Willis Towers Watson today announced financial results for the first quarter ended March 31, 2021.

“Willis Towers Watson had an encouraging start to the year with strong first quarter results,” said John Haley, Willis Towers Watson’s chief executive officer. “We are proud of our financial performance and our unwavering commitment to client service. We delivered revenue growth, meaningful margin expansion and strong earnings-per-share growth. Our results reflect both increased demand for our solutions, as well as our sustained focus on profitable growth. We continue to build upon our solid foundation and believe we are well-positioned to continue driving value for all our stakeholders. As always, I would like to thank all of our colleagues for their tremendous efforts this past quarter in support of our clients and each other.”

First Quarter Company Highlights

Revenue was $2.59 billion for the first quarter of 2021, an increase of 5% (1% increase constant currency and 4% increase organic) as compared to $2.47 billion for the same period in the prior year.

Income from operations for the first quarter was $452 million, or 17.5% of revenue, an increase of 290 basis points compared to the first quarter of the prior year. Adjusted operating income was $579 million, or 22.4% of revenue, an increase of 110 basis points compared to the first quarter of the prior year. Net income attributable to Willis Towers Watson for the first quarter of 2021 was $733 million, an increase of 140% from $305 million for the prior-year first quarter. For the quarter, diluted earnings per share were $5.63 and adjusted diluted earnings per share were $3.64. Net income attributable to Willis Towers Watson and diluted earnings per share for the first quarter of 2021 included pre-tax $24 million of transaction and integration expenses related to the pending business combination with Aon plc. The U.S. GAAP tax rate for the quarter was 11.5%, and the adjusted income tax rate for the quarter used in calculating adjusted diluted earnings per share was 20.5%.

Net income for the first quarter of 2021 was $736 million, or 28.4% of revenue, an increase from net income of $313 million, or 12.7% of revenue for the prior-year first quarter. Adjusted EBITDA for the first quarter of 2021 was $730 million, or 28.2% of revenue, an increase from Adjusted EBITDA of $680 million, or 27.6% of revenue. The first quarter is seasonally strong due to the renewal periods for some lines of business.

Cash flows used in operating activities were $128 million for the three months ended March 31, 2021, compared to cash flows from operating activities of $23 million for the prior-year first quarter. Free cash outflow for the quarters ended March 31, 2021 and 2020 was $165 million and $43 million, respectively. The decrease in year-over-year free cash flow was due to net legal settlement payments of approximately $185 million for the previously-announced Stanford and Willis/Towers Watson merger settlements and higher incentive compensation and benefit-related items of approximately $180 million. During the quarter ended March 31, 2021, 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 pandemic 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 2021. During 2020 and through the first quarter of 2021, the COVID-19 pandemic had a negative impact on revenue growth, particularly in our businesses that are discretionary in nature, but otherwise it generally did not have a material impact on our overall results. Some of our discretionary, project-based businesses saw a reduction in demand, and additional negative impacts on our revenue and operating results may lag behind the developments thus far related to the COVID-19 pandemic. In light of the effects on our own business operations and those of our clients, suppliers and other third parties with whom we interact, the Company has considered, and will continue to consider, the impact of COVID-19 on our business, as appropriate, taking into account our business resilience and continuity plans, financial modeling and stress testing of liquidity and financial resources. 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 March 31, 2021.

Segment Highlights

Human Capital & Benefits

The Human Capital & Benefits (HCB) segment had revenue of $875 million, an increase of 3% (flat constant currency and flat organic) from $850 million in the prior-year first quarter. On an organic basis, Retirement revenue was flat with growth in Great Britain driven by funding and Guaranteed Minimum Pension (“GMP”) equalization work, offset by a decline in North America related to lower de-risking activity. Health and Benefits revenue was flat as continued expansion of our local portfolios and global benefits management appointments outside of North America was offset by a decline in North America due to prior-year book sales. Talent and Rewards revenue declined nominally with growth in our rewards offerings offset by lower project activity in our traditional survey and communications and change management offerings. Technology and Administrative Solutions revenue increased due to new project and client activity in Great Britain. The HCB segment had an operating margin of 25.2%, as compared to 25.0% for the prior-year first quarter.

Corporate Risk & Broking

The Corporate Risk & Broking (CRB) segment had revenue of $810 million, an increase of 10% (5% increase constant currency and 5% increase organic) from $739 million in the prior-year first quarter. On an organic basis, International and Great Britain led the segment with new business generation primarily in natural resources and Finex insurance lines. North America revenue also grew with strong renewals across all regions, again led by Finex.  Revenue growth was partially offset by a decline in Western Europe, which primarily stemmed from challenges related to senior staff departures. The CRB segment had an operating margin of 20.0%, as compared to 17.2% for the prior-year first quarter.

Investment, Risk & Reinsurance

The Investment, Risk & Reinsurance (IRR) segment had revenue of $605 million, a decrease of 2% (5% decrease constant currency and 4% increase organic) from $615 million in the prior-year first quarter. On an organic basis, most lines of business contributed to the growth. Reinsurance growth was driven by new business wins and favorable renewal factors. An uptick in demand for advisory work led the revenue growth in both our Investment business and Insurance Consulting and Technology business, which was further aided by increased software sales. The growth was partially offset by a decline in Wholesale’s revenue as a result of headwinds across coverage lines coupled with a strategic shift in its operating model. The IRR segment had an operating margin of 47.9%, as compared to 45.1% for the prior-year first quarter.

In September 2020, the Company sold its Max Matthiessen business, and the sale of Miller, its wholesale insurance broking subsidiary, was completed on March 1, 2021 (see additional disclosures in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021).

Benefits Delivery & Administration

The Benefits Delivery & Administration (BDA) segment had revenue of $287 million, an increase of 24% (24% increase constant currency and 23% increase organic) from $231 million in the prior-year first quarter. BDA’s organic revenue increase was led by Individual Marketplace, primarily by TRANZACT, which generated revenue of $148 million in the first quarter with strong growth in Medicare Advantage sales. Benefits Outsourcing revenue also increased, driven by its expanded client base. The BDA segment had an operating margin of 2.5%, as compared to negative 4.7% for the prior-year first quarter.

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