Willis Towers Watson has announced financial results for the third quarter ended September 30, 2021.
“I am proud of the Company’s financial results for the third quarter and year to date. Our third quarter results are highlighted by solid revenue growth, continued margin expansion, and strong adjusted EPS growth,” said John Haley, Willis Towers Watson’s chief executive officer. “During the third quarter, Willis Towers Watson continued to evolve our leadership, structure and portfolio of businesses. We introduced our new Global Leadership Team (GLT) and our grow, simplify, and transform strategy. We have significant core strengths which we believe will help guide our strategy that is designed to generate value for all our stakeholders, external and internal, going forward.”
Third Quarter Company Highlights
All GAAP profitability metrics referenced include the benefit of the $1 billion income receipt that was received as a result of the termination of the proposed Aon transaction during the third quarter of 2021 (see additional disclosures in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021).
Revenue was $1.97 billion for the third quarter of 2021, an increase of 4% (3% increase constant currency and 7% increase organic) as compared to $1.90 billion for the same period in the prior year.
For the nine months ended September 30, 2021, revenue was $6.29 billion, an increase of 6% (3% increase constant currency and 6% increase organic) as compared to $5.95 billion for the same period in the prior year.
Income from operations for the third quarter of 2021 was $1.1 billion, or 57.3% of revenue, an increase from $66 million or 3.5% of revenue in the third quarter of the prior year. Adjusted operating income was $264 million, or 13.4% of revenue, an increase of 120 basis points compared to the third quarter of the prior year. Net income attributable to Willis Towers Watson for the third quarter of 2021 was $903 million, an increase of 646% from $121 million for the prior-year third quarter. For the quarter, diluted earnings per share, which includes discontinued operations, were $6.99 and adjusted diluted earnings per share were $1.73. The U.S. GAAP tax rate for the quarter was 22.5%, and the adjusted income tax rate for the quarter used in calculating adjusted diluted earnings per share was 23.2%.
For the nine months ended September 30, 2021, income from operations was $1.5 billion, or 24.0% of revenue, an increase from $280 million or 4.7% of revenue in the same period in the prior year. Adjusted operating income was $920 million, or 14.6% of revenue, an increase of 210 basis points compared to the same period in the prior year. Net income attributable to Willis Towers Watson for the nine months ended September 30, 2021, was $1.8 billion, an increase of 250% from $520 million for the same period in the prior year. For the nine months ended September 30, 2021, diluted earnings per share, which includes discontinued operations, were $14.00 and adjusted diluted earnings per share were $6.04. For the nine months ended September 30, 2021, the U.S. GAAP tax rate was 19.6%, and the adjusted income tax rate used in calculating adjusted diluted earnings per share was 20.3%.
Net income, which includes discontinued operations, for the third quarter of 2021 was $907 million, or 46.0% of revenue, an increase from net income of $122 million, or 6.4% of revenue for the prior-year third quarter. Adjusted EBITDA for the third quarter of 2021 was $415 million, or 21.0% of revenue, an increase from Adjusted EBITDA of $375 million, or 19.8% of revenue.
Net income, which includes discontinued operations, for the nine months ended September 30, 2021 was $1.8 billion, or 29.1% of revenue, an increase from net income of $537 million or 9.0% of revenue for the same period in the prior year. Adjusted EBITDA for the nine months ended September 30, 2021 was $1.4 billion, or 21.8% of revenue, an increase from Adjusted EBITDA of $1.2 billion, or 19.9% of revenue.
Cash flows from operating activities, which includes discontinued operations, for the nine months ended September 30, 2021 were $1.88 billion, up 56% compared to $1.21 billion for the prior-year. Free cash flow, which includes discontinued operations, for the nine months ended September 30, 2021 was $1.77 billion, up 73% compared to $1.02 billion for the prior-year. The increase in year-over-year free cash flow was primarily due to the termination income receipt, net of increased cash transaction and integration fees of $942 million. This was partially offset by net legal settlement payments of approximately $185 million for the previously-announced Stanford and Willis Towers Watson merger settlements and higher incentive compensation of approximately $189 million. Absent these items, free cash flow would have been $1.20 billion, up 17% versus the prior year. During the nine months ended September 30, 2021, the Company had repurchased 4.5 million shares of Willis Towers Watson stock for $1 billion.
Risks and Uncertainties Related to the COVID-19 Pandemic
The extent to which COVID-19 impacts our business and financial position will depend on future developments which are difficult to predict. These future developments may include the severity and scope of the COVID-19 outbreak, which may unexpectedly change or worsen, and the types and duration of measures imposed by governmental authorities to contain the virus or address its impact. During 2020 and through the first quarter of 2021, the COVID-19 pandemic had a negative impact on revenue growth, particularly in our businesses that are discretionary in nature, but otherwise it generally did not have a material impact on our overall results. We saw an increased demand for these services, which improved revenue growth, in the second and third quarters of 2021. We believe this positive trend could continue for the remainder of the year with some variability based on further disruptions to the supply chain, workforce availability, vaccination rates and further social-distancing orders in jurisdictions where we do business. In light of the effects on our own business operations and those of our clients, suppliers and other third parties with whom we interact, the Company has regularly considered the impact of COVID-19 on our business, taking into account our business resilience and continuity plans, financial modeling and stress testing of liquidity and financial resources. For additional information on the risks posed by COVID-19, see additional disclosures in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.
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