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Towers Watson &: Towers Watson Reports Strong First Quarter Earnings

The following excerpt is from the company's SEC filing.

Revenues increased 2% over prior year first quarter (7% constant currency)

Adjusted Diluted EPS of $1.49, increase of 13% over prior year first quarter

Diluted EPS of $1.78, increase of 53% over prior year first quarter

a leading global professional services company, today announced financial results for the first quarter of fiscal year 2016, which ended September 30, 2015.

Total revenues were $896 million for the quarter, an increase of 2% ( 7% constant currency and 6% organic) from $878 million for the first quarter of fiscal 2015. All segments experienced revenue growth this quarter on both a constant currency and organic basis.

Adjusted EBITDA for the first quarter of fiscal 2016 was $183 million, or 20.4% of revenues, versus Adjusted EBITDA of $171 million, or 19.5% of revenues, for the prior-year first quarter.

Net income attributable to controlling interests for the first quarter of fiscal 2016 was $123 million, an increase from $82 million for the prior-year first quarter. For the quarter, diluted earnings per share were $1.78, and adjusted diluted earnings per share were $1.49. Net income attributable to controlling interests and diluted earnings per share for the first quarter of fiscal 2016 include a $55 million gain on the sale of the Human Resources Service Delivery business and $9 million of transaction and integration expenses. The tax rate for the quarter was 33%.

“I’m very pleased with our strong first quarter results and the client focus our associates continue to exhibit while integration planning is well underway,” said John Haley, Towers Watson’s chief executive officer. “This is an exciting time for all of us at Towers Watson. Our business is performing well, and we can all be proud of the organization we’ve built over the last several years. However, it’s even more exciting to envision the value we can bring to our clients, associates and shareholders with the creation of Willis Towers Watson.”

First Quarter Company Highlights

Benefits

For the quarter, the Benefits segment had revenues of $448 million, a decrease of 4% (1% increase constant currency) from $466 million in the prior-year first quarter. Retirement had a low-single digit constant currency revenue decline, primarily due to the expected lower bulk lump sum (BLS) activity in the Americas, as compared to the first quarter of fiscal 2015, partially offset by a low double digit increase in EMEA. Health and Group Benefits had mid-single digit constant currency revenue growth, due to an increase in new plan management clients and product revenue. Technology and Administration Solutions constant currency revenue was flat, due to reduced BLS projects in the Americas Region and offset by increased pension administration and special projects in EMEA. The Benefits segment had a Net Operating Income (“NOI”) margin of 34% in the first quarter of fiscal 2016.

Exchange Solutions

For the quarter, the Exchange Solutions segment had revenues of $118 million, an increase of 37% (37% increase constant currency) from $86 million in the prior-year first quarter. Retiree and Access Exchanges revenue increased by 26%, primarily as a result of a growing membership base. Exchange Other revenues increased by more than 50%, as a result of increased membership in the Actives, project work in Health and Welfare Administration, and approximately $8 million from the Consumer Directed Accounts practice. The Exchange Solutions segment had an NOI margin of 18% in the first quarter of fiscal 2016.

Risk and Financial Services

For the quarter, the Risk and Financial Services segment had revenues of $138 million, a decrease of 7% (1% increase constant currency) from $148 million in the prior-year first quarter. Risk Consulting and Software had a constant currency revenue decline of mid-single digits, primarily due to softness in the Americas. Investment constant currency revenue increased by mid-single digits, with growth in all regions, due to an increase in performance fees, new client relationships, and project work. The Risk and Financial Services segment had an NOI margin of 24% in the first quarter of fiscal 2016.

Talent and Rewards

For the quarter, the Talent and Rewards segment had revenues of $160 million, an increase of 5% (10% increase constant currency) from $153 million in the prior-year first quarter. Executive Compensation constant currency revenues increased by mid-single digits, with growth in all regions, primarily due to work resulting from regulatory changes in Asia. Rewards, Talent and Communication had constant currency revenue growth in the mid-single digits, primarily driven by M&A activity in the Americas and EMEA regions. Data, Surveys and Technology had high-teens constant currency revenue growth, due to increased demand for employee engagement surveys and the early delivery of the annual data surveys which last year were delivered in the second quarter of the fiscal year. The Talent and Rewards segment had an NOI margin of 30% in the first quarter of fiscal 2016. The first half of the fiscal year typically has higher margins due to the seasonality of the business.

Outlook for Fiscal 2016

This guidance excludes any impact of the proposed merger with Willis.

For fiscal year 2016, the company continues to expect mid-single digit constant currency revenue growth and adjusted EBITDA of around 21%.

Conference Call

The company will host a live webcast and conference call to discuss the financial results for the first quarter of fiscal 2016. It will be held on Monday, November 2, 2015, 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 of the call will also be available through November 3, 2015 at 404-537-3406, conference ID 63182009.

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 16,000 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.

Non-U.S. 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) Constant Currency Change, (2) Organic Change, (3) Adjusted EBITDA, (4) Adjusted Diluted Earnings Per Share, (5) Adjusted net income and (6) 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 evaluate our revenue on an as reported, constant currency, and an organic basis. We believe providing constant currency and organic information provides valuable supplemental information regarding...


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