Aon plc — Q1 2022 Form 10-Q Summary
Business context and period. Aon is a global professional services firm providing risk, health, and wealth solutions. This unaudited report covers the three months ended March 31, 2022, compared with Q1 2021. Aon reports as one operating segment, Aon United.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $3.670 billion | $3.525 billion | +4%; organic growth +8% |
| Operating income | $1.367 billion | $1.245 billion | +10% |
| Operating margin, reported | 37.2% | 35.3% | +1.9 percentage points |
| Net income attributable to Aon shareholders | $1.023 billion | $913 million | +12% |
| Diluted EPS | $4.73 | $4.00 | +18% |
| Cash provided by operating activities | $463 million | $561 million | −17% |
| Free cash flow (non-GAAP) | $440 million | $532 million | −17% |
Adjusted operating margin, a non-GAAP measure, was 38.0% versus 37.4%; adjusted diluted EPS was $4.83 versus $4.28. Aon attributed revenue growth primarily to strong retention and net new business, partly offset by a 3% unfavorable currency effect and a 1% unfavorable acquisitions, divestitures, and other effect.
- Revenue by solution line: Commercial Risk Solutions $1.719 billion (+5% reported; 9% organic); Reinsurance Solutions $976 million (+6%; 7% organic); Health Solutions $638 million (+4%; 8% organic); Wealth Solutions $345 million (−3%; organic growth flat).
- Expenses and taxes: Operating expenses were $2.303 billion, up $23 million. Compensation costs and investment in growth increased, partly offset by lower prior-year transaction costs and favorable currency translation. Interest expense rose 15% to $91 million, primarily reflecting higher outstanding term debt. The effective tax rate was 19.6%, versus 20.1%.
- Cash and liquidity: Cash and cash equivalents were $595 million and short-term investments $455 million at March 31. Total debt was approximately $10.3 billion, up about $0.9 billion from year-end. Aon had $1.75 billion of committed credit facilities available, with no facility borrowings, and reported covenant compliance. Fiduciary assets of $15.277 billion are matched by fiduciary liabilities and are not available for general corporate use.
Changes, outlook, and notable items
- Cash flow from operations declined primarily because of higher incentive compensation payments following strong 2021 performance. Investing cash outflow was $263 million, including $134 million of net cash consideration for the Tyche acquisition; two business dispositions generated $22 million of net cash proceeds and $25 million of pretax gains.
- Aon issued $1.5 billion of senior notes in February 2022: $600 million of 2.85% notes due 2027 and $900 million of 3.90% notes due 2052. It repurchased 2.8 million shares for $828 million, versus $50 million in Q1 2021, and increased total repurchase authorization to $27.5 billion.
- Management stated it expects operating cash flows to be sufficient for debt service, capital expenditures, pension obligations, and dividends, and believes liquidity is adequate. No specific full-year revenue or earnings guidance is provided. Management cautions that quarterly results are not necessarily indicative of full-year results.
- COVID-19 impacts had lessened and Aon reported strength across the firm, while continuing to monitor uncertainty. Russia and Ukraine represented an immaterial portion of operations and the war had not materially affected global operations as of March 31, 2022.
- For described legal matters where losses are estimable, the reasonably possible loss range beyond amounts accrued was estimated at $0–$0.4 billion, exclusive of insurance. Aon said the ultimate outcome of the matters was not expected to materially affect consolidated financial position, while noting adverse outcomes could materially affect results or cash flows in a particular period. Significant cases include the CCC claim of approximately $223 million plus interest and costs, and investment-related claims against Aon Investments; these claims are disputed and outcomes remain uncertain.
- Other risks identified include foreign-exchange, interest-rate and market movements; debt and refinancing exposure; pension funding; regulatory investigations; litigation and E&O claims; cyber and operational disruptions; and the effects of economic and geopolitical conditions. Aon said disclosure controls were effective and no material change in internal control occurred during the quarter.
Important facts for investors to verify
- Whether organic growth and margin improvement persist, particularly in Wealth Solutions, and how currency movements affect reported results.
- Whether operating cash flow recovers after the working-capital and incentive-compensation pressures, and how buybacks, dividends, acquisitions, and debt issuance affect leverage and liquidity.
- The status and potential financial exposure of significant litigation and regulatory investigations; the stated loss range is uncertain and excludes insurance coverage.
- The composition and accessibility of reported cash and current assets, distinguishing corporate liquidity from fiduciary funds held for clients.