How did AJG perform in the third quarter of 2024?

Results were strong. Combined Brokerage and Risk Management revenues rose 13% and organic revenue grew 6%. GAAP diluted EPS was $1.39, up from $1.28, and adjusted EPS was $2.26, up from $2.00. Total Company EBITDAC rose to $690.9 million, and adjusted EBITDAC rose to $808.8 million.

Why is there a large difference between GAAP and adjusted EPS?

Adjusted EPS excludes items management considers non-recurring or non-operating, most notably amortization of acquired intangible assets, which was $120.0 million pre-tax in Brokerage alone in Q3 (about $0.54 per share). It also excludes acquisition integration costs, workforce and lease termination charges, and acquisition-related adjustments. Investors should note that acquisition-related costs have recurred throughout 2023 and 2024, so the adjustments may be less one-time in nature than the label suggests.

What drove the increase in Corporate segment losses and interest costs?

Interest and banking costs rose to $93.7 million in Q3 from $73.4 million a year earlier, mainly because of debt issued in Q4 2023 and Q1 2024. Gallagher had $4.55 billion of public debt and $3.52 billion of private placement borrowings at September 30, 2024, with no drawn balance on its line of credit.

What did management say about the outlook?

Management said global Q3 renewal premium increases were little changed from its September investor day update. Recent U.S. hurricanes had not yet significantly affected October insurance pricing but added complexity to January 1 property reinsurance renewals. Management reported growing client exposure changes and new claim counts, and said its M&A pipeline is robust. Detailed 2024 estimates are in the CFO Commentary, which is referenced in the filing but not included in this document.

How has AJG's growth been funded and what does the balance sheet look like?

Growth has been funded in part through debt and acquisitions. Goodwill rose to $12.19 billion from $11.48 billion at December 31, 2023, and amortizable intangibles were $4.35 billion. Corporate-related borrowings totaled about $8.0 billion, including $200 million current. Total stockholders' equity increased to $12.21 billion, largely from retained earnings and capital in excess of par value.

AJG 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed October 24, 2024. Cited figures are marked; the original filing is the authoritative source.

Arthur J.

Gallagher & Co. (AJG) reported strong third-quarter 2024 results on October 24, 2024. For the combined Brokerage and Risk Management segments, total revenues rose 13% and organic revenues grew 6%. GAAP diluted EPS was $1.39^a versus $1.28 a year earlier, and adjusted diluted EPS was $2.26 versus $2.00, up 13%.

Total Company EBITDAC was $690.9 million^b (up 14%), and adjusted EBITDAC was $808.8 million (up 14%). Management said the company completed four new mergers in the quarter and that net new business is up from the prior year. Nine-month results were also strong, with revenues up 16%, organic growth of 8%, net earnings up 19%, and adjusted EPS up 17%.

Quality of earnings warrants some attention. Much of the gap between GAAP and adjusted EPS is driven by intangible amortization ($120.0 million^c pre-tax in Brokerage alone in Q3) and acquisition integration and workforce costs, which management excludes. Investors should weigh these recurring-looking acquisition-related charges against the adjusted figures.

Corporate segment losses widened, with GAAP Corporate pretax loss of $169.3 million^d versus $146.3 million, reflecting higher interest and banking costs from debt issued in late 2023 and early 2024. Total borrowings were roughly $8.1 billion in public debt, private placements, and the premium finance facility, and the balance sheet grew significantly on the back of acquisitions, with goodwill rising to $12.2 billion. The filing also flags a near-term outlook.

Management said Q3 renewal premium increases were little changed from its September investor day update, that recent U.S. hurricanes had not yet significantly affected October pricing but add complexity to January 1 property reinsurance renewals, and that client exposure changes and new claim counts are growing. The CFO Commentary furnished under Item 7.01 includes estimates for 2024 and future results, which were not reproduced in the filed exhibit provided here.

02—Key points

Key Highlights

Q3 2024 total Company revenues before reimbursements of $2,766.5 million, up 13% from $2,453.6 million; Brokerage and Risk Management combined organic revenue growth of 6%.
GAAP diluted EPS of $1.39 (up from $1.28) and adjusted diluted EPS of $2.26 (up from $2.00, about 13%).
Total Company EBITDAC of $690.9 million (up 14%); adjusted EBITDAC of $808.8 million (up 14%), with adjusted Brokerage EBITDAC margin at 33.6%, up about 140 basis points.
Nine-month 2024 revenues up 16%, organic growth of 8%, net earnings up 19%, and adjusted EPS up 17%.
Four new mergers completed in the quarter; management says net new business is up year over year and the M&A pipeline is robust.
Corporate segment GAAP pretax loss widened to $169.3 million from $146.3 million, driven by higher interest and banking costs ($93.7 million in the quarter) tied to debt issued in late 2023 and early 2024.
Management flagged 2025 January 1 property reinsurance renewal complexity from recent U.S. hurricanes, while October insurance pricing was not yet materially affected.

03—Questions

Frequently Asked Questions

How did AJG perform in the third quarter of 2024?
Results were strong. Combined Brokerage and Risk Management revenues rose 13% and organic revenue grew 6%. GAAP diluted EPS was $1.39, up from $1.28, and adjusted EPS was $2.26, up from $2.00. Total Company EBITDAC rose to $690.9 million, and adjusted EBITDAC rose to $808.8 million.
Why is there a large difference between GAAP and adjusted EPS?
Adjusted EPS excludes items management considers non-recurring or non-operating, most notably amortization of acquired intangible assets, which was $120.0 million pre-tax in Brokerage alone in Q3 (about $0.54 per share). It also excludes acquisition integration costs, workforce and lease termination charges, and acquisition-related adjustments. Investors should note that acquisition-related costs have recurred throughout 2023 and 2024, so the adjustments may be less one-time in nature than the label suggests.
What drove the increase in Corporate segment losses and interest costs?
Interest and banking costs rose to $93.7 million in Q3 from $73.4 million a year earlier, mainly because of debt issued in Q4 2023 and Q1 2024. Gallagher had $4.55 billion of public debt and $3.52 billion of private placement borrowings at September 30, 2024, with no drawn balance on its line of credit.
What did management say about the outlook?
Management said global Q3 renewal premium increases were little changed from its September investor day update. Recent U.S. hurricanes had not yet significantly affected October insurance pricing but added complexity to January 1 property reinsurance renewals. Management reported growing client exposure changes and new claim counts, and said its M&A pipeline is robust. Detailed 2024 estimates are in the CFO Commentary, which is referenced in the filing but not included in this document.
How has AJG's growth been funded and what does the balance sheet look like?
Growth has been funded in part through debt and acquisitions. Goodwill rose to $12.19 billion from $11.48 billion at December 31, 2023, and amortizable intangibles were $4.35 billion. Corporate-related borrowings totaled about $8.0 billion, including $200 million current. Total stockholders' equity increased to $12.21 billion, largely from retained earnings and capital in excess of par value.

04—Continue

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