Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Willis Towers Watson PLC (WTW, Financial) reported a 240 basis points year-over-year adjusted operating margin expansion.
- Adjusted diluted earnings per share increased by 24% to $2.55.
- The company generated $361 million in free cash flow.
- Organic revenue growth was 6% for the quarter.
- The company raised its 2024 adjusted operating margin and EPS target ranges to 23.0%-23.5% and $16-$17, respectively.
Negative Points
- The Benefits Delivery & Outsourcing segment experienced flat revenue growth.
- The Medicare-related business saw a decrease in revenue due to moderated growth.
- Transformation-related cash outlays are expected to continue into 2025.
- Foreign exchange was a headwind to adjusted EPS by $0.03 for the quarter.
- The company incurred a $13 million provision for significant litigation.
Q & A Highlights
Q: As we think about the updated '24 guidance, what do you think is the biggest swing factor on just being able to exceed the EPS guidance you've outlined for '24?
A: Good morning, Elyse. We're really pleased with our execution in the first half of this year, and we remain optimistic on where we're tracking within the updated guidance. We see opportunities for stronger performance relative to our margin guidance, such as better-than-expected productivity from our investment in talent, timing of transformation savings, trimming expenses without impacting growth, and potential rebounding global M&A activity.
Q: On free cash flow, you mentioned consciously managing BDO growth to optimize free cash flow. Given the cash flow for the quarter, are you on your way to being above the 16% target?
A: Yes, Elyse, the free cash flow margin target of 16% plus was a longer-term target. We're pleased with our progress. The levers to get us there include expansion of the operating margin, abatement of transformation-related cash outlays, and improved cash conversion in our TRANZACT business. All these factors put us on a solid path to achieve that 16% plus over time.
Q: How much of the organic revenue growth result from the second quarter and through the first half is sustainable versus onetime in nature?
A: In HWC, we expect tailwinds from helping clients navigate the current economic environment, increased compensation benchmarking participation, and our smart connection strategy. In R&B, we expect mid-single digit or better growth for the full year, driven by strategic investments in talent and platforms, and our specialty strategy. Overall, we're comfortable with our revenue expectations and optimistic about continued progress.
Q: Can you elaborate on the statement about driving further efficiencies post-transformation program?
A: Now that WTW is on more stable footing, our focus is on technology modernization and process optimization. Actions like cloud migration, centralizing support, reducing our application portfolio, and renegotiating contracts will yield efficiencies. These updates will reduce costs, allow better leverage of data, and drive revenue growth. We've laid a solid foundation for continued efficiencies post-2024 transformation program.
Q: Do you expect the majority of the remaining transformation cash payments to occur in the back half of 2024?
A: We expect some of the transformation cash spend to bleed over into 2025, with payments made throughout the third and fourth quarters of 2024.
Q: Can you give more color on why you moderated growth in the Medicare-related business and your updated expectations for growth in the back half?
A: We deliberately moderated growth to reflect market developments, maximize profitability, and improve free cash flow outcomes. Media buying costs have increased due to US election media buying, causing consumer distraction. Despite this, we remain confident in our pipeline in HWC and expect mid-single-digit organic revenue growth for the full year.
Q: What are Lucy Clarke's priorities as she joins WTW?
A: Lucy Clarke's priorities include surveying the landscape of the R&B business, affirming what's working well, and using her experience to modify our approach. She believes in our strategy and will focus on fine-tuning rather than wholesale changes.
Q: Can you provide more detail on Verita's growth and impact?
A: Verita has grown better than initially expected, but given the overall size of the R&B business, it is still relatively small and not significantly moving the needle from an organic growth perspective at this point in time.
Q: How do you view the outlook for the property and casualty market environment?
A: Overall, we see a stabilizing to softening market with differentiation based on risk nature and performance. Property market trends are stabilizing, while casualty market faces reduced capacity and higher pricing. Financial lines continue to soften, but rate reductions have slowed. Our growth is driven by high retention rates, new business, and investments in talent and technology.
Q: Can you discuss the trajectory of unallocated costs into 2025?
A: We're not providing specific guidance for 2025 yet, but for 2024, we expect unallocated costs to be relatively consistent with 2023 levels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
