Aon plc — 2024 Q1

Well, I appreciate the question. Listen, if you step back and think about sort of talent overall and what we're about and what we're up to. This is really about how we built on Aon United and the strategy around the culture, and it's been foundational, how we connect our colleagues support each other and deliver the best we can for our clients. And that has just continued to build, and it really gives them an opportunity to sit across the table to do some pretty unique things with clients, which is why they're here, why they're excited about being part of our firm.

Yes. Greg, maybe I'll just take it down. If you're an account leader or a colleague working with a client just picking up on your example, cultural capabilities, team support, all those drive a decision to either come or stay at our firm. And if you just think about it, historically, if you were a part of a client team, you were having a product discussion with a client.

Thanks so much for the question, Andrew. And we did see a higher tax rate this quarter driven by, as you said, changes in the geographic distribution of income and unfavorable discrete. And I will note, Andrew, that discrete has historically been positive for us, and in this quarter, they really did just line up to be net negative. And what I would say is, look, it's just lumpy quarter-to-quarter. And as you said, we don't give guidance going forward. But if we look back historically, exclusive of the impact of discrete, which can be positive or negative, our historic underlying rate for the last 5 years has been 18%.

So Jimmy, I really appreciate the question. And maybe what I'd do is I'll step back and just again orient overall for Global Aon, how we think about the firm and how we think about progress over time. And if you step back, we essentially said, first of all, this is not about 1 quarter. It really is about as you look across over the year, kind of how we're performing across Global Aon over the course of the year. And our mission right now, which we're going to continue to push on and really amplify is the build on the 3x3 plan over the next 3 years.

Yes. So Jimmy, thank you for the question. And I did actually give specific guidance in my opening remarks about buyback because I recognize that there's a lot of puts and takes around free cash flow as we've communicated. And while buyback will be lower than last year, we expect it will still be substantial for the full year 2024 at $1 billion or more based on our current M&A expectations for the rest of the year. And as we mentioned, Q1 is our seasonally smallest free cash flow quarter.

Thanks very much for the question. And we did issue the 19 million shares yesterday. So that occurred and we haven't disclosed anything related to the MDP lockup. What we can say is the NFP management team did receive a meaningful amount of Aon shares and the purchase agreement refers to their lockup period. And we have spent time with our new investors, and they're really excited about the Aon story and appreciate how the acquisition furthers our Aon United strategy and are particularly excited about the 3x3 plan to.

Thanks so much for the question, Mike. And so if you look at the financials, we've outlined the synergies and deal financials, what you'll observe with the interest expense is, when we originally announced this in December, we had $230 million of interest expense in the stub period, which at the time was a 6-month stub period and we now have $285 million in that period, and it's really a result of the extra months.

I appreciate the question, Elyse. Start overall globally, very strong profile across the board, as we said before, both on retention, exceptionally high and on new business overall. All we just did is highlight a couple of areas in the U.S. where we're seeing some pressure. And that's really what we're showing up. That will rebound over time as we continue to talk to clients about the opportunities they've got to -- as they think about their overall programs in terms of where they are.

Yes. Great. I mean you talked about D&O in particular, but I would also say we've had some really solid growth in areas like energy and construction and other places where we're investing in talent to grow our capabilities there. That's the sector piece, but we're also investing in geographic areas called Continental Europe, Asia Pacific, where we're also seeing good growth. So I think we will see great opportunity for us as we go forward through the year.

So Elyse, I don't think there's anybody on the planet that looks at it closer than us as we've been watching it. We hear people talk of green shoots. But the reality is, and I think we've said it on the past that our opportunity happens when the deals close and so at this point, you hear things in the market about dry powder and people wanted to do transactions. But at this point, it's still fairly depressed.

I think what we would say, Elyse, as Eric described, we see the pipeline. We love it. It looks very strong, but we don't count it anymore. We count it when it's done, and that's what we're going to do. And we see the opportunity, but we're going to count on when it's done.

So Elyse, the 30.6% is absolutely the right starting point, to 2024 margin expansion. We don't give specific guidance. What we do say is we're committed to margin expansion each and every year, including 2024 of that 30.6% margin base. But all the drivers still hold. We're driving margin expansion due to organic revenue growth, portfolio mix shift and synergies and efficiencies from Aon Business Services.

I'll start overall. First, Dave, I appreciate the question. This is not something that we generally enter into, particularly in the U.S., where obviously this is going to focus on. But the macro point is really the talent question I think you're really getting at, which is fundamental. Maybe Eric can offer some thoughts on that. This is a place we live every day it's our focus.

Yes. And I think whether it's the attrition numbers, which are historically low, whether it's our ability to attract talent into the firm, we talked a little bit before about all the different tools that we've been investing in and the culture and the team environment is all very important to keep the people.

I appreciate it, David. From our standpoint, we're not really looking Q4 to Q1, over time, again, this is kind of an overall annual approach in terms of how we think about it. And as we said before, nothing's changed committed to mid-single digit or greater over the course of the year for our firm and fully on track to do that across our firm. So I wouldn't look for anything in particular. We highlighted a few areas because we want to call them out.

Rob, maybe I'll just take a quick step back. I think it's worthwhile just reflecting on sort of the whole NFP process and getting Eric to comment on this specifically in terms of sort of as we see the opportunity is look, we just feel great about this combination. This is the $31 billion North American market in which we're vastly underway. We have an opportunity because of ABS to really go after that market in a way that's not just making us more sizable, but we think better and better is this idea of really independent and connected in the way Eric described before.

Yes, I think there's 2 components. And first, just to touch on the independent and connected piece, which is such a critical part of how both the NFP team and the Aon team have been approaching this. And the independent piece is really to respect and sort of celebrate the way NFP approaches its clients locally and how the team service those clients. So really focusing in to make sure that those teams know exactly what they were doing before is what they're going to continue to do.

And just to amplify one more piece. This is a tour to force revenue opportunity, right? That has been the focus since the jump, and that's what we've seen for the last few months. And it's both ways incredible capability we hope to be able to bring with a producer can sit across the table and do more on behalf of a client, which they just -- they're phenomenal they love. But also on our side, we're going to benefit tremendously too in the ways they approach the market and how they can help Aon. So it's just a -- we had high expectations going into the conversations. They've been exceeded over the last few months as we come together. So while we're not giving specific guidance on the growth number, this is tour to force growth. And man do we see a great opportunity here to access this very, very substantial market where we're underway, but do so in a way, again, it's not just bigger but candidly better.

So I would answer it in 2 ways. I think when we've talked about doubling down on it, the history of that product has historically been a PE-backed business. They were the original users of reps and warranties and tax insurance and things like that. Moving that over into the corporate space, where it's corporate to corporate has been an area that we've been investing an understanding among our client leaders as well as the subject matter experts that know that space. So we've held the team. That was the goal.

Yes. So Meyer, the way we think about margins is total margins. I know you're passing it into different components, and I understand the math. But we are -- we think about gross margins, which are substantial, and then we reinvest to deliver net margin expansion each year, which we will deliver again in 2024. And that's driven by organic revenue growth, portfolio mix shift, restructuring savings, which as you pointed, will drop to the bottom line and efficiencies for Aon Business Services and so we continue to invest in technology in Aon Business Services to drive future innovation and growth with clients.

Yes, it is. And so that's why we've broken out in the numbers, Meyer. The revenue from NFP in that table of 2023, by quarter by solution lines, you can add it in. And so the way you do that for revenue as you add 2 months of 2020 of Q2 of NFP plus the 3 months of Aon as your starting point for 2023 and then you grow that. And you will see the NFP numbers come through on that M&A table in our organic table.

I don't have a lot, but I have one message I want to deliver on behalf of Eric and Christa and I. I just want to say on this very historic day for NFP and for Aon, a huge heartfelt welcome to our 7,700 new colleagues. We're just truly, truly excited to partner with you as we begin this journey together. So we're really looking forward to it, and welcome. Thanks, everybody, for joining and look forward to our next call. Take care.