01—Abstract
Summary
Summary of the 10-K filed February 26, 2020. Cited figures are marked; the original filing is the authoritative source.
Willis Towers Watson reported 2019 revenue of $9.04 billiona, up 6% as reported and 5% organic, with the growth driven by strong performances in all segments and by TRANZACT, which contributed $245 million of revenue after its July 30, 2019 acquisition for $1.3 billion in cash.
Income from operations rose to $1.33 billionb from $809 million, and net income attributable to Willis Towers Watson was $1.04 billion, or $8.02 diluted EPS, compared with $5.27 in 2018. Adjusted operating income rose to $1.83 billion (20.3% margin) and adjusted EBITDA to $2.30 billion (25.4% margin), as reported in the filing's non-GAAP reconciliations. Cash generation was weaker.
Operating cash flow fell to $1.08 billionc from $1.29 billion, mainly due to unfavorable working capital changes, particularly in accounts receivable, and TRANZACT's negative cash flows. Free cash flow was $835 million versus $1.02 billion. Total debt rose to $5.62 billion, funded partly by a $1.1 billion one-year term loan used for the TRANZACT acquisition, and the capitalization ratio was 35.4%.
The company repurchased $150 milliond of shares in 2019, paid $329 million in dividends, and on February 26, 2020 approved a $251 million increase to its repurchase authorization, bringing the total remaining to $500 million, along with a quarterly dividend of $0.68 per share. The filing also highlights ongoing risks.
These include Brexit (about 21% of revenue is generated in the U.K.), a $120 million Stanford Financial Group settlement that is payable once no further appeal remains, ongoing competition-related investigations in aviation broking, regulatory and Healthcare Reform uncertainty affecting the Benefits Delivery and Administration segment, and pension liabilities. The company reported approximately 46,600 employees.
02—Key points
Key Highlights
- Revenue of $9.04 billion in 2019, up 6% as reported and 5% organic, with TRANZACT contributing $245 million of revenue.
- Income from operations of $1.33 billion, up from $809 million in 2018; diluted EPS of $8.02 versus $5.27.
- Adjusted operating income of $1.83 billion (20.3% margin) and adjusted EBITDA of $2.30 billion (25.4% margin), per the filing's non-GAAP reconciliations.
- Operating cash flow fell to $1.08 billion from $1.29 billion and free cash flow to $835 million from $1.02 billion, driven by working capital changes and TRANZACT.
- Total debt of $5.62 billion; the TRANZACT acquisition for $1.3 billion was funded in part by a $1.1 billion one-year term loan, and the 2029 and 2049 senior notes raised about $988 million net.
- Shareholder returns: $329 million in dividends and $150 million in buybacks in 2019; board approved a $251 million increase to the repurchase authorization on February 26, 2020 (total remaining $500 million) and a $0.68 quarterly dividend.
- Key risks disclosed include Brexit (21% of revenue from the U.K.), the $120 million Stanford settlement, aviation broking competition investigations, and U.S. healthcare regulation affecting TRANZACT's Medicare business.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 26, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $8.37B$8.51B | −1.7% |
| Operating Expenses | $7.32B$7.70B | −5.0% |
| Operating Income | $1.05B$809.00M | +30.3% |
| Interest Expense | $234.00M$208.00M | +12.5% |
| Net Income | $1.04B$695.00M | +50.2% |
| EPS (Basic) | $8.05$5.29 | +52.2% |
| EPS (Diluted) | $8.02$5.27 | +52.2% |
| Shares Outstanding (Basic) | 130.00M131.00M | −0.8% |
| Shares Outstanding (Diluted) | 130.00M132.00M | −1.5% |
05—Questions
Frequently Asked Questions
How did Willis Towers Watson perform financially in 2019?
Revenue rose 6% as reported to $9.04 billion, and 5% organically, with growth across all segments plus the TRANZACT acquisition. Income from operations increased to $1.33 billion from $809 million, and net income attributable to the company reached $1.04 billion, or $8.02 per diluted share, versus $5.27 in 2018.
Why did operating cash flow decline in 2019?
The filing attributes the $207 million decrease in operating cash flow, to $1.08 billion, primarily to unfavorable working capital changes, particularly in accounts receivable, and to TRANZACT's negative cash flows. Free cash flow therefore declined to $835 million from $1.02 billion.
What did the TRANZACT acquisition add, and how was it financed?
TRANZACT, a direct-to-consumer Medicare sales and marketing business, was acquired on July 30, 2019 for $1.3 billion in cash and contributed $245 million of revenue in 2019. It was funded initially with a $1.1 billion one-year term loan, with the remainder from the revolving credit facility, and the company later repaid part of the term loan with senior notes.
What capital return actions did the company take?
In 2019 the company repurchased $150 million of shares and paid $329 million in dividends. On February 26, 2020, the board increased the repurchase authorization by $251 million to a total of $500 million remaining and approved a quarterly dividend of $0.68 per share, payable around April 15, 2020.
What are the most significant risks flagged in the filing?
The filing highlights Brexit, since about 21% of 2019 revenue came from the U.K.; the $120 million Stanford Financial Group settlement, which awaits final appeal resolution; ongoing competition investigations in aviation and aerospace broking; U.S. healthcare reform and Medicare marketing rules affecting TRANZACT; and material pension liabilities.
06—Continue