Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion includes forward-looking statements. See ‘Disclaimer Regarding Forward-looking Statements’ for certain cautionary information regarding forward-looking statements and a list of factors that could cause actual results to differ materially from those predicted in those statements.

This discussion includes references to non-GAAP financial measures as defined in the rules of the SEC. We present such non-GAAP financial measures, specifically, adjusted, constant currency and organic non-GAAP financial measures, as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company’s operating performance from period to period on a basis that may not be otherwise apparent under U.S. GAAP, and these provide a measure against which our businesses may be assessed in the future.

See ‘Non-GAAP Financial Measures’ below for further discussion of our adjusted, constant currency and organic non-GAAP financial measures.

Executive Overview

Market Conditions

Typically, our business benefits from regulatory change, political risk or economic uncertainty. Insurance broking generally tracks the economy, but demand for both insurance broking and consulting services usually remains steady during times of uncertainty. We have some businesses, such as our health and benefits and administration businesses, which can be counter cyclical during the early period of a significant economic change.

Within our insurance and brokerage business, due to the cyclical nature of the insurance market and the impact of other market conditions on insurance premiums, commission revenue may vary widely between accounting periods. A period of low or declining premium rates, generally known as a ‘soft’ or ‘softening’ market, generally leads to downward pressure on commission revenue and can have a material adverse impact on our revenue and operating margin. A ‘hard’ or ‘firming’ market, during which premium rates rise, generally has a favorable impact on our revenue and operating margin. Rates, however, vary by geography, industry and client segment. As a result, and due to the global and diverse nature of our business, we view rates in the aggregate. Overall, we are currently seeing a stabilizing to softening market.

Market conditions in the broking industry in which we operate are generally defined by factors such as the strength of the economies in the various geographic regions in which we serve around the world, insurance rate movements, and insurance and reinsurance buying patterns of our clients.

The markets for our consulting, technology and solutions, and marketplace services are affected by economic, regulatory and legislative changes, technological developments, and increased competition from established and new competitors. We believe that the primary factors in selecting a human resources or risk management consulting company include reputation, the ability to provide measurable increases to shareholder value and return on investment, global scale, quality of service and the ability to tailor services to clients’ unique needs. In that regard, we are focused on developing and implementing technology, data and analytic solutions for both internal operations and for maintaining industry standards and meeting client preferences. We have made such investments from time to time and may decide, based on perceived business needs, to make investments in the future that may be different from past practice or what we currently anticipate.

With regard to the market for exchanges, we believe that clients base their decisions on a variety of factors that include the ability of the provider to deliver measurable cost savings for clients, a strong reputation for efficient execution and an innovative service delivery model and platform. Part of the employer-sponsored insurance market has matured and become more fragmented while other segments remain in the entry phase. As these market segments continue to evolve, we may experience growth in intervals, with periods of accelerated expansion balanced by periods of modest growth. In recent years, growth in the market for exchanges has slowed, and this trend may continue.

Risks and Uncertainties of the Economic Environment

U.S. and global markets are continuing to experience volatility and disruption as a result of the ongoing Russia-Ukraine and Middle East conflicts. Although the length and impact of these situations are highly unpredictable, the conflicts have contributed to negative impacts on and volatility of the global economy and capital markets, resulting in significant inflation and fluctuating interest rates in many of the markets in which we operate, and could continue to lead to further market disruptions. This impacts not only the cost of and access to liquidity, but also other costs to run and invest in our business.

Other global economic events, such as accommodative monetary and fiscal policy, supply chain disruptions and geopolitical tensions beyond the aforementioned ongoing wars, contributed to significant inflation across the globe. In particular, inflation in the United States, Europe and other geographies has risen to levels not experienced in recent decades, and while this has eased somewhat in the last year, we are seeing its impact on various aspects of our business. Moreover, U.S. and global economic conditions have created market uncertainty and volatility. Such general economic conditions, including inflation, stagflation, political volatility, costs of labor, cost of capital, interest rates, bank stability, credit availability and tax rates, affect our cost of doing business, including our operating and general and administrative expenses, and we have no control or limited ability to control such factors. These general economic conditions impact revenue, including revenue from customers as well as income from funds we hold on behalf of customers and pension-related income.

If our costs grow significantly in excess of our ability to raise revenue, whether as a result of the foregoing global economic factors or otherwise, our margins and results of operations may be materially and adversely impacted and we may not be able to achieve our strategic and financial objectives.

See Part I, Item 1A ‘Risk Factors’ in our Annual Report on Form 10-K, filed with the SEC on February 22, 2024, for a discussion of risks that may affect, among other things, our growth relative to expectation and our ability to achieve our objectives.

Transformation Program

In the fourth quarter of 2021, the Company initiated a three-year ‘Transformation program’ designed to enhance operations, optimize technology and align its real estate footprint to its new ways of working. During the fourth quarter of 2023, we revised the expected costs and savings under the program and we currently expect the program to generate annual cost savings in excess of $450 million by the end of 2024. The program is expected to incur cumulative costs of approximately $1.045 billion and capital expenditures of approximately $130 million, for a total investment of approximately $1.175 billion. The main categories of charges have been in the following four areas:

Real estate rationalization — includes costs to align the real estate footprint to our new ways of working (hybrid work) and includes breakage fees and the impairment of right-of-use assets and other related leasehold assets.

Technology modernization — these charges are incurred in moving to common platforms and technologies, including migrating certain platforms and applications to the cloud. This category includes the impairment of technology assets that are duplicative or no longer revenue-producing, as well as costs for technology investments that do not qualify for capitalization.

Process optimization — these costs are incurred in the right-shoring strategy and automation of our operations, which includes optimizing resource deployment and appropriate colleague alignment. These costs include process and organizational design costs, severance and separation-related costs and temporary retention costs.

Other — other costs not included above including fees for professional services, other contract terminations not related to the above categories and supplier migration costs.

Certain costs under the Transformation program are accounted for under ASC 420, Exit or Disposal Cost Obligation, and are included as restructuring costs in the condensed consolidated statements of comprehensive income. For the three and nine months ended September 30, 2024, restructuring charges under our Transformation program totaled $8 million and $29 million, respectively; for the three and nine months ended September 30, 2023, restructuring charges under our Transformation program totaled $17 million and $30 million, respectively. Other costs incurred under the Transformation program are included in transaction and transformation and were $67 million and $272 million for the three and nine months ended September 30, 2024, respectively, and $104 million and $231 million for the three and nine months ended September 30, 2023, respectively.

From the actions taken during the third quarter of 2024, we have identified an additional $52 million of annualized run-rate savings during the year due to newly-realized opportunities and incremental sources of value. Since the inception of the program, we have identified $446 million of cumulative annualized run-rate savings, which overall are primarily attributable to process optimization. We began to recognize the benefits from the program during 2022.

For a discussion of some of the risks associated with the Transformation program, see Part I, Item 1A ‘Risk Factors’ in our Annual Report on Form 10-K, filed with the SEC on February 22, 2024.

Financial Statement Overview

The table below sets forth our summarized condensed consolidated statements of comprehensive income and data as a percentage of revenue for the periods indicated.

		Three Months Ended September 30,																Nine Months Ended September 30,
		2024								2023								2024								2023
		($ in millions, except per share data)
Revenue		$	2,289				100	%		$	2,166				100	%		$	6,895				100	%		$	6,569				100	%
Costs of providing services
Salaries and benefits			1,396				61	%			1,359				63	%			4,135				60	%			4,019				61	%
Other operating expenses			419				18	%			396				18	%			1,315				19	%			1,282				20	%
Impairment (i)			1,042				46	%			—				—	%			1,042				15	%			—				—	%
Depreciation			60				3	%			60				3	%			176				3	%			184				3	%
Amortization			56				2	%			62				3	%			176				3	%			203				3	%
Restructuring costs			8				—	%			17				1	%			29				—	%			30				—	%
Transaction and transformation			74				3	%			113				5	%			296				4	%			265				4	%
Total costs of providing services			3,055								2,007								7,169								5,983
(Loss)/income from operations			(766	)			(33	)%			159				7	%			(274	)			(4	)%			586				9	%
Interest expense			(65	)			(3	)%			(61	)			(3	)%			(197	)			(3	)%			(172	)			(3	)%
Other (loss)/income, net (i)			(1,163	)			(51	)%			66				3	%			(1,113	)			(16	)%			126				2	%
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES			(1,994	)			(87	)%			164				8	%			(1,584	)			(23	)%			540				8	%
Benefit from/(provision for) income taxes			322				14	%			(25	)			(1	)%			248				4	%			(99	)			(2	)%
Income attributable to non-controlling interests			(3	)			—	%			(3	)			—	%			(8	)			—	%			(8	)			—	%
NET (LOSS)/INCOME ATTRIBUTABLE TO WTW		$	(1,675	)			(73	)%		$	136				6	%		$	(1,344	)			(19	)%		$	433				7	%
Diluted (loss)/earnings per share		$	(16.44	)						$	1.29							$	(13.11	)						$	4.06

(i)

For the three and nine months ended September 30, 2024, Impairment and Other (loss)/income, net include goodwill-related impairment expense and loss on disposal, respectively, associated with the pending sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q).

Consolidated Revenue

Revenue for the three months ended September 30, 2024 was $2.3 billion, compared to $2.2 billion for the three months ended September 30, 2023, an increase of $123 million, or 6%, on an as-reported basis. Adjusting for the impacts of foreign currency and acquisitions and disposals, our organic revenue growth was 6% for the three months ended September 30, 2024. Revenue for the nine months ended September 30, 2024 was $6.9 billion, compared to $6.6 billion for the nine months ended September 30, 2023, an increase of $326 million, or 5%, on an as-reported basis. Adjusting for the impacts of foreign currency and acquisitions and disposals, our organic revenue growth was 5% for the nine months ended September 30, 2024. The increases in both as-reported and organic revenue were driven by strong performances in both segments. For additional information, please see the section entitled ‘Segment Revenue’ elsewhere within this Item 2 in this Quarterly Report on Form 10-Q.

Our revenue can be materially impacted by changes in currency conversions, which can fluctuate significantly over the course of a calendar year. However, for the three months ended September 30, 2024, the impact of currency translation on our revenue was immaterial. For the nine months ended September 30, 2024, currency translation decreased our consolidated revenue by $4 million.

The following table details our top five markets based on the percentage of consolidated revenue (in U.S. dollars) from the countries where work was performed for the nine months ended September 30, 2024. These figures do not represent the currency of the related revenue, which is presented in the next table.

Geographic Region		% of Revenue
United States			49	%
United Kingdom			20	%
France			5	%
Canada			3	%
Germany			3	%

The table below details the approximate percentage of our revenue and expenses by transactional currency for the nine months ended September 30, 2024.

Transactional Currency		Revenue				Expenses (i)
U.S. dollars			57	%			52	%
Pounds sterling			12	%			18	%
Euro			15	%			13	%
Other currencies			16	%			17	%

(i)

These percentages exclude certain expenses for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. These items include amortization of intangible assets and transaction and transformation costs.

The following tables set forth the total revenue for the three and nine months ended September 30, 2024 and 2023, and the components of the change in total revenue for the three and nine months ended September 30, 2024, as compared to the prior-year periods. The components of the revenue change may not add due to rounding.

												Components of Revenue Change
										As		Less:		Constant		Less:
		Three Months Ended September 30,								Reported		Currency		Currency		Acquisitions/		Organic
		2024				2023				Change		Impact		Change		Divestitures		Change (i)
		($ in millions)
Revenue		$	2,289			$	2,166			6%		—%		6%		—%		6%

												Components of Revenue Change
										As		Less:		Constant		Less:
		Nine Months Ended September 30,								Reported		Currency		Currency		Acquisitions/		Organic
		2024				2023				Change		Impact		Change		Divestitures		Change (i)
		($ in millions)
Revenue		$	6,895			$	6,569			5%		—%		5%		—%		5%

(i)

Interest income did not contribute to organic change for the three and nine months ended September 30, 2024.

Definitions of Constant Currency Change and Organic Change are included under the section entitled ‘Non-GAAP Financial Measures’ elsewhere within Item 2 in this Quarterly Report on Form 10-Q.

Segment Revenue

The segment descriptions below should be read in conjunction with the full descriptions of our businesses contained in Part I, Item 1. ‘Business’, within our Annual Report on Form 10-K, filed with the SEC on February 22, 2024.

Segment revenue excludes amounts that were directly incurred on behalf of our clients and reimbursed by them (reimbursed expenses); however, these amounts are included in consolidated revenue, as permitted by applicable accounting standards and SEC rules.

The Company experiences seasonal fluctuations in its revenue. Revenue is typically higher during the Company’s first and fourth quarters due primarily to the timing of broking-related activities.

For each table presented below, the components of the revenue change may not add due to rounding.

Health, Wealth & Career

The Health, Wealth & Career (‘HWC’) segment provides an array of advice, broking, solutions and technology for employee benefit plans, institutional investors, compensation and career programs, and the employee experience overall. Our portfolio of services supports the interrelated challenges that the management teams of our clients face across human resources and finance.

HWC is the larger of the two segments of the Company. Addressing four key areas, Health, Wealth, Career and Benefits Delivery & Outsourcing, the segment is focused on addressing our clients’ people and risk needs to help them succeed in a global marketplace.

The following table sets forth HWC revenue for the three months ended September 30, 2024 and 2023, and the components of the change in revenue for the three months ended September 30, 2024 from the three months ended September 30, 2023.

												Components of Revenue Change
		Three Months Ended								As		Less:		Constant		Less:
		September 30,								Reported		Currency		Currency		Acquisitions/		Organic
		2024				2023				Change		Impact		Change		Divestitures		Change
		($ in millions)
Segment revenue excluding interest income		$	1,320			$	1,275			4%		—%		3%		—%		4%
Interest income			8				7
Total segment revenue		$	1,328			$	1,282			4%		—%		3%		—%		4%

HWC segment revenue for both the three months ended September 30, 2024 and 2023 was $1.3 billion. Health had organic revenue growth driven by strong client retention, new local appointments and the continued expansion of our Global Benefits Management client portfolio in International and Europe, along with increased brokerage income in North America. Wealth generated organic revenue growth from higher levels of Retirement work in Europe and an increase in our Investments business due to capital market improvements and growth from our LifeSight solution. Career had organic revenue growth from increased compensation survey sales and advisory services in Work & Rewards and product revenue in Employee Experience. Benefits Delivery & Outsourcing had an organic revenue decline for the quarter primarily as a result of deliberately moderating growth in Individual Marketplace and a stronger comparable in Outsourcing.

The following table sets forth HWC segment revenue for the nine months ended September 30, 2024 and 2023 and the components of the change in revenue for the nine months ended September 30, 2024 from the nine months ended September 30, 2023.

												Components of Revenue Change
		Nine Months Ended								As		Less:		Constant		Less:
		September 30,								Reported		Currency		Currency		Acquisitions/		Organic
		2024				2023				Change		Impact		Change		Divestitures		Change
		($ in millions)
Segment revenue excluding interest income		$	3,898			$	3,766			4%		—%		4%		—%		4%
Interest income			26				18
Total segment revenue		$	3,924			$	3,784			4%		—%		4%		—%		4%

HWC segment revenue for the nine months ended September 30, 2024 and 2023 was $3.9 billion and $3.8 billion, respectively. Organic revenue growth in Health was achieved across all regions and led by International. Our Wealth businesses generated organic revenue growth from our Investments-related solutions and higher levels of Retirement work in North America and Europe. Career had organic revenue growth from increased project work in Employee Experience and Work & Rewards. Organic growth in Benefits Delivery & Outsourcing was driven by higher project work in Outsourcing and higher commissions and fees from Individual Marketplace.

Risk & Broking

The Risk & Broking (‘R&B’) segment provides a broad range of risk advice, insurance brokerage and consulting services to clients worldwide ranging from small businesses to multinational corporations. The segment comprises two primary businesses - Corporate Risk & Broking and Insurance Consulting and Technology.

The following table sets forth R&B revenue for the three months ended September 30, 2024 and 2023, and the components of the change in revenue for the three months ended September 30, 2024 from the three months ended September 30, 2023.

												Components of Revenue Change
		Three Months Ended								As		Less:		Constant		Less:
		September 30,								Reported		Currency		Currency		Acquisitions/		Organic
		2024				2023				Change		Impact		Change		Divestitures		Change
		($ in millions)
Segment revenue excluding interest income		$	911			$	830			10%		—%		10%		—%		10%
Interest income			29				25
Total segment revenue		$	940			$	855			10%		—%		10%		—%		10%

R&B segment revenue for the three months ended September 30, 2024 and 2023 was $940 million and $855 million, respectively. Corporate Risk & Broking had organic revenue growth primarily driven by higher levels of new business activity and strong client retention. Insurance Consulting and Technology had organic revenue growth for the quarter primarily due to strong software sales in Technology, partially offset by tempered demand for discretionary services in Consulting.

The following table sets forth R&B segment revenue for the nine months ended September 30, 2024 and 2023 and the components of the change in revenue for the nine months ended September 30, 2024 from the nine months ended September 30, 2023.

												Components of Revenue Change
		Nine Months Ended								As		Less:		Constant		Less:
		September 30,								Reported		Currency		Currency		Acquisitions/		Organic
		2024				2023				Change		Impact		Change		Divestitures		Change
		($ in millions)
Segment revenue excluding interest income		$	2,811			$	2,607			8%		—%		8%		—%		8%
Interest income			86				52
Total segment revenue		$	2,897			$	2,659			9%		—%		9%		—%		9%

R&B segment revenue for the nine months ended September 30, 2024 and 2023 was $2.9 billion and $2.7 billion, respectively. Corporate Risk & Broking had organic revenue growth primarily driven by higher levels of new business activity and strong client retention and renewal increases across all geographies. Insurance Consulting and Technology had flat organic revenue growth for the year primarily due to tempered demand for discretionary services.

Costs of Providing Services

Total costs of providing services for the three months ended September 30, 2024 were $3.1 billion, compared to $2.0 billion for the three months ended September 30, 2023, an increase of $1.0 billion. Total costs of providing services for the nine months ended September 30, 2024 were $7.2 billion, compared to $6.0 billion for the nine months ended September 30, 2023, an increase of $1.2 billion. These increases resulted from the impairment expense associated with the pending sale of our TRANZACT business in the current-year period (see Note 3 — Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q). See the following discussion for further details.

Salaries and Benefits

Salaries and benefits for both the three months ended September 30, 2024 and 2023 were $1.4 billion, an increase of $37 million, or 3%. The increase in the current-year period is primarily due to higher salary expense, driven by increased colleague headcount and cost-of-living compensation adjustments, and higher benefit costs for the period. Salaries and benefits, as a percentage of revenue, represented 61% and 63% for the three months ended September 30, 2024 and 2023, respectively.

Salaries and benefits for the nine months ended September 30, 2024 were $4.1 billion, compared to $4.0 billion for the nine months ended September 30, 2023, an increase of $116 million, or 3%. The increase in the current year is primarily due to higher salary expense, driven by increased colleague headcount and cost-of-living compensation adjustments, and higher incentive and benefit costs for the period. Salaries and benefits, as a percentage of revenue, represented 60% and 61% for the nine months ended September 30, 2024 and 2023, respectively.

Other Operating Expenses

Other operating expenses for the three months ended September 30, 2024 were $419 million, compared to $396 million for the three months ended September 30, 2023, an increase of $23 million, or 6%. The increase was primarily due to higher non-income-related tax expense for the current-year period as compared to the prior-year period.

Other operating expenses for both the nine months ended September 30, 2024 and 2023 were $1.3 billion, an increase of $33 million, or 3%. The increase was primarily due to higher non-income-related tax expense and increased marketing costs, partially offset by lower occupancy costs for the current year as compared to the prior year.

Impairment

Impairment for both the three and nine months ended September 30, 2024 was $1.0 billion. Impairment is attributable to the goodwill impairment associated with our Benefits, Delivery and Administration (‘BDA’) reporting unit related to the pending sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q).

Depreciation

Depreciation for both the three months ended September 30, 2024 and 2023 was $60 million. Depreciation for the nine months ended September 30, 2024 was $176 million, compared to $184 million for the nine months ended September 30, 2023, a decrease of $8 million, or 4%. The year-over-year decrease was primarily due to a lower depreciable base of assets resulting from business disposals and a lower dollar value of assets placed in service during the past few years.

Amortization

Amortization for the three months ended September 30, 2024 was $56 million, compared to $62 million for the three months ended September 30, 2023, a decrease of $6 million, or 10%. Amortization for the nine months ended September 30, 2024 was $176 million, compared to $203 million for the nine months ended September 30, 2023, a decrease of $27 million, or 13%. Our intangible amortization is generally more weighted to the initial years of the useful lives of the related intangibles, and therefore amortization related to intangible assets has decreased and will continue to decrease over time.

Restructuring Costs

Restructuring costs for the three months ended September 30, 2024 were $8 million, compared to $17 million for the three months ended September 30, 2023. Restructuring costs for the nine months ended September 30, 2024 were $29 million, compared to $30 million for the nine months ended September 30, 2023. Restructuring costs in both the current-year and prior-year periods primarily related to the real estate rationalization component of the Transformation program commenced by the Company during the fourth quarter of 2021 (see ‘Transformation Program’ within this Part I, Item 2 and Note 6 — Restructuring Costs within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q).

Transaction and Transformation

Transaction and transformation costs for the three months ended September 30, 2024 were $74 million, compared to $113 million for the three months ended September 30, 2023, a decrease of $39 million. Transaction and transformation costs for the nine months ended September 30, 2024 were $296 million, compared to $265 million for the nine months ended September 30, 2023, an increase of $31 million. Transaction and transformation costs for the current year-to-date period were higher primarily due to increased compensation and consulting costs related to our Transformation program (see ‘Transformation Program’ within this Part I, Item 2) incurred in the current year as compared to the prior-year comparable period.

(Loss)/Income from Operations

Loss from operations for the three months ended September 30, 2024 was $766 million, compared to income from operations of $159 million for the three months ended September 30, 2023, a decrease of $925 million. This decrease resulted from the impairment expense associated with the pending sale of our TRANZACT business in the current-year period (see Note 3 — Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q), partially offset by higher revenue in the current-year period.

Loss from operations for the nine months ended September 30, 2024 was $274 million, compared to income from operations of $586 million for the nine months ended September 30, 2023, a decrease of $860 million. This decrease resulted from the impairment expense associated with the pending sale of our TRANZACT business, higher salary expense and increased incentive and benefit costs in the current year, partially offset by higher revenue in the current year.

Interest Expense

Interest expense for the three months ended September 30, 2024 was $65 million, compared to $61 million for the three months ended September 30, 2023, an increase of $4 million, or 7%. Interest expense for the nine months ended September 30, 2024 was $197 million as compared to $172 million for the nine months ended September 30, 2023, an increase of $25 million, or 15%. These increases were the result of a greater level of indebtedness in the current year and the higher interest rate-bearing senior notes issued by the Company during the last two years.

Other (Loss)/Income, Net

Other (loss)/income, net for the three months ended September 30, 2024 was a loss of $1.2 billion, compared to income of $66 million for the three months ended September 30, 2023, a decrease of $1.2 billion. Other (loss)/income, net for the nine months ended September 30, 2024 was a loss of $1.1 billion, compared to income of $126 million for the nine months ended September 30, 2023, a decrease of $1.2 billion. The decreases were due to a higher loss on disposal in the current-year periods, which are attributable to the pending sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q).

Benefit from/(Provision for) Income Taxes

Benefit from/(provision for) income taxes for the three months ended September 30, 2024 was a benefit of $322 million, compared to a provision of $25 million for the three months ended September 30, 2023, a decrease of $347 million. The effective tax rates were 16.1% for the three months ended September 30, 2024 and 15.5% for the three months ended September 30, 2023. Benefit from/(provision for) income taxes for the nine months ended September 30, 2024 was a benefit of $248 million, compared to a provision of $99 million for the nine months ended September 30, 2023. The effective tax rates were 15.6% for the nine months ended September 30, 2024 and 18.3% for the nine months ended September 30, 2023. These effective tax rates are calculated using extended values from our condensed consolidated statements of comprehensive income and are therefore more precise tax rates than can be calculated from rounded values. The prior-year effective tax rate for the three months ended September 30, 2023 was lower due to the tax-exempt gain on a business disposal. The current-year effective tax rate for the nine months ended September 30, 2024 was lower due to deferred tax benefits recognized on the gross-up to carrying value of net assets to be disposed and a deferred tax benefit of $56 million, net of a $37 million valuation allowance, on the expected tax loss on disposal of TRANZACT (see Note 3 – Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q). The Company records valuation allowances against net deferred tax assets based on whether it is more likely than not that the deferred tax assets will be realized. During the three months ended September 30, 2024 the Company recorded a $37 million valuation allowance related to unrealized capital losses that are not more-likely-than-not to be realized.

Net (Loss)/Income Attributable to WTW

Net loss attributable to WTW for the three months ended September 30, 2024 was $1.7 billion, compared to income of $136 million for the three months ended September 30, 2023, a decrease of $1.8 billion. This decrease resulted from the loss on disposal and impairment expense associated with the pending sale of our TRANZACT business in the current-year period (see Note 3 — Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q), partially offset by lower tax expense attributable to the losses associated with the pending sale and higher revenue in the current-year period.

Net loss attributable to WTW for the nine months ended September 30, 2024 was $1.3 billion, compared to income of $433 million for the nine months ended September 30, 2023, a decrease of $1.8 billion. This decrease resulted from the loss on disposal and impairment expense associated with the pending sale of our TRANZACT business, higher salary expense and increased incentive and benefit costs in the current year, partially offset by higher revenue and lower tax expense attributable to the losses associated with the pending sale in the current year.

Liquidity and Capital Resources

Executive Summary

Our principal sources of liquidity are funds generated by operating activities, available cash and cash equivalents and amounts available under our revolving credit facility and any new debt offerings.

There has been significant volatility in financial markets, including occasional declines in equity markets, inflation and changes in interest rates and reduced liquidity on a global basis and we expect this volatility could continue.

Based on our current balance sheet and cash flows, current market conditions and information available to us at this time, we believe that WTW has access to sufficient liquidity, which includes all of the borrowing capacity available to draw against our $1.5 billion revolving credit facility, to meet our cash needs for the next twelve months, including investments in the business for growth and those related to our Transformation program, scheduled debt repayments, share repurchases and dividend payments. During the first quarter of 2024, we completed an offering of $750 million aggregate principal amount of 5.900% senior notes due 2054 and used the net proceeds during the second quarter to repay in full the $650 million aggregate principal amount and related accrued interest of the 3.600% senior notes. The Company is using the remaining net proceeds for general corporate purposes. Additionally, during the nine months ended September 30, 2024, we repurchased $506 million of shares and have authorization to repurchase an additional $837 million.

We consider many factors, including market and economic conditions, applicable legal requirements and other business considerations, when considering whether to repurchase shares. Our share repurchase program (as further described below under ‘Share Repurchase Program’) has no termination date and may be suspended or discontinued at any time.

Events that could change the historical cash flow dynamics discussed above include significant changes in operating results, the receipt of significant earnout payments related to past divestitures, potential future acquisitions or divestitures, material changes in geographic sources of cash, unexpected adverse impacts from litigation or regulatory matters, or future pension funding during periods of severe downturn in the capital markets.

Undistributed Earnings of Foreign Subsidiaries

The Company recognizes deferred tax balances related to the undistributed earnings of subsidiaries when it expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments.

We continue to have certain subsidiaries whose earnings have not been deemed permanently reinvested, for which we have been accruing estimates of the tax effects of such repatriation. Excluding these certain subsidiaries, we continue to assert that the historical cumulative earnings for the remainder of our subsidiaries have been reinvested indefinitely and therefore do not provide deferred taxes on these amounts. If future events, including material changes in estimates of cash, working capital, long-term investment requirements or additional legislation, necessitate that these earnings be distributed, an additional provision for income and foreign withholding taxes, net of credits, may be necessary. Other potential sources of cash may be through the settlement of intercompany loans or return of capital distributions in a tax-efficient manner.

Cash and Cash Equivalents

Our cash and cash equivalents at September 30, 2024 and December 31, 2023 totaled $1.4 billion. The decrease of $52 million in cash from December 31, 2023 to September 30, 2024 was due primarily to $506 million of share repurchases, $265 million of dividend payments and $230 million of cash outflows attributable to investing activities, partially offset by $913 million of cash inflows from operating activities.

Additionally, we had all of the borrowing capacity available to draw against our $1.5 billion revolving credit facility at both September 30, 2024 and December 31, 2023.

Included within cash and cash equivalents at September 30, 2024 and December 31, 2023 are amounts held for regulatory capital adequacy requirements, including $108 million and $105 million, respectively, within our regulated U.K. entities.

Summarized Condensed Consolidated Cash Flows

The following table presents the summarized condensed consolidated cash flow information for the nine months ended September 30, 2024 and 2023:

		Nine Months Ended September 30,
		2024				2023
		(in millions)
Net cash from/(used in):
Operating activities		$	913			$	823
Investing activities			(230	)			(1,030	)
Financing activities			205				(728	)
INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (i)			888				(935	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			32				(54	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD (i)			3,792				4,721
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (i)		$	4,712			$	3,732

(i)

The amounts of cash, cash equivalents and restricted cash, their respective classification on the condensed consolidated balance sheets, as well as their respective portions of the increase or decrease in cash, cash equivalents and restricted cash for each of the periods presented, have been included in Note 19 — Supplemental Disclosures of Cash Flow Information within Part I, Item I ‘Financial Statements’ in this Quarterly Report on Form 10-Q.

Cash Flows From Operating Activities

Cash flows from operating activities were $913 million for the nine months ended September 30, 2024, compared to $823 million for the nine months ended September 30, 2023. The $913 million of net cash from operating activities for the nine months ended September 30, 2024 included $2.4 billion of favorable non-cash adjustments, partially offset by a net loss of $1.3 billion and unfavorable changes in operating assets and liabilities of $139 million. This increase in cash flows from operations as compared to the prior year was primarily driven by operating margin expansion, partially offset by increased cash outflows related to the Transformation program and discretionary compensation payments in the current year as compared to the prior year.

The $823 million of net cash from operating activities for the nine months ended September 30, 2023 included net income of $441 million and $484 million of favorable non-cash adjustments, partially offset by unfavorable changes in operating assets and liabilities of $102 million.

Cash Flows Used In Investing Activities

Cash flows used in investing activities for the nine months ended September 30, 2024 were $230 million as compared $1.0 billion for the nine months ended September 30, 2023. The cash flows used in investing activities in the current year consisted primarily of capital expenditures and capitalized software additions.

The cash flows used in investing activities for the nine months ended September 30, 2023 consisted primarily of cash and fiduciary funds of $922 million associated with the transfer to Gallagher under a side letter agreement to the Willis Re SAPA (see Note 3 — Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q for additional information) and $182 million of capital expenditures and capitalized software additions.

Cash Flows From/(Used In) Financing Activities

Cash flows from financing activities for the nine months ended September 30, 2024 were $205 million. The significant financing activities included net proceeds from fiduciary funds held for clients of $934 million and $84 million of net proceeds from the issuance of debt, partially offset by share repurchases of $506 million and dividend payments of $265 million.

Cash flows used in financing activities for the nine months ended September 30, 2023 were $728 million. The significant financing activities included share repurchases of $804 million, dividend payments of $265 million, and net payments from fiduciary funds held for clients of $71 million, partially offset by $488 million of net proceeds from the issuance of debt.

Indebtedness

Total debt, total equity, and the capitalization ratios at September 30, 2024 and December 31, 2023 were as follows:

		September 30, 2024				December 31, 2023
		($ in millions)
Long-term debt		$	5,308			$	4,567
Current debt			—				650
Total debt		$	5,308			$	5,217
Total WTW shareholders’ equity		$	7,492			$	9,520
Capitalization ratio			41.5	%			35.4	%

The capitalization ratio increased from December 31, 2023 due primarily to the earnings loss in the current quarter driven by the recognition of impairment expense and loss on disposal associated with the pending sale of our TRANZACT business (see Note 3 — Acquisitions and Divestitures in Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q for further information).

At September 30, 2024, the Company does not have any mandatory debt repayments over the next twelve months. For more information regarding our current and long-term debt, please see the section entitled ‘Supplemental Guarantor Financial Information’ elsewhere within this Item 2 in this Quarterly Report on Form 10-Q.

At September 30, 2024 and December 31, 2023, we were in compliance with all financial covenants.

Fiduciary Funds

As an intermediary, we hold funds, generally in a fiduciary capacity, for the account of third parties, typically as the result of premiums received from clients that are in transit to insurers and claims due to clients that are in transit from insurers. We also hold funds for clients of our benefits account businesses, some of which are invested in open-ended mutual funds as directed by the participant. These fiduciary funds are included in fiduciary assets on our condensed consolidated balance sheets. We present the equal and corresponding fiduciary liabilities related to these fiduciary funds representing amounts or claims due to our clients or premiums due on their behalf to insurers on our condensed consolidated balance sheets.

Fiduciary funds are generally required to be kept in regulated bank accounts subject to guidelines which emphasize capital preservation and liquidity; such funds are not available to service the Company’s debt or for other corporate purposes. Notwithstanding the legal relationships with clients and insurers, the Company is entitled to retain investment income earned on certain of these fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.

At September 30, 2024 and December 31, 2023, we had fiduciary funds of $3.7 billion and $2.6 billion, respectively.

Share Repurchase Program

The Company is authorized to repurchase shares, by way of redemption or otherwise, and will consider whether to do so from time to time, based on many factors, including market conditions. There are no expiration dates for our repurchase plans or programs.

On September 20, 2023, the board of directors approved a $1.0 billion increase to the existing share repurchase program. This increase brought the total approved authorization, since the announcement of the program on April 20, 2016, to $9.2 billion.

At September 30, 2024, approximately $837 million remained on the current repurchase authority. The maximum number of shares that could be repurchased based on the closing price of our ordinary shares on September 30, 2024 of $294.53 was 2,841,324.

During the three and nine months ended September 30, 2024, the Company had the following share repurchase activity:

		Three Months Ended September 30, 2024		Nine Months Ended September 30, 2024
Shares repurchased		717,016		1,865,740
Average price per share		$285.76		$271.02
Aggregate repurchase cost (excluding broker costs)		$205 million		$506 million

Capital Commitments

The Company’s capital expenditures for fixed assets and software for internal use were $106 million during the nine months ended September 30, 2024. The Company estimates that there will be additional such expenditures, which include those incurred under its Transformation program, in the range of $40 million - $65 million during the remainder of 2024. We currently expect cash from operations to adequately provide for these cash needs. There have been no material changes to our capital commitments since December 31, 2023.

Dividends

Total cash dividends of $265 million were paid during the nine months ended September 30, 2024. In August 2024, the board of directors approved a quarterly cash dividend of $0.88 per share ($3.52 per share annualized rate), which was paid on October 15, 2024 to shareholders of record as of September 30, 2024.

Supplemental Guarantor Financial Information

As of September 30, 2024, WTW has issued the following debt securities (the ‘notes’):

a)

Willis North America Inc. (‘Willis North America’) has approximately $4.5 billion senior notes outstanding, of which $1.0 billion were issued on September 10, 2018, $1.0 billion were issued on September 10, 2019, $275 million were issued on May 29, 2020, $750 million were issued on May 19, 2022, $750 million were issued on May 17, 2023 and $750 million were issued on March 5, 2024; and

b)

Trinity Acquisition plc has approximately $825 million senior notes outstanding, of which $275 million were issued on August 15, 2013 and $550 million were issued on March 22, 2016, and a $1.5 billion revolving credit facility, on which no balance was outstanding at September 30, 2024.

The following table presents a summary of the entities that issue each note and those wholly-owned subsidiaries of the Company that guarantee each respective note on a joint and several basis as of September 30, 2024. These subsidiaries are all consolidated by Willis Towers Watson plc (the ‘parent company’) and together with the parent company comprise the ‘Obligor group’.

Entity		Trinity Acquisition plc Notes		Willis North America Inc. Notes
Willis Towers Watson plc		Guarantor		Guarantor
Trinity Acquisition plc		Issuer		Guarantor
Willis North America Inc.		Guarantor		Issuer
Willis Netherlands Holdings B.V.		Guarantor		Guarantor
Willis Investment UK Holdings Limited		Guarantor		Guarantor
TA I Limited		Guarantor		Guarantor
Willis Group Limited		Guarantor		Guarantor
Willis Towers Watson Sub Holdings Unlimited Company		Guarantor		Guarantor
Willis Towers Watson UK Holdings Limited		Guarantor		Guarantor

The notes issued by Willis North America and Trinity Acquisition plc:

rank equally with all of the issuer’s existing and future unsubordinated and unsecured debt;

rank equally with the issuer’s guarantee of all of the existing senior debt of the Company and the other guarantors, including any debt under the Revolving Credit Facility;

are senior in right of payment to all of the issuer’s future subordinated debt; and

are effectively subordinated to all of the issuer’s secured debt to the extent of the value of the assets securing such debt.

All other subsidiaries of the parent company are non-guarantor subsidiaries (‘the non-guarantor subsidiaries’).

Each member of the Obligor group has only a stockholder’s claim on the assets of the non-guarantor subsidiaries. This stockholder’s claim is junior to the claims that creditors have against those non-guarantor subsidiaries. Holders of the notes will only be creditors of the Obligor group and not creditors of the non-guarantor subsidiaries. As a result, all of the existing and future liabilities of the non-guarantor subsidiaries, including any claims of trade creditors and preferred stockholders, will be structurally senior to the notes. As of and for the periods ended September 30, 2024 and December 31, 2023, the non-guarantor subsidiaries represented substantially all of the total assets and accounted for substantially all of the total revenue of the Company prior to consolidating adjustments. The non-guarantor subsidiaries have other liabilities, including contingent liabilities that may be significant. Each indenture does not contain any limitations on the amount of additional debt that the Obligor group and the non-guarantor subsidiaries may incur. The amounts of this debt could be substantial, and this debt may be debt of the non-guarantor subsidiaries, in which case this debt would be effectively senior in right of payment to the notes.

The notes are obligations exclusively of the Obligor group. Substantially all of the Obligor group’s operations are conducted through its non-guarantor subsidiaries. Therefore, the Obligor group’s ability to service its debt, including the notes, is dependent upon the net cash flows of its non-guarantor subsidiaries and their ability to distribute those net cash flows as dividends, loans or other payments to the Obligor group. Certain laws restrict the ability of these non-guarantor subsidiaries to pay dividends and make loans and advances to the Obligor group. In addition, such non-guarantor subsidiaries may enter into contractual arrangements that limit their ability to pay dividends and make loans and advances to the Obligor group.

Intercompany balances and transactions between members of the Obligor group have been eliminated. All intercompany balances and transactions between the Obligor group and the non-guarantor subsidiaries have been presented in the disclosures below on a net presentation basis, rather than a gross basis, as this better reflects the nature of the intercompany positions and presents the funding or funded position that is to be received or owed. The intercompany balances and transactions between the Obligor group and non-guarantor subsidiaries, presented below, relate to a number of items including loan funding for acquisitions and other purposes, transfers of surplus cash between subsidiary companies, funding provided for working capital purposes, settlement of expense accounts, transactions related to share-based payment arrangements and share issuances, intercompany royalty arrangements, intercompany dividends and intercompany interest. At September 30, 2024 and December 31, 2023, the intercompany balances of the Obligor group with non-guarantor subsidiaries were net receivables of $4.1 billion and $3.4 billion, respectively, and net payables of $15.0 billion and $14.0 billion, respectively.

No balances or transactions of non-guarantor subsidiaries are presented in the disclosures other than the intercompany items noted above.

Presented below is certain summarized financial information for the Obligor group.

`		As of September 30, 2024				As of December 31, 2023
		(in millions)
Total current assets		$	194			$	299
Total non-current assets			4,141				3,454
Total current liabilities			7,978				7,576
Total non-current liabilities			12,566				11,848

		Nine months ended September 30, 2024
		(in millions)
Revenue		$	819
Income from operations			646
Loss from operations before income taxes (i)			(132	)
Net loss			(52	)
Net loss attributable to WTW			(52	)

(i)

Includes intercompany expense, net of the Obligor group from non-guarantor subsidiaries of $263 million for the nine months ended September 30, 2024.

Non-GAAP Financial Measures

In order to assist readers of our condensed consolidated financial statements in understanding the core operating results that WTW’s management uses to evaluate the business and for financial planning purposes, we present the following non-GAAP measures and their most directly comparable U.S. GAAP measure:

Most Directly Comparable U.S. GAAP Measure		Non-GAAP Measure
As reported change		Constant currency change
As reported change		Organic change
(Loss)/income from operations/margin		Adjusted operating income/margin
Net (loss)/income/margin		Adjusted EBITDA/margin
Net (loss)/income attributable to WTW		Adjusted net income
Diluted (loss)/earnings per share		Adjusted diluted earnings per share
(Loss)/income from operations before income taxes		Adjusted income before taxes
(Benefit from)/provision for income taxes/U.S. GAAP tax rate		Adjusted income taxes/tax rate
Net cash from operating activities		Free cash flow

The Company believes that these measures are relevant and provide pertinent information widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and comparing our operating performance, and in the case of free cash flow, our liquidity results.

Within the measures referred to as ‘adjusted’, we adjust for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. Some of these items may not be applicable for the current quarter, however they may be part of our full-year results. Additionally, we have historically adjusted for certain items which are not described below, but for which we may adjust in a future period when applicable. For a complete summary of our adjusting items, please see our Annual Report on Form 10-K filed with the SEC on February 22, 2024. Items applicable to the quarter or full year results, or the comparable periods, include the following:

Restructuring costs and transaction and transformation – Management believes it is appropriate to adjust for restructuring costs and transaction and transformation when they relate to a specific significant program with a defined set of activities and costs that are not expected to continue beyond a defined period of time, or significant acquisition-related transaction expenses. We believe the adjustment is necessary to present how the Company is performing, both now and in the future when the incurrence of these costs will have concluded.

Impairment – Adjustment to remove the non-cash goodwill impairment associated with our Benefits, Delivery and Administration (‘BDA’) reporting unit related to the pending sale of our TRANZACT business.

Provisions for specified litigation matters – We will include provisions for litigation matters which we believe are not representative of our core business operations. Among other things, we determine this by reference to the amount of the loss (net of insurance and other recovery receivables) and by reference to whether the matter relates to an unusual and complex scenario that is not expected to be repeated as part of our ongoing, ordinary business. These amounts are presented net of insurance and other recovery receivables. See the footnotes to the reconciliation tables below for more specificity on the litigation matter excluded from adjusted results.

Gains and losses on disposals of operations – Adjustment to remove the gains or losses resulting from disposed operations that have not been classified as discontinued operations.

Tax effect of significant adjustments – Relates to the incremental tax expense or benefit resulting from significant or unusual events including significant statutory tax rate changes enacted in material jurisdictions in which we operate, internal reorganizations of ownership of certain businesses that reduced the investment held by our U.S.-controlled subsidiaries and the recovery of certain refunds or payment of taxes related to businesses in which we no longer participate.

These non-GAAP measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP measures should be considered in addition to, and not as a substitute for, the information contained within our condensed consolidated financial statements.

Constant Currency Change and Organic Change

We evaluate our revenue on an as reported (U.S. GAAP), constant currency and organic basis. We believe presenting constant currency and organic information provides valuable supplemental information regarding our comparable results, consistent with how we evaluate our performance internally.

Constant currency change - Represents the year-over-year change in revenue excluding the impact of foreign currency fluctuations. To calculate this impact, the prior-year local currency results are first translated using the current-year monthly average exchange rates. The change is calculated by comparing the prior-year revenue, translated at the current-year monthly average exchange rates, to the current-year as-reported revenue, for the same period. We believe constant currency measures provide useful information to investors because they provide transparency to performance by excluding the effects that foreign currency exchange rate fluctuations have on period-over-period comparability given volatility in foreign currency exchange markets.

Organic change - Excludes the impact of fluctuations in foreign currency exchange rates as described above and the period-over-period impact of acquisitions and divestitures on current-year revenue. We believe that excluding transaction-related items from our U.S. GAAP financial measures provides useful supplemental information to our investors, and it is important in illustrating what our core operating results would have been had we not included these transaction-related items, since the nature, size and number of these transaction-related items can vary from period to period.

The constant currency and organic change results, and a reconciliation from the reported results for consolidated revenue are included in the ‘Consolidated Revenue’ section within this Form 10-Q. These measures are also reported by segment in the ‘Segment Revenue’ section within this Form 10-Q.

Reconciliations of the as-reported changes to the constant currency and organic changes for the three and nine months ended September 30, 2024 from the three and nine months ended September 30, 2023 are as follows. The components of revenue change may not add due to rounding.

												Components of Revenue Change
										As		Less:		Constant		Less:
		Three Months Ended September 30,								Reported		Currency		Currency		Acquisitions/		Organic
		2024				2023				Change		Impact		Change		Divestitures		Change (i)
		($ in millions)
Revenue		$	2,289			$	2,166			6%		—%		6%		—%		6%

												Components of Revenue Change
										As		Less:		Constant		Less:
		Nine Months Ended September 30,								Reported		Currency		Currency		Acquisitions/		Organic
		2024				2023				Change		Impact		Change		Divestitures		Change (i)
		($ in millions)
Revenue		$	6,895			$	6,569			5%		—%		5%		—%		5%

(i)

Interest income did not contribute to organic change for the three and nine months ended September 30, 2024.

For the three months ended September 30, 2024, both our as-reported revenue and organic revenue increased by 6%. For the nine months ended September 30, 2024, both our as-reported revenue and organic revenue increased by 5%. The increases in both as-reported and organic revenue were driven by strong performances in both segments. For additional information, please see the section entitled ‘Segment Revenue’ elsewhere within Item 2 in this Quarterly Report on Form 10-Q.

Adjusted Operating Income/Margin

We consider adjusted operating income/margin to be important financial measures, which are used internally to evaluate and assess our core operations and to benchmark our operating results against our competitors.

Adjusted operating income is defined as (loss)/income from operations adjusted for impairment, amortization, restructuring costs, transaction and transformation and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted operating income margin is calculated by dividing adjusted operating income by revenue.

Reconciliations of (loss)/income from operations to adjusted operating income for the three and nine months ended September 30, 2024 and 2023 are as follows:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
	($ in millions)
(Loss)/income from operations	$	(766	)		$	159			$	(274	)		$	586
Adjusted for certain items:
Impairment		1,042				—				1,042				—
Amortization		56				62				176				203
Restructuring costs		8				17				29				30
Transaction and transformation		74				113				296				265
Provision for specified litigation matter (i)		—				—				13				—
Adjusted operating income	$	414			$	351			$	1,282			$	1,084
(Loss)/income from operations margin		(33.5	)%			7.3	%			(4.0	)%			8.9	%
Adjusted operating income margin		18.1	%			16.2	%			18.6	%			16.5	%

(i)

Represents a provision related to potential litigation arising out of a structured insurance program originally placed for a client over 15 years ago. The program is of a type and complexity that was highly bespoke to the client and for that reason is unlikely to be exactly replicated elsewhere. Because of this, while we do not believe the potential litigation is material, we believe excluding this matter from adjusted results makes results more comparable from period to period and more representative of our core business operations.

Adjusted operating income increased for the three months ended September 30, 2024 to $414 million, from $351 million for the three months ended September 30, 2023 and increased for the nine months ended September 30, 2024 to $1.3 billion from $1.1 billion for the nine months ended September 30, 2023. These increases resulted primarily from higher revenue in the current-year periods, partially offset by higher salary expense and increased incentive and benefit costs in the current-year periods as compared to the prior-year periods.

Adjusted EBITDA/Margin

We consider adjusted EBITDA/margin to be important financial measures, which are used internally to evaluate and assess our core operations, to benchmark our operating results against our competitors and to evaluate and measure our performance-based compensation plans.

Adjusted EBITDA is defined as net (loss)/income adjusted for (benefit from)/provision for income taxes, interest expense, impairment, depreciation and amortization, restructuring costs, transaction and transformation, gains and losses on disposals of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue.

Reconciliations of net (loss)/income to adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023 are as follows:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2024				2023				2024				2023
		(in millions)
NET (LOSS)/INCOME		$	(1,672	)		$	139			$	(1,336	)		$	441
(Benefit from)/provision for income taxes			(322	)			25				(248	)			99
Interest expense			65				61				197				172
Impairment			1,042				—				1,042				—
Depreciation			60				60				176				184
Amortization			56				62				176				203
Restructuring costs			8				17				29				30
Transaction and transformation			74				113				296				265
Provision for specified litigation matter (i)			—				—				13				—
Loss/(gain) on disposal of operations			1,190				(41	)			1,190				(44	)
Adjusted EBITDA		$	501			$	436			$	1,535			$	1,350
Net (loss)/income margin			(73.0	)%			6.4	%			(19.4	)%			6.7	%
Adjusted EBITDA margin			21.9	%			20.1	%			22.3	%			20.6	%

(i)

Represents a provision related to potential litigation arising out of a structured insurance program originally placed for a client over 15 years ago. The program is of a type and complexity that was highly bespoke to the client and for that reason is unlikely to be exactly replicated elsewhere. Because of this, while we do not believe the potential litigation is material, we believe excluding this matter from adjusted results makes results more comparable from period to period and more representative of our core business operations.

Adjusted EBITDA for the three months ended September 30, 2024 was $501 million, compared to $436 million for the three months ended September 30, 2023, and was $1.5 billion for the nine months ended September 30, 2024, compared to $1.4 billion for the nine months ended September 30, 2023. These increases resulted primarily from higher revenue in the current-year periods, partially offset by higher salary expense and increased incentive and benefit costs in the current-year periods as compared to the prior-year periods.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

Adjusted net income is defined as net (loss)/income attributable to WTW adjusted for impairment, amortization, restructuring costs, transaction and transformation, gains and losses on disposals of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results and the related tax effect of those adjustments and the tax effects of significant adjustments. This measure is used solely for the purpose of calculating adjusted diluted earnings per share.

Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted-average number of ordinary shares, diluted. Adjusted diluted earnings per share is used to internally evaluate and assess our core operations and to benchmark our operating results against our competitors.

Reconciliations of net (loss)/income attributable to WTW to adjusted diluted earnings per share for the three and nine months ended September 30, 2024 and 2023 are as follows:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2024				2023				2024				2023
		($ and shares in millions)
NET (LOSS)/INCOME ATTRIBUTABLE TO WTW		$	(1,675	)		$	136			$	(1,344	)		$	433
Adjusted for certain items:
Impairment			1,042				—				1,042				—
Amortization			56				62				176				203
Restructuring costs			8				17				29				30
Transaction and transformation			74				113				296				265
Provision for specified litigation matter (i)			—				—				13				—
Loss/(gain) on disposal of operations			1,190				(41	)			1,190				(44	)
Tax effect on certain items listed above (ii)			(396	)			(51	)			(492	)			(128	)
Tax effect of significant adjustments			—				—				(7	)			2
Adjusted net income		$	299			$	236			$	903			$	761
Weighted-average ordinary shares — diluted			102				105				103				107
Diluted (loss)/earnings per share		$	(16.44	)		$	1.29			$	(13.11	)		$	4.06
Adjusted for certain items (iii) :
Impairment			10.23				—				10.17				—
Amortization			0.55				0.59				1.72				1.90
Restructuring costs			0.08				0.16				0.28				0.28
Transaction and transformation			0.73				1.07				2.89				2.48
Provision for specified litigation matter (i)			—				—				0.13				—
Loss/(gain) on disposal of operations			11.68				(0.39	)			11.61				(0.41	)
Tax effect on certain items listed above (ii)			(3.89	)			(0.48	)			(4.80	)			(1.20	)
Tax effect of significant adjustments			—				—				(0.07	)			0.02
Adjusted diluted earnings per share		$	2.93			$	2.24			$	8.81			$	7.13

(i)

Represents a provision related to potential litigation arising out of a structured insurance program originally placed for a client over 15 years ago. The program is of a type and complexity that was highly bespoke to the client and for that reason is unlikely to be exactly replicated elsewhere. Because of this, while we do not believe the potential litigation is material, we believe excluding this matter from adjusted results makes results more comparable from period to period and more representative of our core business operations.

(ii)

The tax effect was calculated using an effective tax rate for each item.

(iii)

Per share values and totals may differ due to rounding.

Our adjusted diluted earnings per share increased for both the three and nine months ended September 30, 2024 as compared to the prior year primarily due to higher revenue in the current-year periods, partially offset by higher salary expense and increased incentive and benefit costs in the current-year periods as compared to the prior-year periods.

Adjusted Income Before Taxes and Adjusted Income Taxes/Tax Rate

Adjusted income before taxes is defined as income from operations before income taxes adjusted for impairment, amortization, restructuring costs, transaction and transformation, gains and losses on disposals of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted income before taxes is used solely for the purpose of calculating the adjusted income tax rate.

Adjusted income taxes/tax rate is defined as the (benefit from)/provision for income taxes adjusted for taxes on certain items of impairment, amortization, restructuring costs, transaction and transformation, gains and losses on disposals of operations, the tax effects of significant adjustments and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results, divided by adjusted income before taxes. Adjusted income taxes is used solely for the purpose of calculating the adjusted income tax rate.

Management believes that the adjusted income tax rate presents a rate that is more closely aligned to the rate that we would incur if not for the reduction of pre-tax income for the adjusted items and the tax effects of significant adjustments, which are not core to our current and future operations.

Reconciliations of (loss)/income from operations before income taxes to adjusted income before taxes and (benefit from)/provision for income taxes to adjusted income taxes for the three and nine months ended September 30, 2024 and 2023 are as follows:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2024				2023				2024				2023
		($ in millions)
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES		$	(1,994	)		$	164			$	(1,584	)		$	540
Adjusted for certain items:
Impairment			1,042				—				1,042				—
Amortization			56				62				176				203
Restructuring costs			8				17				29				30
Transaction and transformation			74				113				296				265
Provision for specified litigation matter (i)			—				—				13				—
Loss/(gain) on disposal of operations			1,190				(41	)			1,190				(44	)
Adjusted income before taxes		$	376			$	315			$	1,162			$	994
(Benefit from)/provision for income taxes		$	(322	)		$	25			$	(248	)		$	99
Tax effect on certain items listed above (ii)			396				51				492				128
Tax effect of significant adjustments			—				—				7				(2	)
Adjusted income taxes		$	74			$	76			$	251			$	225
U.S. GAAP tax rate			16.1	%			15.5	%			15.6	%			18.3	%
Adjusted income tax rate			19.7	%			24.3	%			21.6	%			22.6	%

(i)

Represents a provision related to potential litigation arising out of a structured insurance program originally placed for a client over 15 years ago. The program is of a type and complexity that was highly bespoke to the client and for that reason is unlikely to be exactly replicated elsewhere. Because of this, while we do not believe the potential litigation is material, we believe excluding this matter from adjusted results makes results more comparable from period to period and more representative of our core business operations.

(ii)

The tax effect was calculated using an effective tax rate for each item.

Our U.S. GAAP tax rates were 16.1% and 15.5% for the three months ended September 30, 2024 and 2023, respectively, and 15.6% and 18.3% for the nine months ended September 30, 2024 and 2023, respectively. The prior-year effective tax rate for the three months ended September 30, 2023 was lower due to the tax-exempt gain on a business disposal. The current-year effective tax rate for the nine months ended September 30, 2024 was lower due to deferred tax benefits recognized on the gross-up to carrying value of net assets to be disposed and a deferred tax benefit of $56 million, net of a $37 million valuation allowance, on the expected tax loss on disposal of TRANZACT (see Note 3 – Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q). The Company records valuation allowances against net deferred tax assets based on whether it is more likely than not that the deferred tax assets will be realized. During the three months ended September 30, 2024 the Company recorded a $37 million valuation allowance related to unrealized capital losses that are not more-likely-than-not to be realized.

Our adjusted income tax rates were 19.7% and 24.3% for the three months ended September 30, 2024 and 2023, respectively, and 21.6% and 22.6% for the nine months ended September 30, 2024 and 2023, respectively. The current-year periods’ adjusted tax rates are lower due to the geographical distribution of profit and additional interest received on a tax refund recognized in the three months ended September 30, 2024.

Free Cash Flow

Free cash flow is defined as cash flows from operating activities less cash used to purchase fixed assets and software for internal use. Free cash flow is a liquidity measure and is not meant to represent residual cash flow available for discretionary expenditures.

Management believes that free cash flow presents the core operating performance and cash generating capabilities of our business operations.

Reconciliations of cash flows from operating activities to free cash flow for the nine months ended September 30, 2024 and 2023 are as follows:

		Nine Months Ended September 30,
		2024				2023
		(in millions)
Cash flows from operating activities		$	913			$	823
Less: Additions to fixed assets and software for internal use			(106	)			(116	)
Free cash flow		$	807			$	707

The increase in free cash flow during the current year was primarily driven by operating margin expansion, partially offset by increased cash outflows related to the Transformation program and discretionary compensation payments in the current year as compared to the prior year.

Critical Accounting Estimates

There were no material changes from the Critical Accounting Estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 22, 2024, other than the following information regarding the goodwill impairment analysis performed during the three months ended September 30, 2024.

Goodwill and Intangible Assets — Impairment Review

In applying the acquisition method of accounting for business combinations, amounts assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill. Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment annually as of October 1, and whenever indicators of impairment arise. The fair value of the intangible assets is compared with their carrying value and an impairment loss would be recognized for the amount by which the carrying amount exceeds the fair value. Goodwill is tested for impairment annually as of October 1, and whenever indicators of impairment arise.

Goodwill is tested at the reporting unit level, and the Company has seven reporting units as of October 1, 2024. As discussed in Note 3 — Acquisitions and Divestitures within Part I, Item 1 ‘Financial Statements’ in this Quarterly Report on Form 10-Q, in connection with the planned disposal of TRANZACT, during the three months ended September 30, 2024, the Company recorded a $1.0 billion non-cash goodwill impairment charge on the BDA reporting unit. The BDA reporting unit goodwill after impairment is approximately $1.2 billion. After reflecting the disposal of TRANZACT, the fair value of the remaining reporting unit is estimated to be significantly in excess of its carrying value.

The Company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the significant assumptions noted above, including changes to the regulatory environment, general industry, market and macro-economic conditions and recent market valuations from transactions of comparable companies. It is possible that future changes in such circumstances, or in the inputs or assumptions used in estimating the fair value of the reporting unit, could require the Company to record a non-cash impairment charge.

To perform the test, we used valuation techniques to estimate the fair value of a reporting unit that are under the income and/or market approaches of valuation methods:

Discounted cash flow method — Under the discounted cash flow method, an income approach, the business enterprise value is determined by discounting to present value the terminal value which is calculated using debt-free after-tax cash flows for a finite period of years. Key estimates in this approach were internal financial projection estimates prepared by management, assessment of business risk, and expected rates of return on capital.

Guideline public company method — The guideline public company method, a market approach, develops valuation multiples by comparing our reporting units to similar publicly traded companies. Key estimates and determination of valuation multiples rely on the selection of similar companies, obtaining forecast revenue and EBITDA estimates for the similar companies and selection of valuation multiples as they apply to the reporting unit characteristics.

Guideline transaction method — Under the guideline transactions method, a market approach, actual transaction prices and operating data from companies deemed reasonably similar to the reporting units are used to develop valuation multiples as an indication of how much a knowledgeable investor in the marketplace would be willing to pay for the business units.