Arthur J. Gallagher signals full-year organic growth above 6% as AssuredPartners integration advances

Earnings Call Insights: Arthur J. Gallagher & Co. (AJG) Q3 2025

MANAGEMENT VIEW

* CEO J. Gallagher opened by emphasizing, "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." He highlighted the momentum from the AssuredPartners acquisition, stating, "The early days of the AssuredPartners 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."
* CEO Gallagher detailed segment performance: Brokerage segment reported revenue growth of 22% with 4.5% organic. Adjusted EBITDAC margin was flat year-over-year at 33.5%, but underlying margin expansion was 60 basis points when excluding M&A and interest income. Retail P&C in the U.S. achieved organic growth of more than 7%, while international was flat. Employee Benefits saw around 1% organic growth. Wholesale and specialty businesses delivered 5% organic growth, and reinsurance was in the high single digits. "AP's third quarter organic was 5%. That really shows you that a terrific sales-driven culture is joining our team."
* On the insurance pricing environment, he explained, "Property down 5%; casualty lines up 6% overall, including general liability up 4%, commercial auto up 5% and umbrella up 8%; U.S. casualty lines are up 8%." He noted persistent trends across lines and bifurcation by client size.
* For the Risk Management segment, Gallagher reported, "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."
* Regarding M&A, Gallagher described the AssuredPartners integration, saying, "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."
* CFO Douglas Howell stated, "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 harmonize revenue accounting methods. ... the new detail did not change our annual view of revenue or EBITDAC. Second, however, it did reveal that AP's business is much more seasonally skewed than we could previously estimate."

OUTLOOK

* CEO Gallagher stated, "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%."
* For Risk Management, Gallagher said, "Accordingly, we expect about 7% organic growth in the fourth quarter."
* CFO Howell added, "Looking forward to the fourth quarter, we see organic around 5%. ... If we were to deliver fourth quarter organic around 5%, we would finish the year with organic above 6%."
* Howell reiterated, "We still see annualized run rate synergies of $160 million by the end of '26 and $260 million to $280 million by early '28."

FINANCIAL RESULTS

* CEO Gallagher reported, "EPS for our combined Brokerage and Risk Management segments, we posted GAAP EPS of $1.76 and adjusted EPS of $2.87. That would have been $0.22 higher had we levelized for the intra-quarter revenue seasonality related to AssuredPartners that we closed on August 18."
* CFO Howell explained, "Brokerage segment organic growth of 4.5%. That's about $11 million of less revenues than our September IR Day thinking. Half of that relates to those lumpy life sales that didn't get closed. ... The other half or so relates to contingents."
* For Risk Management, Howell said, "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. ... Adjusted EBITDAC margin of 21.8% was better than our September IR Day expectations."
* Howell stated, "Revenue up 17%, net earnings up 27%, EBITDAC up 25%, organic year-to-date at 6.6% and EBITDAC margin over 36%."

Q&A

* Elyse Greenspan, Wells Fargo: Asked about synergy treatment in organic revenue. CFO Howell: "If we pick up some more on the AssuredPartners book of business, that would not -- that would understate organic revenues."
* Greenspan: Asked for organic outlook for 2026. CFO Howell: "We still believe that. Early indications that we're having terrific success in our Reinsurance business. We're having terrific success in our P&C businesses."
* Greenspan: On M&A pipeline post-AP acquisition. CEO Gallagher: "We're going to have most of their folks in the field come to the home office over the next 1.5 months or so. ... That pipeline has not been yet put into our pipeline report."
* Andrew Kligerman, TD Cowen: Questioned organic growth expectations in the current pricing environment. CFO Howell: "I think where we top up on that is because of our wholesale business that performs well, our programs. ... we've got our reinsurance business."
* Charles Peters, Raymond James: Asked about $160 million of synergies. CFO Howell: "It's easy for me to always say 1/3, 1/3, 1/3. We're going to get 1/3 for revenue uplift. ... and I think 1/3 of that will come from our operating expenses."
* Mark Hughes, Truist Securities: Inquired about Employee Benefits outlook. CFO Howell: "The fourth quarter is a time where we do a lot of our helping customers enrollment. We see that as pretty strong right now. ... human resource leaders are waking up to the spiraling -- the increasing cost of medical inflation."
* Ryan Tunis, Cantor Fitzgerald: Queried about differences from previous cycles. CEO Gallagher: "Right now, we're dealing with still across all of the lines a positive 4%. ... our data and analytic capabilities. ... Our data lake, OneSource, now actually comprises 3 years of the AP data."
* Robert Cox, Goldman Sachs: Asked about reinsurance brokerage growth. CEO Gallagher: "When we did the Willis transaction, one of the things we told the investment community ... was that we thought there was an advantage of making sure that our retail operations, our wholesale operations and our reinsurance operations were seen together on the same page. ... That has worked to a level that I think is better than any of us expected."

SENTIMENT ANALYSIS

* Analysts frequently pressed on guidance precision, synergy realization, pricing environment impacts, and M&A pipeline integration. Questions reflected a neutral to slightly positive tone, with some skepticism around the impact of seasonality and margin pressures.
* Management maintained a positive and confident tone in both prepared remarks and Q&A, repeatedly highlighting operational momentum, "terrific" results, and the integration benefits from AssuredPartners. CEO Gallagher and CFO Howell both conveyed a sense of strong forward momentum, though Howell was transparent regarding modeling challenges due to AP seasonality.
* Compared to the previous quarter, management's tone remained upbeat, but analysts seemed more focused on the implementation and integration challenges of the large AssuredPartners acquisition and its effect on margins and organic growth.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for full-year organic growth shifted from a 6.5%-7.5% range in Q2 to "more than 6%" in Q3, indicating slightly more conservative language, likely influenced by seasonality from the AssuredPartners acquisition.
* The AssuredPartners acquisition, closed in Q3, was a key new development, with significant discussion on its integration, seasonality, and synergy realization, compared to Q2 where its closure was still pending.
* Analysts in Q3 were more focused on the practical impacts of the AP integration, while Q2 analysts probed more on pricing and general organic growth run rates.
* Margin expansion discussions in Q2 were more robust, with Q3 management noting "flat" headline margin but underlying expansion after adjustments.
* Management's confidence in M&A and future prospects remained steady, but Q3 remarks included more caveats about seasonality and timing in results.

RISKS AND CONCERNS

* Seasonality of AssuredPartners revenue recognition introduces quarterly volatility, as detailed by CFO Howell: "AP's business is much more seasonally skewed than we could previously estimate."
* Analysts raised concerns about the sustainability of organic growth rates in a shallow pricing environment.
* Large life case timing and contingent commission variability continue to pose headwinds to quarterly organic growth.
* Medical cost inflation and its impact on Employee Benefits was highlighted as a pressure area.
* Integration of the AssuredPartners M&A pipeline and realization of projected synergies remain closely watched.

FINAL TAKEAWAY

Arthur J. Gallagher & Co. management emphasized the continuation of double-digit revenue growth, robust organic expansion, and strong early results from the AssuredPartners integration. Despite some quarterly volatility from AP seasonality, the company projects Brokerage organic growth of around 5% for Q4 2025 and expects to finish the year above 6% organic growth. Management highlighted substantial future synergy opportunities and the strength of its platform to support both M&A and organic momentum into 2026, while acknowledging near-term integration and margin headwinds. The company remains bullish on its ability to drive growth and deliver shareholder value through strategic execution and operational discipline.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ajg/earnings/transcripts]

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