- Revenue increased 8% over prior year
first quarter (7% constant currency)
- EBITDA Margin increased to 19.5%,
from 18.0% for the prior year first quarter
- Adjusted Diluted Earnings per Share
of $1.32
- Diluted Earnings per Share of
$1.16
Towers Watson (NYSE, NASDAQ: TW), a leading global professional
services company, today announced financial results for the first
quarter of fiscal year 2015, which ended September 30, 2014.
The information contained in this press release reflects the
expansion of the Exchange Solutions Segment which took effect as of
July 1, 2014. Please refer to our 8-K filed on September 16, 2014
for information on the recast of our fiscal year 2014 segment
results.
Total revenues were $878 million for the quarter, an increase of
8% (7% constant currency) from $810 million for the first quarter
of fiscal 2014. On an organic basis, which excludes the impact of
changes in foreign currency exchange rates, acquisitions and
divestitures, revenues increased 7% from the prior-year first
quarter.
EBITDA for the first quarter of fiscal 2015 was $171 million, or
19.5% of revenues, versus Adjusted EBITDA of $146 million, or 18.0%
of revenues, for the prior-year first quarter.
Income from continuing operations for the first quarter of
fiscal 2015 was $82 million, a decrease from $86 million for the
prior-year first quarter. For the quarter, diluted earnings per
share from continuing operations were $1.16 and adjusted diluted
earnings per share from continuing operations were $1.32. The tax
rate for the quarter for continuing operations was 35%. As a
reminder, the tax rate in the first quarter of the prior fiscal
year was 15% due to the impact of favorable tax settlements.
“We are very pleased with the first quarter results, especially
with the strong results delivered by the Benefits and Exchange
Solutions segments. Bulk lump sum, healthcare consulting and
pension administration drove revenue growth in the Benefits
segment. A strong off-cycle enrollment period and the excellent
work delivered by the health and welfare administration group drove
growth in Exchange Solutions,” said John Haley, chief executive
officer. “There was also a significant item of note this past
quarter. Towers Watson’s One Exchange was selected to be the
retiree medical exchange provider for the Ohio Public Employee
Retirement System (OPERS) Medicare Connector, effective January
2016. We are very excited by this announcement and look forward to
the opportunity to serve OPERS’ retirees.”
First Quarter Company Highlights
Benefits
For the quarter, the Benefits segment had revenues of $466
million, an increase of 8% (7% increase constant currency) from
$431 million in the prior-year first quarter. Retirement had
mid-single digit constant currency revenue growth, primarily due to
an increase of bulk lump sum work in the Americas region. Health
and Group Benefits had mid-single digit constant currency revenue
growth driven by new client work. Technology and Administration
Solutions constant currency revenue grew by low double digits due
to bulk lump sum and increased project activity across all regions.
The Benefits segment had a Net Operating Income (“NOI”) margin of
33% in the first quarter of fiscal 2015.
Risk and Financial Services
For the quarter, the Risk and Financial Services segment had
revenues of $148 million, an increase of 4% (1% increase constant
currency) from $142 million in the prior-year first quarter. Risk
Consulting and Software had constant currency revenue growth of
mid-single digits due to support of software sales and project
work. Investment constant currency revenues decreased by mid-single
digits, reflecting strong comparables from the first quarter of
fiscal year 2014. The Risk and Financial Services segment had an
NOI margin of 24% in the first quarter of fiscal 2015.
Talent and Rewards
For the quarter, the Talent and Rewards segment had revenues of
$153 million, flat as compared to prior year first quarter (flat
constant currency). Executive Compensation constant currency
revenue increased by low double digits with revenue growth in all
regions. Rewards, Talent and Communication constant currency
revenue had a low single digit decline due to deferred OneExchange
revenue related projects. As planned, Data, Surveys and Technology
had a mid-single digit constant currency revenue decline due to the
timing of survey delivery. The Talent and Rewards segment had an
NOI margin of 24% in the first quarter of fiscal 2015. The first
half of the fiscal year typically has stronger margins due to the
seasonality of the business.
Exchange Solutions
For the quarter, the Exchange Solutions segment had revenues of
$86 million, an increase of 41% (41% increase constant currency)
from $61 million in the prior-year first quarter. Our Retiree and
Access Exchanges revenue increased around 50%. Health and Welfare
Administration revenues grew by mid-teens. Active Exchanges
revenues grew around $4 million. As a reminder, Active Exchange
revenues were first recognized with the acquisition of Liazon in
November 2013. The Exchange Solutions segment had an NOI margin of
16% in the first quarter of fiscal 2015. The second half of the
fiscal year is seasonally stronger due to the timing of
enrollments.
Outlook for Fiscal 2015
For fiscal 2015, the company expects to report revenues of
around $3.6 billion and adjusted diluted earnings per share in the
range of $5.85 to $5.97. This guidance assumes an average exchange
rate of 1.62 U.S. dollars to the British Pound and 1.28 U.S.
dollars to the Euro for fiscal 2015.
For the second quarter of fiscal 2015, the company expects to
report revenues in the range of $910 million to $930 million,
reflecting constant currency revenue growth in the mid-single
digits, and adjusted diluted earnings per share in the range of
$1.46 to $1.51.
Conference Call
The company will host a live webcast and conference call to
discuss the financial results for the first quarter of fiscal 2015.
It will be held on Wednesday, November 5, 2014, beginning at 9:00
a.m. Eastern Time, and can be accessed via the Internet at
www.towerswatson.com. The replay of the call will be available
shortly after the live call for a period of three months. A
telephonic replay will also be available for two weeks after the
call by dialing 617-801-6888 and using confirmation number
68008534.
About Towers Watson
Towers Watson is a leading global professional services company
that helps organizations improve performance through effective
people, risk and financial management. With 15,000 associates
around the world, the company offers consulting, technology and
solutions in the areas of benefits, talent management, rewards, and
risk and capital management. Learn more at towerswatson.com.
Use of Non-GAAP Measures
In order to assist readers of our financial statements in
understanding the core operating results that the Company’s
management uses to evaluate the business and for financial
planning, we present the following non U.S. GAAP measures:
(1) Adjusted EBITDA, (2) Adjusted Diluted Earnings Per
Share from continuing operations, (3) Adjusted income from
continuing operations (attributable to common stockholders) and (4)
Free Cash Flow. The Company believes these measures are relevant
and provide useful information widely used by analysts, investors
and other interested parties in our industry to provide a baseline
for evaluating and comparing our operating results.
We consider Adjusted EBITDA and Adjusted Diluted Earnings Per
Share from continuing operations to be important financial
measures, which we use to internally evaluate and assess our core
operations, and benchmark our operating results against our
competitors. We use Adjusted EBITDA to evaluate and measure our
performance-based compensation plans. Adjusted EBITDA and Adjusted
Diluted Earnings Per Share are important in illustrating what our
operating results would have been had we not incurred these
acquisition-related expenses. Adjusted Income from continuing
operations (attributable to common stockholders) is used solely for
the purpose of calculating Adjusted diluted earnings per share.
Free Cash Flow is used to evaluate our core operating
performance.
The Company’s non-U.S. GAAP measures and their accompanying
definitions are presented as follows:
- Adjusted EBITDA – net income
(attributable to common stockholders) adjusted for discontinued
operations, net of tax, provision for income taxes, interest, net,
depreciation and amortization, transaction and integration
expenses, stock-based compensation, and other non-operating income
excluding income from variable interest entity.
- Adjusted Diluted Earnings Per Share
from continuing operations – diluted earnings per share from
continuing operations adjusted for discontinued operations, net of
tax, and adjusted for certain tax effected merger and acquisition
related items of transaction and integration expenses, non-cash
stock-based compensation, and amortization of intangible
assets.
- Adjusted income from continuing
operations (attributable to common stockholders) – net income
(attributable to common stockholders) adjusted for discontinued
operations, net of tax, and adjusted for certain tax effected
merger and acquisition related items of transaction and integration
expenses, non-cash stock-based compensation, and amortization of
intangible assets.
- Free Cash Flow - Cash Flows from
Operating Activities less cash flows used for Fixed Assets and
Software for Internal Use, each of which is presented on the GAAP
Consolidated Statements of Cash Flows.
These non-U.S. GAAP measures are not defined in the same manner
by all companies and may not be comparable to other similarly
titled measures of other companies. Non-U.S. GAAP measures should
be considered in addition to, and not as a substitute for, the
information contained within our financial statements.
Reconciliation of Net income (attributable to common
stockholders) to Adjusted EBITDA, Net income (attributable to
common stockholders) to Adjusted income from continuing operations,
Diluted earnings per share from continuing operations to Adjusted
Diluted Earnings Per Share from continuing operations and Free Cash
Flow are included in the accompanying tables to today’s press
release.
Forward-Looking Statements
This document contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
You can identify these statements and other forward-looking
statements in this document by words such as “may”, “will”,
“would”, “expect”, “anticipate”, “believe”, “estimate”, “plan”,
“intend”, “continue”, or similar words, expressions or the negative
of such terms or other comparable terminology. Such statements are
based upon the current beliefs and expectations of Towers Watson's
management and are subject to significant risks and uncertainties.
Actual results may differ from those set forth in the
forward-looking statements.
The following factors, among others, could cause actual results
to differ from those set forth in the forward-looking statements: a
decline in client demand (for example, resulting from the reduced
use of defined benefit plans); the risk of a disclosure breach of
company or client data; the ability to successfully make suitable
acquisitions and divestitures; the risk that the acquisitions of
Extend Health and Liazon are not profitable or are not otherwise
successfully integrated; our ability to protect client data and our
information systems; the risk that potential changes in federal and
state health care regulations, or future interpretation of existing
regulations, may have a material adverse impact on our business;
the risk that our Exchange Solutions or OneExchange businesses fail
to maintain good relationships with insurance carriers, become
dependent upon a limited number of insurance carriers or fail to
develop new insurance carrier relationships; the risk that changes
and developments in the health insurance system in the United
States could harm our business; our ability to respond to rapid
technological changes; the ability to recruit and retain qualified
employees and to retain client relationships; and the risk that a
significant or prolonged economic downturn could have a material
adverse effect on Towers Watson's business, financial condition and
results of operations. Additional risks and factors are identified
under “Risk Factors” in Towers Watson’s most recent Annual Report
on Form 10-K filed with the SEC.
You should not rely upon forward-looking statements as
predictions of future events because these statements are based on
assumptions that may not come true and are speculative by their
nature. Towers Watson does not undertake an obligation to update
any of the forward-looking information included in this document,
whether as a result of new information, future events, changed
expectations or otherwise.
TOWERS WATSON & CO. Supplemental Segment
Information (In Thousands of U.S. Dollars) (Unaudited)
Segment Revenue
Revenue for the Three Months Ended September 30, % Change
Currency Acquisitions % Change 2014 2013 GAAP Impact Divestitures
Organic Benefits* $ 465,587 $ 431,255 8% 1% 0% 7% Risk &
Financial Services 148,026 141,783 4% 3% 0% 1% Talent & Rewards
153,294 153,569 0% 0% 0% 0% Exchange Solutions* 86,282
61,164 41% 0% 4% 37% Reportable Segments $ 853,189 $ 787,771
*FY14 recast to reflect Exchange Solutions Segment expansion
Reconciliation of Reportable Segment Revenues to Consolidated
Revenues Three Months Ended September 30, 2014 2013
Reportable Segments $ 853,189 $ 787,771 Reimbursable
Expenses and Other 24,918 22,168
Consolidated Revenues $ 878,107 $ 809,939
Segment
Net Operating Income Three Months Ended September 30,
2014 2013 Benefits* $ 155,759 $ 129,538 Risk & Financial
Services 35,561 22,487 Talent & Rewards 36,843 44,064 Exchange
Solutions* 14,012 14,456 Reportable
Segments $ 242,175 $ 210,545 *FY14 recast to reflect
Exchange Solutions Segment expansion
Reconciliation of
Reportable Segment Net Operating Income to Income from
Operations Three Months Ended September 30, 2014 2013
Reportable Segments $ 242,175 $ 210,545 Differences in
Allocation Methods 15,712 9,986 Amortization of Intangible Assets
(17,537 ) (18,892 ) Stock-Based Compensation (5,552 ) (3,563 )
Discretionary Compensation (92,364 ) (76,122 ) Payroll Tax on
Discretionary Compensation (5,519 ) (4,568 ) Other, net
(10,917 ) (14,965 ) Income from Operations $ 125,998 $
102,421
TOWERS WATSON & CO.
Reconciliation of Non-GAAP Measures (In Thousands of U.S.
Dollars, Except Per Share Data) (Unaudited) Three
Months Ended Three Months Ended September 30, 2014 September 30,
2013 Net Income (attributable to common stockholders) $
81,558 $ 88,214 Less: Income from Discontinued Operations, net of
tax - 2,444 Income from Continuing
Operations (attributable to common stockholders) 81,558 85,770
Adjusted for certain acquisition related items: Amortization of
intangible assets 11,383 16,110
Adjusted Income from continuing operations $ 92,941 $ 101,880
Weighted average shares of common stock, diluted (000) 70,596
71,046 Diluted EPS from continuing operations $ 1.16 $ 1.21
Adjusted for certain acquisition related items: Amortization of
intangible assets 0.16 0.22 Adjusted
Diluted EPS from continuing operations $ 1.32 $ 1.43
Three Months Ended Three Months Ended September 30, 2014 September
30, 2013 Income from Continuing Operations (attributable to
common stockholders) $ 81,558 $ 85,770 Provision for Income Taxes
44,062 14,808 Interest, net 1,265 1,907 Depreciation and
Amortization 44,869 43,385 Other Non-Operating Income (831 )
(38 ) EBITDA/Adjusted EBITDA and Margin 170,923 19.5 %
145,832 18.0 %
TOWERS WATSON & CO.
Condensed Consolidated Statements of Operations (In
Thousands of U.S. Dollars, Except Per Share Data) (Unaudited)
Three Months Ended September 30, 2014 2013 Revenue $
878,107 $ 809,939 Costs of providing services:
Salaries and employee benefits 533,528 500,419 Professional and
subcontracted services 62,205 61,400 Occupancy 36,073 33,545
General and administrative expenses 75,434 68,769 Depreciation and
amortization 44,869 43,385
752,109 707,518 Income from operations
125,998 102,421 Interest income 1,063 529 Interest expense
(2,328 ) (2,436 ) Other non-operating income 831
38 INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 125,564 100,552 Provision for income taxes
44,062 14,808 INCOME FROM
CONTINUING OPERATIONS 81,502 85,744 Income from discontinued
operations, net of tax of $- and $2,551, respectively -
2,444 NET INCOME BEFORE NON-CONTROLLING
INTERESTS 81,502 88,188 Less: Loss attributable to
non-controlling interests (56 ) (26 ) NET
INCOME (attributable to common stockholders) $ 81,558 $
88,214 Basic earnings per share (attributable
to common stockholders): Income from continuing operations $ 1.16 $
1.21 Income from discontinued operations -
0.04 Net income $ 1.16 $ 1.25 Diluted
earnings per share (attributable to common stockholders): Income
from continuing operations $ 1.16 $ 1.21 Income from discontinued
operations - 0.03 Net income $ 1.16
$ 1.24 Weighted average shares of
common stock, basic (000) 70,182 70,801
Weighted average shares of common stock, diluted (000)
70,596 71,046
TOWERS WATSON &
CO. Condensed Consolidated Balance Sheets (In Thousands
of U.S. Dollars, Except Share Data) (Unaudited)
September 30, June 30, 2014 2014
Assets Cash
and cash equivalents $ 543,350 $ 727,849 Fiduciary Assets 15,665
12,010 Short-term investments 130,340 122,761 Receivables from
clients:
Billed, net of allowances of $11,082 and $8,075 464,158 507,213
Unbilled, at estimated net realizable value 326,168
314,020 790,326 821,233 Other current assets
136,268 124,645 Total current assets
1,615,949 1,808,498 Fixed assets, net 373,699 374,444
Deferred income taxes 73,702 79,103 Goodwill 2,240,672 2,313,058
Intangible assets, net 629,026 657,293 Other assets 435,826
395,390
Total Assets $ 5,368,874
$ 5,627,786
Liabilities Accounts payable,
accrued liabilities and deferred income $ 356,071 $ 404,760
Employee-related liabilities 330,234 518,532 Fiduciary liabilities
15,665 12,010 Term loan - current 25,000 25,000 Other current
liabilities 29,940 74,297 Total current
liabilities 756,910 1,034,599 Revolving credit facility
135,000 - Term loan 193,750 200,000 Accrued retirement benefits and
other employee-related liabilities 717,497 768,024 Professional
liability claims reserve 227,591 225,959 Other noncurrent
liabilities 286,637 288,255
Total
Liabilities 2,317,385 2,516,837
Commitments and contingencies
Stockholders'
Equity Class A Common Stock -- $0.01 par value: 300,000,000
shares authorized; 74,552,661 issued, and 70,071,751 and 70,338,891
outstanding 746 746 Additional paid-in capital 1,855,365 1,849,119
Treasury stock, at cost -- 4,480,910 and 4,213,770 shares (321,104
) (286,182 ) Retained earnings 1,793,977 1,722,927 Accumulated
other comprehensive loss (291,425 ) (189,702 )
Total Stockholders' Equity 3,037,559
3,096,908 Non-controlling interest 13,930
14,041
Total Equity 3,051,489
3,110,949
Total Liabilities and Total
Equity $ 5,368,874 $ 5,627,786
TOWERS
WATSON & CO. Condensed Consolidated Statements of Cash
Flows (In Thousands of U.S. Dollars) (Unaudited)
Three Months Ended September 30, 2014 2013
Cash flows used in operating activities: Net income before
non-controlling interests $ 81,502 $ 88,188 Adjustments to
reconcile net income to net cash used in operating activities:
Provision for doubtful receivables from clients 7,994 1,469
Depreciation 27,332 24,492 Amortization of intangible assets 17,537
19,330 Provision for deferred income taxes 25,893 48,796
Stock-based compensation 11,174 6,641 Other, net 975 797 Changes in
operating assets and liabilities Receivables from clients (960 )
40,636 Fiduciary assets (3,655 ) (1,913 ) Other current assets
(24,418 ) (4,264 ) Other noncurrent assets (4,240 ) (567 ) Accounts
payable, accrued liabilities and deferred income (59,649 ) (17,790
) Employee-related liabilities (173,084 ) (233,084 ) Fiduciary
liabilities 3,655 1,913 Accrued retirement benefits and other
employee-related liabilities (65,744 ) (75,548 ) Professional
liability claims reserves 4,995 (4,681 ) Other current liabilities
5,255 1,787 Other noncurrent liabilities (9,299 ) (638 ) Income tax
related accounts (50,445 ) (47,428 ) Cash flows used
in operating activities (205,182 ) (151,864 )
Cash flows (used in) from investing activities: Cash paid for
business acquisitions (1,255 ) - Fixed assets and software for
internal use (15,714 ) (25,760 ) Capitalized software costs (17,900
) (10,408 ) Purchases of held-to-maturity investments (127,431 ) -
Redemptions of held-to-maturity investments 107,330 - Purchases of
available-for-sale securities (11 ) (326 ) Sales and redemptions of
available-for-sale securities 11,721 54,580
Cash flows (used in) from investing activities
(43,260 ) 18,086 Cash flows from financing
activities: Borrowings under credit facility 145,000 30,000
Repayments under credit facility (10,000 ) - Repayments of notes
payable (6,250 ) (6,250 ) Cash paid on retention liabilities (284 )
- Dividends paid (9,723 ) (613 ) Repurchases of common stock
(37,350 ) (80 ) Payroll tax payments on vested shares (10,363 )
(6,965 ) Excess tax benefits 4,229 9,065
Cash flows from financing activities 75,259
25,157 Effect of exchange rates on cash
(11,316 ) 638 Decrease in cash and cash
equivalents (184,499 ) (107,983 ) Cash and cash equivalents
at beginning of period 727,849 532,805
Cash and cash equivalents at end of period $ 543,350
$ 424,822
Towers WatsonInvestor Contact:Aida Sukys, +1
703-258-8033aida.sukys@towerswatson.com
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