Towers Watson Reports Fourth Quarter Earnings

Towers Watson

, a leading global professional services company, today announced financial results for the fourth quarter of fiscal year 2012, which ended June 30, 2012. Revenues were $826 million for the quarter, a decrease of 3% (flat constant currency) from $851 million for the fourth quarter of fiscal 2011. On an organic basis which excludes the impact of changes in foreign currency exchange rates, acquisitions and divestitures, revenues were flat as compared to the prior-year fourth quarter. For the fiscal year, revenues were $3.42 billion, an increase of 5% from $3.26 billion in fiscal 2011. Adjusted EBITDA for the fourth quarter of fiscal 2012 was $161 million, or 19.5% of revenues, an increase from $159 million, or 18.7% of revenues, for the prior-year fourth quarter. For the fiscal year, Adjusted EBITDA was $674 million or 19.7% of revenues. Adjusted EBITDA excludes transaction and integration expenses, non-cash stock-based compensation arising from the merger and a change in accounting method for pension. Net income attributable to controlling interests for the fourth quarter of fiscal 2012 was $65 million, an increase from $44 million for the prior-year fourth quarter. For the fiscal year, net income attributable to controlling interests was $260 million. For the quarter, diluted earnings per share were $0.91 and adjusted diluted earnings per share were $1.25. Adjusted diluted earnings per share increased 18% from the prior-year fourth quarter. For the fiscal year, diluted earnings per share were $3.59 and adjusted diluted earnings per share were $5.18. Adjusted diluted earnings per share include a normalized income tax rate and exclude transaction and integration costs, non-cash stock-based compensation arising from the merger, amortization of merger accounting intangible assets, a change in accounting method for pension and non-recurring other income. The normalized tax rate for the quarter was 34%. “This concludes a very successful fiscal year overall, with 5% revenue growth and strong profit growth. While the fourth quarter was challenging in terms of revenue performance, I continue to be confident about our long-term growth strategy,” said John Haley, chief executive officer. “There were a couple of factors that contributed to the revenue shortfall: the impacts of our ERP deployment stabilization activities in North America and weaker results from Talent and Rewards, driven by Europe. Otherwise, we continue to see overall positive net momentum in the business. We remain committed to our disciplined management approach, our growth strategies, and most importantly, helping our clients navigate through these uncertain times.” Fourth Quarter Company Highlights Benefits For the quarter, the Benefits segment had revenues of $473 million, a decrease of 2% (1% increase organic) from $483 million in the prior-year fourth quarter. Retirement constant currency revenues were down slightly, driven by the ERP billing transition challenges. Technology and Administration Solutions grew on a constant currency basis in all regions as a result of increased client activity with the EMEA region leading the growth with a constant currency increase of 9% due to new business wins. Health and Group Benefits increased constant currency revenues by mid-single digits. The Benefits segment had a Net Operating Income (“NOI”) margin of 31% in the fourth quarter of fiscal 2012. Risk and Financial Services For the quarter, the Risk and Financial Services (RFS) segment had revenues of $199 million, an increase of 3% (6% organic) from $194 million in the prior-year fourth quarter. Risk Consulting and Software constant currency revenues increased by 5%, driven by software sales and consulting revenues. Brokerage had a mid-single digit constant currency revenue increase, led by growth in the Americas. Brokerage has posted constant currency revenue increases for five consecutive quarters. Investment led constant currency revenue growth for RFS with a double digit increase with growth in all regions. The Risk and Financial Services segment had an NOI margin of 22% in the fourth quarter of fiscal 2012. Talent and Rewards For the quarter, the Talent and Rewards segment had revenues of $130 million, a decrease of 4% (flat organic) from $136 million in the prior-year fourth quarter. Rewards, Talent and Communication grew constant currency revenues by 4%. On a constant currency basis, the Americas had mid-single digit growth, EMEA revenues decreased by 10% due to a drop in our clients' discretionary spend and Asia Pacific increased by 23% driven by project work in China and Southeast Asia. Data, Surveys and Technology constant currency revenues decreased in all regions. Executive Compensation constant currency revenues grew in the high single digits with growth in all regions. The Talent and Rewards segment had an NOI margin of 12% in the fourth quarter of fiscal 2012. The second half of the fiscal year typically has weaker margins due to the seasonality of the business. Exchange Solutions As of May 29, 2012, the company acquired Extend Health, Inc., which operates the largest private Medicare exchange in the United States and created a new reportable segment. Exchange Solutions is led by Bryce Williams, Co-Founder and CEO of Extend Health, and has more than 300 full-time employees and an exchange that currently works with public and private sector clients, including more than 30 Fortune 500 employers and more than 200,000 retirees. For the quarter, the Exchange Solutions segment had revenues of $4 million. Outlook for First Quarter of Fiscal 2013 For the first quarter of fiscal 2013, the company expects to report revenues in the range of $805 million to $825 million, reflecting constant currency revenue growth in the range of 2% to 4%, and adjusted diluted earnings per share in the range of $1.05 to $1.10. This guidance assumes an average exchange rate of 1.55 U.S. dollars to the British Pound and 1.25 U.S. dollars to the Euro.