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Willis Towers Watson Reports Second Quarter 2020 Earnings

Willis Towers Watson Public Limited Company
·36 min read
  • Total revenue1 increased 3% to $2.1 billion with constant currency growth of 5% and flat organic revenue

  • Cash flows from operating activities were $685 million, up 126% compared to $303 million in the prior year

  • Free cash flow was $550 million, up 201% compared to $183 million in the prior year

  • Diluted Earnings per Share were $0.72 for the quarter, down 32% over prior year

  • Adjusted Diluted Earnings per Share were $1.80 for the quarter, up 1.0% over prior year

  • Income from Operations was $163 million or 7.7% of revenue, down 90 basis points over the prior year quarter

  • Adjusted Operating Income was $296 million or 14.0% of revenue, down 60 basis points compared to the prior year quarter

ARLINGTON, Va. and LONDON, July 30, 2020 (GLOBE NEWSWIRE) -- Willis Towers Watson (NASDAQ: WLTW) (the “Company”), a leading global advisory, broking and solutions company, today announced financial results for the second quarter ended June 30, 2020.

“I am pleased with our second quarter results. Our strong execution and our focus during this challenging environment helped us deliver another quarter of solid financial performance,” said John Haley, Willis Towers Watson’s chief executive officer. “We demonstrated the resilience of our overall business and diversified portfolio of offerings through continued revenue and earnings growth, robust free cash flow enhancement and a strengthened balance sheet. I would like to thank all the Willis Towers Watson colleagues for the outstanding commitment they have shown in the most difficult of circumstances. We are confident the actions we are taking in this challenging environment will enhance our agility and allow us to generate long-term value for all of our stakeholders.”

Second Quarter Company Highlights

Revenue was $2.11 billion for the second quarter of 2020, an increase of 3% (5% increase constant currency and flat organic) as compared to $2.05 billion for the same period in the prior year.

For the first half of 2020, revenue was $4.58 billion, an increase of 5% (7% increase constant currency and 2% increase organic) as compared to $4.36 billion for the same period in the prior year.

Income from operations for the second quarter of 2020 was $163 million, or 7.7% of revenue, a decrease of 90 basis points compared to the second quarter of the prior year. Adjusted operating income was $296 million, or 14.0% of revenue, a decrease of 60 basis points compared to the second quarter of the prior year. Net income attributable to Willis Towers Watson for the second quarter of 2020 was $94 million, a decrease of 32% from $138 million for the prior-year second quarter. For the quarter, diluted earnings per share were $0.72 and adjusted diluted earnings per share were $1.80. Net income attributable to Willis Towers Watson and diluted earnings per share for the second quarter of 2020 included pre-tax $14 million of transaction and integration expenses mostly related to the pending business combination with Aon plc. The U.S. GAAP tax rate for the quarter was 42.2%, and the adjusted income tax rate for the quarter used in calculating adjusted diluted earnings per share was 22.2%.

Income from operations for the first half of 2020 was $523 million, or 11.4% of revenue, a decrease of 90 basis points compared to the first half of the prior year. Adjusted operating income was $821 million, or 17.9% of revenue, a decrease of 20 basis points compared to the first half of the prior year. Net income attributable to Willis Towers Watson for the first half of 2020 was $399 million, a decrease of 6% from $425 million for the same period in prior year. For the first half of 2020, diluted earnings per share were $3.07 and adjusted diluted earnings per share were $5.14. Net income attributable to Willis Towers Watson and diluted earnings per share for the first half of 2020 included pre-tax $23 million of transaction and integration expenses mostly related to the pending business combination with Aon plc. For the first half of 2020, the U.S. GAAP tax rate was 26.9%, and the adjusted income tax rate used in calculating adjusted diluted earnings per share was 21.1%.

________________________________
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.

Net income for the second quarter of 2020 was $102 million, or 4.8% of revenue, a decrease from net income of $149 million, or 7.3% of revenue for the prior-year second quarter. Adjusted EBITDA for the second quarter of 2020 was $441 million, or 20.9% of revenue, an increase from Adjusted EBITDA of $425 million, or 20.8% of revenue.

Net income for the first half of 2020 was $415 million, or 9.1% of revenue, a decrease from net income of $442 million, or 10.1% of revenue for the same period in the prior year. Adjusted EBITDA for the first half of 2020 was $1.1 billion, or 24.5% of revenue, an increase from Adjusted EBITDA of $1.0 billion, or 23.5% of revenue.

Cash flows from operating activities for the six months ended June 30, 2020 were $685 million, up 126% compared to $303 million for the prior-year first half. Free cash flow for the six months ended June 30, 2020 were $550 million, up 201% compared to $183 million for the prior-year first half. The increase in cash flows from operations as compared to the prior year was primarily due to positive cash flows from our improved working capital for the six months ended June 30, 2020 as compared to June 30, 2019. During the six months ended June 30, 2020, the Company had no share repurchase activity.

Risks and Uncertainties Related to the COVID-19 Pandemic

The extent to which COVID-19 continues to impact our business and financial position will depend on future developments, which are difficult to predict, including the severity and scope of the COVID-19 outbreak as well as the types of measures imposed by governmental authorities to contain the virus or address its impact and the duration of those actions and measures. We continue to expect that the COVID-19 pandemic will negatively impact our revenue and operating results for the remainder of 2020, and potentially beyond. During the second quarter of 2020, the COVID-19 pandemic had a negative impact on revenue growth, particularly in our businesses that are discretionary in nature, but otherwise it generally had no material impact on our overall results. Some of our discretionary, project-based businesses saw a reduction in demand, and potential negative impacts on our revenue and operating results may lag behind the developments thus far related to the COVID-19 pandemic. We continue to closely monitor the spread and impact of COVID-19 while adhering to government health directives. We have thorough business continuity and incident management processes in place that have been activated. We are prioritizing the safety and wellbeing of our colleagues. We are communicating frequently with clients and critical vendors, while meeting our objectives via remote working capabilities, overseen and coordinated by our incident management response team. For additional information on the risks posed by COVID-19, see additional disclosures in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

Segment Highlights

Human Capital & Benefits

The Human Capital & Benefits (HCB) segment had revenue of $767 million, a decrease of 4% (2% decrease constant currency and 2% decrease organic) from $797 million in the prior-year second quarter. On an organic basis, the global impact of COVID-19 negatively impacted demand in our Talent and Rewards business, causing the decline to the segment’s revenue. Health and Benefits delivered moderate revenue growth, driven by increased consulting and brokerage services and continued expansion of our client portfolio for both local and global appointments. In our Retirement and Technology and Administration Solutions businesses, revenue grew modestly as a result of increased project work primarily in Great Britain and Western Europe. The HCB segment had an operating margin of 20.9%, as compared to 21.1% for the prior-year second quarter.

Corporate Risk & Broking

The Corporate Risk & Broking (CRB) segment had revenue of $701 million, an increase of 2% (4% increase constant currency and 4% increase organic) from $690 million in the prior-year second quarter. On an organic basis, North America continued to lead the segment, followed by International and Western Europe, primarily with new business generation along with strong renewals. The revenue increase was partially offset by a decline in Great Britain, which was primarily due to the impact of COVID-19 on certain insurance lines. The CRB segment had an operating margin of 19.2%, as compared to 15.2% for the prior-year second quarter.

Investment, Risk & Reinsurance

The Investment, Risk & Reinsurance (IRR) segment had revenue of $413 million, an increase of 1% (2% increase constant currency and 2% increase organic) from $409 million in the prior-year second quarter. On an organic basis, most lines of business contributed to the growth. Reinsurance and Wholesale growth were driven by new business wins and favorable renewal factors while Insurance Consulting and Technology revenue grew from technology sales. Max Matthiessen revenue decreased as a result of the negative impact of COVID-19 on financial markets. As detailed further in our Quarterly Report on Form 10-Q for the second quarter, the Company entered into an agreement to sell the Max Matthiessen business. Modest revenue growth in the Investment businesses resulted from client wins. The IRR segment had an operating margin of 28.7%, as compared to 26.9% for the prior-year second quarter.

Benefits Delivery & Administration

The Benefits Delivery & Administration (BDA) segment had revenue of $209 million, an increase of 66% (66% increase constant currency and 3% decrease organic) from $126 million in the prior-year second quarter. On July 30, 2019, the Company acquired TRANZACT, which operates as part of the BDA segment. In the second quarter, TRANZACT generated revenue of $87 million. BDA’s organic revenue decline was primarily due to seasonality in our Individual Marketplace business. The off-peak seasonality of this business can vary annually due to the timing of placement and other activity. The decline was partially offset by the expanded client base of the Benefits Outsourcing business in our Health practice. The BDA segment had an operating margin of negative 4.2%, as compared to negative 20.1% for the prior-year second quarter.

2020 Guidance Update

Due to the uncertainties caused by the COVID-19 pandemic, Willis Towers Watson had previously withdrawn (and consequently fully disclaimed) its full-year 2020 guidance. The Company will re-assess, at a future date, whether we may be able to provide guidance once we have a clearer understanding of the depth, duration, and geographic reach of the pandemic. We continue to be unable to predict the extent of the impact of the COVID-19 pandemic, and remain focused on maintaining a strong balance sheet, liquidity, and financial flexibility.

Conference Call

The Company will host a live webcast and conference call to discuss the financial results for the second quarter. It will be held on Thursday, July 30, 2020, beginning at 9:30 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 2568649.

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 more than 45,000 employees and services clients in 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.

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/Margin, (4) Adjusted EBITDA/Margin, (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.

  • Abandonment of long-lived asset - Adjustment to remove the depreciation expense resulting from internally-developed software that was abandoned prior to being placed into service.

  • Provisions for significant litigation - We will include provisions for litigation matters which we believe are not representative of our core business operations.

  • Tax effect of the CARES Act - Relates to the incremental tax expense impact, primarily from the Base Erosion and Anti-Abuse Tax (“BEAT”), generated from electing certain income tax provisions of the CARES Act.

  • 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/Margin, Adjusted EBITDA/Margin, Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted Income Before Taxes, Adjusted Income Taxes/Tax 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. We consider adjusted operating income/margin to be important financial measures, which are used internally to evaluate and assess our core operations and to benchmark our operating results against our competitors.

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. We consider adjusted EBITDA/margin to be important financial measures, which are used internally to evaluate and assess our core operations, to benchmark our operating results against our competitors and to evaluate and measure our performance-based compensation plans.

Adjusted Net Income – Net Income Attributable to Willis Towers Watson adjusted for amortization, transaction and integration expenses, gains and losses on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results and 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 diluted earnings per share is used to internally evaluate and assess our core operations and to benchmark our operating results against our competitors.

Adjusted Income Before Taxes – Income from operations before income taxes adjusted for amortization, transaction and integration expenses, gains and losses 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, gains and losses 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. Management believes that the adjusted income tax rate presents a rate that is more closely aligned to the rate that we would incur if not for the reduction of pre-tax income for the adjusted items and the tax effects of internal reorganizations, which are not core to our current and future operations.

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. Management believes that free cash flow presents the core operating performance and cash-generating capabilities of our business operations.

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, the impact of the COVID-19 pandemic on our business, our pending business combination with Aon plc, future capital expenditures, ongoing working capital efforts, future share repurchases, growth in revenue, the impact of changes to tax laws on our financial results, existing and evolving business strategies and acquisitions and dispositions, demand for our services and competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, our ability to successfully manage ongoing organizational and technology changes, including investments in improving systems and processes, and 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 consulting services, defined benefit pension plans or the purchasing of insurance; changes in general economic, business and political conditions, including changes in the financial markets; the risk that the COVID-19 pandemic substantially and negatively impacts the demand for our products and services and cash flows, and/or continues to materially impact our business operations, including increased demand on our information technology resources and systems and related risks of cybersecurity breaches or incidents; the risks relating to or arising from our pending business combination with Aon plc announced in March 2020, including, among others, our ability to consummate the transaction, including on the terms of the business combination agreement, on the anticipated timeline, and/or with the required shareholder and regulatory approvals; 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 failure to protect client data or breaches of information systems or insufficient safeguards against cybersecurity breaches or incidents; 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 substantial negative 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 in Latin America); our ability to successfully hedge against fluctuations in foreign currency rates; our ability to integrate direct-to-consumer sales and marketing solutions with our existing offerings and solutions; the ability to comply with complex and evolving regulations related to data privacy and cyber security; the ability to successfully manage ongoing organizational changes, including investments in improving systems and processes; disasters or business continuity problems; the 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 anticipated replacement of LIBOR; the ability of the company to properly identify and manage conflicts of interest; reputational damage, including from association with third parties; reliance on third-party services; the loss of key employees; 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; our ability to effectively apply technology, data and analytics changes for internal operations, maintaining industry standards and meeting client preferences; changes and developments in the insurance industry or the United States healthcare system, including those related to Medicare; 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 assets and liabilities; 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 or higher than expected expenses; 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 and 10-Q filings and subsequent filings filed with the SEC, including definitive additional materials, the merger proxy statement and other filings generally applicable to significant transactions and related integrations that are or will be filed with the SEC. Copies are available online at http://www.sec.gov or www.willistowerswatson.com.

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
June 30,

As Reported

Currency

Constant
Currency

Acquisitions/

Organic

2020

2019

% Change

Impact

Change

Divestitures

Change

Human Capital & Benefits

$

767

$

797

(4

)%

(2

)%

(2

)%

0

%

(2

)%

Corporate Risk & Broking

701

690

2

%

(2

)%

4

%

0

%

4

%

Investment, Risk & Reinsurance

413

409

1

%

(1

)%

2

%

0

%

2

%

Benefits Delivery & Administration

209

126

66

%

0

%

66

%

69

%

(3

)%

Segment Revenue

2,090

2,022

3

%

(2

)%

5

%

5

%

1

%

Reimbursable expenses and other

23

26

Revenue

$

2,113

$

2,048

3

%

(2

)%

5

%

5

%

0

%


Components of Revenue Change(i)

Six Months Ended
June 30,

As Reported

Currency

Constant
Currency

Acquisitions/

Organic

2020

2019

% Change

Impact

Change

Divestitures

Change

Human Capital & Benefits

$

1,617

$

1,626

(1

)%

(1

)%

1

%

0

%

1

%

Corporate Risk & Broking

1,440

1,418

2

%

(2

)%

4

%

0

%

4

%

Investment, Risk & Reinsurance

1,028

998

3

%

(1

)%

4

%

0

%

4

%

Benefits Delivery & Administration

440

261

69

%

0

%

69

%

70

%

(1

)%

Segment Revenue

4,525

4,303

5

%

(2

)%

7

%

4

%

3

%

Reimbursable expenses and other

54

57

Revenue

$

4,579

$

4,360

5

%

(2

)%

7

%

4

%

2

%

(i) Components of revenue change may not add due to rounding


SEGMENT OPERATING INCOME/(LOSS) (i)

Three Months Ended June 30,

2020

2019

Human Capital & Benefits

$

160

$

169

Corporate Risk & Broking

135

104

Investment, Risk & Reinsurance

119

109

Benefits Delivery & Administration

(9

)

(25

)

Segment Operating Income

$

405

$

357


Six Months Ended June 30,

2020

2019

Human Capital & Benefits

$

373

$

373

Corporate Risk & Broking

262

231

Investment, Risk & Reinsurance

396

361

Benefits Delivery & Administration

(20

)

(46

)

Segment Operating Income

$

1,011

$

919

(i) Segment operating income/(loss) excludes certain costs, including amortization of intangibles, restructuring costs, 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.


SEGMENT OPERATING MARGINS

Three Months Ended June 30,

2020

2019

Human Capital & Benefits

20.9

%

21.1

%

Corporate Risk & Broking

19.2

%

15.2

%

Investment, Risk & Reinsurance

28.7

%

26.9

%

Benefits Delivery & Administration

(4.2

)%

(20.1

)%


Six Months Ended June 30,

2020

2019

Human Capital & Benefits

23.1

%

22.9

%

Corporate Risk & Broking

18.2

%

16.3

%

Investment, Risk & Reinsurance

38.5

%

36.2

%

Benefits Delivery & Administration

(4.4

)%

(17.6

)%


RECONCILIATIONS OF SEGMENT OPERATING INCOME TO INCOME FROM OPERATIONS BEFORE INCOME TAXES

Three Months Ended June 30,

2020

2019

Segment Operating Income

$

405

$

357

Amortization

(119

)

(123

)

Transaction and integration expenses(i)

(14

)

Unallocated, net(ii)

(109

)

(58

)

Income from Operations

163

176

Interest expense

(62

)

(56

)

Other income, net

76

67

Income from operations before income taxes

$

177

$

187


Six Months Ended June 30,

2020

2019

Segment Operating Income

$

1,011

$

919

Amortization

(240

)

(250

)

Transaction and integration expenses(i)

(23

)

(6

)

Unallocated, net(ii)

(225

)

(128

)

Income from Operations

523

535

Interest expense

(123

)

(110

)

Other income, net

168

122

Income from operations before income taxes

$

568

$

547

(i) Includes transaction costs related to the proposed Aon combination and TRANZACT acquisition in 2019.
(ii) 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 June 30,

2020

2019

Net Income attributable to Willis Towers Watson

$

94

$

138

Adjusted for certain items:

Amortization

119

123

Transaction and integration expenses

14

Loss on disposal of operations

2

Tax effect on certain items listed above(i)

(30

)

(29

)

Tax effect of the CARES Act

35

Adjusted Net Income

$

234

$

232

Weighted-average shares of common stock, diluted

130

130

Diluted Earnings Per Share

$

0.72

$

1.06

Adjusted for certain items:(ii)

Amortization

0.91

0.94

Transaction and integration expenses

0.11

Loss on disposal of operations

0.02

Tax effect on certain items listed above(i)

(0.23

)

(0.22

)

Tax effect of the CARES Act

0.27

Adjusted Diluted Earnings Per Share

$

1.80

$

1.78


Six Months Ended June 30,

2020

2019

Net Income attributable to Willis Towers Watson

$

399

$

425

Adjusted for certain items:

Abandonment of long-lived asset

35

Amortization

240

250

Transaction and integration expenses

23

6

Loss on disposal of operations

2

Tax effect on certain items listed above(i)

(65

)

(61

)

Tax effect of the CARES Act

35

Adjusted Net Income

$

669

$

620

Weighted-average shares of common stock, diluted

130

130

Diluted Earnings Per Share

$

3.07

$

3.26

Adjusted for certain items:(ii)

Abandonment of long-lived asset

0.27

Amortization

1.84

1.92

Transaction and integration expenses

0.18

0.05

Loss on disposal of operations

0.02

Tax effect on certain items listed above(i)

(0.50

)

(0.47

)

Tax effect of the CARES Act

0.27

Adjusted Diluted Earnings Per Share

$

5.14

$

4.76

(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 June 30,

2020

2019

Net Income

$

102

4.8

%

$

149

7.3

%

Provision for income taxes

75

38

Interest expense

62

56

Depreciation

67

59

Amortization

119

123

Transaction and integration expenses

14

Loss on disposal of operations

2

Adjusted EBITDA and Adjusted EBITDA Margin

$

441

20.9

%

$

425

20.8

%


Six Months Ended June 30,

2020

2019

Net Income

$

415

9.1

%

$

442

10.1

%

Provision for income taxes

153

105

Interest expense

123

110

Depreciation(i)

165

113

Amortization

240

250

Transaction and integration expenses

23

6

Loss on disposal of operations

2

Adjusted EBITDA and Adjusted EBITDA Margin

$

1,121

24.5

%

$

1,026

23.5

%

(i) Includes abandonment of long-lived asset of $35 million for the six months ended June 30, 2020.


RECONCILIATIONS OF INCOME FROM OPERATIONS TO ADJUSTED OPERATING INCOME

Three Months Ended June 30,

2020

2019

Income from operations

$

163

7.7

%

$

176

8.6

%

Adjusted for certain items:

Amortization

119

123

Transaction and integration expenses

14

Adjusted operating income

$

296

14.0

%

$

299

14.6

%


Six Months Ended June 30,

2020

2019

Income from operations

$

523

11.4

%

$

535

12.3

%

Adjusted for certain items:

Abandonment of long-lived asset

35

Amortization

240

250

Transaction and integration expenses

23

6

Adjusted operating income

$

821

17.9

%

$

791

18.1

%


RECONCILIATIONS OF GAAP INCOME TAXES/TAX RATE TO ADJUSTED INCOME TAXES/TAX RATE

Three Months Ended June 30,

2020

2019

Income from operations before income taxes

$

177

$

187

Adjusted for certain items:

Amortization

119

123

Transaction and integration expenses

14

Loss on disposal of operations

2

Adjusted income before taxes

$

312

$

310

Provision for income taxes

$

75

$

38

Tax effect on certain items listed above(i)

30

29

Tax effect of the CARES Act

(35

)

Adjusted income taxes

$

70

$

67

U.S. GAAP tax rate

42.2

%

19.7

%

Adjusted income tax rate

22.2

%

21.4

%


Six Months Ended June 30,

2020

2019

Income from operations before income taxes

$

568

$

547

Adjusted for certain items:

Abandonment of long-lived asset

35

Amortization

240

250

Transaction and integration expenses

23

6

Loss on disposal of operations

2

Adjusted income before taxes

$

868

$

803

Provision for income taxes

$

153

$

105

Tax effect on certain items listed above(i)

65

61

Tax effect of the CARES Act

(35

)

Adjusted income taxes

$

183

$

166

U.S. GAAP tax rate

26.9

%

19.1

%

Adjusted income tax rate

21.1

%

20.6

%

(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

Six Months Ended June 30,

2020

2019

Cash flows from operating activities

$

685

$

303

Less: Additions to fixed assets and software for internal use

(135

)

(120

)

Free Cash Flow

$

550

$

183


WILLIS TOWERS WATSON
Condensed Consolidated Statements of Income
(In millions of U.S. dollars, except per share data)
(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Revenue

$

2,113

$

2,048

$

4,579

$

4,360

Costs of providing services

Salaries and benefits

1,363

1,278

2,757

2,626

Other operating expenses

387

412

871

830

Depreciation

67

59

165

113

Amortization

119

123

240

250

Transaction and integration expenses

14

23

6

Total costs of providing services

1,950

1,872

4,056

3,825

Income from operations

163

176

523

535

Interest expense

(62

)

(56

)

(123

)

(110

)

Other income, net

76

67

168

122

INCOME FROM OPERATIONS BEFORE INCOME TAXES

177

187

568

547

Provision for income taxes

(75

)

(38

)

(153

)

(105

)

NET INCOME

102

149

415

442

Income attributable to non-controlling interests

(8

)

(11

)

(16

)

(17

)

NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON

$

94

$

138

$

399

$

425

Earnings per share

Basic earnings per share

$

0.73

$

1.06

$

3.08

$

3.27

Diluted earnings per share

$

0.72

$

1.06

$

3.07

$

3.26

Weighted-average shares of common stock, basic

129

130

130

130

Weighted-average shares of common stock, diluted

130

130

130

130


WILLIS TOWERS WATSON
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
(Unaudited)

June 30,

December 31,

2020

2019

ASSETS

Cash and cash equivalents

$

1,087

$

887

Fiduciary assets

16,042

13,004

Accounts receivable, net

2,430

2,621

Prepaid and other current assets

363

525

Total current assets

19,922

17,037

Fixed assets, net

989

1,046

Goodwill

11,196

11,194

Other intangible assets, net

3,257

3,478

Right-of-use assets

894

968

Pension benefits assets

975

868

Other non-current assets

877

835

Total non-current assets

18,188

18,389

TOTAL ASSETS

$

38,110

$

35,426

LIABILITIES AND EQUITY

Fiduciary liabilities

$

16,042

$

13,004

Deferred revenue and accrued expenses

1,504

1,784

Current debt

525

316

Current lease liabilities

144

164

Other current liabilities

804

802

Total current liabilities

19,019

16,070

Long-term debt

5,068

5,301

Liability for pension benefits

1,235

1,324

Deferred tax liabilities

575

526

Provision for liabilities

534

537

Long-term lease liabilities

906

964

Other non-current liabilities

317

335

Total non-current liabilities

8,635

8,987

TOTAL LIABILITIES

27,654

25,057

COMMITMENTS AND CONTINGENCIES

EQUITY(i)

Additional paid-in capital

10,713

10,687

Retained earnings

2,015

1,792

Accumulated other comprehensive loss, net of tax

(2,390

)

(2,227

)

Treasury shares, at cost, 17,519 shares in 2020 and 2019, and 40,000 shares, €1 nominal value, in 2019

(3

)

(3

)

Total Willis Towers Watson shareholders' equity

10,335

10,249

Non-controlling interests

121

120

Total Equity

10,456

10,369

TOTAL LIABILITIES AND EQUITY

$

38,110

$

35,426

(i) Equity includes (a) Ordinary shares $0.000304635 nominal value; Authorized 1,510,003,775; Issued 128,762,994 (2020) and 128,689,930 (2019); Outstanding 128,762,994 (2020) and 128,689,930 (2019); (b) Ordinary shares, €1 nominal value; Authorized and Issued 40,000 shares in 2019; and (c) Preference shares, $0.000115 nominal value; Authorized 1,000,000,000 and Issued none in 2020 and 2019.


WILLIS TOWERS WATSON
Condensed Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)

Six Months Ended June 30,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

NET INCOME

$

415

$

442

Adjustments to reconcile net income to total net cash from operating activities:

Depreciation

165

113

Amortization

240

250

Non-cash lease expense

74

72

Net periodic benefit of defined benefit pension plans

(92

)

(64

)

Provision for doubtful receivables from clients

28

10

Provision for/(benefit from) deferred income taxes

40

(41

)

Share-based compensation

28

27

Net loss on disposal of operations

2

Non-cash foreign exchange (gain)/loss

(12

)

13

Other, net

1

(6

)

Changes in operating assets and liabilities, net of effects from purchase of subsidiaries:

Accounts receivable

128

(82

)

Fiduciary assets

(3,200

)

(1,961

)

Fiduciary liabilities

3,200

1,961

Other assets

82

(164

)

Other liabilities

(417

)

(285

)

Provisions

3

18

Net cash from operating activities

685

303

CASH FLOWS USED IN INVESTING ACTIVITIES

Additions to fixed assets and software for internal use

(135

)

(120

)

Capitalized software costs

(33

)

(34

)

Acquisitions of operations, net of cash acquired

(66

)

(1

)

Net proceeds from sale of operations

2

13

Other, net

(17

)

(6

)

Net cash used in investing activities

(249

)

(148

)

CASH FLOWS USED IN FINANCING ACTIVITIES

Net borrowings on revolving credit facility

(106

)

Senior notes issued

282

Debt issuance costs

(2

)

Repayments of debt

(311

)

(3

)

Repurchase of shares

(51

)

Proceeds from issuance of shares

5

27

Payments of deferred and contingent consideration related to acquisitions

(47

)

Cash paid for employee taxes on withholding shares

(1

)

(12

)

Dividends paid

(171

)

(161

)

Acquisitions of and dividends paid to non-controlling interests

(14

)

(21

)

Other, net

(3

)

Net cash used in financing activities

(215

)

(374

)

INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

221

(219

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(22

)

(2

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD (i)

895

1,033

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (i)

$

1,094

$

812

________
(i) As a result of the acquired TRANZACT collateralized facility, cash, cash equivalents and restricted cash included $7 million of restricted cash at June 30, 2020 and $8 million at December 31, 2019, which is included within prepaid and other current assets on our condensed consolidated balance sheets. There were no restricted cash amounts held at June 30, 2019 and December 31, 2018.