Marsh & McLennan Companies(MMC) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) For the three months ended March 31, 2023, the company reported revenue of $5.924 billion, a 7% increase year-over-year, and net income attributable to the company of $1.235 billion, up from $1.071 billion in the prior year period. Diluted earnings per share increased to $2.47 from $2.10. Total assets grew to $34.358 billion from $33.454 billion at year-end 2022, while total equity increased to $11.196 billion. Net cash used for operations was $819 million Consolidated Statements of Income For the first quarter of 2023, revenue increased by 6.8% to $5.924 billion compared to the same period in 2022. Operating income saw a significant rise of 19.4% to $1.726 billion. Net income attributable to the Company grew by 15.3% to $1.235 billion, resulting in a diluted EPS of $2.47, an 17.6% increase year-over-year Consolidated Statements of Income (Q1 2023 vs Q1 2022) | Metric | 2023 Q1 (In millions) | 2022 Q1 (In millions) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $5,924 | $5,549 | +6.8% | | Operating Income | $1,726 | $1,445 | +19.4% | | Net Income Attributable to the Company | $1,235 | $1,071 | +15.3% | | Diluted EPS | $2.47 | $2.10 | +17.6% | Consolidated Statements of Comprehensive Income Comprehensive income attributable to the Company for the first quarter of 2023 was $1.315 billion, a significant increase from $967 million in the same period of 2022. This was primarily driven by a positive swing in foreign currency translation adjustments, which were a $119 million gain in Q1 2023 compared to a $169 million loss in Q1 2022 Consolidated Comprehensive Income (Q1 2023 vs Q1 2022) | Metric | 2023 Q1 (In millions) | 2022 Q1 (In millions) | | :--- | :--- | :--- | | Net Income | $1,252 | $1,086 | | Foreign Currency Translation Adjustments | $119 | $(169) | | Comprehensive Income Attributable to the Company | $1,315 | $967 | Consolidated Balance Sheets As of March 31, 2023, total assets stood at $34.358 billion, a slight increase from $33.454 billion at the end of 2022. Key assets included $16.3 billion in goodwill and $6.7 billion in net receivables. Total liabilities were primarily composed of $10.841 billion in long-term debt and $7.914 billion in total current liabilities. Total equity increased to $11.196 billion from $10.749 billion at year-end 2022 Key Balance Sheet Items (As of March 31, 2023) | Category | Amount (In millions) | | :--- | :--- | | Assets | | | Cash and cash equivalents | $1,006 | | Goodwill | $16,300 | | Total Assets | $34,358 | | Liabilities & Equity | | | Short-term debt | $2,111 | | Long-term debt | $10,841 | | Total Equity | $11,196 | Consolidated Statements of Cash Flows For the first quarter of 2023, the company experienced a net cash outflow from operations of $819 million, compared to a $702 million outflow in Q1 2022. Net cash provided by financing activities was $773 million, driven by debt issuance and commercial paper proceeds, partially offset by share repurchases and dividend payments. Investing activities used $368 million, primarily for acquisitions and capital expenditures Cash Flow Summary (Q1 2023 vs Q1 2022) | Cash Flow Activity | 2023 Q1 (In millions) | 2022 Q1 (In millions) | | :--- | :--- | :--- | | Net cash used for operations | $(819) | $(702) | | Net cash provided by financing activities | $773 | $855 | | Net cash used for investing activities | $(368) | $(159) | | Decrease in cash and cash equivalents | $(262) | $(142) | Consolidated Statements of Equity Total equity increased to $11.196 billion at the end of Q1 2023 from $10.749 billion at the start of the year. The increase was primarily driven by net income of $1.235 billion and other comprehensive income of $80 million, partially offset by dividends declared of $583 million and treasury share purchases of $300 million - Key drivers of the change in equity during Q1 2023 were net income, dividends, and share repurchases[19] Changes in Total Equity (Q1 2023) | Description | Amount (In millions) | | :--- | :--- | | Balance, beginning of period | $10,749 (Total Equity) | | Net income attributable to the Company | $1,235 | | Other comprehensive income, net of tax | $80 | | Dividends declared | $(583) | | Purchase of treasury shares | $(300) | | Balance, end of period | $11,196 (Total Equity) | Notes to Consolidated Financial Statements The notes provide detailed information on the company's operations, accounting policies, and financial data. Key details include the business structure with two segments: Risk and Insurance Services (Marsh, Guy Carpenter) and Consulting (Mercer, Oliver Wyman). Revenue for Q1 2023 was disaggregated, showing Risk and Insurance Services at $3.906 billion and Consulting at $2.031 billion. The company completed one acquisition in the Consulting segment for $15 million and recorded a $19 million loss on the sale of a business in Canada. A restructuring plan initiated in late 2022 incurred $53 million in costs during the quarter. The company also issued $600 million in new senior notes - The company operates through two main segments: Risk and Insurance Services (RIS) and Consulting. RIS includes Marsh and Guy Carpenter, while Consulting includes Mercer and Oliver Wyman Group[20][21][22] - The effective tax rate for Q1 2023 was 24.7%, up from 23.7% in Q1 2022, partly due to a corporate income tax rate increase in the U.K[33][34] - In Q1 2023, the Consulting segment completed one acquisition (Leapgen LLC) for a total consideration of $15 million[66] - The company recorded a $19 million loss on the sale of a small individual financial advisory business in Canada in Q1 2023[71] - In March 2023, the company issued $600 million of 5.45% senior notes due 2053[122] - Restructuring costs of $53 million were incurred in Q1 2023 as part of a plan initiated in late 2022, which is expected to total $375-$400 million[126][128] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong Q1 2023 results with consolidated revenue of $5.9 billion, up 7% (9% on an underlying basis). Operating income grew 19% to $1.7 billion, and diluted EPS rose 18% to $2.47. The Risk and Insurance Services segment saw 10% revenue growth (11% underlying), while the Consulting segment grew 1% (5% underlying). The company highlighted continued demand for its services, new business growth, and benefits from market pricing. Key capital activities included issuing $600 million in senior notes and repurchasing $300 million of stock. A restructuring plan initiated in late 2022 is ongoing, with expected savings of $280-$310 million by 2024 Q1 2023 Financial Highlights | Metric | Q1 2023 | YoY Change | Underlying Revenue Change | | :--- | :--- | :--- | :--- | | Consolidated Revenue | $5.9B | +7% | +9% | | Operating Income | $1.7B | +19% | N/A | | Diluted EPS | $2.47 | +18% | N/A | | RIS Revenue | $3.9B | +10% | +11% | | Consulting Revenue | $2.0B | +1% | +5% | - The company repurchased 1.8 million shares for $300 million and issued $600 million of 5.45% senior notes due 2053 in Q1 2023[159] - A restructuring plan initiated in Q4 2022 is expected to incur total charges of $375-$400 million and generate estimated savings of $280-$310 million by 2024[177] Consolidated Results of Operations Consolidated revenue for Q1 2023 increased 7% to $5.9 billion, or 9% on an underlying basis, driven by strong performance in the Risk and Insurance Services segment. Operating expenses rose by a modest 2% to $4.2 billion, leading to a 19% increase in operating income to $1.7 billion. The growth in expenses was primarily due to increased headcount and higher travel costs. Diluted EPS increased 18% to $2.47, reflecting higher operating income partially offset by lower investment income and higher interest expense Consolidated Revenue Growth Components (Q1 2023) | Component | Contribution to Growth | | :--- | :--- | | Underlying Revenue | +9% | | Acquisitions | +1% | | Foreign Currency Impact | -3% | | Total GAAP Revenue Growth | +7% | - Consolidated operating expenses increased by 2%, reflecting a 6% rise excluding impacts from foreign currency and acquisitions, primarily due to higher headcount[175][176] Risk and Insurance Services Segment The Risk and Insurance Services segment reported a 10% increase in revenue to $3.9 billion for Q1 2023, with underlying growth of 11%. This performance was driven by strong new business, solid retention, and favorable pricing conditions. Fiduciary interest income significantly contributed, rising to $91 million from $4 million. Operating income for the segment grew to $1.4 billion, with the operating margin expanding to 35.7% from 31.6% in the prior year Risk and Insurance Services Performance (Q1 2023) | Metric | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $3,906M | $3,549M | +10% | | Operating Income | $1,395M | $1,121M | +24.4% | | Operating Margin | 35.7% | 31.6% | +410 bps | - Marsh's revenue grew 8% (9% underlying), with U.S./Canada up 7% and International up 10% on an underlying basis[183] - Guy Carpenter's revenue grew 7% (10% underlying), benefiting from tighter reinsurance market conditions[185][182] Consulting Segment The Consulting segment's revenue increased 1% to $2.0 billion in Q1 2023, with underlying growth of 5%. Mercer's revenue was flat but grew 7% on an underlying basis, driven by strong demand in Career (+12%) and Health (+12%), while Wealth grew a modest 2%. Oliver Wyman Group's revenue grew 3%, but was flat on an underlying basis due to decreased market demand. The segment's operating income rose to $411 million from $392 million, with the margin improving to 20.2% Consulting Segment Performance (Q1 2023) | Metric | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $2,031M | $2,010M | +1% | | Operating Income | $411M | $392M | +4.8% | | Operating Margin | 20.2% | 19.5% | +70 bps | - Mercer's underlying revenue growth was strong in Career (+12%) and Health (+12%), but slower in Wealth (+2%) due to market volatility impacting assets under management[192][193] - Oliver Wyman Group's underlying revenue was flat due to a decrease in overall market demand[195] Liquidity and Capital Resources The company reported a net cash usage of $819 million from operations in Q1 2023. Financing activities provided $773 million, primarily from a $600 million senior note issuance and $594 million in commercial paper proceeds, which were used for purposes including $300 million in share repurchases and $296 million in dividends. Investing activities used $368 million, including a $252 million deposit for the Westpac acquisition. The company maintains a $2.8 billion revolving credit facility, which was undrawn as of March 31, 2023. The share repurchase authorization stands at approximately $4.0 billion - Net cash used for operations was $819 million for Q1 2023, compared to $702 million in Q1 2022[218] - Key financing activities in Q1 2023 included issuing $600 million in senior notes, repurchasing $300 million in stock, and paying $296 million in dividends[231][234][235] - A significant investing cash outflow was a $252 million transfer to a trust account in advance of the Westpac acquisition, which closed on April 1, 2023[242] - The company has a $2.8 billion commercial paper program and a $2.8 billion revolving credit facility, which was undrawn at quarter-end[231][227] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, foreign currency exchange rates, and equity markets. A 10% change in short-term interest rates would impact annual interest income by approximately $32 million. The company's non-U.S. based revenue, which is about 51% of total revenue, is exposed to foreign currency risk. A hypothetical 10% adverse movement in major foreign currencies against the U.S. dollar would decrease full-year net operating income by an estimated $79 million. The company also holds investments in public and private companies subject to equity price risk - A 10% change (36 basis points) in short-term interest rates would impact annual interest income by approximately $32 million[250] - Approximately 51% of total revenue is exposed to foreign exchange fluctuations. A uniform 10% adverse move in major currencies against the USD would reduce annual net operating income by about $79 million[253][254] - The company holds approximately $273 million in equity investments ($16 million with readily determinable fair values, $43 million without, and $214 million accounted for via the equity method) that are subject to market value declines[256] Controls & Procedures Based on their evaluation as of the end of the reporting period, the company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective. There were no material changes to the company's internal control over financial reporting during the last fiscal quarter - The CEO and CFO have concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[258] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[259] PART II. OTHER INFORMATION Legal Proceedings The company is party to various legal and regulatory proceedings. Specific matters are detailed in Note 17 of the financial statements, which is incorporated by reference. These include an anti-trust proceeding in Brazil concerning the aviation insurance sector and various litigations and investigations related to Greensill Capital (UK) Limited - The company is involved in an administrative proceeding by Brazil's anti-trust agency regarding alleged sharing of sensitive information in the aviation insurance sector[140] - The company is involved in several litigations and investigations across multiple countries related to its role as insurance broker for Greensill Capital (UK) Limited[140] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022. Readers are directed to that filing for a comprehensive discussion of risks and uncertainties - The report refers to the risk factors discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, indicating no material changes[262] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2023, the company repurchased 1.8 million shares of its common stock for a total of $300 million. As of March 31, 2023, approximately $4.0 billion remained available for future repurchases under the existing authorization, which has no expiration date Issuer Repurchases of Equity Securities (Q1 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | Jan 2023 | 351,570 | $171.17 | $60.2 | | Feb 2023 | 642,652 | $168.48 | $108.3 | | Mar 2023 | 823,882 | $159.67 | $131.5 | | Total | 1,818,104 | $165.01 | $300.0 | - As of March 31, 2023, the company had approximately $4.0 billion remaining under its share repurchase authorization[264]