Willis Towers Watson Public Limited Company

Good morning. Welcome to the WTW First Quarter 2022 Earnings Conference Call. Please refer to www.co.com 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 WTW's 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 risk 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 the most recent Form 10-K and in other Willis Tower Watson SEC filings. During the call, certain non-GAAP financial measures may be discussed. For reconciliations of the non-GAAP measures, as well as other information regarding the measures, please refer to the most recent earnings release and other materials in the investor relations section of the company's website. I would now turn the call over to Carl Hess, WTW's Chief Executive Officer. Please go ahead.

Good morning, everyone. Thank you for joining us for WTW's first quarter 2022 earnings call. Joining me today is Andrew Krasner, our Chief Financial Officer. The first quarter marked a solid start to our year with results that were in line with our expectations and reflect improved momentum in our business. We generated organic revenue growth of 2% and expanded adjusted operating margins by 200 basis points driven by new business generation and continued expense discipline. We also continue to focus on executing our capital allocation strategy and have now completed 4.1 billion in share repurchases since our 2021 Investor Day. Overall, we've had a solid start to the year and remain confident in our ability to deliver on our financial goals for both 2022 and the longer term. Before discussing our strategic progress and operating results, I'd like to share our heartbreak and dismay over the crisis in Ukraine. We wholeheartedly wish for a peaceful solution and remain steadfast in our support for all our colleagues and their families in the region who've been affected. Their safety and well-being have been top of mind in the past months. WTW has been in daily contact with any colleagues who've chosen to remain in the Ukraine and provided financial and accommodation support to those who chose to relocate. Our own special contingency risks operation is providing guidance and assistance to our Ukraine country leader. We're also encouraging our colleagues to utilize our matching gifts program to help increase financial donations for disaster relief. I'm proud of how our colleagues have come together in support. Thank you for showing up for each other. In addition to supporting our employees, WTW is supporting clients in key areas related to this crisis, including claims and risks across various lines such as political, investment, supply chain, and cybersecurity. As previously announced, WTW decided to withdraw from our business in Russia and transfer ownership to local management who will operate independently in the Russian market. In a few minutes, Andrew will talk more about the financial impact of our decision to exit Russia. Now I'd like to provide a few updates on our progress against our company-wide priorities. At our last Investor Day, we unveiled our Grow, Simplify, and Transform strategy, and we executed against each of these strategic priorities during the first quarter. Innovations has always been a key area of focus for us, and as one WTW, we strive to bring the diverse capabilities of the enterprise together to innovate on behalf of our clients to address current and unmet needs, and we continue to do so in the first quarter. Let me walk you through just a few examples. Our risk and broking segment launched ESG analytics and diagnostics, which provides a multi-source comprehensive analysis of a firm's ESG performance. We also introduced a bespoke reputational risk solution designed to help our clients understand, manage, and recover from reputational crises. Both products address ESG risk, which is an area of rapidly growing importance for our clients. Our ongoing product innovation continues to drive growth in our risk and analytics business within risk and broking. In health, wealth, and career, we unveiled a new employee insights platform called Engage to help clients understand their employees' views on various topics that affect the employee experience and ultimately business performance. We've had fantastic client feedback on Engage to date and are excited about its potential. I'm pleased to say that our commitment to innovation continues to be recognized by the industry. During the quarter, WTW secured the top spot in Advison's PayCenter Index, an annual recognition of product innovation leadership in the P&C insurance industry. WTW topped the index, having launched 16 new products and services in 2021. I'm proud of our team for earning this recognition, which reinforces our capabilities and our dedication to delivering innovative and actionable solutions for today's complex challenges in people, risk, and capital. At our investor day, I also spoke to you about our actions to simplify the business and make it easier and quicker to engage with our clients as we work to bring the best of WTW to them. We've advanced on this front as well, refocusing the company into two operating segments across three geographies to create a more streamlined structure and enhance the agility of the team, while also enabling us to leverage common technology platforms and processes. We also shared our focus on transforming WTW to enhance speed to market and promote efficiency, and I'm encouraged by the progress we've made on our transformation initiatives. We realized $16 million of incremental annualized savings during the first quarter, bringing the total to $36 million since the program's inception. This exceeds our original $30 million target for all of 2022. And as part of this program, we introduced WTW Workstyles, a program which modernizes the way we work to align our real estate footprint to a hybrid working environment and contributes to our transformation program savings. WTW WorkStyles reflects our belief that colleagues can be successful working in a variety of our ways and our confidence that a high-performing culture is the result of exceptional talent, not real estate. Speaking of talent, our rate of hiring in the first quarter accelerated by 23% compared to the fourth quarter of 2021, reaching our highest hiring volume in a single quarter since 2019. Our new hires and sales and client management roles tripled compared to the first quarter last year. We also continue to see retention efforts gain more traction in Q1, with voluntary attrition dropping 19% from Q4 of 2021 and a significant decline in senior level departures. We've seen the same positive dynamics play out in our corporate risk and broking segment. Let me take a minute now to touch on some of our financial highlights for the quarter. On an organic basis, revenue was up 2%, reflecting growth across most of our businesses. Adjusted operating income was $371 million or 17.2% of revenue for the quarter, up 200 basis points from $338 million or 15.2% of revenue in the same period last year, as our growth and expense discipline combined to enhance our profitability in the period. The net result was adjusted diluted earnings per share of $2.66, representing 22% growth over the prior year, in part due to our aggressive share repurchase program. Overall, our performance in the quarter was aligned with our expectations and reflected our commitment to profitable growth and the successful execution of our strategy. We continue to build momentum, and we believe our progress has us on track to reach our financial goals for 2022 and to become a $10 billion-plus company by 2024. In closing, I want to express my gratitude to my incredible team of colleagues who live our values and have delivered every day for our clients in a volatile and challenging environment. With our sharpened focus, we are well positioned to continue driving growth and executing on our transformation. And with that, I'll turn the call over to Andrew for more detail on our results.

Thanks, Carl. Good morning, everyone. Thanks to all of you for joining us so early in the day. The first quarter saw dramatic macroeconomic and geopolitical changes that required us to navigate rapid and significant shifts in our markets that we expect will continue to evolve throughout the year. High inflation, uncertainty around how long it will last, and tight labor supply are impacting our clients' people strategies in a variety of ways. Geopolitical and economic factors are affecting the insurance landscape. with events in Ukraine likely to dampen the short-term moderation in pricing growth. Monetary policy and inflationary forces are expected to translate into remeasured asset values and exposures, ultimately translating into premium growth. We continue to navigate through this complex and dynamic backdrop and have delivered a good start to the year, with most of our businesses contributing to organic revenue growth. Before we turn to our detailed segment results, let me take a moment to touch on our exit from our Russian businesses. As we previously reported, we made the decision to exit our operations in Russia, which comprised approximately 1% of consolidated WTW revenue for 2021, primarily within our risk and broking segment. The lost profits from our Russia operations will create modest margin headwinds for the company in 2022 and beyond. However, We have taken swift action to deploy near-term cost mitigation measures and to identify longer-term offsets, which gives us confidence in achieving our guidance for the year and reaching our 2024 financial goals. Let's turn to our detailed segment results. Note that to provide clear comparability with all periods, all commentary regarding the results of our segments will be on an organic basis unless specifically stated otherwise. The health, wealth, and career, or HWC segment, generated revenue growth of 2% on an organic basis and 3% on a constant currency basis compared to the first quarter of the prior year. Career, which represents our work and rewards and employee experience businesses, led revenue growth for the segment, increasing 7% in the quarter, following growth of 3% in Q4 of 2021. This growth was driven by strong demand for rewards consulting, pay benchmarking, and software. Health, which is comprised of our health and benefits broking and consulting business, delivered strong growth of 6% through a combination of increased retention, new client appointments, and project work. Wealth, which represents our retirement and investment businesses, had a revenue increase of 1% for the quarter driven by growth from new clients. In benefits delivery and outsourcing, which encompasses our benefits delivery and administration and benefit plan administration businesses, revenue declined by 2% from the prior year first quarter. The decline was largely driven by individual marketplace and reflected a shift in revenue timing from our B2B Medicare exchange business, which we expect to normalize over the course of 2022, as well as lower growth in Medicare Advantage revenue in our direct-to-consumer business. We continue to see a macro environment that supports growth opportunities for this business. HWC's operating margin expanded 110 basis points to 20.7% in the first quarter, driven primarily by strong operating leverage from our growth. We see HWC's historical industry-leading margins continuing. HWC's market-leading solutions and the tailwinds in its core markets should continue to drive organic growth. Both our near-term and long-term outlook on HWC remain positive. Now, let's look at risk and broking, or R&B. R&B's revenue was flat on organic and constant currency basis as compared to the prior year first quarter. Excluding a headwind from book of business gain on sale that was recorded in the prior comparable period, risk and broking's organic revenue growth was 2%. In the insurance consulting and technology, or ICT, business, revenue was up 9% compared to the prior year first quarter, with increased technology solution sales alongside increased demand for advisory work. Corporate risk and broking, or CRB, revenue declined 1%. Excluding the book of business sale mentioned earlier and Russia-related revenue, CRB increased 3%. with growth across all regions, primarily from new business, with notable strength in our FinEx and M&A lines. Excluding headwinds from prior year book of business sales, North America led CRB's growth, where colleague retention rates at senior levels have continued to show significant improvement. Excluding our Russia business, international and Europe also contributed to CRB's growth. Risk and Broking's operating margin was 21.6% for the first quarter, compared to 21.9% in the prior year first quarter. Excluding the headwind from book of business sale in the prior period, the margin increased 130 basis points for the first quarter as a result of top-line growth alongside continued cost management. Risk and Broking's organic growth has trailed industry averages primarily due to elevated colleague departures and reduced hiring during the period when the business combination was pending. two factors that we believe are now behind us. We continue to expect that the actions we have taken will enable us to narrow the growth gap over the course of the year, with pace accelerating in the second half of 2022 as the impacts of our actions build and headwinds subside. Overall, our outlook for risk and broking remains positive, with mid-single-digit revenue growth expected over the longer term. Now, let's turn to the enterprise-level results. In Q1, We generated profitable growth with adjusted operating margins increasing 200 basis points to 17.2 percent from 15.2 percent in the prior year, a product of our focus on strategic priorities and cost management. We continue to expect margin improvement each year as we work to deliver on our 2024 margin goals. As Carl mentioned, our transformation initiatives will be a key contributor to that ongoing margin expansion. Our early efforts in this area have been very successful and we have already surpassed our $30 million annualized run rate savings goal for the year. We are actively seeking further cost transformation opportunities and will update you as those progress. We had free cash flow of negative $10 million for the first quarter of 2022, a $155 million increase from free cash flow of negative $165 million in the prior year. Approximately $50 million of the increase was core revenue free cash flow improvement, while the remaining $105 million was driven by one-time items. The one-time items consist primarily of legal settlement payments made in the prior year, totaling $185 million, partially offset by a net $80 million in other non-recurring items, such as cash inflows from now-devested businesses like reinsurance, which increased prior year free cash flow and and cash payments related to transaction and transformation costs, which decreased current year free cash flow. We continued to prioritize returning capital to shareholders and executed aggressively on those commitments. We paid $98 million in dividends for the first quarter of 2022 and repurchased 9.9 million shares for $2.25 billion, achieving the $4 billion near-term share repurchase target we set at investor day. At the end of Q1, approximately $1.6 billion remain under our current repurchase authorization. We remain committed to deploying excess capital and free cash flow into our highest return opportunities and continue to believe the return we can achieve from repurchasing shares remains highly attractive, and we expect to continue to deploy free cash flow in this manner. Overall, we're off to a good start in 2022. As we think about the rest of the year, we see macroeconomic challenges that will continue to create demand for our services and opportunities to help clients. We continue to feel positive about the investments we made in talent last year and this year. We are confident those investments will support revenue growth and that we will achieve our targets for the year. With that, let's open it up for Q&A. Thank you.