Willis Towers Watson plc — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. WTW is a global advisory, broking and solutions company. Effective January 1, 2022, it reorganized its reporting into Health, Wealth & Career (HWC) and Risk & Broking (R&B); prior-year segment data was recast. Results are seasonal and are not necessarily indicative of full-year performance.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $2.160 billion | $2.228 billion |
| Organic revenue change | +2% | — |
| Operating income / margin | $179 million / 8.3% | $211 million / 9.5% |
| Adjusted operating income / margin | $371 million / 17.2% | $338 million / 15.2% |
| Income from continuing operations | $114 million | $546 million |
| Net income attributable to WTW | $122 million | $733 million |
| Diluted EPS | $1.03 | $5.63 |
| Adjusted diluted EPS | $2.66 | $2.18 |
| Operating cash flow / free cash flow | $21 million / $(10) million | $(128) million / $(165) million |
- Reported revenue declined 3%; foreign exchange reduced revenue by $54 million, while organic growth was 2%. HWC revenue was $1.244 billion, up 2% organically; R&B revenue was $891 million, flat organically.
- HWC segment operating income rose to $257 million from $242 million; R&B segment operating income fell to $192 million from $203 million.
- Salaries and benefits declined 7% to $1.318 billion, mainly reflecting lower incentive and benefit accruals. Other operating expenses rose 22% to $486 million, primarily due to Russia-related impairment and higher business insurance costs.
- Cash and cash equivalents were $2.198 billion at March 31, down from $4.486 billion at year-end, primarily following share repurchases. Total debt was $4.574 billion, including $599 million of current debt; the capitalization ratio rose to 29.4% from 25.7%.
- The $1.5 billion revolving credit facility was undrawn. WTW reported compliance with financial covenants. Fiduciary cash and assets are held for clients and are not available for general corporate purposes.
Material changes and unusual items
- Q1 net income and EPS comparisons are substantially affected by prior-year items: the 2021 quarter included a $356 million tax-exempt gain on the Miller sale and substantially more Willis Re discontinued-operations income. Willis Re’s sale to Gallagher closed principally in December 2021; deferred closings remained pending. Q1 2022 discontinued-operations income was $11 million.
- WTW deconsolidated its Russian entities on March 14, 2022, recording a $57 million disposal loss. It also recorded an $81 million impairment related to Russian business net assets, including receivables held outside those entities. Management said the Russian business represented about 1% of 2021 consolidated revenue and that lost profits would create a modest 2022-and-beyond margin headwind.
- WTW repurchased 9.86 million shares for $2.25 billion at an average $228.19 per share. About $1.6 billion of authorization remained at quarter-end. Cash dividends paid were $98 million.
- Cash flow presentation was revised to include fiduciary funds in cash, cash equivalents and restricted cash, consistent with restricted-cash guidance. The filing states this did not affect total operating cash flow.
Outlook, management commentary and risks
- No consolidated revenue or earnings guidance is provided in the filing. Management noted modest but definite overall insurance-market pricing increases; growth in R&B is expected to remain pressured by prior employee departures and non-repeatable prior-year book-of-business sales.
- The three-year Transformation program targets approximately $300 million in annual cost savings by the end of 2024, with approximately $490 million of cumulative costs and $260 million of capital expenditures. WTW reported $36 million of cumulative annualized run-rate savings identified through Q1 2022. Planned fixed-asset and internal-software spending for the rest of 2022 was estimated at $160 million–$210 million.
- WTW said it intended to refinance €540 million of 2.125% senior notes maturing in Q2 2022; timing, tenor, currency and size would depend on market conditions. Management stated it believed available liquidity was sufficient for the next 12 months, including planned investment, debt repayment, repurchases and dividends.
- Key risks cited include inflation and labor-market pressure, COVID-related workforce availability, the Ukraine conflict and sanctions, the Russia transfer, cyber and data-security incidents, competition and employee losses, litigation and regulatory matters, foreign exchange, and execution of the Transformation program. Management said ordinary-course legal matters were not expected to materially affect the company overall, but adverse outcomes could affect results or cash flows in particular periods.
Important facts for investors to verify
- Progress and completion of the Willis Re deferred closings, related transition-service obligations, and the potential earnout of up to $750 million in 2025, which was not recorded as a receivable.
- Actual Russia-related losses, the completion and terms of the Russian subsidiary transfer, and any further effects of sanctions or geopolitical developments.
- Whether the Transformation program achieves its $300 million savings target, and the timing and total cash cost of restructuring and technology investments.
- Refinancing of the €540 million notes due in Q2 2022, covenant compliance, and liquidity after substantial repurchases and the quarter-end cash decline.
- Underlying segment growth and margins, especially R&B performance after excluding prior-year book sales and considering currency and employee departures.
- Cash conversion and working-capital trends; Q1 operating cash flow was positive but free cash flow remained negative.