ARLINGTON, Va. and LONDON, Oct. 27, 2022 (GLOBE NEWSWIRE) — WTW (NASDAQ: WTW) , a leading global advisory, broking and solutions company, today announced financial results for the third quarter ended September 30, 2022.
“We had a strong third quarter, which reflected increasing momentum as a result of the continued execution of our Grow, Simplify and Transform strategy,” said Carl Hess, WTW’s chief executive officer. “Our organic revenue growth accelerated to 6% as the investments we’ve made in talent, technology, and transformation began to yield results. In addition, we have expanded our adjusted operating margins, with 110 basis points of improvement over prior year. Looking ahead, our strategic momentum, continued strong demand for our services amidst macroeconomic volatility, and the resilience and flexibility of our business give us confidence in our ability to drive growth, expand margins and create value for our shareholders over the long-term.”
Consolidated Results
As reported, USD millions, except %
| Key Metrics | Q3-22 | Q3-21 | Y/Y Change |
| Total Revenue1 | $1,953 | $1,973 | Reported (1)% | CC 4% | Organic 6% |
| Income from Operations2 | $154 | $1,131 | (86)% |
| Operating Margin %2 | 7.9% | 57.3% | (4,940) bps |
| Adjusted Operating Income | $284 | $264 | 8% |
| Adjusted Operating Margin | 14.5% | 13.4% | 110 bps |
| Net Income2 | $192 | $907 | (79)% |
| Adjusted Net Income | $243 | $224 | 8% |
| Diluted EPS2 | $1.72 | $6.99 | (75)% |
| Adjusted Diluted EPS | $2.20 | $1.73 | 27% |
Revenue was $1.95 billion for the third quarter of 2022, a decrease of 1% as compared to $1.97 billion for the same period in the prior year. Excluding a 5% foreign currency headwind, revenue increased 4%. On an organic basis, revenue increased 6%.
| 1 | The revenue amounts included in this release are presented on a U.S. GAAP basis except where stated otherwise. This excludes reinsurance revenue which is reported in discontinued operations. The segment discussion is on an organic basis. |
| 2 | Income from Operations, Operating margin, Net income, and Diluted EPS for the third quarter of 2021 included the $1 billion income receipt that was received as a result of the termination of the proposed Aon transaction. |
Net income for the third quarter of 2022 was $192 million, down 79% compared to Net income of $907 million in the prior-year third quarter. Adjusted EBITDA for the third quarter was $408 million, or 20.9% of revenue, down 2% compared to Adjusted EBITDA of $415 million, or 21.0% of revenue, in the prior-year third quarter. The U.S. GAAP tax rate for the third quarter was 0.7%, and the adjusted income tax rate for the third quarter used in calculating adjusted diluted earnings per share was 16.8%.
Cash Flow and Capital Allocation
Cash flows from operating activities were $437 million for the nine months ended September 30, 2022, compared to $1.9 billion for the prior year-to-date period. Free cash flow for the nine months ended September 30, 2022 and 2021 was $337 million and $1.8 billion, respectively. During the third quarter and nine months ended September 30, 2022, the Company repurchased approximately $369 million and $3.1 billion of WTW stock, respectively.
Quarterly Business Highlights
- Investments to expand our talent base have begun to contribute to our performance as we see steady improvements and momentum in our client pipeline which we expect to become more meaningful going forward.
- Expanded our client solutions: upgraded the Global Peril Diagnostic Tool with hurricane tracking advisory and resiliency scoring to build next-level analytics, and launched a new client solution, called Risk IQ, providing risk specialists with autonomous access to the breadth of WTW’s leading risk and analytics solutions.
- Realized $29 million of incremental annualized Transformation Program savings, exceeding the original $30 million target for 2022 and bringing the total to $100 million in cumulative savings since the program’s inception.
- Continued to execute against our capital allocation strategy, repurchasing 1.8 million shares for $369 million during the quarter and 13.8 million shares for $3.1 billion for the nine months ended September 30, 2022.
Third Quarter 2022 Segment Highlights
Effective January 1, 2022, the Company realigned to provide its comprehensive offering of services and solutions to clients across two business segments: Health, Wealth & Career (“HWC”) and Risk & Broking (“R&B”) and three geographies: Europe, International and North America. Prior to January 1, 2022, WTW operated across four segments: Human Capital and Benefits; Corporate Risk and Broking; Investment, Risk and Reinsurance; and Benefits Delivery and Administration. Following the realignment, the two new segments consist of the following businesses:
- The HWC segment, which includes businesses previously aligned under the Human Capital and Benefits segment, the Benefits Delivery and Administration segment, and the Investment business, which was previously under the Investment, Risk and Reinsurance segment.
- The R&B segment, which includes businesses previously aligned under the Corporate Risk and Broking segment, as well as the Insurance Consulting and Technology business, which was previously under the Investment, Risk and Reinsurance segment.
Prior-year reconciliations for these new segments are available in an 8-K filed by the Company on March 14, 2022.
Health, Wealth & Career
As reported, USD millions, except %
| Health, Wealth & Career | Q3-22 | Q3-21 | Y/Y Change | |
| Total Revenue | $1,162 | $1,168 | Reported (1)% | CC 4% | Organic 4% | |
| Operating Income | $236 | $241 | (2)% | |
| Operating Margin % | 20.3% | 20.6% | (30) bps | |
The HWC segment had revenue of $1.16 billion, a decrease of 1% (4% increase constant currency and organic) from $1.17 billion in the prior-year third quarter. On an organic basis, all components of the segment contributed to growth, with Health and Career leading the segment. Growth in our Health business was driven by new client appointments and increases in advisory work and product sales. Our Wealth businesses generated organic revenue growth from higher levels of regulatory work in Great Britain and increased project activity related to financial market volatility, partially offset by headwinds from the negative impact of capital market performance. Our Career businesses grew revenue organically with increased participation and sales in our compensation benchmarking surveys and through increased project activity. Benefits Delivery & Outsourcing organic revenue growth was led by Medicare Advantage sales.
Operating margins in the HWC segment decreased 30 basis points from the prior-year third quarter to 20.3%, primarily due to investments in resourcing to support near term revenue expansion and our technology operating model.
Risk & Broking
As reported, USD millions, except %
| Risk & Broking | Q3-22 | Q3-21 | Y/Y Change | |
| Total Revenue | $765 | $787 | Reported (3)% | CC 3% | Organic 6% | |
| Operating Income | $105 | $138 | (24)% | |
| Operating Margin % | 13.7% | 17.5% | (380) bps | |
The R&B segment had revenue of $765 million, a decrease of 3% (3% increase constant currency and 6% increase organic) from $787 million in the prior-year third quarter. On an organic basis, Corporate Risk & Broking generated organic revenue growth across all regions, primarily driven by our global lines of business, most notably in Aerospace, Natural Resources and FINEX. Insurance Consulting and Technology’s organic revenue grew primarily as a result of new software sales. Book-of-business settlement activity was largely in line with prior year and did not meaningfully affect Corporate Risk and Broking’s organic growth rate.
Operating margins in the R&B segment decreased 380 basis points from the prior-year third quarter to 13.7%, primarily due to ongoing investments in talent.
2022 Outlook
Based on current and anticipated market conditions, the Company is maintaining its 2022 full-year targets for organic revenue growth, adjusted operating margin expansion, and non-cash pension income and raising its 2022 full-year targets for run-rate cost savings and foreign currency headwind to adjusted earnings per share as follows:
- Expect to deliver mid-single digit organic revenue growth
- Expect to deliver adjusted operating margin expansion for the full year 2022
- Expect to deliver approximately $110 million in cumulative run-rate savings from the Transformation Program by the end of FY2022, up from $80 million previously
- Expect approximately $20 million year-over-year decline in non-cash pension income
- Expect a foreign currency headwind on adjusted earnings per share of approximately $0.25-$0.30 at today’s rates, up from $0.20-$0.25 previously
2024 Outlook
In the third quarter of 2022, the Company completed the transfer of its ownership of its Russian subsidiaries to local management and, given current conditions, does not anticipate resuming operations in Russia within the foreseeable future. In light of the completion of the divestiture, current conditions, and current assessments about the impact of the divestiture on future revenues and expenses, WTW is recasting its 2024 financial targets as set forth in the table below. The Company estimates that the annualized run-rate impact from the divestiture of its Russian operations is approximately $120 million of revenue. WTW’s Russian business was highly profitable, with operating margins in excess of double the enterprise-level margins. While having recast its targets, the Company remains committed to delivering mid-single digit organic revenue growth and 400-500 basis points of adjusted operating margin expansion set at Investor Day in September 2021. The original and recast targets exclude the potential effects of fluctuations in foreign currency rates.
| Original Targets | Recast Targets | |||
| Revenue | $10+ billion | $9.9+ billion | ||
| Adjusted Operating Margin | 24-25% | 23-24% | ||
| 3-year Free Cash Flow | $5-$6 billion | $4.3-$5.3 billion1 | ||
| Adjusted Diluted EPS | $18.00-$21.00 | $17.50-$20.50 | ||
| Transformation Program Annual Cost Savings | $300 million | $360 million | ||
| Transformation Program Costs to Achieve | $750 million | $900 million | ||
| 1 Reflects cumulative impact of Russia, incremental cost to achieve additional Transformation Program savings and timing of tax payments. | ||||
About WTW
At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance. Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you. Learn more at www.wtwco.com.
