting services to insurance carriers. That's the client base. On the consulting, we deliver both recurring services like reserve calculations as well as discretionary project work for things like securities issuance or M&A amongst insurance companies. On the technology side, we do software products that support underwriting, ratemaking and reserving for clients, and those are typically larger and multiyear contracts. And while we are seeing and continue to see significant value in the combined approach of consulting and technology offerings due to the softer consulting environment, we're now expecting low to mid-single-digit growth for the full year. I don't know, Lucy, you want to elaborate.

Yes. Yes, sure. Thanks. Thanks, Katie, for the question. We feel good about the ICT business. We're particularly confident about the strong technology pipeline we have for the second half of the year. As we've seen in the past, the timing of some large-scale finance or technology transformations often create variability in the timing of results. So some clients are taking a more measured approach to investment in the second quarter due to economic conditions, our underlying pipeline and opportunities remain strong. And so our long-term outlook for ICT remains mid- to high single-digit organic growth.

Got it. Okay. And then on the change in guidance on the reinsurance JV, is it fair to frame the discussion there in thinking that additional upside to that guide would come from further improvement to the insight on expenses? Or could we potentially see some further upside into that guide over the next 6 months as you get a better sight line on potential growth expectations?

Yes. I mean, based on what we know today and the start-up phase of the business, we don't expect additional changes at this time in terms of the costs associated with getting that built and launched.

Our next question comes from Brian Meredith with UBS.

Yes. So some other brokers in the quarter have talked about the impact of the rate environment, particularly large ticket property business on growth this quarter. I'm curious, was there any impact on CRB? And maybe just remind us what the potential impact of just the pricing environment could have on your revenues?

Yes. Sure, Brian. It's Lucy, thanks for the question. So that's right. We've seen rates in certain classes continuing to trend downward. We've seen that in the market since the beginning of last year. Like the others have said, most lines are softening. The most affected part of the market is the large and complex property segment. And the part of the market where rates are still hardening is the North American casualty, excess, umbrella, auto. The important thing to remember about where the rating is, is that after many years of market hardening across all lines, this was expected. We planned for it. The industry will have planned for it. Obviously, we didn't know exactly where it was going to go, but we knew directionally. And so where carriers still consider that they're getting rate adequacy, the conditions will continue to improve for clients. So rate has been a moderate headwind for us. But the 2 elements that affect how it impacts us are how clients decide to behave and the makeup of our overall book. And just in terms of clients, right, sometimes they take the savings, sometimes they use the opportunity of a really good market to buy more. And in terms of the makeup of our book, we're about half property, half casualty. We skew to the middle market, so we're not as impacted by large and complex property, and we have a good balance between commission and fees. And just as an overall observation, we've made significant investments in the business over the last 3 years, and those investments are continuing to pay off. So we can't predict the extent to which rates may continue to decline, but we do not rely on pricing to drive our organic growth. And we remain well positioned and confident about our mid- to high single-digit organic growth guidance for Risk & Broking.

That's really helpful. And then just, Carl, I wonder if you could just remind us of kind of your view with respect to inorganic growth. And I know you talked about strategic acquisitions. A number of the other major brokers have made some very large acquisitions. Is your view that you're more focused on kind of bolt-ons? Or do you have the capacity and the ability to do something of larger scale?

Yes. Let me talk a little bit about our thinking on M&A. And let me start with some illustrations of what we have been up to, right? Earlier this year, we completed the purchase of Global Commercial Credit. That's a specialist broker focused on trade credit and political risk. We've talked about the buyout of Al-Futtaim Willis that's currently pending. We are actively looking for opportunities, and we're being thoughtful and disciplined in our approach. We're particularly interested in bolt-on acquisitions that fit nicely into our specialty strategy. In the wealth space, the market is fast and expanding, so we are particularly interested in wealth management and defined contribution capabilities in growing markets. And beyond bolt-ons, we'll also consider larger opportunities to enhance our presence in select geographies or market segments. Ultimately, WTW is leading data and technology platforms and a unique culture. These assets should make a lot of sense for any business that may be looking to join us. So to be a bit more specific, we're aiming to increase our business mix in broking wealth through M&A. We see this as a key opportunity expanding into high-growth, high-margin areas of our core business. Secondly, we see an opportunity to play across the insurance value chain, like our reentry into pre reinsurance with Bain to accelerate growth. And third, a combination with WTW should have a compelling financial story, enhancing our margins and free cash flow profile. And lastly, I want to remind you that we're looking for those that could be a good cultural fit, minimize business disruption and satisfy the criteria that I just talked about. Now as far as size, I'm not going to talk about hypotheticals, right? We're only going to pursue something that the expected return and value creation potential are compelling versus our other capital allocation options. And if we're confident we can execute the opportunity without disrupting our existing business and adding -- we want to add value to our clients and business and our shareholders along the way. The last few years, we've solidified our infrastructure, we've strengthened the company, and we now have the right business focus and more efficient processes and the tools to integrate potential targets with WTW and deliver long-term value.

And our last question comes from Mark Marcon with Robert W. Baird.

Two long-term questions. Carl, you mentioned AI in your prepared script. I'm wondering if you can elaborate a little bit more in terms of your efforts there in terms of increasing efficiencies, automating, and how you're thinking about that from a long-term perspective? And then, Julie, Health within HWC has been a key driver. Obviously, things are looking very good for this year. I'm wondering if you can talk a little bit about longer term in terms of the next 3 to 5 years and particularly how much work you expect in terms of plan redesign given the health care inflation that's occurring.

Sure. And I'll treat that as 2 questions. Let me get to the AI one first, and I'll let Julie get that first. I talked about this in my prepared remarks, right? And we've been implementing various forms of AI for years, such as advanced analytics, machine learning models, right? And that helps drive efficiency and deliver our client solutions. We use these types of AI for -- in our risk modeling for clients and in other risk management solutions. Let me give an example, right? Coverage Clarified in our construction business. That uses AI to verify that insurance coverage is adequate and contractually compliant, which is otherwise a pretty time-consuming and labor-intensive manual process. We built Coverage Clarified in-house, and we estimate it's making our process up to 40% more efficient. And that's just one example, right? We continue to explore opportunities to use AI to improve the overall client experience, streamline our internal processes and to enhance both client and our decision-making. Now as always, we're doing it thoughtfully and responsibly by putting our clients first and in full alignment with our values and applicable legal and regulatory requirements. I'm sure my general counsel is out there smiling somewhere, to ensure the quality of our advice solutions and what clients expect and what they're accustomed to getting from WTW. So we intend to balance innovation with sustainable return, and we see long-term potential benefits to both growth and margins from our AI investments. Julie?

Sure. And thanks for the question on Health, Mark. Look, as you know, health care coverage is a significant component of the employee value proposition in virtually all countries around the world. And the cost of that coverage is meaningful relative to other components, particularly in some large economies like the U.S. The drivers of cost increase are there currently, I mentioned before, prescription drug, there's overall utilization. There are new treatments that are driving high-cost claims. And we don't see those changing in the short term for sure, but also in the medium term. So organizations will need to continue to keep an eye on this component of their total compensation and benefits costs, and we expect long term to see high single-digit growth over this -- for this business.

This concludes the question-and-answer session. I would now like to turn it back to Carl Hess for closing remarks.

So thank you all for joining us this morning. I want to thank all our WTW colleagues again for their hard work and dedication. And thank you to our shareholders for their continued support of our efforts. Have a great day, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.