Willis Towers Watson - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered 5% organic growth with material margin expansion (operating margin 19.4%, +740 bps YoY; adjusted operating margin 21.6%, +100 bps YoY), despite reported revenue declining 5% to $2.22B due to the divestiture of TRANZACT.
• On S&P Global consensus, WTW slightly missed: EPS $3.13 vs $3.19 consensus*, revenue $2.22B vs $2.29B consensus*, while adjusted EBITDA tracked close to expectations (press release $532M vs $535.5M consensus*), with FX a $0.09 EPS headwind expected to unwind by year-end.
• Segment mix: Risk & Broking sustained high growth (revenue +5% reported, +7% organic; margin 22.0%, +120 bps YoY), while HWC posted +3% organic growth with margin up 160 bps, aided by TRANZACT sale and transformation savings.
• 2025 framework reiterated: mid-single digit organic growth, annual adjusted operating margin expansion, ~$1.5B buybacks, FX neutral (improved vs Q4 guide) and an EPS headwind from the Bain reinsurance JV of ~$0.25–$0.35; free cash flow margin expected to expand despite transformation cash outflows.

What Went Well and What Went Wrong

• What Went Well

  • Margin expansion across the enterprise: operating margin 19.4% (+740 bps YoY); adjusted operating margin 21.6% (+100 bps YoY), driven by operating leverage and completed transformation savings.
  • R&B momentum: revenue +5% reported (+7% organic), margin +120 bps to 22.0%; specialty lines and global construction wins highlight the specialization strategy’s effectiveness.
  • Technology and efficiency: rollout of Neuron trading platform (D&O and cyber) and WE DO automation initiatives scaling across 22 countries; management emphasized AI/automation to support productivity and margin expansion.

• What Went Wrong

  • Consensus miss: EPS $3.13 vs $3.19*, revenue $2.22B vs $2.29B*, as reported revenue declined 5% due to TRANZACT sale; FX was a $0.09 EPS headwind in Q1 (expected to unwind by year-end)*.
  • HWC growth tempered: 3% organic in HWC; Career grew 1% amid client deferrals; Investments face potential near-term volatility impact; BD&O only +1%.
  • Free cash flow negative in Q1 (-$86M) on timing (TRANZACT seasonality and compensation payments), with another headwind expected in Q2 before improving for full year.

Transcript

Operator (participant)

Good morning. Welcome to the WTW First 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 three months on the WTW website. Some of the comments in today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risk 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 more details discussed and these other risk factors, investors should review the forward-looking statement section of the earnings press release issued this morning, as well as other disclosures in the most recent Form 10-K and the other Willis Towers Watson SEC filings.

During the call, certain non-GAAP financial measures may be discussed. A reconciliation of 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. It is now my pleasure to turn the conference over to Carl Hess, WTW's Chief Executive Officer. Please go ahead.

Carl Hess (CEO)

Good morning, everyone. Thank you for joining us for WTW's First 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 and Broking, are also joining us for our Q&A session.

In the first quarter, we built on our strong finish to 2024 and delivered 5% organic growth, 100 basis points of adjusted operating margin expansion, and $3.13 of adjusted EPS. This performance was in line with our expectations for quarterly pacing and supports our trajectory toward delivering our full-year goals. These solid results are the product of our relentless focus on advancing our strategic objectives. In particular, our efforts to enhance efficiency are strengthening our ability to generate operating leverage and support margin expansion. We remain fully committed to our strategy and are confident in the benefits it will bring, and I want to thank all WTW colleagues for their hard work executing our plans.

On that note, let me share our perspective on what we're seeing in the market and how it may affect our businesses. As we've discussed in the past, changing economic and regulatory conditions tend to drive demand for our services. The current heightened risk landscape and macroeconomic volatility create opportunities for us to help our clients manage their cost and risk profiles and lead their organizations through change. In Risk and Broking, concerns about global trade, potential inflationary pressures, and growing geopolitical risks have led to considerable uncertainty and elevated risk for many companies.

These risks are not evenly distributed by industry, and we believe our specialty approach has enabled us to provide tailored counsel more quickly than we could have under our previous geographic alignment. For example, the global trade landscape has changed significantly due to new American tariffs on steel and other industrial goods, leading to unexpected cost increases in the rebuilding and replacement of damaged property. This poses a financial challenge for businesses dependent on insured property, and to address these risks, WTW introduced the Tariff Guard endorsement, a strategic enhancement to commercial property coverage for natural resources companies. Together with the scale and depth of the solutions we offer, WTW is well positioned to continue to serve as a reliable and trusted partner for our clients.

In HWC, the growing share of recurring revenue streams provides a stable, resilient foundation for navigating the current environment. Our deep expertise and strong analytical capabilities position us well to respond to the expected near-term increase in demand for benefits cost management projects, pension forecasting, workforce and total rewards modeling, communication support, and more. That said, the heightened geopolitical uncertainty is also creating near-term headwinds in certain areas, particularly in our North America career businesses, where some clients in certain industry sectors may choose to delay discretionary advisory work until they have greater clarity on the macroeconomic outlook.

Similarly, we're likely to see a modest decline in assets under management-based fees in our investments business if capital markets conditions persist. As a reminder, these businesses are a small minority of HWC. The vast majority of our HWC revenues are recurring in nature, with client retention rates in the mid-90s making us confident in our ability to sustain growth in HWC even if economic conditions weaken.

In addition, over the longer term, we expect macroeconomic changes to spur more demand for our services as clients seek support in responding to the new environment, a pattern we've seen in prior periods of regulatory shift. I'm confident in the resilience of our business and our colleagues who have proven their ability to navigate challenging circumstances. Our colleagues' hard work is reflected in the momentum we have built in the market and the strong start we've made this year implementing our new strategy to accelerate performance, enhance efficiency, and optimize our portfolio. We've recorded many strategic wins this quarter that highlight our focus on accelerating performance. In R&B, the strength of our specialization strategy and our ability to deliver differentiated value through technical expertise, global collaboration, and client-centric solutions were key factors in these wins.

In Europe, we secured a complex construction mandate tied to what is expected to become the largest urban development in the region. This opportunity was a result of the close coordination of our construction specialists globally and effective cross-selling from our regional colleagues. Also in Europe, we expanded our existing mandate with a major global airline to be the sole broker for property and casualty and local lines, displacing several of our major competitors due to our specialized industry focus, long-term relationship, and more efficient service models. Finally, we were appointed to provide both construction all-risk and health and benefits coverage for a key player in the mining and metals sector in West Africa, driven by our innovative solutions, exceptional service offerings, and competitive premiums. This appointment demonstrates our ability to offer clients integrated solutions across our R&B and HWC businesses and highlights the value of our global platform.

In HWC, we successfully accelerated performance by growing our core business and making smart connections. For example, a global appliance manufacturer who relies on us for global pension actuarial work chose us for their global benefits management work across more than 50 countries because of the strength of our global network and the strategic insight we delivered on program design and financing. In another example, we unseated a 20-year incumbent in winning the U.S. health and benefits outsourcing for a major hospitality company. They were compelled to make the change because of our engaging digital tools, our enterprise-grade administration platform, and our track record of delivering quality outcomes. Against a wide range of competitors, a major European financial institution selected us to assist them in a multi-year effort to redesign their group-wide job architecture, implement a new remuneration system, and support them with ongoing paid benchmarking.

Our industry expertise and business-aligned process set us apart. We continue to focus on enhancing our efficiency through technology. I'm pleased to share that Liberty Specialty Markets is now using Neuron, WTW's digital trading platform, for live trading of D&L and cyber risks. Neuron connects brokers and insurers in real time, streamlining complex specialty risk placements. We expect more insurers to join the Neuron platform this year, further enhancing its value and efficiency. WeDo, WTW's enterprise delivery organization, is also driving greater efficiency. After investing in global service delivery centers for several years to help standardize our service delivery model, we're now better able to leverage automation, data, and AI to further increase margins and deliver more value to clients. For example, as part of WeDo's right technology strategy, we implemented a tool to automate critical data audit and validation tasks for retirement clients.

We quickly scaled the solution to 22 countries by putting it in the hands of retirement teams in our global service delivery centers. Process improvements like this help WTW increase our agility and reduce costs while securing our clients' sensitive data. With regard to portfolio optimization, I'd like to highlight WTW's purchase of Global Commercial Credit, a specialist broker focused on trade credit and political risk insurance. The acquisition adds to our fast-growing specialty strategy and our geographic footprint in a key growth area of the North American market. Though it's a smaller acquisition, it reflects our focus on increasing our exposure to attractive, high-growth, and high-margin markets within our existing strategy. Finally, our reinsurance JV is progressing well. We're encouraged by the momentum and remain confident in its long-term contribution to growth and earnings.

Overall, I'm pleased with how we started the year, delivering results in line with our expectations. We produced solid revenue growth that supported meaningful margin expansion across both segments. I remain confident in our ability to deliver on our 2025 outlook for mid-single-digit organic growth, adjusted operating margin expansion, adjusted EPS growth, and ongoing improvement in free cash flow margin. We are actively monitoring the macro environment and may adjust our outlook depending on how factors like trade negotiations affect economic stability and growth. We are prepared to proactively manage through changes and adjust priorities as needed to stay aligned with our financial objectives. With that, I'll turn the call over to Andrew.

Andrew Krasner (CFO)

Thanks, Carl. Good morning, and thanks for joining us today. In the first quarter, we delivered organic revenue growth of 5% in line with our expectations. Adjusted operating margin expanded 100 basis points to 21.6% over Q1 2024, or 80 basis points excluding the impact of Transact. Adjusted diluted earnings per share were $3.13 excluding the impact of Transact. This reflects an increase of 8% over the prior year. As a reminder, we completed the divestiture of Transact on December 31, 2024, which created a $1.14 headwind to adjusted diluted earnings per share for full year 2025. As Carl discussed, our businesses are primed to perform, and our first quarter results reflect our confidence in the foundation we've established, along with our ongoing commitment to the strategic priorities and financial framework outlined during our investor day.

Next, I'll spend some time reviewing our segment results. Note that to provide comparability with prior periods, all commentary regarding the results of our segments will be on an organic basis unless specifically stated otherwise. Health, Wealth & Career revenue grew 3% compared to the first quarter of last year. Growth for the quarter met our expectations, and we remain confident in HWC's full-year outlook for mid-single-digit growth and continued margin expansion despite the potential headwinds from economic uncertainty in certain businesses that Carl mentioned. Our Health business grew 6% this quarter. All regions saw growth with double-digit increase outside North America driven by solid client retention, strong new business, geographic expansion in Saudi Arabia, and the ongoing appeal of our global benefits management solution.

In North America, client retention and new mid-market sales led to an increase in commissions, while consulting fees increased with more projects focused on cost management and legislative change. With the potential for healthcare inflation to go even higher in the current environment, we expect that demand to continue. We continue to expect high single-digit growth in health for 2025 based on global market momentum, the successful introduction of new products, including our enhanced mid-market solution in North America, and our focus on sales excellence. Wealth revenue grew 2% in the first quarter, driven by low single-digit growth in the retirement business and high single-digit growth in the investments business. In retirement, strong growth outside North America due to increased de-risking activity and growth in our life-site solutions was partially offset due to the expected negative timing impact of project activity in North America relative to the prior year.

Our investments business delivered high single-digit growth due to new product launches and the positive impact of favorable capital markets performance in the quarter. While the recent market volatility may impact second-quarter results, particularly for investments, we continue to expect low single-digit growth in the wealth business for the year. Career growth was 1% this quarter, largely in line with our expectations. While growth was tempered somewhat as economic uncertainty led some clients to defer advisory work, we continue to see healthy demand in areas such as pay transparency, incentive design, and pay benchmarking.

Revenue growth is expected to be weighted towards the second half of the year due to the typical seasonality and compensation surveys and timing of project work. As Carl highlighted, the lack of economic and policy clarity may impact the growth of the career business in the short term. However, support for legislative changes and cost management will continue to create demand. As we highlighted in investor day, our focus on product and technology offerings will further mitigate the downside risk associated with the uncertainty. Nonetheless, we see a wider range of potential outcomes for Career this year and anticipate growth in the low to mid-single-digit range.

Benefits Delivery & Outsourcing saw 1% growth versus the first quarter of last year. BD&O revenue benefited from increased project and core administration work in Europe. We expect growth to accelerate throughout the year with the incidence of special project work to support regulatory changes and the timing of new client implementations. We continue to expect BD&O to grow at a mid-single-digit rate for the year.

HWC's operating margin in the fourth quarter was 26.7%, an increase of 160 basis points compared to the prior year, or a 40 basis point improvement excluding the impact of the Transact divestiture, demonstrating our ability to consistently deliver margin expansion. We have a strong track record of margin expansion in HWC, and we will continue to build on that during 2025.

Moving to Risk and Broking, first quarter revenue growth was 7%, marking nine consecutive quarters of high single-digit to double-digit growth. Our specialization strategy and our investments in talent, technology, and innovation continue to bear fruit. Corporate Risk and Broking had another strong quarter, growing 8%, where 9% went excluding both book of business activity and interest income. Notably, this is on top of 9% growth in the first quarter of 2024. CRB's growth was broad-based across all regions. Our specialization strategy remains a key growth driver for CRB, and specialty continues to outpace the rest of the segment's growth. We continue to see sustained client retention rates in the mid-90% and strong new business generation around the world.

Globally, our construction, facultative, crisis management, and surety specialty lines were major contributors to the strong growth performance this quarter. From a geographic perspective, North America had a solid start to the year with notable contributions from our natural resources, surety, and M&A businesses. Furthermore, we saw double-digit growth in our specialty lines across our Great Britain, Western Europe, and international geographies, driven by strong new business generation. Moving on to our Insurance Consulting & Technology business, revenue was up 3% across both our technology and consulting practices.

As we discussed at investor day, our ongoing investment in technology is driving an intentional shift in the mix of offerings in ICT, creating value for our clients by integrating technology and consulting solutions. Q1 growth in ICT was consistent with our projections, and we continue to expect mid-single-digit growth for the full year. For Risk and Broking in total, we continue to expect mid to high single-digit growth for the full year. R&B's operating margin was 22% for the quarter, a 120 basis point increase over the prior year first quarter. This was primarily due to operating leverage from our organic revenue growth as well as transformation savings, partially offset by a combined 100 basis point headwind from foreign currency, lower interest income, and the absence of gain on sale activity.

As we outlined at our investor day last December, we continue to expect to deliver 100 basis points of average annual adjusted operating margin expansion in R&B over the next three years, driven by operating leverage and additional efficiencies, including the deployment of our global broking platform and workflow optimization. Now let's turn to the enterprise-level results. Adjusted operating margin for the quarter was 21.6%, a 100 basis point increase over prior year, primarily driven by greater operating leverage, which includes the benefits of our now completed transformation program. Regardless of the macro environment, we remain confident in our operational visibility and control, which strengthens our conviction in delivering margin expansion this year. Foreign exchange was a headwind to adjusted EPS of 9 cents for the quarter.

Based on our current outlook and current spot rates, we expect foreign exchange to have no material impact on adjusted EPS for the full year as the $0.09 headwind from Q1 will unwind by the end of the year. Our U.S. GAAP tax rate for the quarter was 21.5% versus 19.9% in the prior year. Our adjusted tax rate for the quarter was 22.7% compared to 22.3% for the first quarter of 2024. We expect our 2025 tax rate to be relatively consistent with that of 2024. Free cash flow was negative $86 million for the first quarter of 2025, a decrease of $50 million from the prior year, primarily driven by the absence of cash collections related to Transact and increased compensation payments.

Since Transact historically recorded cash inflows in the first half of the year, followed by larger cash outflows in the second half of the year, Transact sale will be a net tailwind to free cash flow on a full-year basis. As a reminder, free cash flow and free cash flow margin now reflect cash outflows for capitalized software costs for all periods presented in the earnings materials. For the full year, we continue to expect to expand our free cash flow margin, driven by the sale of Transact, the wind down of transformation-related cash outflows, and expected annual margin expansion, with a partial offset from cash taxes on the Willis Free Earn-Out payment, which have not yet been paid. During the quarter, we returned $288 million to our shareholders via share repurchases of $200 million and dividends of $88 million.

As we discussed at investor day in December, share repurchases will remain our primary form of capital return and a central component of our capital allocation strategy. We continue to expect to allocate approximately $1.5 billion to share repurchases in 2025, subject to market conditions and potential capital allocation to inorganic investment opportunities. Given our balanced approach to capital allocation, we plan to continue to invest in talent and our platform to drive sustainable growth and expand margins. We will also increasingly emphasize M&A aligned with our strategic priorities of improving our business mix, expanding our reach across the insurance value chain, and enhancing our margins and free cash flow. In closing, we are encouraged by our business performance in Q1 and expect to achieve our outlook for 2025. With that, let's open it up for Q&A.

Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourself to one question, one follow-up. One moment for our first question. Our first question is going to come from the line of Gregory Peters with Raymond James. Your line is open. Please go ahead.

Gregory Peters (Senior Equity Research Analyst)

Good morning, everyone. Thanks for the detail in your comments. Just a question around the tariff and trade uncertainty. Carl, you mentioned the career business and the investment businesses having some pressure. Andrew, you talked about the health business being a high single-digit component. Maybe you can give us some more color on how this is going to unfold and generate this mid-single-digit type growth that you're forecasting for health, wealth, and career for the year?

Operator (participant)

Pardon me, Mr. Peters, we are having technical difficulties, so just hang on a moment and they will be right back with you. Just a moment, everyone. Again, ladies and gentlemen, please stand by. Hi. Yes, we are, Claudia. Okay. Mr. Peters, could I please get you to repeat your question again, sir?

Gregory Peters (Senior Equity Research Analyst)

Absolutely. I'm not sure if you guys heard it or not, but I'll certainly go at it again. First of all, good morning. Secondly, in your comments, Carl, you talked about some headwinds from tariffs and potential economic volatility on the career business and the investment business. Andrew, in your comments, you talked about the health business being up high single digits for the year. Maybe give us some additional color. What's driving your expectation for mid-single digits in health, wealth, and career for the year, given all the puts and takes?

Carl Hess (CEO)

Sure, Greg. Thanks and good morning. Just to set it out right, health, wealth, and career did grow 3% year-over-year, which was very much in line with our expectations. We're seeing strong demand for our global benefits management offering, for pension consulting, for outsourcing, demonstrated by some of the notable new appointments that I mentioned earlier. We are confident in our pipeline, and we do continue to expect that HWC is going to have mid-single digit organic revenue growth for the full year. Andrew?

Andrew Krasner (CFO)

Yeah. Greg, I'll provide some further details on each of the HWC businesses for the quarter and then hand it over to Julie to talk more about what she's seeing. Health had organic revenue growth of 6%, and this solid growth was led by strong client retention and new business wins. All regions saw growth with double-digit increases internationally. We saw strong contributions from geographic expansion efforts in Saudi Arabia and the ongoing expansion of our global benefits management solution. Wealth, where we had 2% organic revenue growth, was driven by modest growth in the retirement business and high single-digit growth in investments.

Within retirement, we continue to see strong demand for our life-site product. Our investments business delivered high single-digit growth from new product launches, new business wins, and an improvement in capital market conditions within the quarter. Career had 1% organic revenue growth. That was tempered by postponed projects as economic uncertainty drove clients to defer some advisory work.

Career is our most economically sensitive business, and the broad market uncertainty may continue to weigh on growth within that business. BD&O grew 1%, and that really benefited from increased project work and core administration work in Europe. As Carl mentioned, we still remain confident in our pipeline in HWC and continue to expect that that segment will have mid-single digit revenue growth in 2025 and over the long term. Julie?

Julie Gebauer (President)

Thanks, Andrew. My view of the HWC segment has not changed over the last 90 days. As you said, Q1 generally performed in line with our expectations. Overall, we expect the segment to grow mid-single digits for the year. We've got resilient businesses with a significant amount of recurring and required work, and we know how to navigate change and uncertainty, emphasizing those solutions that are relevant to clients in this environment. Maybe diving into each of the business areas. In health, healthcare inflation remains high, maybe going higher. We've got a very good pipeline, and we expect growth to accelerate in the second half of the year. We're confident in delivering high single-digit growth.

In wealth, demand for core defined benefit offerings is strong, and so is demand in adjacent areas. That supports our outlook for low single-digit growth. In career, just remember, 70% of our work is from recurring projects like compensation committee appointments or products like Embark portal or compensation surveys. That work is stable, and it's underway. For the advisory projects, that uncertainty in the environment is causing some delays. At the same time, there are some areas like pay transparency in the EU and incentive design that still remain strong.

Overall, in this environment, we've broadened our outlook, and we're now expecting low single-digit to mid-single digit growth for the year. Rounding it out with BD&O, our core offerings are sticky and stable. We expect growth to accelerate through the year and achieve mid-single digit growth. When you put it all together, we are confident in the pipeline that we've got, and we continue to expect that the segment will have mid-single digit revenue growth in 2025 and for the long term.

Gregory Peters (Senior Equity Research Analyst)

That is excellent detail. Thank you. I guess I'd like to just take the same question and apply it to the risk and broking segment because the tariffs are a popular topic among all the conference calls and management dealing with the challenges there and the potential for economic slowdown. Maybe you can give us some additional detail on how you're thinking about organic revenue growth and the risk and broking business for the year.

Carl Hess (CEO)

Greg, we're really pleased with the 7% organic we did for Q1, and that gives us confidence to achieve the mid to high single-digit growth in R&B we've seen for the year. The volatility we're seeing in the macro environment creates risk for many companies, and we're well positioned to help our clients manage these risks, especially given the structure of our specialization strategy, which enables us to provide more tailored counsel with increased agility. We are seeing strong demand for our services with especially strong interest in our specialization offerings. I'll pass it over to Lucy to add some more color on what she's seeing.

Lucy Clarke (President of Risk and Broking)

Thanks, Carl. Thanks for the question, Greg. I mean, I would just remind everybody that even before the last three months, our clients, whatever industry they're in, whatever geography, whatever size they are, have been navigating one of the most complex risk environments of a generation. That's generally when the most is expected of us and when we're at our best. These macros may be different, but the broking business is generally resilient when the circumstances are uncertain. I think that our specialization strategy will serve us well, and our focus is on performing for clients. We're responding to increasing demand for trade credit and political risks and quickly coming up with new products like the natural resources guys did with Tariff Guard. We feel confident about the fundamentals of the business and the mid to high single-digit growth for 2025.

Gregory Peters (Senior Equity Research Analyst)

Got it. Thanks for the answers.

Operator (participant)

Thank you. One moment as we move on to our next question. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.

Elyse Greenspan (Managing Director of Equity Research)

Hi, thanks. Good morning. My first question is on HWC. I think in the fourth quarter, you guys had alluded to some timing, right? Revenue being pushed from Q4 to Q1 in career and perhaps in other areas. Did that revenue come online in the Q1, or is that now getting pushed back a bit further when you guys are talking about a stronger half year two this year?

Carl Hess (CEO)

Elyse, good morning. As we said in our opening comments, career does have some near-term sensitivity to the lack of economic policy clarity. We do think that the support for legislative changes that affect our clients, as well as cost management, is going to create demand. As we review our pipeline, our expectations for revenue growth to be weighted toward the second half of the year, part of that is typical seasonality of compensation surveys and the timing of some project work. That is one of the reasons we have the wider range of outcomes Julie talked about.

Julie Gebauer (President)

I'll just add the reminder that the first quarter was largely in line with our expectations, though it was muted because of the economic uncertainty, and there was a modest impact on the revenue in the quarter because of that. I'll just come back to something I previously said. We've got about 70% of our revenue coming from recurring work. As Carl mentioned, a lot of that comes in the second half, and we're seeing an increase in our survey participation this year.

Our pipeline for work is strong given the focus that we have on the market. It's a very disciplined focus. Our teams are initiating discussions with clients and prospects about topics that really matter in this environment. I already mentioned pay transparency, but there are areas like the impact of market volatility on incentive plans, and that's generating new leads and new sales. The effort that we have to embed our employee experience capabilities into other offerings is also having an impact. For example, many of our new outsourcing implementations that are going to happen later in this year will include our Embark software portal, and the workforce management work that we're selling includes communications and change management support.

We've got a durable career business, and our teams are really equipped to address what our clients need now in spite of the uncertainty slowing down some projects in the first quarter. We're confident this is going to allow us to grow in the range of low to mid-single digits.

Elyse Greenspan (Managing Director of Equity Research)

Thanks. My follow-up was on free cash flow. If you can just talk about your expectations for the full year and just walk us through any puts and takes. I know you mentioned, Andrew, some of the Transact first half versus second half in your opening comments, but anything else that we should be thinking about for free cash flow this year?

Andrew Krasner (CFO)

Yep, absolutely. Our free cash flow figure of negative $86 million, though below prior year by $50 million, was right in line with our expectations for the quarter, and we remain in line with our planned trajectory to deliver the free cash flow margin expansion in 2025. To provide a bit more color around that, the year-over-year decrease in Q1 was primarily driven by two items. One is the seasonality of Transact cash flows. Transact historically recorded cash inflows in the first half of the year, followed by larger cash outflows in the second half of the year. On a full-year basis, the Transact sale will be a net tailwind to free cash flow, but it was a headwind this quarter and will be for Q2 as well. The second item is increased compensation payments on a year-over-year basis.

As I think about the full year and beyond, I think the right way to think about it is our 2024 free cash flow margin was 12.8%. That was inclusive of 440 basis points of headwinds from Transact and transformation. If you think about our 2024 free cash flow on a normalized basis for those factors, it was about 17.2%. From that 17.2% normalized base, we expect further free cash flow margin improvement from operating margin expansion offset by roughly 200 basis points of headwinds related to transformation cash outflows and cash taxes on the Willis re-earn out, as I mentioned in the prepared remarks. You put all of that together, I think that's how I would think about 2025. We continue to be confident in our ability to expand our free cash flow margin beyond that after 2025.

Operator (participant)

Thank you. One moment as we move on to our next question. Our next question comes from the line of Rob Cox with Goldman Sachs. Your line is open. Please go ahead.

Rob Cox (VP of Equity Research)

Hey, thanks. First question I wanted to ask about M&A. You all talked about increasingly emphasizing M&A back at the investor day and then here today in the comments. We have seen one deal so far, which is a little bit lighter than some of the public and private broker run rate. I was just curious, did you think you would have acquired more businesses by now when you outlined the strategy back in December? Are you still seeing deals out there and what is stopping you from doing more?

Carl Hess (CEO)

Yeah. I mean, thanks, Rob. Good morning. We feel good about our approach to M&A, right? I mean, just to remind everyone, because we talked a bit about this at investor day, we're looking for companies that could be a good fit culturally, that we're not going to see a lot of business disruption over the integration. They have got to satisfy the following criteria. First, improve our business mix to enhance our broking and wealth presence in key markets while strengthening our offering in high-growth, high-margin areas of our core business.

Second, they should expand our reach across the insurance value chain to further accelerate our growth while filling gaps in our capabilities and footprint. We want to target businesses that help enhance our margin and free cash flow profile. With regard to timing, through our growth simplifying transfer strategy, we solidified our infrastructure. We have strengthened the company. We have the right business focus now. We have more efficient processes.

We've got the tools to integrate potential targets with WTW and deliver long-term value, right? We have our eyes on the landscape. We recognize there's going to be others active in the space, but we're looking for what's right for us, not just to do deals because we see others doing deals.

Rob Cox (VP of Equity Research)

Appreciate the color. Maybe as a follow-up on the macro environment, I mean, given Willis is a global business, I'm curious, when you look out at the operating environment and based on your client conversations, are you seeing any more economic weakness or uncertainty in certain geographies?

Carl Hess (CEO)

I mean, as we've said in the past, right, WTW is really well positioned to weather macroeconomic uncertainty. You can look to our history. You can look back to our predecessor companies. We have thrived under many various market conditions.

We think the current macro environment is going to create more opportunities for us. As we alluded to earlier, right, economic challenges can intensify our clients' needs for sound advice and risk management solutions. Many of our clients look to WTW for help in navigating these obstacles, creating opportunities that drive demand for our services regarding workforce management, regarding pension plans, regarding risk management solutions. Let me turn it a little bit over to Julie and Lucy to talk about what they're seeing in the segments. Julie?

Julie Gebauer (President)

Sure, Carl. I'll just start with repeating something I've already said, which is that the vast majority of our work is recurring and required. Even in our most economically sensitive businesses in the career area, about 70% of our revenue comes from those areas. We have a steady base. This ability to navigate in uncertainty is helpful.

That's across the world. We're focused on solutions that are relevant in this environment. We're well positioned to capture demand where there's a need for workforce management, workforce reductions. Healthcare cost management is an important topic right now. Pension cost modeling, what's going to happen if the environment changes, all very important for us. Even as the uncertainty causes some delays for some discretionary advisory work until there's greater clarity, these areas will hold us firm. We're confident about our mid-single digit growth outlook for the year.

Lucy Clarke (President of Risk and Broking)

Yeah. Thanks. Thanks, Julie. Thanks, Rob, for the question. I think I will also repeat something I've already said, which is that in these circumstances, however uncertain they are, the broking business tends to be very resilient. We're not seeing particular weakness right at the moment from our clients. In fact, we're seeing increasing demand for some of our specialty products. Our focus is on just performing for our clients and delivering in this uncertain environment.

Rob Cox (VP of Equity Research)

Thank you.

Operator (participant)

Thank you. One moment as we move on to our next question. The next question is going to come from the line of Paul Newsome with Piper Sandler. Your line is open. Please go ahead.

Paul Newsome (Managing Director)

Good morning. Thanks for the call. I was hoping you could give us a little additional color in the Risk and Broking business on carrier competition. We're hearing a lot about weakness in the large account business and maybe some resilience elsewhere. Obviously, Willis has a mix of business between middle and large that's flipped skills, but we know it's important. Any thoughts on both what you're seeing in the marketplace plus the implications for your businesses?

Lucy Clarke (President of Risk and Broking)

Hi, Paul. It's Lucy. Thanks for the question. Yeah. First of all, we definitely are seeing an improvement in pricing in most lines across the market. Broadly, that improvement or falling rates in pricing is mostly in property, large, and complex risk. Financial lines have stabilized after a period of improvement, and the pricing continues to increase in certain areas such as North American casualty and auto.

What does that mean? First of all, I think it's important to remember that while we can't predict what will happen, the rating environment is not a surprise for us. Our clients have had many years of steep increases. Carriers have performed well. Pricing is adequate. We were expecting an improving pricing market for our clients. Our business mix is about half commission, half fee, and about half property, half casualty. I think we're well positioned. Of course, we can't predict to what extent the rates will fall and would, I guess, particularly note that the geopolitical and macroeconomic uncertainty may have a dampening effect on the optimism we're seeing today.

Paul Newsome (Managing Director)

That's very helpful. Thank you. Alternative question, a little bit more of a modeling approach question. I'm getting quite a bit of questions from investors about market implications, equity, financial market implications on Wealth & Career. I think you've touched on this, but maybe a few thoughts would be great just to talk about sort of the sensitivity of those businesses directly. Is it simply a matter of just looking at the assets and the management and the relationship there? I suspect there's way more to it. Any thoughts there that I think help folks who are trying to model this from an asset and management perspective?

Carl Hess (CEO)

Remember, Paul, that our wealth business really has two major components. The bigger component is our pensions consulting business, where we're typically appointed the actuary for defined benefit fund. These relationships are very, very stable. They can last literally for decades. We've got client retention rates in the high 90s. Very, very sticky, very annuity, very stable basis. The smaller part of the wealth segment is our investment business, which is a combination of investment management and investment consulting. Our clients vary, but a lot of them are defined benefit funds where their asset base is typically quite matched to their liabilities. Our sensitivity to equity markets is probably a bit less than you would think, right? We've got exposure to the overall level of assets, but these are quite hedged to pension liabilities. The characteristics vary a bit. Julie, any further?

Julie Gebauer (President)

I'll just add that in our investment business, which is less than 5% of our overall HWC revenue, that some of our fees are determined as basis points on assets under management, but that's not all of our fees. We've got a meaningful portion of our revenue that are fixed fees. The basis point-related fees are the ones that are susceptible to capital market volatility. While that didn't affect us in Q1 because of favorable performance, the recent performance could leave us with an impact in Q2. The other thing I'll add is that we intend to offset any short-term headwinds as much as possible by going to market aggressively with solutions that are currently relevant, like workforce management.

Paul Newsome (Managing Director)

Thank you. I really appreciate the help, as always. Very much appreciated.

Operator (participant)

Thank you. One moment as we move on to our next question. Our next question comes from the line of Brian Meredith with UBS. Your line is open. Please go ahead.

Brian Meredith (Managing Director)

Yeah. Thank you. I guess first one, Lucy, could you remind us how big is the transactional business as a part of your overall business? And is that going to be a headwind at all here as we look forward? I know it's been relatively low, but I thought it picked up second half of last year.

Lucy Clarke (President of Risk and Broking)

Hi, Brian. It's Lucy. Thanks for the question. We are not going to comment on the size of our M&A business. We do not expect a major impact throughout the rest of the year.

Brian Meredith (Managing Director)

Okay. Thanks. And then second question, I'm just curious on share buyback in the quarter. Appreciate that the first quarter is usually the weaker or the free cash flow quarters. I would have thought with the correction your stock had post fourth quarter results, you've been a little bit more aggressive with share buyback. Was there anything else to kind of think about that maybe prevented you from buying back more shares in the quarter?

Andrew Krasner (CFO)

There are lots of things that go into the pacing of the share repurchases throughout the year. I think the right thing to focus on is the $1.5 billion that we've committed to for the year. With regard to pacing, we have opportunities at certain points in time to lean in depending on market conditions and accelerate some of that. That is what we tend to do from time to time. It is really, I think, a combination of timing, market conditions, but again, focus on the full $1.5 billion for the full year.

Brian Meredith (Managing Director)

Great. Thanks.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of David Motemaden with Evercore ISI. Your line is open. Please go ahead.

David Motemaden (Senior Equity Research Analyst)

Hey, good morning. I wanted to focus on Wealth and BD&O, where I think you guys had called out a few areas of project activity, timing that negatively impacted you guys. Wondering if you could size that impact that each of those had on each of the segments, organic growth rates, and then maybe just elaborate a bit more on your visibility into those coming online over the rest of the year. I get that demand for your services has gone up, but if it's project work, it sounds kind of discretionary in nature. Just wondering what your conversations with clients have been on those and what gives you some confidence that we're going to see that revert back.

Carl Hess (CEO)

Let me address BD&O first, and then we can talk a bit about wealth. Right. Remember that BD&O grew 1% for the quarter, and we did have some increased project and core administration work in Europe. We expect growth to accelerate through the year with new client implications as well as special project work. Part of that is to support regulatory changes. Part of it can be things that can actually be offsetting unfavorable macroeconomic conditions such as increased COBRA administration if people are laying additional people off. Not all the project work is economically sensitive in the way you might think it might be.

Right? With respect to wealth, often we have a variety of projects. Some of it could be in response to regulatory change, which demands clients analyze the effect of such change on their retirement plans. Some of the contemplation of pension risk transfer activity. Maybe, Julie, you want to elaborate a little bit more.

Julie Gebauer (President)

Yeah. On the de-risking activity, we had a decent amount of that in Q1, as mentioned in the prepared comments. That activity is dependent on a number of factors. The top factors are pension plan funded status, and Carl commented on how that's changing, maybe not as dramatically as people would have thought, and the interest rate environment. As we look at it, those factors are still favorable for many plans. We do expect that type of activity to continue in the current environment, probably at a slightly slower rate than we initially projected for the year.

We expect clients that aren't undertaking de-risking initiatives will pick up other project work to evaluate pension volatility, to use pensions to support workforce actions and the like. We are confident that we'll capture our fair share of that, and that's reflected in our outlook of low single digit growth.

David Motemaden (Senior Equity Research Analyst)

Great. Thank you. Thanks for that. That makes sense. Maybe Andrew, just following up on the free cash flow, you had mentioned the Transact sale was a headwind to free cash flow this quarter and will be next quarter as well. I'm wondering if you could just size that, how much of a headwind it was to free cash flow this quarter, and then the expectation for the headwind for next quarter, just so I can sort of break down the components.

Andrew Krasner (CFO)

Yeah. Sure. For this quarter, year-over-year was a $56 million headwind. In Q2, it will be substantially smaller, about $8 million or so.

Brian Meredith (Managing Director)

Perfect. Thank you.

Operator (participant)

Thank you. One moment as we move on to our next question. Our next question comes from the line of Mark Hughes with Truist Securities. Your line is open. Please go ahead.

Mark Hughes (Managing Director and Senior Equity Research Analyst)

Yeah. Thank you. Good morning. In ICT, the organic 3% this quarter, last quarter is 11%. Was that just timing of new business, or was there any sort of fundamental transition or inflection there?

Carl Hess (CEO)

Yeah. Remember, ICT is a mix of consulting offerings and technology offerings. The consulting includes both recurring services such as reserve calculations for insurance companies as well as project work for things like securities issuance or M&A. On the technology side, we offer products that support things like underwriting, rate-making, reserving for our clients. Those sales can be large and lumpy. In fact, as we pointed that out in Q4, that was one of the drivers for the Q4 growth. It can just make the pattern from quarter on quarter look a little bit jagged, right? We think that's a feature, not a bug.

Mark Hughes (Managing Director and Senior Equity Research Analyst)

Very good. On the reinsurance JV, any change in your estimate for costs for the full year and any quick comments on how that's ramping?

Carl Hess (CEO)

Remind everyone, this is a new launch, right? We're still in the startup phase, and we're focused on building out the infrastructure and hiring new talent. At this point, we'll give you more of an update when there's more to share. We're very pleased with the progress made, and we're excited about our return and reinsurance. Andrew, you want to comment on sort of—

Andrew Krasner (CFO)

Yeah. Just to confirm, there's no change in the outlook at this point for the rest of the year with regard to the guidance we previously gave. Understood. Thank you.

Operator (participant)

Thank you. One moment as we move on to the next question. Our next question is going to come from the line of Mark McConn with Baird. Your line is open. Please go ahead.

Mark Marcon (Senior Research Analyst)

Good morning. Carl, in your prepared remarks, you went through a number of new business wins. I was wondering, it sounded to me like there's a greater proportion of them that you mentioned than you've historically mentioned or even going back to John. I'm wondering, number one, do you have any sort of quantification with regards to the number of new business wins and the magnitude of the potential revenue that's coming on relative to prior quarters or any sort of quantification at all?

Number one. Number two, to what extent is it coming from some of the new talent that you've added relative to some of the existing folks? Is it a sign of increasing productivity from some of the new hires? Thank you.

Carl Hess (CEO)

While I won't talk about numbers specifically, I will say that over the past few years, we have put a lot of emphasis on being in the market and bringing new revenue and new logos to our client register. That's been a focus of both segments, and I think you're seeing that payoff handsomely in the revenue growth rates we've been showing over the last few years compared to what you might have had over the years before that. I am sort of very pleased to see the discipline and focus we put in the marketplace paying off.

We've got very strong offerings in both segments, and it's unsurprising to me that we continue to see the sort of progress we're making, as demonstrated in our repeated remarks quarter after quarter about the success we're having in the marketplace. Julie, Lucy, you want to talk a little about segment strategies with regard to that?

Julie Gebauer (President)

We've got a clear focus on building market share in our core growth areas, and we've been successful at that. With disciplined focus on sales management, we will enhance that. Our focus on smart connections, finding the ways that we can bring different service offerings together to address client needs and cross-sell where it makes sense is paying dividends.

Lucy Clarke (President of Risk and Broking)

Yeah. Thanks. I got to say, based on the fundamentals of our business, I really love our position. We have a specialization strategy that's working. We have a market-leading digital and technology strategy, and we have the capabilities and credentials to compete with anybody in our space. Yeah, I think we're seeing a real strong new business in the quarter. That's coming from our existing colleagues as well as the new strategic hires. We haven't seen the full impact even yet of those strategic hires and of the planned hires we have during the course of the year. We feel really optimistic about that.

Operator (participant)

Thank you. That is going to conclude today's question and answer session, and I would like to hand the conference back over to Carl Hess for any further remarks.

Carl Hess (CEO)

Thank you all for joining us. I just want to note, I appreciate the hard work of all our WTW colleagues globally who've helped us start the year on such a solid note. I would also like to thank our shareholders for their continued support of our efforts. I wish everyone a great day and look forward to speaking with you all soon.

Operator (participant)

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