Arthur J. Gallagher & (AJG) - 2025 Q2 - Quarterly Report

Forward-Looking Statements The company outlines forward-looking statements and potential risks, including those related to the AssuredPartners acquisition and general business operations - The company identifies significant risks with the pending AssuredPartners acquisition, including regulatory delays, non-accretive earnings, integration challenges, and management distraction[8] - General business risks encompass global economic and geopolitical events, acquisition strategy challenges, technology application failures, cybersecurity incidents, and international operations risks[7][9][10] - Additional risks include competition, insurance premium volatility, challenges in benefit consulting and TPA operations, climate risks, and potential credit rating downgrades[12] Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including earnings, balance sheet, cash flows, and equity, for Q2 and H1 2025 and 2024 Consolidated Statement of Earnings The company achieved significant revenue and net earnings growth in Q2 and H1 2025, with Q2 revenues up 16.1% and net earnings up 29.1% Consolidated Earnings Summary (in millions) | Metric | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $3,220.8 | $2,775.4 | +16.1% | $6,948.2 | $6,032.1 | +15.2% | | Earnings Before Income Taxes | $471.4 | $365.6 | +28.9% | $1,344.1 | $1,138.3 | +18.1% | | Net Earnings Attributable to Controlling Interests | $365.8 | $283.4 | +29.1% | $1,070.2 | $891.8 | +20.0% | | Diluted Net Earnings Per Share | $1.40 | $1.27 | +10.2% | $4.12 | $4.01 | +2.7% | Consolidated Balance Sheet Total assets significantly increased as of June 30, 2025, primarily due to higher cash from financing a major pending acquisition and growth in goodwill Key Balance Sheet Items (in millions) | Account | June 30, 2025 | Dec 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $14,299.5 | $14,987.3 | -4.6% | | Goodwill | $13,740.3 | $12,270.2 | +12.0% | | Total Assets | $80,122.6 | $64,255.2 | +24.7% | | Total Liabilities | $57,066.3 | $44,075.6 | +29.5% | | Total Stockholders' Equity | $23,056.3 | $20,179.6 | +14.3% | Consolidated Statement of Cash Flows H1 2025 saw decreased operating cash flow due to earnout payments, significant cash used for investing in acquisitions, and substantial cash provided by financing activities Six-Month Cash Flow Summary (in millions) | Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $445.7 | $908.8 | | Net cash used by investing activities | $(1,620.5) | $(499.6) | | Net cash provided by (used by) financing activities | $1,317.3 | $(59.2) | Notes to Consolidated Financial Statements Notes detail accounting policies, business combinations, segment information, and debt, highlighting significant acquisition activity and segment financial performance - The company agreed to acquire AssuredPartners for $13.45 billion, funded by an $8.5 billion stock offering and $5.0 billion senior notes, with closing expected in Q3 2025[48] - The company acquired Woodruff Sawyer for $1.2 billion in cash and completed 20 acquisitions totaling $1.65 billion in cash during H1 2025[48][49] - Maximum potential earnout obligations for acquisitions totaled $1,411.5 million, with a recorded fair value of $600.3 million as of June 30, 2025[121] Segment Revenues Before Reimbursements (H1 2025 vs H1 2024, in millions) | Segment | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | Brokerage | $6,100.2 | $5,241.2 | +16.4% | | Risk Management | $765.3 | $711.4 | +7.6% | | Corporate | $0.8 | $1.5 | -46.7% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance, segment results, liquidity, and capital resources, emphasizing strong revenue growth from organic and acquisition activities Brokerage Segment Analysis The Brokerage segment, accounting for 88% of revenues, achieved a 16% revenue increase in H1 2025, driven by 7.6% organic growth and acquisitions, with an adjusted EBITDAC margin of 40.2% Brokerage Segment Performance (H1 2025 vs H1 2024) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Revenues (in millions) | $6,100.2 | $5,241.2 | | Organic Revenue Growth | 7.6% | 7.6% | | Adjusted EBITDAC (in millions) | $2,449.5 | $1,919.7 | | Adjusted EBITDAC Margin | 40.2% | 36.7% | - Acquisitions contributed $217.7 million to commission and fee revenue growth in H1 2025[193] Risk Management Segment Analysis The Risk Management segment's H1 2025 revenues increased by 8%, with 5.1% organic fee growth and a stable adjusted EBITDAC margin of 20.7% Risk Management Segment Performance (H1 2025 vs H1 2024) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Revenues before reimbursements (in millions) | $765.3 | $711.4 | | Organic Fee Growth | 5.1% | 10.4% | | Adjusted EBITDAC (in millions) | $158.6 | $145.8 | | Adjusted EBITDAC Margin | 20.7% | 20.6% | Corporate Segment Analysis The Corporate segment's net loss increased significantly in H1 2025, primarily due to a $130.5 million rise in interest expense and higher acquisition-related costs - H1 2025 interest expense increased by $130.5 million year-over-year, with $131.7 million attributed to $5.0 billion senior notes for the AssuredPartners acquisition[237] - H1 2025 operating expenses included $53.5 million in external professional fees for acquisitions, with $46.6 million specifically for the pending AssuredPartners deal[234] Liquidity and Capital Resources The company maintains strong liquidity, enhanced by H1 2025 financing activities, including $1.66 billion for acquisitions and capital raised for the AssuredPartners deal, alongside an 8% dividend increase - Cash from operations decreased to $445.7 million in H1 2025 from $908.8 million in H1 2024, primarily due to a $750 million earnout payment for a 2021 acquisition[249] - The company raised approximately $9.6 billion from a common stock offering and $5.0 billion from senior notes to fund the AssuredPartners acquisition[260][272] - The revolving credit facility was increased to $2.5 billion and extended to 2030 through an amended credit agreement in April 2025[264] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, detailing potential impacts and using derivatives to hedge currency exposure - A hypothetical 10% adverse change in foreign currency exchange rates would have increased H1 2025 earnings before income taxes by approximately $54.2 million[286] - With $12.87 billion in fixed-rate debt, a one-percentage point decrease in borrowing rates would increase its fair value by $202.9 million above carrying value[282][284] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Disclosure controls and procedures were deemed effective by the principal executive and financial officers, providing reasonable assurance[289] - No material changes to internal control over financial reporting occurred during the quarter[290] Part II. Other Information Item 1. Legal Proceedings This section refers to Note 12 of the financial statements for details on litigation, regulatory, and taxation matters - Details on legal proceedings are provided in the "Litigation, Regulatory and Taxation Matters" section of Note 12 to the financial statements[293] Item 1A. Risk Factors Risk factors are detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - The company refers to its 2024 Form 10-K for a comprehensive discussion of risk factors[293] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2025, no shares were repurchased under the public plan, but 57,074 shares were acquired for employee deferred compensation plans, with $1.5 billion repurchase authorization remaining Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 37,522 | $320.77 | | May 2025 | 7,348 | $338.92 | | June 2025 | 12,204 | $320.87 | | Total | 57,074 | $323.13 | - No shares were purchased under the $1.5 billion publicly announced repurchase plan, which remains fully available[294][298] - All shares purchased in the quarter were acquired by trustees for the company's deferred compensation and supplemental savings plans[294][295]