10-QPeriod: Q3 FY2021

Aon plc Quarterly Report for Q3 Ended Sep 30, 2021

Filed October 29, 2021For Securities:AON

Summary

Aon plc's third quarter and nine-month 2021 results show a significant shift from the prior year, primarily driven by a substantial one-time charge related to the termination of its proposed business combination with Willis Towers Watson (WTW). While total revenue saw an increase driven by organic growth across its solution lines, the reported net income and operating income were heavily impacted by the $1 billion termination fee and associated costs. Despite the negative impact on GAAP earnings, the company's non-GAAP adjusted operating margin remained strong, indicating resilience in its core operations. Organic revenue growth across Commercial Risk Solutions, Reinsurance Solutions, Health Solutions, and Wealth Solutions demonstrates continued client demand for Aon's services. Investors should note the significant increase in operating expenses due to the WTW termination, which overshadowed the revenue gains in reported figures. However, adjusted diluted earnings per share showed an improvement compared to the prior year, reflecting the company's focus on underlying profitability.

Financial Highlights

50 data points
Beta

Revenue

$2.70B

Net Income

-$900.00M

-33.3% Net Margin

EPS (Diluted)

$-3.99

Total Assets

$31.82B

Cash & Equivalents

$609.00M

Free Cash Flow

-$126.00M

Financial Statements
Beta
Revenue$2.70B
Operating Expenses$3.50B
Operating Income-$801.00M
Interest Expense$80.00M
Net Income-$900.00M
EPS (Basic)$-3.99
EPS (Diluted)$-3.99
Shares Outstanding (Basic)225.40M
Shares Outstanding (Diluted)225.40M

Key Highlights

  • 1Total revenue increased by 13% to $2.7 billion in Q3 2021 and by 12% to $9.1 billion in the first nine months of 2021, driven by strong organic revenue growth of 12% and 9%, respectively.
  • 2A significant $1 billion termination fee and related costs associated with the termination of the Willis Towers Watson combination led to a substantial increase in operating expenses and a net loss of $(891) million in Q3 2021.
  • 3Despite the GAAP loss, adjusted operating margin remained robust at 22.1% for Q3 2021, compared to 22.4% in the prior year, indicating strong underlying operational performance.
  • 4Adjusted diluted earnings per share increased to $1.74 in Q3 2021 and $8.31 for the first nine months of 2021, up from $1.53 and $7.19, respectively, in the prior year periods.
  • 5Cash flow from operations decreased by 38% to $1.3 billion for the first nine months of 2021, primarily due to the $1 billion termination fee payment.
  • 6The company continues its share repurchase program, with approximately $3.7 billion remaining authorized as of September 30, 2021.

Frequently Asked Questions

The primary reason for the substantial decrease in reported net income and operating income was the one-time charge of $1 billion related to the termination of the business combination agreement with Willis Towers Watson (WTW). This termination fee, along with other associated costs, significantly increased operating expenses and resulted in a net loss for the quarter.

Aon plc demonstrated strong revenue growth in the third quarter and first nine months of 2021. Total revenue increased by 13% to $2.7 billion in Q3 and by 12% to $9.1 billion for the nine-month period. This growth was primarily driven by a 12% organic revenue increase in Q3 and a 9% increase for the nine months, indicating healthy demand for Aon's core services across its Commercial Risk, Reinsurance, Health, and Wealth Solutions segments.

While reported earnings were negatively impacted by the WTW termination costs, the company's non-GAAP adjusted operating margin remained strong at 22.1% for the third quarter of 2021. Furthermore, adjusted diluted earnings per share showed an increase compared to the prior year. This suggests that the underlying business operations are performing well and continue to generate value, despite the significant one-time charge.

Aon plc believes it has adequate liquidity supported by operating cash flows and available credit facilities. The company continues to execute its share repurchase program, with approximately $3.7 billion remaining authorized as of September 30, 2021. The significant cash outflow related to the WTW termination fee impacted operating cash flow for the first nine months of the year, but the company maintains access to capital markets and credit facilities for its financial needs.