Willis Towers Watson Public Limited Company

Good morning.

Welcome to the Willis Towers Watson Fourth Quarter 2019 Earnings Conference Call. Please refer to our website for the press release and supplemental information that was issued earlier today. Today's call is being recorded and will be available for the next three months on our website. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statement section of the earnings press release issued this morning, as well as other disclosures in our recent form 10-K and other Willis Towers Watson SEC filings. During the call, we may discuss certain non-GAAP financial measures. For reconciliations of the non-GAAP measures, as well as other information regarding these measures, please refer to the most recent earnings release and other materials in the investor relations section of the company's website. I will now turn the call over to John Haley, Willis Towers Watson's Chief Executive Officer. Please go ahead.

Thank you very much, and good morning, everyone, and thank you for joining us on our fourth quarter earnings call. With me here today is Mike Burwell, our Chief Financial Officer, and Rich Keefe, our Head of Investor Relations. Today, we'll review our results for the fourth quarter and for the full year ended December 31st, 2019. Then we'll provide a brief commentary on the outlook for 2020. So, as I look back on the last year, I think that our results were largely positive. We increased revenue, we improved margins, and we generated an impressive return for our shareholders. That said, we have more work to do to improve free cash flow, and we remain focused on executing against our strategy. So before diving into the fourth quarter results, I'd like to take a moment to update you on some exciting activity that's already occurred this year. Two weeks ago, Willis Towers Watson returned to Davos to participate in the World Economic Forum. Now in our second year as a strategic partner with the World Economic Forum, our delegates convene to address areas of strategic importance to our business, including climate risk, the future of work, inclusion and diversity, and cybersecurity. Quite a few members of our delegation led sessions during the week at Davos. I took part in sessions that continue the work of the Coalition for Climate Resilient Investment, a cooperative initiative which we introduced last quarter. We also launched a new offering, Climate Quantified, which helps organizations to quantify how they will be affected by the climate change trajectory and the effects of mitigation with climate-adequate and resilient solutions. We also co-sponsored Bloomberg Live's The Year Ahead Davos event, where Julie Gaybauer, head of human capital and benefits, spoke on organizational sustainability. Adam Garrard, our head of corporate risk and broking and our international geography, participated in a session on advancing cyber resilience for critical infrastructure. Carl Hess, the head of investment risk and reinsurance, joined a Friends of Ocean Action community session on increasing the role of the ocean to address some of the United Nations global sustainable development goals. All told, the company had a great lineup of events and speakers across Davos in addition to numerous client meetings. We were encouraged by the experience and are excited to play a proactive role within the global community that is working to build a more cohesive and sustainable future. Now, let's turn to our fourth quarter 2019 results. For the fourth quarter of 2019, we continued to deliver solid financial performance with 14% overall constant currency growth 6% organic revenue growth, and 270 basis points of adjusted operating margin expansion. Likewise, we had revenue and operating margin growth in each of our business segments again this quarter. This marks the sixth consecutive quarter in which we've generated organic revenue growth of 5% or greater, along with improved margins. Our fourth quarter results reflect our efforts to constantly challenge ourselves and to deliver more. Reported revenue for the fourth quarter was $2.7 billion, up 13% as compared to the prior year fourth quarter, up 14% on a constant currency basis, and up 6% on an organic basis. Reported revenue included $22 million of negative currency movement. Net income was $551 million, up 44% for the fourth quarter, as compared to $383 million of net income in the prior year fourth quarter. Adjusted EBITDA was $930 million as compared to the prior year fourth quarter adjusted EBITDA of $774 million, representing a 20% increase. For the quarter, diluted earnings per share were $4.18, an increase of 45% compared to prior year. Adjusted diluted earnings per share were $4.90. Reported revenue for the full year of 2019 increased 6% as compared to the same period in the prior year, increased 9% on a constant currency basis, and was up 5% on an organic basis. Now, let's look at each of the segments in more detail. To provide clear comparability with prior periods, all commentary regarding the results of our segments will be on an organic basis unless specifically stated otherwise. Segment margins are calculated using segment revenues and they exclude unallocated corporate costs, such as amortization of intangibles, certain transaction and integration expenses resulting from mergers and acquisitions, as well as other items which we consider non-core to our operating results. The segment results do include discretionary compensation. Revenue for human capital and benefits, or HCB, was up 4% on an organic and constant currency basis compared to the fourth quarter of the prior year. For the full year of 2019, HCB revenues grew 4% organically. The health and benefits business grew 10% this quarter. New business and product revenue continued to drive revenue expansion in North America. While our increasing market share in global benefit management appointments and new local and regional wins contributed to the growth in other geographies. Health and benefits revenue growth was also aided by the lower revenue comparable in the prior year fourth quarter. The prior year results reflect the impact of adopting the new standard, ASC 606, which resulted in certain revenue not being recognized. Retirement revenue increased 1% this quarter, primarily driven by continued momentum and a steady flow of bulk lump sum activity as the market for pension risk transfer remained attractive to plan sponsors in North America. Increased demand for consulting and advisory work in North America and international contributed to revenue growth in both talent and rewards and technology and administration solutions. HCB's operating margin improved by 20 basis points compared to the prior year fourth quarter and improved by 130 basis points for the full year. As a trusted partner to our clients, HCV combines data analytics, strategic insight, and brokerage and technology solutions to address our clients' most complex workforce and benefits challenges. Our takeaways from Davos reinforced areas we had already prioritized. Reskilling in response to technology advances, enhancing diversity and inclusion as part of sustainability, and leveraging AI to enhance the employee experience and improve well-being. As HCB's results indicate, we believe the segment's well-positioned to address these issues and provide solutions that keep pace with our clients' evolving needs and therefore continue growing profitability. Now let's look at corporate risk and broking, or CRB, which had a revenue increase of 9% on an organic and constant currency basis as compared to the prior year fourth quarter. For the full year of 2019, CRB revenues grew 6% organically. North America's revenues grew by 11% in the fourth quarter, primarily as a result of new business and improved retention. The international region's revenues climbed 13% as compared to the prior year. There was notably strong performance in construction and natural resources in Central and Eastern Europe, Middle East, and Africa. These results reflect the benefit of some one-time non-replacements. Western Europe contributed 5% growth, with the growth driven by strong new business in Iberia and France. Great Britain had 6% revenue growth driven by new business in aerospace and FinEx. CRB revenue was $877 million, with an operating margin of 30%, as compared to a 29% operating margin in the prior year fourth quarter. The margin expanded due to top-line performance coupled with continued cost management efforts. We're pleased with the CRB top-line growth for the year, as well as the margin expansion for the quarter and the overall year. CRB continues to make solid progress toward profitable growth, and we feel good about the long-term prospects of this business. The World Economic Forum Global Risks Report 2019 ranks cyber attacks among the top five global risks. Developing cybersecurity and resilience is critical to support socioeconomic growth. We believe our CRB business has established itself as one of the world's trusted experts in helping leaders adapt the right strategies to cover their cyber exposure. As cyber attacks continue to rise, we stand ready to help clients defend their innovations and build a more secure digital world. Turning to investment risk and reinsurance, or IRR, revenue for the quarter was $314 million, an increase of 12% on an organic basis and 14% on a constant currency basis as compared to the prior year fourth quarter, with meaningful growth across our core businesses. For the full year of 2019, IRR revenues grew 7% organically. Reinsurance, with growth of 19%, continued to lead the segment through a combination of net new business along with a strong retention ratio across most lines and regions. Insurance consulting and technology grew by 10% from technology product sales and growth in project revenue. Investment revenue increased 9% with continued expansion of the delegated investment services portfolio. On an organic basis, wholesale revenue increased by 15%, driven by growth across the book. Overall, the wholesale business was up 24%, including the results from Miller's acquisition of Austin Gaylor. Our Max Matisse in business grew 3%, primarily from increased commission revenue. ILR's operating margin grew 700 basis points to 9% in the fourth quarter, compared to 2% in the prior year fourth quarter. Top-line growth and greater operating leverage both contributed to the segment's margin improvement. Overall, we are pleased with the financial results of our IOR businesses. Revenues for the benefits delivery and administration segment, or BDA, increased by 53% from the prior year fourth quarter on a constant currency basis. On an organic basis, revenue grew 3% compared to the prior year fourth quarter. BDA's Expanded mid- and large-market client base and increased project work resulted in this segment's growth. We continue to see strong demand for benefits, outsourcing, core service offerings, resulting in several new client wins. For the full year of 2019, BDA revenue grew 4% organically. BDA's operating margin was 52% compared to 61% in the prior year fourth quarter due to the inclusion of Transact in the current year. BDA's operating margin improved from 19% to 24% for the full year. Transact's revenue growth exceeded our expectations. We're encouraged by Transact's performance, and we continue to be excited about our joint trajectory as this business continues to gain momentum. So, in closing, we delivered another solid financial performance for the fourth quarter and for the full year. I also want to take a moment to recognize the hard work of our colleagues around the world and extend our appreciation for the work they've done this past year and for their steadfast dedication to providing top-notch client service. Now I'll turn the call over to Mike.