Willis Towers Watson plc — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. WTW is a global advisory, broking and solutions company with Health, Wealth & Career (HWC) and Risk & Broking (R&B) segments. Comparisons are with Q1 2022 unless noted.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $2.244 billion | $2.160 billion |
| Income from operations / margin | $285 million / 12.7% | $179 million / 8.3% |
| Net income attributable to WTW | $203 million | $122 million |
| Diluted EPS from continuing operations | $1.88 | $0.94 |
| Adjusted operating income / margin | $418 million / 18.6% | $371 million / 17.2% |
| Adjusted EBITDA / margin | $503 million / 22.4% | $518 million / 24.0% |
| Adjusted diluted EPS | $2.84 | $2.66 |
| Operating cash flow / free cash flow | $134 million / $92 million | $21 million / $(10) million |
Revenue increased 4% as reported and 8% organically; foreign exchange reduced reported growth by 3 percentage points, while acquisitions and disposals reduced it by 1 point. HWC revenue grew 3% reported and 6% organically; R&B grew 1% reported and 10% organically. Segment operating income was $309 million for HWC versus $257 million, and $180 million for R&B versus $192 million.
At March 31, cash and cash equivalents were $1.135 billion, total debt was $4.722 billion, and the $1.5 billion revolving credit facility was undrawn. The $250 million of 4.625% notes due in Q3 2023 were scheduled for repayment. WTW reported compliance with financial covenants. Fiduciary assets and matching liabilities were each $12.213 billion; fiduciary funds are generally unavailable for corporate purposes.
Changes versus the prior period
- GAAP operating income and continuing-operations EPS rose substantially, primarily reflecting higher revenue and the absence of the prior-year $81 million Russian-related asset impairment. The prior period also included a $54 million loss on disposal of operations and $11 million of discontinued-operations income.
- Adjusted operating income increased, but adjusted EBITDA declined, with WTW citing higher travel, professional-services and marketing costs and lower pension income. Transaction and transformation costs rose to $59 million from $20 million.
- Operating cash flow increased to $134 million from $21 million, and free cash flow improved to $92 million from negative $10 million, mainly on more favorable working-capital movements, higher collections and lower incentive-compensation payments.
- Share repurchases were $104 million, compared with $2.250 billion in Q1 2022. WTW paid $87 million in dividends in the quarter.
Outlook, commentary and risks
- The three-year Transformation program targets annual cost savings exceeding $360 million by the end of 2024, against expected cumulative costs of about $630 million and capital expenditures of about $270 million. WTW had identified $224 million of cumulative annualized run-rate savings by quarter-end, including $75 million of additional annualized savings identified in Q1 2023. These are management targets, not guaranteed results.
- WTW estimated remaining 2023 capital expenditures for fixed assets and internal-use software of $180–$210 million. Management said available liquidity, including the undrawn revolver, should meet cash needs for the next 12 months. The company authorized a quarterly dividend of $0.84 per share, paid April 17, 2023, and reported about $1.2 billion remaining under its share-repurchase authorization.
- Management described modest but definite aggregate insurance pricing increases. It cautioned that a softening insurance market can pressure commissions and margins, while economic uncertainty, inflation, interest rates, labor and capital costs, geopolitical tensions and possible recession may affect costs, demand, collections and liquidity.
- Other cited exposures include foreign-exchange movements, cybersecurity and data privacy, regulatory and litigation matters, competition, pension assumptions, and the transition arrangements following the Willis Re sale. Management did not expect known legal matters to have a material adverse effect overall, but acknowledged that an adverse outcome could materially affect results or cash flow in a particular period.
- The completed Willis Re sale included an earnout of up to $750 million payable in 2025, subject to adjustments; no receivable was recorded, and any amount will be recognized if received. Certain sale-related assets and liabilities remain to be settled over time. WTW also continues transition services for Gallagher.
- No explicit full-year revenue or EPS guidance is provided in the filing text summarized here. Q1 results are not necessarily indicative of full-year results; revenue is seasonal and typically higher in the first and fourth quarters.
Important facts for investors to verify
- Progress toward Transformation savings, total program spending, implementation timing and the effect of elevated transformation costs on reported versus adjusted results.
- Whether improved working-capital cash flow is sustained, including collections, incentive payments and the treatment of fiduciary balances.
- Repayment of the $250 million notes due in Q3 2023, ongoing share repurchases and dividends, and continued access to the undrawn revolver.
- Developments in litigation, regulatory investigations, macroeconomic conditions, currency exposure and client demand that could affect margins or liquidity.
- Any final Willis Re earnout, remaining transaction settlements and changes in Gallagher transition-service costs or obligations.