Towers Watson's CEO Discusses F4Q12 Results - Earnings Call Transcript

Towers Watson & Co. (TW)

Q4 2012 Earnings Call

August 14, 2012, 09:00 am ET


Aida Sukys - Director, IR

John Haley - CEO

Roger Millay - VP & CFO


Shlomo Rosenbaum - Stifel Nicolaus

Sara Gubins - Bank of America Merrill Lynch

Julio Quinteros - Goldman Sachs

Ashwin Shirvaikar - Citi

Tim McHugh - William Blair & Company

Jeff Volshteyn - JP Morgan

Tobey Sommer - SunTrust

Mark Marcon - Robert W Baird



Good day ladies and gentlemen, and welcome to the fourth quarter 2012 Towers Watson Earnings Conference Call. My name is Jeff and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today Ms. Aida Sukys, Director of Investor Relations. And you have the floor madam.

Aida Sukys

Thank you, Jeff. Good morning. This is Aida Sukys, Director of Investor Relations of Towers Watson. Welcome to the Towers Watson earnings call. I am here today with John Haley, Towers Watson’s Chief Executive Officer and Roger Millay, our Chief Financial 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, 13082830. 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 call may include forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934 that involves risks and uncertainties. A discussion of forward-looking statements and the risk and other factors that may cause actual results or events to differ materially from those contemplated by forward-looking results, investors should review the forward-looking statement section of the earnings press release issued this morning, a copy of which is available on our website at as well as other disclosures under the heading of risk factors and forward-looking statements and our most recent Form 10-K and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of this earnings call.

During the call, we may discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted net income and adjusted earnings per share. For a discussion of these non-GAAP financial measures, as well as a reconciliation of these non-GAAP financial measures to the mostly closely comparable GAAP measures, investors should review the press release and the accompanying financial tables we posted this morning.

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

Thanks Aida. Good morning and thank you for joining us. Today, we’ll review our results for the fourth quarter of fiscal 2012, our guidance for the first quarter of fiscal 2013 and discuss some of the high level expectations for the full fiscal year, for the full-year of fiscal 2013.

Overall, we had a strong fiscal year 2012 with 5% revenue growth and strong profit growth. However, we experienced some challenges this quarter. Despite these challenges, when we step back and look at where we're headed for fiscal year 2013, we see many signs indicating continued growth and strengthening of our business.

Reported revenues for the quarter were $826 million, a decrease of 3% over prior year reported revenues and flat on an organic basis. Our organic growth rate, adjust for changes in foreign currency exchange rates, acquisitions and divestitures.

Our adjusted EBITDA for the quarter was $161 million or 19.5% of revenues, up from $159 million or 18.7% of revenues last year. 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% over the prior year; this increase was due in large part to the benefit we received from the fourth quarter tax rate.

There were a few factors that impacted revenue performance this quarter. Risk and Financial services was very strong overall; we experienced accounting and business impacts from our ERP transition in North America and had weaker results from our Talent and Rewards segment.

As we have discussed overtime, we adjust our discretionary compensation pool based on earnings performance. Giver our revenue and profit shortfall this quarter, funding levels have been adjusted accordingly and Roger will discuss this in more detail a little later in the call.

We continue to be confident in our growth strategies and see great prospects for the future of Towers Watson; although there are challenges in Europe and the slowdown in our clients discretionary spend has impacted our Talent and Rewards business we are pleased with the EMEA results. The economic news from China has been concerning us well, but today, we continue to see positive results from the Asia-Pacific region.

Despite the bump in our U.S. operations this quarter, there are several positive trends we expect to build on in the near future. Healthcare Reform and pension derisking are creating opportunities for our consultants and of course being a market leader of the emerging retiree exchange business puts Towers Watson in a unique position.

I must say I am even more excited about Exchange Solutions today than when the acquisition of Extend Health was announced. I am continuing on the foundation we build and we continue to strengthen for solid long-term growth and profitability.

Now let’s look at the performance of each of our segments. On an organic basis, Risk and Financial services grew six percent, Benefits grew 1% and Talent and Rewards was flat. We saw good growth momentum in many of our lines of business. As a result of the ERP system deployment in the US, we experienced significant billing delays which increased revenue reserves at the segment level as compared to last year.

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