Towers Watson's CEO Discusses F4Q 2011 Results - Earnings Call Transcript

Towers Watson & Co. (TW)

F4Q 2011 Earnings Call

August 16, 2011 9:00 am ET


Roger F. Millay – Vice President and Chief Financial Officer

John Haley – Chairman and Chief Executive Officer


Paul Ginocchio – Deutsche Bank

Shlomo Rosenbaum – Stifel, Nicolaus & Company

Timothy McHugh – William Blair & Company

Sara Gubins – Bank of America/Merrill Lynch

Jeffrey Volshteyn – JPMorgan

Tobey Sommer – SunTrust Robinson Humphrey

Mark S. Marcon – Robert W. Baird & Co.

Vincent Lin – Goldman Sachs



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Towers Watson & Co. Earnings Conference Call. My name is Kim and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session at the end of today’s conference. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over to your host for today’s conference Mr. Roger Millay, Chief Financial Officer. Please proceed Mr. Millay.

Roger F. Millay

Thank you. Good morning, everyone. This is Roger Millay. Welcome to the Towers Watson earnings call. I’m here today with John Haley, Towers Watson’s Chief Executive Officer.

Please refer to our website for this morning’s press release. Today’s call is being recorded and will be available for replay via telephone for the next week by dialing 617-801-6888; confirmation number, 22481994. The replay will also be available for the next three months on our website.

Our website also contains a few slides that are complementary to today’s call. Those slides include certain reconciliation information required by SEC Regulation G. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including statements, among others, regarding expected financial and operating performance. Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

You are cautioned that these statements may be affected by the important factors set forth in our filings with the Securities and Exchange Commission and in today’s press release and that consequently actual operations and results may differ materially from the results discussed in the forward-looking statements.

The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise, except as required by federal securities laws. After our prepared remarks, we will open the conference call for your questions.

Now, I’ll turn the call over to John Haley.

John Haley

Okay. Thank you, Roger. Good morning and thank you for joining us. Today, we will review our results for the fourth quarter of fiscal 2011 and our guidance for the first quarter of the 2012 fiscal year.

I’m pleased to report that revenues for the quarter were $851 million, an increase of 14% over prior year reported revenues and an increase of 8% on a constant currency basis. Our organic growth rate, which adjusts for changes in foreign currency exchange rates, acquisitions and divestitures, was 6% for the quarter. For the fiscal year, revenues were $3.26 billion.

The fourth quarter marks the end of our first full fiscal year as Towers Watson and we are very pleased with our financial results and our integration progress. We are well positioned to build upon our success from this year and we have a strong platform for long-term profitable growth. In recognition of our strong performance this year, we announced earlier today that the Towers Watson Board has approved a 33% dividend increase for fiscal 2012. We view this as further evidence of the confidence that management and the Board have in Towers Watson and our future.

Turning to segment performance, all of our segments performed well and achieved organic revenue growth. Our segment organic growth this quarter is as follows. Benefits 4%, Risk and Financial Services 1%, and Talent and Rewards 14%.

Our revenue growth reflects wins from both new and existing clients. Clients have responded very positively to the broad array of services and deep expertise we can provide as Towers Watson. Our associates have done an outstanding job of building strong relationships and partnering with our clients to understand their challenges and offer creative solutions.

It’s also important to note that we still have easier prior year comparables due to where we were as Towers Watson at this time last year. The fourth quarter of last year was only our second quarter of operation as Towers Watson.

Our adjusted EBITDA for the quarter was $159 million, up 35% from last year and our adjusted EBITDA margin for the quarter was 19%. For the quarter, diluted earnings per share were $0.59 and adjusted diluted earnings per share were $1.6. Adjusted diluted earnings per share increased 18% over the prior year.

Adjusted diluted earnings per share include a normalized income tax rate and exclude non-recurring other income transaction and integration costs, stock-based compensation costs from restricted shares issued in conjunction with the merger, and the amortization of merger accounting intangible assets. We remain focused on profitable growth and are well positioned to take advantage of market opportunities.

Now, we will review the performance of our segments. For the quarter, the Benefit segment had revenues of $483 million, including the revenues from Aliquant, which we acquired in late December 2010, Benefit segment revenues were up on a constant currency basis. On an organic basis, revenues were up 4%.

Retirement, Technology and Administration Solutions and Health and Group Benefits were all up. Retirement revenues increased 2% on a constant currency basis and revenues increased in all geographic regions. As we previously noted, retirement historically lags behind economic recoveries, so we’re pleased to see this kind of growth.

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