Arthur J. Gallagher & Co.

you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meanings of the securities laws. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. please refer to the information concerning forward-looking statements and risk factor sections contained in the company's most recent 10-K, 10-Q, and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the investor relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Jr., Chairman and CEO of Arthur J. Gallagher and Company. Mr. Gallagher, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us for our third quarter 25 earnings call. On the call with me today is Doug Howell, our CFO, as well as members of the management team. Before I start, I'd like to acknowledge the damage caused by Hurricane Melissa in the Caribbean. Our thoughts are with all those impacted, including our own Gallagher colleagues. Our team of experts have been mobilized and are on the ground helping our clients and colleagues. Moving to our financial performance, we had a terrific and obviously very active third quarter. Our two-pronged revenue growth strategy, that's organic and M&A, delivered revenue growth of 20%. In fact, over the last 30 quarters, We've delivered double-digit top-line growth 26 times. This is now our 19th straight quarter of double-digit growth. Clearly, a relentless, client-centric, team-driven, and welcoming culture is thriving. Underlying that headline revenue growth, we posted 4.8% organic, grew adjusted EBITDA at 22%, and expanded adjusted EBITDA margins by 26 basis points. demonstrating we are getting substantial benefits of scale and the value delivered by our strategy of constantly focusing on improving our productivity while delivering our high quality services. EPS for our combined brokerage and risk management segments, we posted gap EPS of $1.76 and adjusted EPS of $2.87. That would have been 22 cents higher had we levelized for the intra-quarter revenue seasonality related to Assured Partners that we closed on August 18th. Doug will unpack this timing aberration in his comments. The punchline is our business continues to shine, and the early days of the Assured Partners folks coming together with the Gallagher team is off to a terrific start. Already, we're selling together. We're showing that we are better by being together. Robert Marlayson, Moving to the results on a segment basis, starting with the brokerage segment reported revenue growth was 22% organic growth was 4.5%. Robert Marlayson, Relative to our September IR day commentary, we did see a little pressure on contingents and a few large life insurance cases shifted out of the third quarter. Robert Marlayson, Adjusted EBITDA margin headline shows flat year over year at 33.5%, but when we exclude merger and acquisition interest income. It shows underlying margin expansion of 60 basis points. Doug will give you a bridge from last year. That's terrific work by the team to stay vigilant in our relentless pursuit of being more productive every single day. Let me provide you with some highlights behind our brokerage segment organic. Within our retail operations, we delivered 5% organic overall within PC, with U.S. up more than 7%. international flat driven by less renewal premium increases and lower contingents. Employee benefits posted around 1% organic, driven by lower than expected large life cases. Shifting to our wholesale and specialty businesses, in total we delivered organic of 5%, with the US outperforming our international businesses slightly. As for reinsurance, it's a relatively small quarter, and organic here was in the high single digits. And while not in our organic growth numbers, AP's third quarter organic was 5%. That really shows you that a terrific sales-driven culture is joining our team. So we continue to deliver organic growth across retail, wholesale, and reinsurance. Let me provide some thoughts on the PC insurance pricing environment. Overall, global insurance renewal premium changes remain in positive territory, and we continue to see more carrier competition across property classes particularly shared and layered programs, and CAD-exposed risks, resulting in renewal premium decreases. With that said, carriers continue to push for increases across most casualty classes, which are more than offsetting the property decreases. Let me provide a further breakdown on our third quarter global insurance renewal premium changes, which includes both rate and exposure by line of business. Property, down 5%. Casualty lines up 6% overall, including general liability of 4%, commercial auto up 5%, and umbrella up 8%. U.S. casualty lines are up 8%, and that increase has been consistent over the past 12 quarters, suggesting domestic carriers are recognizing continued pressure. Package up 5%, D&O down 2%, we think perhaps close to bottoming out, Workers count up a point, and personal lines up 6%. So while property is down 5%, many lines are still seeing increases. In fact, global renewal premium change excluding property remains around 4%, with good accounts getting some premium relief and accounts with poor loss experience seeing greater increases. Looking at differences in renewal premium changes by client size, we continue to see some bifurcation. For middle market and smaller clients generating less than $250,000 of revenue, renewal premiums were up about 3%. For larger clients generating more than $250,000 of revenue, renewal premiums were down 1%. So many of the market trends we have been highlighting for the past few quarters persist today. As for the reinsurance market, a very small quarter for us. Looking towards January 1, renewals The industry remains healthy, there's adequate capacity to meet expected demand, property coverages continue to favor reinsurance buyers, while casualty reinsurance dynamics are more stable with continued caution for U.S. risks. Moving to employee benefits, we continue to see solid demand for talent retention strategies given the resilient U.S. labor market. Further, managing rising health insurance costs is becoming increasingly important for our clients, as they deal with continued medical cost inflation. So we are engaging with employers to help them alleviate the pressure from rising medical and pharmaceutical costs. Moving to some comments on our customers' business activity. While the U.S. government shutdown has halted economic data releases, our proprietary data, which has been an excellent indicator of the economy, continues to show solid client business activity. Third quarter revenue indications from audits, endorsements, and cancellations remain nicely positive. Interesting, through the first three weeks of October, our revenue indications are showing even more positive endorsements and lower cancellations than in September. So, while we are watching our customers' business activity carefully, we are just not seeing signs of an economic downturn. Regardless of market and economic conditions, I believe we are very well positioned to grow. From our leading net ditch experts, vast proprietary data, award-winning analytics platform, extensive product offerings, outstanding service, and global resources, this puts us in an enviable spot competitively. As we sit today, we are seeing brokerage segment fourth quarter organic of around 5%, which would bring our full-year organic to more than 6%. Moving on to our risk management segment, Gallagher Bassett. Third quarter revenue growth was 8%, including organic of 6.7. We saw strong new business revenue and excellent client retention in the third quarter and believe these favorable dynamics will continue through the end of the year. Accordingly, we expect about 7% organic growth in the fourth quarter. Third quarter adjusted EBITDA margins 21.8%, a bit better than our September expectations. Looking ahead, we see fourth quarter and full year margins around 21%, and that would be another great year for Gallagher Bass. Let's shift to mergers and acquisitions, starting with some comments on assured partners. Since the mid-August close, dozens of Gallagher leaders and hundreds of others have been traveling to AP offices and hosting gatherings. We've been sharing our stories with thousands of our new colleagues and highlighting all the tools and expertise that is now at their fingertips. I, too, have attended many of these meetings and events. And I have to tell you, the level of excitement all of us have witnessed during these visits is literally palpable. We have shared a view that we will be better together, one plus one will be greater than two, and there is immense value creation for our clients, carrier partners, and shareholders. Equally important, they know they are now home and they are getting the resources they have desperately needed for years. For those that are ready to join the amazing Gallagher culture, I welcome you. Outside of AP, we completed five new mergers representing around $40 million of estimated annualized revenue. This brings our year-to-date estimated annualized acquired revenue to more than $3.4 billion, or 30% of full year 24 revenue. That is fantastic. And for those new partners joining us, I'd like to extend a very warm welcome. Looking at our pipeline, we have about 35 term sheets signed or being prepared, representing around $400 million of annualized revenue. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher. I'll conclude my prepared remarks with some comments about our bedrock Gallagher culture. As I am meeting with colleagues both new and old across our global network, it's always impressive to me how quickly new employees and acquisition partners come together as part of the Gallagher family of professionals, how we embrace the Gallagher way and enhance our offerings and services to clients. As tenant number 24 of the Gallagher way reminds us, we must continue to building a professional company together as a team. And I believe this spirit of teamwork and shared purpose is precisely what is driving our success today. That is the Gallagher way. Okay, I'll stop now and turn it over to Doug.

Doug? Thanks, Pat, and hello, everyone. Today, let me first address the third quarter impact from rolling in revenues from Assured Partners. So let's go to page seven of the CFO commentary document that we provide on our website. Over the last 30 days, we finally got usable AP data down to the customer level detail. That gave us the policy inception data necessary to implement our 606 accounting and harmonized revenue accounting methods. First, it's important to note that the new detail did not change our annual view of revenue or EBITDA. Second, however, it did reveal that AP's business is much more seasonally skewed than we could previously estimate. Two tables here on page seven help unpack this. The top table shows you the inter-quarter seasonality. It's easy to see first and fourth quarters have considerable seasonality, which you should consider when building your models. What this table doesn't show is the intra-quarter seasonality. So we've added the lower table. What this shows, while we owned AP for half the quarter, only about 40% of the policy inception dates were between August 18 and September 30. That produces an $80 million revenue difference to our September IR Day estimate, where we used a 50% assumption because, well, we owned it for half of the third quarter. That causes a $0.22 shortfall to our indicated September IR Day estimate. You'll see that in the yellow column in that table. It does impact some of my other commentary, but I'll highlight those throughout my remarks. All right, with that said, let's go back to the earnings release. Let's go to page three. Brokerage segment organic growth of 4.5%. That's about $11 million of less revenues than our September IR date thinking. Half of that relates to those lumpy life sales that didn't get closed. And we've talked about that, how that can impact organic a little bit from time to time. That cost us about 30 basis points of growth. The other half or so relates to contingents. While there is some geography with supplementals, We did have an unfavorable estimate change related to one of our international programs. That cost us about 20 basis points of growth relative to our expectations. Looking forward to the fourth quarter, we see organic around 5%. A couple items that influence our thinking when we make that estimate. First, as we discussed in our IR day, we are in the midst of our annual update on 606 estimates. When all that settles, that could move that growth estimate a half a point either way. We know that's just accounting, but it can cause some noise. Second, always a little sensitive to the timing of those large live sales. If buyers believe rates may come down even more, they might push those into 26. That said, if we were to deliver fourth quarter organic around 5%, we would finish the year with organic above 6%. That would be a terrific year. Flipping to page five of the earnings release to the brokerage segment adjusted EBITDA table. Third quarter adjusted EBITDA margin was 33.5%. That's flat year over year on the headline. But as I do each quarter, let me walk you through a bridge from last year. First, if you pull out last year's 2024 third quarter earnings release, you'd see we reported back then adjusted EBITDA margin of 33.6%. Now, adjusting that using current FX rate, and this quarter is about 10 basis points. So FX adjusted EBITDA margin for third quarter 24% is about 33.5%. From that starting point, the roll-in impact of M&A used about 200 basis points, with more than two-thirds of that impact coming from the seasonality of Assured Partners. Interest income, including the cash we were holding for the AP closing through mid-August, added about 140 basis points of margin. And most important, organic growth of 4.5% gave us about 60 basis points of margin expansion this quarter. This bridge helps you quickly see we continue to deliver terrific underlying margin expansion. As for fourth quarter, we don't see anything that causes us to change how we view underlying margin expansion potential. We still see terrific opportunities. Sticking on page five, the risk management segment organic growth was 6.7%. That was in line with our expectations, and that resulted due to strong new business revenues and excellent retention. We expect favorable new business and retention again in the fourth quarter, so it's looking like another quarter of organic growth in the 6.5% to 7% range. Adjusted EBITDA margin of 21.8% was better than our September IRD expectations, and looking forward, we still see full year margins closer to 21%. Let's turn now to page seven of the earnings release and the corporate segment shortcut table. Each of these adjusted lines came in close to the midpoint or just a bit better than our September IR day expectations. All right, let's leave the earnings release and go back to the CFO commentary document. Starting on page three with our modeling helpers, most of the third quarter 25 actual numbers which were given excluding AP were close to what we provided back in September. Looking forward, we are including assured partners in our fourth quarter figures for depreciation, amortization, and earn out payable. Also, please always take a few minutes to look at the impact of FX as you refine your models. Turning to page four in the corporate segment outlook for the fourth quarter 2025, not much change here from our IR day six weeks ago. Flipping now to page five to our tax credit carry forwards. Again, not much change. from our IR date, but as a reminder, it's a nice cash flow sweetener to fund future M&A that doesn't show up in our P&L, but rather via our cash flow statement. Turning to page six, the investment income table, we've updated our forecast to reflect current FX rates and changes in fiduciary cash balances. These numbers assume one future 25 basis point rate cut in December. Shifting down to page 6 to the rollover revenue table, the third quarter 25 column subtotal is around $137 million before divestitures. That's pretty close to our September estimate. Looking forward, the pinkish columns to the right include estimated 25 and 26 revenues for brokerage M&A closed through yesterday, excluding assured partners. And just a reminder, you always need to make a pick for future M&A. Moving down the page, you'll see that we expect fourth quarter 25 risk management segment rollover revenues of about $16 million. All right, flipping next to page seven, I hit on the major takeaways up front in my comments, but heads up on a couple of items as you use this page to build your models. First, take a hard read through the footnotes. This table shows our midpoint estimates. It uses a placeholder assumption for growth and also does not include synergies. We still see annualized run rate synergies of $160 million by the end of 26 and $260 to $280 million by early 28. And the second point, the non-cash items that we show here, mostly depreciation and earn-out payable, are also reflected in the brokerage segment fourth quarter estimates on page three. So please don't double count those. Moving to cash, capital management, and M&A fundings. When I look at available cash on hand, plus future free cash flows, plus investment grade borrowings, over the next couple years, it's looking like we might have $10 billion to fund M&A before using any stock, still at multiples with a terrific arbitrage. So before we go to Q&A, a few sound bites on our nine-month combined brokerage and risk management adjusted results. Revenue up 17%, net earnings up 27%, EBITDA up 25%, organic year-to-date at 6.6%, and EBITDA margin over 36%. Those are stellar results, and I see us finishing 25 strong, and 26 is looking like another terrific year. Okay, back to you, Pat. Thank you, Doug.