UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM
_________________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On October 31, 2019, Willis Towers Watson Public Limited Company (“Willis Towers Watson”) issued a press release announcing its financial results for the period ended September 30, 2019.
A copy of Willis Towers Watson’s press release is attached hereto as an exhibit to this Current Report on Form 8-K and is incorporated by reference herein. A reconciliation between certain non-GAAP financial measures and reported financial results is provided as an attachment to the press release.
Item 7.01. Regulation FD.
Willis Towers Watson also posted a slide presentation to its website, which it may refer to during its conference call to discuss the results. The slide presentation is attached hereto as Exhibit 99.2 and incorporated herein by reference.
The information contained in Item 2.02 and Item 7.01 of this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. Such information shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.
Item 9.01.Financial Statements and Exhibits
(d) Exhibits
| Exhibit No. |
Description | |
| 99.1 | Press release, dated October 31, 2019, announcing the financial results for the period ended September 30, 2019, for Willis Towers Watson plc. | |
| 99.2 | Slide Presentation, supplementing the above press release. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY | ||
| Date: October 31, 2019 | By: | /s/ Neil D. Falis |
| Neil D. Falis | ||
| Deputy Company Secretary | ||
EXHIBIT 99.1
Willis Towers Watson Reports Third Quarter 2019 Earnings
- Total revenue1 increased 7% to $1.99 billion, with constant currency growth of 9% and organic growth of 6%
- Income from Operations was $107 million or 5.4% of revenue, up 450 basis points over prior year
- Adjusted Operating Income was $231 million or 11.6% of revenue, up 120 basis points over prior year
- Revenue and Operating Margin increased in all business segments
- Completed $1 billion bond offering to proactively manage capital structure
ARLINGTON, Va. and LONDON, Oct. 31, 2019 (GLOBE NEWSWIRE) -- Willis Towers Watson (NASDAQ: WLTW) (the “Company”), a leading global advisory, broking and solutions company, today announced financial results for the third quarter ended September 30, 2019.
“I am pleased with our third quarter results. We delivered another solid quarter of financial results with strong total and organic revenue growth and continued margin expansion,” said John Haley, Willis Towers Watson’s chief executive officer. “The strength and consistency of our performance reflects our commitment to client service — as well as the continued successful execution of our growth strategy. We believe we will have a strong finish to the year and remain confident in our ability to continue delivering profitable growth and generating long-term value for all of our stakeholders.”
Company Highlights
Revenue was $1.99 billion for the third quarter of 2019, an increase of 7% (9% increase constant currency and 6% increase organic) as compared to $1.86 billion for the same period in the prior year.
For the nine months ended September 30, 2019, revenue was $6.35 billion, an increase of 3% (6% increase constant currency and 5% increase organic) as compared to $6.14 billion for the same period in the prior year.
Net income attributable to Willis Towers Watson for the third quarter of 2019 was $75 million, an increase of 70% from $44 million for the prior-year third quarter. For the quarter, diluted earnings per share were $0.58 and adjusted diluted earnings per share were $1.31. Net income attributable to Willis Towers Watson and diluted earnings per share included pre-tax $6 million of transaction and integration expenses related to the TRANZACT acquisition in the quarter. The U.S. GAAP tax rate for the quarter was 20.4%, and the adjusted income tax rate for the quarter used in calculating adjusted diluted earnings per share was 22.2%.
For the nine months ended September 30, 2019, net income attributable to Willis Towers Watson was $500 million, a 58% increase from $317 million for the same period in the prior year. Diluted earnings per share were $3.84, and adjusted diluted earnings per share were $6.06 for the nine months ended September 30, 2019. Net income attributable to Willis Towers Watson and diluted earnings per share for the nine months ended September 30, 2019 included pre-tax $12 million of transaction and integration expenses related to the TRANZACT acquisition. For the nine months ended September 30, 2019, the U.S. GAAP tax rate was 19.3%, and the adjusted income tax rate used in calculating adjusted diluted earnings per share was 21.0%.
Net income for the third quarter of 2019 was $80 million, or 4.0% of revenue, an increase from net income of $46 million, or 2.5% of revenue for the prior-year third quarter. Adjusted EBITDA for the third quarter of 2019 was $344 million, or 17.3% of revenue, an increase from adjusted EBITDA of $313 million, or 16.8% of revenue for the prior-year third quarter.
For the nine months ended September 30, 2019, net income was $522 million, or 8.2% of revenue, an increase from net income of $332 million, or 5.4% of revenue for the same period in the prior year. Adjusted EBITDA for the nine months ended September 30, 2019 was $1.4 billion, or 21.6% of revenue, an increase from adjusted EBITDA of $1.3 billion, or 20.6% of revenue.
Operating income margin improved by 450 basis points compared to the third quarter of the prior year. Adjusted operating income margin improved by 120 basis points to 11.6% from 10.4% in the prior-year third quarter. Margin improvement was driven by enhanced margin performance across all segments.
For the nine months ended September 30, 2019, operating income margin improved by 460 basis points compared to the same period in the prior year. Adjusted operating income margin improved by 150 basis points to 16.1% from 14.6% for the nine months ended September 30, 2019.
Cash flows from operating activities for the nine months ended September 30, 2019 was $620 million compared to $716 million for the prior year. Free cash flow for the nine months ended September 30, 2019 and 2018 was $445 million and $507 million, respectively. During the nine months ended September 30, 2019, the Company repurchased approximately $147 million of Willis Towers Watson stock.
Segment Highlights
Human Capital & Benefits
The Human Capital & Benefits (HCB) segment had revenue of $807 million, an increase of 4% (6% increase constant currency and 6% increase organic) from $778 million in the prior-year third quarter. On an organic basis and after adjusting for the first-year adoption impact of ASC 606 in the prior year, Health and Benefits delivered revenue growth, driven by increased consulting and brokerage services, growth in specialty products in North America, and expansion of our client portfolio outside North America for both local and global appointments. Talent and Rewards experienced strong revenue growth primarily due to increased advisory work in North America and International and growth in Compensation Data survey participation. Technology and Administration Solutions revenue also increased in connection with client wins and greater project demand primarily in Great Britain and Western Europe. Retirement revenue grew compared to prior-year third quarter primarily as a result of increased de-risking work in North America. See a further discussion of the impact of ASC 606 on the three months ended September 30, 2018 in our Form 10-Q filed with the SEC on November 2, 2018. The HCB segment had an operating margin of 27% as compared to 25% for the prior-year third quarter.
Corporate Risk & Broking
The Corporate Risk & Broking (CRB) segment had revenue of $651 million, an increase of 5% (7% increase constant currency and 7% increase organic) from $622 million in the prior-year third quarter. The segment had solid growth across all geographies. On an organic basis, North America continued to lead the segment with new business generation. International, Western Europe and Great Britain also contributed meaningful growth for the segment, related to strong management of the renewal book portfolio alongside new business wins. The CRB segment had an operating margin of 12%, as compared to 11% for the prior-year third quarter.
Investment, Risk & Reinsurance
The Investment, Risk & Reinsurance (IRR) segment had revenue of $325 million, an increase of 2% (5% increase constant currency and 3% increase organic) from $317 million in the prior-year third quarter. On an organic basis, all lines of business contributed to the growth. Reinsurance, Wholesale, and Underwriting and Capital Management growth was driven by net new business growth and favorable renewal factors while Insurance Consulting and Technology revenue grew from strong technology sales. Max Matthiessen revenue increased as a result of overall growth in net commissions. Revenue growth in the Investment businesses was a result of client wins in the delegated business. The IRR segment had an operating margin of 9.3%, as compared to 9.1% for the prior-year third quarter.
Benefits Delivery & Administration
The Benefits Delivery & Administration (BDA) segment had revenue of $179 million, an increase of 42% (42% increase constant currency and 2% increase organic) from $127 million in the prior-year third quarter. BDA’s organic growth continued to be led by its expanded client base and increased demand for project work in the mid-market and large-market spaces. On July 30, 2019, the Company acquired TRANZACT, which operates as part of the BDA segment. Following the acquisition, TRANZACT generated revenue of $51 million. The BDA segment had an operating margin of negative 12%, as compared to negative 26% for the prior-year third quarter.
Conference Call
The Company will host a live webcast and conference call to discuss the financial results for the third quarter. It will be held on Thursday, October 31, 2019, beginning at 9:00 a.m. Eastern Time, and can be accessed via the Internet at www.willistowerswatson.com. The replay of the call will be available shortly after the live call for a period of three months. A telephonic replay of the call will also be available for 24 hours at 404-537-3406, conference ID 1578023.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.
Select Questions and Answers
Q1: What was the impact of foreign currency movements for the third quarter and year to date?
For the quarter ended September 30, 2019, currency translation caused a decrease in our consolidated revenue of $36 million, and was a $0.01 tailwind to adjusted diluted earnings per share. For the nine months ended September 30, 2019, currency translation caused a decrease in our consolidated revenue of $171 million, resulting in a decrease of $0.11 to adjusted diluted earnings per share.
Q2: Given the dollar’s fluctuation this year, how should we be thinking about the impact for the remainder of 2019?
For the remainder of 2019, if currency remains stable at today’s rates, we would expect foreign currency translation to be around a $0.04 headwind to adjusted diluted earnings per share for the remainder of 2019 and in line with our guidance of around a $0.15 currency headwind to adjusted diluted earnings per share for the full year 2019.
Q3: What is your view of insurance pricing in the market?
We continue to see a modest improvement with pricing in the market. For a comprehensive look at overall market pricing in the primary and reinsurance markets, please view the “Insurance Marketplace Realities 2020”, which will be published in November and the “Willis Re: 1st View” which can be found on the Willis Towers Watson website. Please note that such reports are current as of the date of their publication.
Q4. What was the impact to the Health and Benefits’ business line’s revenue growth this quarter related to the recovery of revenues not recognized last year with the new revenue standard adoption (ASC 606) in 2018?
The Health and Benefits (H&B) business recorded $14 million of revenue recapture in the third quarter of 2019. For the nine months ended September 30, 2019, H&B has recorded approximately $48 million of revenue or 84% of the total expected revenue recapture.
Q5. How do you see Brexit impacting the Company?
Willis Towers Watson is committed to providing continuity of service and transition plans for its clients and partners post Brexit. While there are still significant uncertainties with respect to Brexit and its impact on the regulatory environment, we believe that our company is well positioned to operate in a post-Brexit environment, given our extensive footprint across Europe and the UK. Regardless of the final Brexit outcome, we are fully committed to helping clients understand and navigate the impact to their business and the changing regulatory landscape.
Q6. What was the impact of the Company’s adoption of the new lease accounting standard (ASC 842, Leases)?
ASC 842 became effective, and was adopted by the Company, on January 1, 2019. The adoption of this new guidance had no material impact to the amounts and classifications of the balances within our condensed consolidated statements of income. On our condensed consolidated balance sheet we recognized an additional $1.2 billion of lease liabilities; $1.0 billion of right-of-use assets; additional deferred tax assets of $252 million and deferred tax liabilities of $252 million on the gross lease-related liabilities and gross right-of-use assets, respectively. See Note 12 – Leases, within the Company’s Form 10-Q for the quarter ended September 30, 2019 for a full description of the impact on the Company from adoption, adoption elections made and the newly-required disclosures.
Willis Towers Watson Non-GAAP Measures
In order to assist readers of our consolidated financial statements in understanding the core operating results that Willis Towers Watson’s management uses to evaluate the business and for financial planning, we present the following non-GAAP measures: (1) Constant Currency Change, (2) Organic Change, (3) Adjusted Operating Income, (4) Adjusted EBITDA, (5) Adjusted Net Income, (6) Adjusted Diluted Earnings Per Share, (7) Adjusted Income Before Taxes, (8) Adjusted Income Taxes/Tax Rate and (9) Free Cash Flow.
The Company believes that these measures are relevant and provide useful 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 these 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 are expected to be part of our full-year results. These items include the following:
- Transaction and integration expenses - Management believes it is appropriate to adjust for transaction and integration expenses 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.
- Gains and losses on disposals of operations - Adjustment to remove the gain or loss resulting from disposed operations.
- Pension settlement and curtailment gains and losses - Adjustment to remove significant pension settlement and curtailment gains and losses to better present how the Company is performing.
- Provisions for significant litigation - We will include provisions for litigation matters which we believe are not representative of our core business operations.
- Tax effects of internal reorganization - Relates to the U.S. income tax expense resulting from the completion of internal reorganizations of the ownership of certain businesses that reduced the investments held by our U.S.-controlled subsidiaries.
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.
Willis Towers Watson considers Constant Currency Change, Organic Change, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted Income Before Taxes, Adjusted Income Taxes/Rate and Free Cash Flow to be important financial measures, which are used to internally evaluate and assess our core operations and to benchmark our operating and liquidity results against our competitors. These non-GAAP measures are important in illustrating what Willis Towers Watson’s comparable operating and liquidity results would have been had the Company not incurred transaction-related and non-recurring items. Willis Towers Watson’s non-GAAP measures and their accompanying definitions are presented as follows:
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 translation-related items can vary from period to period.
Adjusted Operating Income/Margin – Income from Operations adjusted for amortization, transaction and integration expenses 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.
Adjusted EBITDA/Margin – Net Income adjusted for provision for income taxes, interest expense, depreciation and amortization, transaction and integration expenses, (gain)/loss on disposal 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.
Adjusted Net Income – Net Income Attributable to Willis Towers Watson adjusted for amortization, transaction and integration expenses, (gain)/loss on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results, the related tax effect of those adjustments and the tax effects of internal reorganizations. This measure is used solely for the purpose of calculating adjusted diluted earnings per share.
Adjusted Diluted Earnings Per Share – Adjusted Net Income divided by the weighted-average number of shares of common stock, diluted.
Adjusted Income Before Taxes – Income from operations before income taxes adjusted for amortization, transaction and integration expenses, (gain)/loss on disposal 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 – Provision for income taxes adjusted for taxes on certain items of amortization, transaction and integration expenses, (gain)/loss on disposal of operations, the tax effects of internal reorganizations, 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.
Free Cash Flow – 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.
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.
Reconciliations of these measures are included in the accompanying tables with the following exception.
The Company does not reconcile its forward looking non-GAAP financial measures to the corresponding U.S. GAAP measures, due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible; and because not all of the information, such as foreign currency impacts necessary for a quantitative reconciliation of these forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure, is available to the Company without unreasonable efforts. For the same reasons, the Company is unable to address the probable significance of the unavailable information. The Company provides non-GAAP financial measures that it believes will be achieved, however it cannot accurately predict all of the components of the adjusted calculations and the U.S. GAAP measures may be materially different than the non-GAAP measures.
Willis Towers Watson Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements and other forward-looking statements in this document by words such as “may”, “will”, “would”, “expect”, “anticipate”, “believe”, “estimate”, “plan”, “intend”, “continue”, or similar words, expressions or the negative of such terms or other comparable terminology. These statements include, but are not limited to, such things as our outlook, future capital expenditures, future share repurchases, growth in revenue, the impact of changes to tax laws on our financial results, business strategies and planned acquisitions (including the acquisition of TRANZACT), competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, including our future financial and operating results, plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Willis Towers Watson’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. All forward-looking disclosure is speculative by its nature.
There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained herein, including the following: the ability of the company to successfully establish, execute and achieve its global business strategy as it evolves; changes in demand for our services, including any decline in defined benefit pension plans or the purchasing of insurance; changes in general economic, business and political conditions, including changes in the financial markets; significant competition that the company faces and the potential for loss of market share and/or profitability; the impact of seasonality and differences in timing of renewals; the risk of increased liability or new legal claims arising from our new and existing products and services, and expectations, intentions and outcomes relating to outstanding litigation; the risk the Stanford litigation settlement approval will be overturned on appeal, the risk that the Stanford bar order may be challenged in other jurisdictions, and the risk that the charge related to the Stanford settlement may not be deductible; the risk of material adverse outcomes on existing litigation or investigation matters; changes in the regulatory environment in which the company operates, including, among other risks, the impact of pending competition law and regulatory investigations; various claims, government inquiries or investigations or the potential for regulatory action; the company’s ability to make divestitures or acquisitions and its ability to integrate or manage such acquired businesses (including the recently completed acquisition of TRANZACT); our ability to integrate direct-to-consumer sales and marketing solutions with our existing offerings and solutions; failure to protect client data or breaches of information systems; the ability to comply with complex and evolving regulations related to data privacy and cyber security; the potential impact of Brexit; our ability to successfully enhance our billing, collection and other working capital efforts, and thereby increase our free cash flow; the potential impact of the change in the method for determining LIBOR; the ability of the company to properly identify and manage conflicts of interest; reputational damage; reliance on third-party services; the loss of key employees; the ability to successfully manage ongoing organizational changes; disasters or business continuity problems; doing business internationally, including the impact of exchange rates; compliance with extensive government regulation; the risk of sanctions imposed by governments, or changes to associated sanction regulations; technological change; changes and developments in the insurance industry or the United States healthcare system, including those related to Medicare; the risk that the company may not be able to repurchase the intended number of outstanding shares due to M&A activity or investment opportunities, market or business conditions, or other factors; the inability to protect the company’s intellectual property rights, or the potential infringement upon the intellectual property rights of others; fluctuations in the company’s pension liabilities; the ability of the company to meet its financial guidance, the company’s capital structure, including indebtedness amounts, the limitations imposed by the covenants in the documents governing such indebtedness and the maintenance of the financial and disclosure controls and procedures of each; the ability of the company to obtain financing on favorable terms or at all; adverse changes in the credit ratings of the company; the impact of recent changes to U.S. tax laws, including on our effective tax rate, and the enactment of additional, or the revision of existing, state, federal, and/or foreign regulatory and tax laws and regulations; U.S. federal income tax consequences to U.S. persons owning at least 10% of the company’s shares; changes in accounting principles, estimates or assumptions; fluctuation in revenue against the company’s relatively fixed expenses; our ability to accurately estimate the lifetime economic value of our direct-to-consumer Medicare policy sales; the laws of Ireland being different from the laws of the United States and potentially affording less protections to the holders of our securities; and the company's holding company structure potentially preventing it from being able to receive dividends or other distributions in needed amounts from our subsidiaries. These factors also include those described under “Risk Factors” in the company’s most recent 10-K filing and subsequent filings filed with the SEC.
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.
Our forward-looking statements speak only as of the date made and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against relying on these forward-looking statements.
Contact
INVESTORS
Rich Keefe | +1 215 246 3961 | Rich.Keefe@willistowerswatson.com
WILLIS TOWERS WATSON
Supplemental Segment Information
(In millions of U.S. dollars)
(Unaudited)
| REVENUE | ||||||||||||||||
| Components of Revenue Change(i) | ||||||||||||||||
| Three Months Ended September 30, | As Reported | Currency | Constant Currency | Acquisitions/ | Organic | |||||||||||
| 2019 | 2018 | % Change | Impact | Change | Divestitures | Change | ||||||||||
| Human Capital & Benefits | $ | 807 | $ | 778 | 4% | (2)% | 6% | 0% | 6% | |||||||
| Corporate Risk & Broking | 651 | 622 | 5% | (2)% | 7% | 0% | 7% | |||||||||
| Investment, Risk & Reinsurance | 325 | 317 | 2% | (3)% | 5% | 2% | 3% | |||||||||
| Benefits Delivery & Administration | 179 | 127 | 42% | 0% | 42% | 40% | 2% | |||||||||
| Segment Revenue | 1,962 | 1,844 | 6% | (2)% | 8% | 3% | 5% | |||||||||
| Reimbursable expenses and other | 27 | 15 | ||||||||||||||
| Revenue | $ | 1,989 | $ | 1,859 | 7% | (2)% | 9% | 3% | 6% | |||||||
| Components of Revenue Change(i) | ||||||||||||||||
| Nine Months Ended September 30, | As Reported | Currency | Constant Currency | Acquisitions/ | Organic | |||||||||||
| 2019 | 2018 | % Change | Impact | Change | Divestitures | Change | ||||||||||
| Human Capital & Benefits | $ | 2,433 | $ | 2,390 | 2% | (3)% | 4% | 0% | 4% | |||||||
| Corporate Risk & Broking | 2,069 | 2,036 | 2% | (3)% | 5% | 0% | 5% | |||||||||
| Investment, Risk & Reinsurance | 1,323 | 1,276 | 4% | (3)% | 7% | 1% | 5% | |||||||||
| Benefits Delivery & Administration | 440 | 368 | 20% | 0% | 20% | 14% | 6% | |||||||||
| Segment Revenue | 6,265 | 6,070 | 3% | (3)% | 6% | 1% | 5% | |||||||||
| Reimbursable expenses and other | 84 | 71 | ||||||||||||||
| Revenue | $ | 6,349 | $ | 6,141 | 3% | (3)% | 6% | 1% | 5% | |||||||
__________
(i) Components of revenue change may not add due to rounding
SEGMENT OPERATING INCOME (i)
| Three Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Human Capital & Benefits | $ | 214 | $ | 194 | ||||
| Corporate Risk & Broking | 81 | 66 | ||||||
| Investment, Risk & Reinsurance | 31 | 29 | ||||||
| Benefits Delivery & Administration | (21 | ) | (33 | ) | ||||
| Segment Operating Income | $ | 305 | $ | 256 | ||||
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Human Capital & Benefits | $ | 587 | $ | 536 | ||||
| Corporate Risk & Broking | 312 | 288 | ||||||
| Investment, Risk & Reinsurance | 392 | 379 | ||||||
| Benefits Delivery & Administration | (67 | ) | (96 | ) | ||||
| Segment Operating Income | $ | 1,224 | $ | 1,107 | ||||
__________
(i) Segment operating income excludes certain costs, including amortization of intangibles, transaction and integration expenses, certain litigation provisions, and to the extent that the actual expense based upon which allocations are made differs from the forecast/budget amount, a reconciling item will be created between internally allocated expenses and the actual expenses reported for U.S. GAAP purposes.
RECONCILIATIONS OF SEGMENT OPERATING INCOME TO INCOME FROM OPERATIONS BEFORE INCOME TAXES
| Three Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Segment Operating Income | $ | 305 | $ | 256 | ||||
| Amortization | (118 | ) | (127 | ) | ||||
| Transaction and integration expenses | (6 | ) | (50 | ) | ||||
| Unallocated, net(i) | (74 | ) | (62 | ) | ||||
| Income from Operations | 107 | 17 | ||||||
| Interest expense | (62 | ) | (51 | ) | ||||
| Other income, net | 55 | 70 | ||||||
| Income from operations before income taxes | $ | 100 | $ | 36 | ||||
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Segment Operating Income | $ | 1,224 | $ | 1,107 | ||||
| Amortization | (368 | ) | (408 | ) | ||||
| Transaction and integration expenses | (12 | ) | (148 | ) | ||||
| Unallocated, net(i) | (202 | ) | (212 | ) | ||||
| Income from Operations | 642 | 339 | ||||||
| Interest expense | (172 | ) | (154 | ) | ||||
| Other income, net | 177 | 189 | ||||||
| Income from operations before income taxes | $ | 647 | $ | 374 | ||||
__________
(i) Includes certain costs, primarily related to corporate functions which are not directly related to the segments, and certain differences between budgeted expenses determined at the beginning of the year and actual expenses that we report for U.S. GAAP purposes.
WILLIS TOWERS WATSON
Reconciliations of Non-GAAP Measures
(In millions of U.S. dollars, except per share data)
(Unaudited)
RECONCILIATIONS OF NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON TO ADJUSTED DILUTED EARNINGS PER SHARE
| Three Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Net income attributable to Willis Towers Watson | $ | 75 | $ | 44 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 118 | 127 | ||||||
| Transaction and integration expenses | 6 | 50 | ||||||
| Pension settlement and curtailment gains and losses | — | (4 | ) | |||||
| Tax effect on certain items listed above(i) | (29 | ) | (44 | ) | ||||
| Tax effects of internal reorganization | — | 1 | ||||||
| Adjusted net income | $ | 170 | $ | 174 | ||||
| Weighted-average shares of common stock — diluted | 130 | 132 | ||||||
| Diluted earnings per share | $ | 0.58 | $ | 0.33 | ||||
| Adjusted for certain items:(ii) | ||||||||
| Amortization | 0.91 | 0.97 | ||||||
| Transaction and integration expenses | 0.05 | 0.38 | ||||||
| Pension settlement and curtailment gains and losses | — | (0.03 | ) | |||||
| Tax effect on certain items listed above(i) | (0.23 | ) | (0.33 | ) | ||||
| Tax effects of internal reorganization | — | — | ||||||
| Adjusted diluted earnings per share | $ | 1.31 | $ | 1.32 | ||||
__________
(i) The tax effect was calculated using an effective tax rate for each item.
(ii) Per share values and totals may differ due to rounding.
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Net income attributable to Willis Towers Watson | $ | 500 | $ | 317 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 368 | 408 | ||||||
| Transaction and integration expenses | 12 | 148 | ||||||
| Pension settlement and curtailment gains and losses | — | 16 | ||||||
| Loss on disposal of operations | — | 9 | ||||||
| Tax effect on certain items listed above(i) | (90 | ) | (139 | ) | ||||
| Tax effects of internal reorganization | — | 1 | ||||||
| Adjusted net income | $ | 790 | $ | 760 | ||||
| Weighted-average shares of common stock — diluted | 130 | 132 | ||||||
| Diluted earnings per share | $ | 3.84 | $ | 2.39 | ||||
| Adjusted for certain items:(ii) | ||||||||
| Amortization | 2.82 | 3.08 | ||||||
| Transaction and integration expenses | 0.09 | 1.12 | ||||||
| Pension settlement and curtailment gains and losses | — | 0.12 | ||||||
| Loss on disposal of operations | — | 0.07 | ||||||
| Tax effect on certain items listed above(i) | (0.69 | ) | (1.05 | ) | ||||
| Tax effects of internal reorganization | — | — | ||||||
| Adjusted diluted earnings per share | $ | 6.06 | $ | 5.74 | ||||
__________
(i) The tax effect was calculated using an effective tax rate for each item.
(ii) Per share values and totals may differ due to rounding.
RECONCILIATIONS OF NET INCOME TO ADJUSTED EBITDA
| Three Months Ended September 30, | |||||||||
| 2019 | 2018 | ||||||||
| Net income | $ | 80 | 4.0% | $ | 46 | 2.5% | |||
| Provision for income taxes | 20 | (10 | ) | ||||||
| Interest expense | 62 | 51 | |||||||
| Depreciation | 58 | 53 | |||||||
| Amortization | 118 | 127 | |||||||
| Transaction and integration expenses | 6 | 50 | |||||||
| Pension settlement and curtailment gains and losses | — | (4 | ) | ||||||
| Adjusted EBITDA and adjusted EBITDA margin | $ | 344 | 17.3% | $ | 313 | 16.8% | |||
| Nine Months Ended September 30, | |||||||||
| 2019 | 2018 | ||||||||
| Net income | $ | 522 | 8.2% | $ | 332 | 5.4% | |||
| Provision for income taxes | 125 | 42 | |||||||
| Interest expense | 172 | 154 | |||||||
| Depreciation | 171 | 153 | |||||||
| Amortization | 368 | 408 | |||||||
| Transaction and integration expenses | 12 | 148 | |||||||
| Pension settlement and curtailment gains and losses | — | 16 | |||||||
| Loss on disposal of operations | — | 9 | |||||||
| Adjusted EBITDA and adjusted EBITDA margin | $ | 1,370 | 21.6% | $ | 1,262 | 20.6% | |||
RECONCILIATIONS OF INCOME FROM OPERATIONS TO ADJUSTED OPERATING INCOME
| Three Months Ended September 30, | |||||||||
| 2019 | 2018 | ||||||||
| Income from operations | $ | 107 | 5.4% | $ | 17 | 0.9% | |||
| Adjusted for certain items: | |||||||||
| Amortization | 118 | 127 | |||||||
| Transaction and integration expenses | 6 | 50 | |||||||
| Adjusted operating income and adjusted operating income margin | $ | 231 | 11.6% | $ | 194 | 10.4% | |||
| Nine Months Ended September 30, | |||||||||
| 2019 | 2018 | ||||||||
| Income from operations | $ | 642 | 10.1% | $ | 339 | 5.5% | |||
| Adjusted for certain items: | |||||||||
| Amortization | 368 | 408 | |||||||
| Transaction and integration expenses | 12 | 148 | |||||||
| Adjusted operating income and adjusted operating income margin | $ | 1,022 | 16.1% | $ | 895 | 14.6% | |||
RECONCILIATIONS OF GAAP INCOME TAXES/TAX RATE TO ADJUSTED INCOME TAXES/TAX RATE
| Three Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Income from operations before income taxes | $ | 100 | $ | 36 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 118 | 127 | ||||||
| Transaction and integration expenses | 6 | 50 | ||||||
| Pension settlement and curtailment gains and losses | — | (4 | ) | |||||
| Adjusted income before taxes | $ | 224 | $ | 209 | ||||
| Provision for income taxes | $ | 20 | $ | (10 | ) | |||
| Tax effect on certain items listed above(i) | 29 | 44 | ||||||
| Tax effects of internal reorganization | — | (1 | ) | |||||
| Adjusted income taxes | $ | 49 | $ | 33 | ||||
| U.S. GAAP tax rate | 20.4 | % | (28.1 | )% | ||||
| Adjusted income tax rate | 22.2 | % | 15.9 | % | ||||
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Income from operations before income taxes | $ | 647 | $ | 374 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 368 | 408 | ||||||
| Transaction and integration expenses | 12 | 148 | ||||||
| Pension settlement and curtailment gains and losses | — | 16 | ||||||
| Loss on disposal of operations | — | 9 | ||||||
| Adjusted income before taxes | $ | 1,027 | $ | 955 | ||||
| Provision for income taxes | $ | 125 | $ | 42 | ||||
| Tax effect on certain items listed above(i) | 90 | 139 | ||||||
| Tax effects of internal reorganization | — | (1 | ) | |||||
| Adjusted income taxes | $ | 215 | $ | 180 | ||||
| U.S. GAAP tax rate | 19.3 | % | 11.3 | % | ||||
| Adjusted income tax rate | 21.0 | % | 18.9 | % | ||||
__________
(i) The tax effect was calculated using an effective tax rate for each item.
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES TO FREE CASH FLOW
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities | $ | 620 | $ | 716 | ||||
| Less: Additions to fixed assets and software for internal use | (175 | ) | (209 | ) | ||||
| Free cash flow | $ | 445 | $ | 507 | ||||
WILLIS TOWERS WATSON
Condensed Consolidated Statements of Income
(In millions of U.S. dollars, except per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenue | $ | 1,989 | $ | 1,859 | $ | 6,349 | $ | 6,141 | ||||||||
| Costs of providing services | ||||||||||||||||
| Salaries and benefits | 1,283 | 1,238 | 3,909 | 3,890 | ||||||||||||
| Other operating expenses | 417 | 374 | 1,247 | 1,203 | ||||||||||||
| Depreciation | 58 | 53 | 171 | 153 | ||||||||||||
| Amortization | 118 | 127 | 368 | 408 | ||||||||||||
| Transaction and integration expenses | 6 | 50 | 12 | 148 | ||||||||||||
| Total costs of providing services | 1,882 | 1,842 | 5,707 | 5,802 | ||||||||||||
| Income from operations | 107 | 17 | 642 | 339 | ||||||||||||
| Interest expense | (62 | ) | (51 | ) | (172 | ) | (154 | ) | ||||||||
| Other income, net | 55 | 70 | 177 | 189 | ||||||||||||
| INCOME FROM OPERATIONS BEFORE INCOME TAXES | 100 | 36 | 647 | 374 | ||||||||||||
| Provision for income taxes | (20 | ) | 10 | (125 | ) | (42 | ) | |||||||||
| NET INCOME | 80 | 46 | 522 | 332 | ||||||||||||
| Income attributable to non-controlling interests | (5 | ) | (2 | ) | (22 | ) | (15 | ) | ||||||||
| NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 75 | $ | 44 | $ | 500 | $ | 317 | ||||||||
| EARNINGS PER SHARE | ||||||||||||||||
| Basic earnings per share | $ | 0.58 | $ | 0.34 | $ | 3.86 | $ | 2.40 | ||||||||
| Diluted earnings per share | $ | 0.58 | $ | 0.33 | $ | 3.84 | $ | 2.39 | ||||||||
| Weighted-average shares of common stock, basic | 130 | 131 | 130 | 132 | ||||||||||||
| Weighted-average shares of common stock, diluted | 130 | 132 | 130 | 132 | ||||||||||||
WILLIS TOWERS WATSON
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
(Unaudited)
| September 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 867 | $ | 1,033 | ||||
| Fiduciary assets | 13,779 | 12,604 | ||||||
| Accounts receivable, net | 2,167 | 2,379 | ||||||
| Prepaid and other current assets | 587 | 404 | ||||||
| Total current assets | 17,400 | 16,420 | ||||||
| Fixed assets, net | 963 | 942 | ||||||
| Goodwill | 11,187 | 10,465 | ||||||
| Other intangible assets, net | 3,561 | 3,318 | ||||||
| Right-of-use assets | 959 | — | ||||||
| Pension benefits assets | 932 | 773 | ||||||
| Other non-current assets | 701 | 467 | ||||||
| Total non-current assets | 18,303 | 15,965 | ||||||
| TOTAL ASSETS | $ | 35,703 | $ | 32,385 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Fiduciary liabilities | $ | 13,779 | $ | 12,604 | ||||
| Deferred revenue and accrued expenses | 1,521 | 1,647 | ||||||
| Current debt | 484 | 186 | ||||||
| Current lease liabilities | 151 | — | ||||||
| Other current liabilities | 801 | 864 | ||||||
| Total current liabilities | 16,736 | 15,301 | ||||||
| Long-term debt | 5,381 | 4,389 | ||||||
| Liability for pension benefits | 1,039 | 1,170 | ||||||
| Deferred tax liabilities | 690 | 559 | ||||||
| Provision for liabilities | 555 | 540 | ||||||
| Long-term lease liabilities | 957 | — | ||||||
| Other non-current liabilities | 314 | 429 | ||||||
| Total non-current liabilities | 8,936 | 7,087 | ||||||
| TOTAL LIABILITIES | 25,672 | 22,388 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| REDEEMABLE NON-CONTROLLING INTEREST | 30 | 26 | ||||||
| EQUITY(i) | ||||||||
| Additional paid-in capital | 10,667 | 10,615 | ||||||
| Retained earnings | 1,336 | 1,201 | ||||||
| Accumulated other comprehensive loss, net of tax | (2,113 | ) | (1,961 | ) | ||||
| Treasury shares, at cost, 17,519 shares in 2019 and 2018, and 40,000 shares, €1 nominal value, in 2019 and 2018 | (3 | ) | (3 | ) | ||||
| Total Willis Towers Watson shareholders’ equity | 9,887 | 9,852 | ||||||
| Non-controlling interests | 114 | 119 | ||||||
| Total equity | 10,001 | 9,971 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 35,703 | $ | 32,385 | ||||
__________
(i) Equity includes (a) Ordinary shares $0.000304635 nominal value; Authorized 1,510,003,775; Issued 128,547,034 (2019) and 128,921,530 (2018); Outstanding 128,547,034 (2019) and 128,921,530 (2018); (b) Ordinary shares, €1 nominal value; Authorized and Issued 40,000 shares in 2019 and 2018; and (c) Preference shares, $0.000115 nominal value; Authorized 1,000,000,000 and Issued none in 2019 and 2018.
WILLIS TOWERS WATSON
Condensed Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| NET INCOME | $ | 522 | $ | 332 | ||||
| Adjustments to reconcile net income to total net cash from operating activities: | ||||||||
| Depreciation | 171 | 158 | ||||||
| Amortization | 368 | 408 | ||||||
| Non-cash lease expense | 107 | — | ||||||
| Net periodic benefit of defined benefit pension plans | (93 | ) | (132 | ) | ||||
| Provision for doubtful receivables from clients | 12 | 10 | ||||||
| Benefit from deferred income taxes | (44 | ) | (70 | ) | ||||
| Share-based compensation | 48 | 15 | ||||||
| Net loss on disposal of operations | — | 9 | ||||||
| Non-cash foreign exchange loss | 16 | 23 | ||||||
| Other, net | (11 | ) | 5 | |||||
| Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | ||||||||
| Accounts receivable | 193 | 332 | ||||||
| Fiduciary assets | (1,342 | ) | (1,298 | ) | ||||
| Fiduciary liabilities | 1,342 | 1,298 | ||||||
| Other assets | (402 | ) | (52 | ) | ||||
| Other liabilities | (296 | ) | (340 | ) | ||||
| Provisions | 29 | 18 | ||||||
| Net cash from operating activities | 620 | 716 | ||||||
| CASH FLOWS USED IN INVESTING ACTIVITIES | ||||||||
| Additions to fixed assets and software for internal use | (175 | ) | (209 | ) | ||||
| Capitalized software costs | (43 | ) | (41 | ) | ||||
| Acquisitions of operations, net of cash acquired | (1,324 | ) | (8 | ) | ||||
| Net proceeds from sale of operations | 17 | 4 | ||||||
| Other, net | (6 | ) | 14 | |||||
| Net cash used in investing activities | (1,531 | ) | (240 | ) | ||||
| CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES | ||||||||
| Net payments on revolving credit facility | (41 | ) | (654 | ) | ||||
| Senior notes issued | 997 | 998 | ||||||
| Proceeds from issuance of other debt | 1,100 | — | ||||||
| Debt issuance costs | (13 | ) | (8 | ) | ||||
| Repayments of debt | (825 | ) | (170 | ) | ||||
| Repurchase of shares | (147 | ) | (401 | ) | ||||
| Proceeds from issuance of shares | 31 | 21 | ||||||
| Payments of deferred and contingent consideration related to acquisitions | (47 | ) | (50 | ) | ||||
| Cash paid for employee taxes on withholding shares | (14 | ) | (30 | ) | ||||
| Dividends paid | (245 | ) | (228 | ) | ||||
| Acquisitions of and dividends paid to non-controlling interests | (22 | ) | (20 | ) | ||||
| Net cash from/(used in) financing activities | 774 | (542 | ) | |||||
| DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (137 | ) | (66 | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (22 | ) | (33 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD (i) | 1,033 | 1,030 | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (i) | $ | 874 | $ | 931 | ||||
__________
(i) As a result of the acquired TRANZACT collateralized debt facility, cash, cash equivalents and restricted cash at the end of the period included $7 million of restricted cash at September 30, 2019, which is included within prepaid and other current assets on our condensed consolidated balance sheet. There were no restricted cash amounts held at December 31, 2018 or September 30, 2018.
____________________
1 The revenue amounts included in this release are presented on a U.S. GAAP basis except where stated otherwise. The segment discussion is on an organic basis.
EXHIBIT 99.2
willisto w e r s wat s o n .c o m Willis Towers Watson 2019 Third Quarter Financial Results Supplemental Materials October 31, 2019 © 2019 Willis Towers Watson. All rights reserved.
Willis Towers Watson Forward Looking Statements willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 1 This document contains “forward - looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements and other forward - looking statements in this document by words such as “may”, “will”, “would”, “expect”, “anticipate”, “believe”, “estimate”, “plan”, “intend”, “continue”, or similar words, expressions or the negative of such terms or other comparable terminology. These statements include, but are not limited to, such things as our outlook, future capital expenditures, future share repurchases, growth in revenue, the impact of changes to tax laws on our financial results, business strategies and planned acquisitions (including the acquisition of TRANZACT), competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, including our future financial and operating results, plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Willis Towers Watson’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward - looking statements. All forward - looking disclosure is speculative by its nature. There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward - looking statements contained herein, including the following: the ability of the company to successfully establish, execute and achieve its global business strategy as it evolves; changes in demand for our services, including any decline in defined benefit pension plans or the purchasing of insurance; changes in general economic, business and political conditions, including changes in the financial markets; significant competition that the company faces and the potential for loss of market share and/or profitability; the impact of seasonality and differences in timing of renewals; the risk of increased liability or new legal claims arising from our new and existing products and services, and expectations, intentions and outcomes relating to outstanding litigation; the risk the Stanford litigation settlement approval will be overturned on appeal, the risk that the Stanford bar order may be challenged in other jurisdictions, and the risk that the charge related to the Stanford settlement may not be deductible; the risk of material adverse outcomes on existing litigation or investigation matters; changes in the regulatory environment in which the company operates, including, among other risks, the impact of pending competition law and regulatory investigations; various claims, government inquiries or investigations or the potential for regulatory action; the company’s ability to make divestitures or acquisitions and its ability to integrate or manage such acquired businesses (including the recently completed acquisition of TRANZACT); our ability to integrate direct - to - consumer sales and marketing solutions with our existing offerings and solutions; failure to protect client data or breaches of information systems; the ability to comply with complex and evolving regulations related to data privacy and cyber security; the potential impact of Brexit; our ability to successfully enhance our billing, collection and other working capital efforts, and thereby increase our free cash flow; the potential impact of the change in the method for determining LIBOR; the ability of the company to properly identify and manage conflicts of interest; reputational damage; reliance on third - party services; the loss of key employees; the ability to successfully manage ongoing organizational changes; disasters or business continuity problems; doing business internationally, including the impact of exchange rates; compliance with extensive government regulation; the risk of sanctions imposed by governments, or changes to associated sanction regulations; technological change; changes and developments in the insurance industry or the United States healthcare system; including those related to Medicare; the risk that the company may not be able to repurchase the intended number of outstanding shares due to M&A activity or investment opportunities, market or business conditions, or other factors; the inability to protect the company’s intellectual property rights, or the potential infringement upon the intellectual property rights of others; fluctuations in the company’s pension liabilities; the ability of the company to meet its financial guidance, the company’s capital structure, including indebtedness amounts, the limitations imposed by the covenants in the documents governing such indebtedness and the maintenance of the financial and disclosure controls and procedures of each; the ability of the company to obtain financing on favorable terms or at all; adverse changes in the credit ratings of the company; the impact of recent changes to U.S. tax laws, including on our effective tax rate, and the enactment of additional, or the revision of existing, state, federal, and/or foreign regulatory and tax laws and regulations; U.S. federal income tax consequences to U.S. persons owning at least 10% of the company’s shares; changes in accounting principles, estimates or assumptions; fluctuation in revenue against the company’s relatively fixed expenses; our ability to accurately estimate the lifetime economic value of our direct - to - consumer Medicare policy sales; the laws of Ireland being different from the laws of the United States and potentially affording less protections to the holders of our securities; and the company's holding company structure potentially preventing it from being able to receive dividends or other distributions in needed amounts from our subsidiaries. These factors also include those described under “Risk Factors” in the company’s most recent 10 - K filing and subsequent filings filed with the SEC.
Willis Towers Watson Non - GAAP Measures willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 2 In order to assist readers of our consolidated financial statements in understanding the core operating results that Willis Towers Watson’s management uses to evaluate the business and for financial planning, we present the following non - GAAP measures: (1) Constant Currency Change, (2) Organic Change, (3) Adjusted Operating Income, (4) Adjusted EBITDA, (5) Adjusted Net Income, (6) Adjusted Diluted Earnings Per Share, (7) Adjusted Income Before Taxes, (8) Adjusted Income Taxes/Tax Rate and (9) Free Cash Flow. The Company believes that these measures are relevant and provide useful 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. Reconciliations of these measures are included in the accompanying appendix of these earning release supplemental materials. The Company does not reconcile its forward looking non - GAAP financial measures to the corresponding U.S. GAAP measures, due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible; and because not all of the information, such as foreign currency impacts necessary for a quantitative reconciliation of these forward - looking non - GAAP financial measures to the most directly comparable U.S. GAAP financial measure, is available to the Company without unreasonable efforts. For the same reasons, the Company is unable to address the probable significance of the unavailable information. The Company provides non - GAAP financial measures that it believes will be achieved, however it cannot accurately predict all of the components of the adjusted calculations and the U.S. GAAP measures may be materially different than the non - GAAP measures.
Q3 2019 GAAP Financial Results, Key Figures willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 3 $USD million, except EPS and % Three months ending September 30, Nine months ending September 30, 2018 2019 2018 2019 Revenue as reported % change $1,859 $1,989 +7% $6,141 $6,349 +3% Income from Operations as reported % change $17 $107 +529% $339 $642 +89% Operating Margin % as reported change, basis points 0.9% 5.4% +450 bps 5.5% 10.1% +460 bps Net Income attributable to Willis Towers Watson as reported % change $44 $75 +70% $317 $500 +58% Diluted EPS as reported % change $0.33 $0.58 +76% $2.39 $3.84 +61% Operating Cash Flow as reported % change $716 $620 - 13%
$ 2.0 B Q3 2019 Revenue Q3 2019 Key Figures, Includes Non - GAAP Financial Results Willis Towers Watson reports solid third quarter 2019 earnings Total Revenue + 6 % Q3 2019 Organic % Strong Growth Momentum Delivered 6% organic revenue growth for the second consecutive quarter driven by new business wins and strong client retention Providing a client winning experience in more than 450 markets in over 140 countries to fuel our continued growth $ 44 5 M Free Cash Flow for Nine Months Ended September 30 , 2019 Free Cash Flow - $ 62 M YTD 2019 Positive Cash Generation Significant portion of cash is generated in Q4 every year. The decline in YTD free cash flow is largely due to the timing and increase in tax payments Unwavering continued focus on delivering free cash flow growth through a combination of profitable growth and working capital improvement $ 1.31 Q3 2019 Adj. Diluted EPS Adj. Diluted EPS Solid Results Offset by Macro Headwinds Strong 15% of underlying adjusted EPS growth was offset by - $0.20 of year - over - year macro headwinds: - $0.10 from income tax provisions and - $0.10 from pension income 1 1.6 % Q3 2019 Adj. Operating Margin Adj. Operating Margin Sustained Margin Expansion Strong organic growth coupled with disciplined expense management and operational efficiency gains are driving margin expansion across all segments On track to deliver 2019 adjusted operating margin of around 20% - 1 % Q3 2019 $ 1.32 Q3 2018 + 120 bps Q3 2019 10. 4 % Q3 2018 + 5 % Q3 2018 Organic % $ 50 7 M YTD 2018 willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 4
Organic Revenue Growth %* willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 5 Broad - Based Organic Growth Across All Segments Our commitment to a client winning experience continues to drive broad - based growth Q3 2018 Q3 2019 Human Capital & Benefits 2% 6% Corporate Risk & Broking 4% 7% Investment, Risk & Reinsurance 9% 3% Benefits Delivery & Administration 10% 2% Willis Towers Watson 5% 6% HCB organic revenue growth was led by Talent and Rewards and Health and Benefits due to strong demand for data and analytics services, growth in specialty products, and new local and global appointments. Retirement had modest growth as a result of pension de - risking activities CRB delivered strong organic revenue growth across all geographies driven by new business generation and strong retention. North America and International continued to lead the segment in organic growth IRR had organic revenue growth across all businesses driven by robust demand for insurer technology and data & analytics services BDA continued to show organic growth driven by a growing client portfolio in the large and mid - market space, and increased demand for project work. TRANZACT is not included in the organic revenue growth results as presented • Organic revenue growth for 2018 compared to 2017 excludes the impact of ASC 606 from both years. Organic revenue growth for 2019 compared to 2018 includes the adoption of ASC 606 for both years. For HCB, the prior year result reflect the impact of adopting the new revenue standard (ASC 606), which resulted in certain revenue not being recognized.
Summary of Segment Financial Results Q3 2019 Segment results compared to Q3 2018 willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 6 As reported, $USD million, except % Q3 2018 1 Q3 2019 1,2 Revenue O p erating Margin % Revenue Operating Margin % Margin Year - over - year Human Capital & Benefits 778 25% 807 27% +160 bps Corporate Risk & Broking 622 11% 651 12% +190 bps Investment, Risk & Reinsurance 317 9% 325 9% +20 bps Benefits Delivery & Administration 127 - 26% 179 - 12% +1,400 bps 1 Revenue and Operating Margin with the adoption of ASC 606 accounting standards for both 2018 and 2019. The Operating Margin percentage is rounded. 2 Includes TRANZACT revenue after July 30, 2019 closing.
Maintaining a Strong and Flexible Balance Sheet Position Significant financial flexibility to drive long - term shareholder value willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 7 $USD million Dec 31, 2018 Sept 30, 2019 Sept 30, 2018 Cash and Cash Equivalents 931 1,033 867 Total Debt 1 4,684 4,575 5,865 Total Equity 10,163 9,971 10,001 Debt to Adj. EBITDA Trailing twelve months basis n/a 2 2.3x 2.7x A disciplined capital management strategy provides Willis Towers Watson with ample financial flexibility to reinvest in our businesses, capitalize on market growth opportunities, and drive significant value for shareholders Our capital structure enabled by a strong balance sheet and continued cash generation paves the way for significant shareholder value creation over the long - term History of effectively managing our leverage with the commitment to maintain investment grade credit rating and return leverage ratio to historical level in the near - term 1 Total Debt equals sum of current debt and long - term debt as shown on the Consolidated Balance Sheets. 2 Q3 2018 Debt to trailing twelve months Adj. EBITDA has been excluded due to 1/1/18 cutover adoption of ASC 606 revenue accounting standards.
A Capital Strategy Fit For Creating Long - Term Shareholder Value CASH RETURNED TO SHAREHOLDERS $ 2.9 B FY2016 to Q3 FY2019 $396 $306 $199 $245 $986 $602 $709 $277 2016 2017 2018 2019 YTD In progress $392 $147 $595 $908 MEANINGFUL DIVIDEND GROWTH + 11 % Cash dividend growth 3 years CAGR 2016 $0 . 6 0 2017 2018 2019 e $0.65 $ 0 . 4 8 $0 . 5 3 Share repurchases Dividends Quarterly cash dividend per share + 1 1% willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 8 $ million Disciplined approach to capital allocation A capital light business model and capital structure allow us to shift capital between growth and value creation based on changes in the Businesses and/or the macro environment A strong focus on return on investment to optimize the use of cash A robust pipeline of investment opportunities Focus areas to prioritize use of cash 1) Reinvest in our Businesses 2) Invest in innovation and new business opportunities 3) Pursue opportunistic mergers, acquisitions, and divestitures 4) Strengthen Balance Sheet and liquidity 5) Return excess cash to shareholders through share repurchase 6) Sustain dividends and payout ratio
7 % to 8 % constant currency 4 % to 5 % organic revenue growth FY2019 Revenue Growth around 20 % Adj. operating margin FY2019 Adjusted Operating Margin $ 10.75 to $ 11.10 Adj. diluted EPS Excluding transaction and integration cost FY2019 Adjusted Diluted EPS around 22 % Adj. income tax rate Excluding discrete items FY2019 Adjusted Income Tax Rate $1.1 bn to $1.2 bn free cash flow Expect growth to accelerate to 15% or better over the longer term Free Cash Flow around $0.15 currency headwind on Adj. EPS Assumes average rates £1.00 = $1.26, €1.00 = $1.12 FY2019 Foreign Currency Assumptions *Guidance is for 2019, except where specified otherwise and is based on ASC 606 accounting standard. willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 9 History of Delivering on Results. A Solid Foundation for 2019* Q3 2019 management guidance update
Appendix: Reconciliation of Non - GAAP Measures willisto w e r s wat s o n .c o m willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only. 10
Appendix 1: Constant currency and organic revenue change $ $ Components of Revenue Change (i) Three Months Ended September 30, 2019 2018 As Reported % Change Currency Impact Constant Currency Change Acquisitions/ Divestitures Organic Change Human Capital & Benefits $ 807 778 4% (2)% 6% 0% 6% Corporate Risk & Broking 651 622 5% (2)% 7% 0% 7% Investment, Risk & Reinsurance 325 317 2% (3)% 5% 2% 3% Benefits Delivery & Administration 179 127 42% 0% 42% 40% 2% Segment Revenue 1,962 1,844 6% (2)% 8% 3% 5% Reimbursable expenses and other 27 15 Revenue $ 1,989 1,859 7% (2)% 9% 3% 6% Components of Revenue Change (i) Nine Months Ended 2019 September 30, 2018 As Reported % Change Currency Impact Constant Currency Change Acquisitions/ Divestitures Organic Change Human Capital & Benefits $ 2,433 $ 2,390 2% (3)% 4% 0% 4% Corporate Risk & Broking 2,069 2,036 2% (3)% 5% 0% 5% Investment, Risk & Reinsurance 1,323 1,276 4% (3)% 7% 1% 5% Benefits Delivery & Administration 440 368 20% 0% 20% 14% 6% Segment Revenue 6,265 6,070 3% (3)% 6% 1% 5% Reimbursable expenses and other 84 71 Revenue $ 6,349 $ 6,141 3% (3)% 6% 1% 5% willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 11 (i) Components of revenue change may not add due to rounding
Appendix 2: Adjusted operating income and margin, adjusted EBITDA and margin, free cash flow Nine Months Ended September 30, 201 9 2018 Cash flows from operating activities $ 620 $ 716 Less: Additions to fixed assets and software for internal use (175) I nco m e from operations $ 642 10.1% $ 339 5.5% Adjusted for certain items: Nine Months Ended September 30, 2019 2018 Amortization 368 408 Transaction and integration expenses 12 148 Adjusted operating income and adjusted operating income margin $ 1,022 16.1% $ 895 14.6% Income from operations $ 107 5.4% $ 17 0.9% (209) Adjusted for certain items: Free cash flow $ 445 $ 507 Amortization 118 127 Transaction and integration expenses 6 50 Adjusted operating income and adjusted operating income margin $ 231 11.6% $ 194 10.4% Three Months Ended September 30, 201 9 201 8 Three Months Ended September 30, 2019 2018 Net income $ 80 4.0% $ 46 2.5% Provision for income taxes 20 (10) Interest expense 62 51 Depreciation 58 53 Amortization 118 127 Transaction and integration expenses 6 50 Pension settlement and curtailment gains and losses — (4) Adjusted EBITDA and adjusted EBITDA margin $ 344 17.3% $ 313 16.8% Nine Months Ended September 30, 2019 2018 Net income $ 522 8.2% $ 332 5.4% Provision for income taxes 125 42 Interest expense 172 154 Depreciation 171 153 Amortization 368 408 Transaction and integration expenses 12 148 Pension settlement and curtailment gains and losses — 16 Loss on disposal of operations — 9 Adjusted EBITDA and adjusted EBITDA margin $ 1,370 21.6% $ 1,262 20.6% willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 12
Appendix 3: Adjusted net income, adjusted diluted earnings per share, adjusted income before taxes, adjusted income tax rate Income from operations before income taxes $ 100 $ 36 Three Months Ended September 30, 2019 2018 U.S. GAAP tax rate 19.3% 11.3% Adjusted income tax rate 21.0% 18.9% Provision for income taxes 125 $ 42 $ Tax effect on certain items listed above (i) 90 139 T ax e ff ects of i n ter n al reor g a n ization — (1) Adjusted income taxes $ 215 $ 180 Nine Months Ended September 30, 2019 2018 Net income attributable to Willis Towers Watson $ 75 $ 44 Three Months Ended September 30, 2019 2018 Adjusted for certain items: Adjusted for certain items: Amortization 118 127 Amortization 118 127 Transaction and integration expenses 6 50 Transaction and integration expenses 6 50 Pension settlement and curtailment gains and losses — (4) Pension settlement and curtailment gains and losses — (4) Tax effect on certain items listed above (i) (29) (44) Adjusted income before taxes $ 224 $ 209 Tax effects of internal reorganization — 1 Adjusted net income $ 170 $ 174 Weighted - average shares of common stock — diluted 130 132 Diluted earnings per share $ 0.58 $ 0.33 Provision for income taxes Tax effect on certain items listed above (i) Tax effects of internal reorganization Adjusted income taxes $ 20 $ (10) 29 44 — (1) $ 49 $ 33 Adjusted for certain items: (ii) U.S. GAAP tax rate 20.4% (28.1)% Amortization 0.91 0.97 Adjusted income tax rate 22.2% 15.9% Transaction and integration expenses 0.05 0.38 Pension settlement and curtailment gains and losses — (0.03) Tax effect on certain items listed above (i) (0.23) (0.33) Tax effects of internal reorganization — — Adjusted diluted earnings per share $ 1.31 $ 1.32 Tax effects of internal reorganization — Adjusted net income $ 790 1 $ 760 Weighted - average shares of common stock — diluted 130 132 Diluted earnings per share $ 3.84 $ 2.39 Adjusted for certain items: (ii) Nine Months Ended September 30, 2019 2018 Net inco m e attributable to Will i s T o w ers Wat s on $ 500 $ 317 Adjusted for certain items: Income from operations before income taxes Adjusted for certain items: $ 647 $ 374 Amortization 368 408 Amortization 368 408 Transaction and integration expenses 12 148 Transaction and integration expenses 12 148 Pension settlement and curtailment gains and losses — 16 Pension settlement and curtailment gains and losses — 16 Loss on disposal of operations — 9 Loss on disposal of operations — 9 Tax effect on certain items listed above (i) (90) (139) Adjusted income before taxes $ 1,027 $ 955 Amortization 2.82 3.08 Transaction and integration expenses 0.09 1.12 Pension settlement and curtailment gains and losses — 0.12 Loss on disposal of operations — 0.07 Tax effect on certain items listed above (i) (0.69) (1.05) Tax effects of internal reorganization — — Adjusted diluted earnings per share $ 6.06 $ 5.74 willistowerswatson.com © 2019 Willis Towers Watson. All rights reserved. 13 (i) The tax effect was calculated using an effective tax rate for each item. (ii) Per share values and totals may differ due to rounding.
willistowerswatson.com About Willis Towers Watson Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. © 2019 Willis Towers Watson. All rights reserved.