WTW, a leading global advisory, broking and solutions company, today announced financial results for the first quarter ended March 31, 2023.
“The first quarter was a solid start to the year for WTW,” said Carl Hess, WTW’s chief executive officer. “Our investments in talent and technology, along with the momentum in our business, helped us achieve excellent revenue increases on both a reported and an organic basis. Our top-line revenue growth, together with our expense discipline, the successful execution of our transformation efforts and initiatives to simplify our company drove operating margin expansion over the prior year. We are proving ourselves to be resilient in a complex risk and economic environment.”
The revenue amounts included in this release are presented on a U.S. GAAP basis except where stated otherwise. This excludes reinsurance revenue which is reported in discontinued operations. The segment discussion is on an organic basis.
Revenue was $2.24 billion for the first quarter of 2023, an increase of 4% as compared to $2.16 billion for the same period in the prior year. Excluding a 3% foreign currency headwind, revenue increased 7%. On an organic basis, revenue increased 8%. See Supplemental Segment Information on page 8 for additional detail on book-of-business settlements and interest income included in revenue.
Net Income for the first quarter of 2023 was $206 million, an increase of 65% compared to Net Income of $125 million in the prior-year first quarter. Adjusted EBITDA for the first quarter was $503 million, or 22.4% of revenue, a decrease of 3%, compared to Adjusted EBITDA of $518 million, or 24.0% of revenue, in the prior-year first quarter. Book-of-business settlements and interest income, included in revenue and income, created a tailwind to all measures of profit, which was offset by the headwind from the sanction-driven divestiture of our highly-profitable Russian business. The U.S. GAAP tax rate for the first quarter was 19.5%, and the adjusted income tax rate for the first quarter used in calculating adjusted diluted earnings per share was 20.5%.
Cash Flow and Capital Allocation
Cash flows from operating activities were $134 million for the quarter ended March 31, 2023, compared to $21 million for the prior year. Free cash flow for the quarters ended March 31, 2023 and 2022 was $92 million and ($10) million, respectively, an improvement of $102 million. During the quarter ended March 31, 2023, the Company repurchased $104 million of WTW outstanding shares. For further discussion on expectation for free cash flow, see “Updated Free Cash Flow Outlook” below.
Quarterly Business Highlights
- Realized $75 million of incremental annualized Transformation Program savings in the first quarter, bringing the total to $224 million in cumulative savings since the program’s inception. Refer to the Supplemental Slides for additional detail.
- Repurchased 432,140 of our shares for $104 million during the quarter.
- Announced strategic collaborations to help further improve the insurance placement experience with Zurich, via our Broking Platform, and Sapiens, a software provider for the insurance industry.
- Launched the LifeSight Pooled Employer Plan in the U.S., with Transamerica overseeing administration and recordkeeping, to help simplify the 401(k) plan sponsorship for employers and provide better outcomes for their employees.
First Quarter 2023 Segment Highlights
Health, Wealth & Career
The HWC segment had revenue of $1.29 billion in the first quarter, an increase of 3% (6% increase constant currency and organic) from $1.24 billion in the prior year. Organic growth was led by Health, driven by increased project activity in North America and the continued expansion of our client portfolio in International. Benefits Delivery & Outsourcing generated organic revenue growth through new clients and compliance project work in Outsourcing and higher volumes and placements of Medicare Advantage and Life policies in Individual Marketplace. Our Wealth businesses generated organic revenue growth from higher levels of Retirement work in Europe and North America, including compliance and de-risking projects along with new client acquisitions. Our Career businesses grew revenue organically through increased demand for Advisory services and increases in data and software license sales.
Operating margins in the HWC segment increased 330 basis points from the prior-year first quarter to 24.0%, primarily from higher operating leverage.
Risk & Broking
The R&B segment had revenue of $904 million in the first quarter, an increase of 1% (5% increase constant currency and 10% increase organic) from $891 million in the prior year. On an organic basis, Corporate Risk & Broking generated excellent organic revenue growth across all geographies, primarily driven by new business and increased retention in our global lines of business, most notably in Aerospace, Financial Solutions and Natural Resources. Insurance Consulting and Technology had organic revenue growth primarily from software sales.
Operating margins in the R&B segment decreased 170 basis points from the prior-year first quarter to 19.9%, primarily due to the divestiture of our Russian operations.
2023 Outlook
Based on current and anticipated market conditions, the Company’s full-year targets for 2023 are as follows:
- Expect to deliver mid-single digit organic revenue growth
- Expect to deliver adjusted operating margin expansion for the full year 2023
- Expect to deliver approximately $100 million of incremental run-rate savings from the Transformation Program in 2023
- Expect approximately $112 million in non-cash pension income for the full year 2023
- Expect a foreign currency headwind on adjusted earnings per share of approximately $0.05 for the full year 2023 at today’s rates, up from $0.01 previously