Q4 2019 Earnings Call

Thats within the meaning of the private Securities Reform Act of 1995.

Forward looking statements are subject to risks and uncertainties actual results may differ materially from those discuss today and the company undertakes no obligation to update these statements unless required by law for a more detailed discussion of these and other risk factors investors.

Reviewed the forward looking statements section of the earnings press release issued this morning as well as other disclosures in our recent form 10-K, and other Willis towers Watson STC filings during the call. We may discuss certain non-GAAP financial measures for reconciliations to non-GAAP measures as well as other information.

Regarding these measures please refer to the most recent earnings release and other materials and the Investor Relations section of the company's website I'll now turn the call over to John Haley Willis Towers Watson Chief Executive Officer. Please go ahead.

Thank you very much and good morning, everyone and thank you for joining us on our fourth quarter.

Our earnings call.

With me here today, as well, our Chief financial Officer, and Rich keeper head of Investor Relations.

Today will review our results for the fourth quarter and for the full year ended December 31st 2019.

Then we'll provide a brief commentary on the outlook for 2000.

20.

So as I look back on the last year I think that are results were largely positive. We increased revenue we improved margins that we generated an impressive return for our shareholders that said, we have more work to do to improve free cash flow and we remain focused on executing against.

Our strategy.

So before diving into the fourth quarter results I'd like to take a moment to update you on some exciting activity. That's already occurred this year two weeks ago Willis towers Watson returns at Davos to participate in the World Economic Forum now in our second year as a strategic partner of the World Economic Forum our.

Case convene to address areas of strategic importance to our business, including climate risk of future of work inclusion of diversity and cyber security.

Quite a few members of our delegation led sessions during the week at Davos I took part in sessions that continue the work of the coalition for.

Diamond resilient investment a cooperative initiative, which we introduced last quarter. We also launched a new offering climate quantified.

Which helps organizations to quantify how they will be affected by the climate change trajectory as the effects of mitigation with climate adequate and resilient solutions.

We also co sponsored Bluebird lives. The year ahead Douglas event, where Julie gave our head of human capital and benefits spoke on organizational sustainability, Adam Guerard, our head of corporate risk and broking and our international geography participated in a session on advancing cyber resilience for critical infrastructure.

Okay.

Paul Hess.

The investment risk in reinsurance joined the friends of Ocean actual community session on increasing the role of the ocean to address some of the United Nations Global Sustainable development goals. All told the company had a great lineup of the Vincent speakers across Davos in addition to numerous.

Meetings, we were encouraged by the experience and we're excited to play a proactive role within the global community that is working to build a more cohesive and sustainable future.

Now, let's turn to our fourth quarter 2018 results for the fourth quarter of 2019, we continued to deliver solid financial performance.

With 14% overall constant currency growth, 6% organic revenue growth and 270 basis points of adjusted operating margin expansion.

Likewise, we had revenue and operating margin growth in each of our business segments again this quarter. This marks the sixth consecutive quarter in which we've.

Generated organic revenue growth of 5% or greater along with improved margins.

Our fourth quarter results reflect our efforts to constantly challenge ourselves and to deliver more reported revenue for the fourth quarter was $2.7 billion up 13% as compared to the prior year fourth quarter of 14.

Person on the constant currency basis, and up 6% on an organic basis.

Reported revenue included 22 million of negative currency movement.

Net income was 551 million up 44% for the fourth quarter as compared to 383 million of net income in the prior year fourth quarter.

Adjusted EBITDA was $930 million as compared to the prior year fourth quarter adjusted EBITDA of 774 million, representing a 20% increase for the quarter diluted earnings per share were $4 in 18 cents, an increase of 45% compared the prior year adjusted.

Adjusted earnings per share were $4, a 90 cents.

Reported revenue for the full year 2019 increased 6% as compared to the same period in the prior year increased 9% on a constant currency basis and was up 5% on inorganic basis.

Now, let's look at each of the segments.

In more detail to provide clear comparability with prior periods all commentary regarding the results of our segments will be on an organic basis, unless specifically stated otherwise.

Segment margins are calculated using segment revenues and they exclude unallocated corporate costs, such as amortization of intangibles.

And transaction and integration expenses, resulting from mergers and acquisitions as well as other items, which we consider non core to our operating results. The segment results do include discretionary compensation.

Revenue for human capital and benefits are HCB was up 4% on an organic and constant currency.

Basis compared to the fourth quarter the prior year for the full year of 2019, HCV revenues grew 4% organically.

The health and benefits business grew 10% this quarter new business in product revenue continued to drive revenue expansion in North America, while our increasing market share in global benefit management appointments.

A new local and regional wins contributed to the growth in other geographies health and benefits revenue growth was also aided by the lower revenue comparable in the prior year fourth quarter. The prior year results reflect the impact of adopting the new standard FC six of six which resulted in certain revenue not being recognized.

Tyerman revenue increased 1% this quarter, primarily driven by continued momentum in the steady flow of bulk lump sum activity as the market for pension risk transfer remains attractive to plan sponsors in North America.

Increased demand for consulting and advisory work in North America, and international contributed to revenue growth.

In both talent and rewards and technology and administration solution.

HD. These operating margin improved by 20 basis points compared to the prior year fourth quarter and improved by 130 basis points for the full year.

As a trusted partner to our clients HCB combines data analytics strategic insight.

And brokerage and technology solutions to address our clients most complex workforce and benefits challenges as takeaways from Davos reinforced areas. We had already prioritized re skilling in response to technology advances enhancing diversity and inclusion as part of the sustainability and leveraging AI to enhance the employee.

Experience and improve wellbeing as HCPCS results indicate we believe the segment is well positioned to address these issues and provide solutions to keep pace with our clients evolving needs and therefore continue growing profitability.

Now, let's look at corporate risk in broking, or CRP, which had a revenue increase of 9% and then again.

Yeah, I think in constant currency basis as compared to the prior year fourth quarter for the full year of 2018, CRB revenues grew 6% organically.

North America's revenues grew by 11% in the fourth quarter, primarily as a result of new business and improved retention the international regions revenue.

Climbed 13% as compared to the prior year, there was notably strong performance in construction and natural resources in central and Eastern Europe Middle East Africa.

These results reflect the benefit of some one time non bring placements western Europe contributed 5% growth with the growth driven by strong new.

Business in Iberia.

Rents, Great Britain had 6% revenue growth driven by new business in aerospace in Phoenix.

I will be revenue was $877 million with an operating margin, 30% as compared to a 29% operating margin in the prior year fourth quarter the margin expanded.

Due to topline performance coupled with continued cost management efforts, we're pleased with the CRB topline growth for the year as well as the margin expansion for the quarter and the overall year.

CRB continues to make solid progress toward profitable growth and we feel good about the long term prospects of this business the world Economic Forum global risk.

Report 2019 rank cyber attacks among the top five global risks developing cyber security resilience is critical to support socio economic growth. We believe our CRB business has established itself as one of the world's trusted experts in helping leaders that that the REIT strategies to cover the cyber exposure as.

Cyber attacks continue to rise, we stand ready to help clients defend their innovations and build a more secure digital network world.

Turning to investment risk in reinsurance our IR our revenue for the quarter was 314 million increase of 12% on an organic basis and 14% on a constant.

Currency basis, as compared to the prior year fourth quarter with meaningful growth across our core businesses for the full year of 2019, IR, our revenues grew 7% organically.

Reinsurance with growth of 19% continued to lead the segment through a combination of net new business, along with a strong retention ratio.

Across most lines in regions insurance consulting and technology grew by 10% from technology product sales and growth in project revenue investment revenue increased 9% with continued expansion of the delegated investment services portfolio on organic basis wholesale revenue.

Increased by.

15% driven by growth across the book overall, the wholesale business was up 24%, including the results from Miller's acquisition of Boston Galer, Our management teams in business grew 3% primarily from increased commission revenue.

IRS operating margin grew 700 basis.

As points to 9% in the fourth quarter compared to 2% in the prior year fourth quarter topline growth in greater operating leverage both contributed to the segment's margin improvement overall, we're pleased with the financial results of our businesses.

Revenues for the benefits delivery and administration segment or be da.

Increased by 53% from the prior year fourth quarter on a constant currency basis on an organic basis revenue grew 3% compared to the prior year fourth quarter.

Yes, expand it mid and large market client base and increased project work resulted in this segment's growth we continue to see strong demand for benefits.

Six core service offerings, resulting in several new client wins for the full year of 2019, VVA revenue grew 4% organically BB A's operating margin was 52% compared to 61% in the prior year fourth quarter due to the inclusion of transact in the current year Bdcs operating.

Engine improved from 19% to 24% for the full year Transacts revenue growth exceeded our expectations. We're encouraged by Transacts performance and we continue to be excited about our joint trajectory as this business continues to gain momentum.

So a closing we delivered another solid financial performance for the fourth.

Quarter and for the full year I also want to take a moment to recognize the hard work of our colleagues around the world and extend our appreciation for the work they've done this past year and for their steadfast dedication to providing top notch client service now I'll turn the call over to Mike.

Thanks, John and good morning to everyone. Thanks to all.

All of you for joining us I'd also like to thank our colleagues for all their efforts and our clients for their continued support and trust in us. So now, let's turn to a financial or financial overview.

Let me first discuss income from operations income from operations for the fourth quarter was 687 million or 25.5% of revenue up.

570 basis points from the prior year fourth quarter, a 470 million or 19.8% of revenue.

Adjusted operating income for the fourth quarter was $809 million or 30.1% of revenue up 270 basis points from the prior year of $650 million or 27.4% of revenue.

Income.

From operations for the full year for 2019 was 1.3 billion or 14.7% of revenue up 520 basis points over the prior year of 809 million or 9.5% of revenue.

Operating income for the full year of 2019 was 1.8 billion or 20.3% of revenue.

And up 220 basis points from the prior year 1.5 billion or 18.1% of revenue. It should be noted that 30 basis points of our margin improvement in fiscal year 2019 was driven by transact related to the timing of the purchase.

Now, let me turn to EPS earnings per share for the fourth quarters of 2019 in 2000.

18, our diluted EPS was $4 in 18 cents at $2.89 respectively.

For the fourth quarter of 2019, our adjusted EPS was up 23% to $4, a 90 cents per share as compared to $4 per share in the prior year fourth quarter.

For the full years 2019, and 2018 diluted EPS was $8 in.

Two cents and $5 in 27 cents respectively.

For the full year 2019, adjusted EPS was up 13% the $10 a 96% for share versus $9 in 73 cents per share in the prior year.

Foreign currency caused a decrease in our consolidated revenue of $22 million for the quarter compared to the prior year fourth quarter was.

The five cents headwind to adjusted diluted earnings per share this quarter foreign currency caused a decrease in our consolidated revenue of $192 million for the full year 2019 as compared to the prior year with a 16 cents headwind to adjusted diluted earnings per share overall for the year.

Moving to taxes I'd like to provide you with some additional insight into our us.

GAAP and adjusted tax rates.

Our us GAAP tax rate for the fourth quarter was 18.3% as compared to 19.7% for the prior year fourth quarter.

Adjusted tax rate for the fourth quarter was 19.4% a decrease from 20.4% rate in the prior year fourth quarter, our adjusted tax rate for the fourth quarter is lower than the prior year due to.

In time discrete tax benefits.

Full year, the U.S. GAAP tax rate was 18.8% for 2019 as compared to 16% for the prior year, while the adjusted tax rate was 20.3% compared to 19.5% for the prior year, excluding discrete items, our adjusted tax rate for the full year was approximately 21% will.

Give forward guidance around our tax rate, we do not project discreet items, which can be positive and or negative.

Moving to the balance sheet, we continue to have a strong financial position as a reminder, and the first quarter, we implemented a new lease accounting standard. This result had no material impact to our operating income, but did result, an increase in liabilities on our balance sheet.

Which largely offset by a corresponding increase in assets. The gross up totaled approximately 1.5 billion.

Our balance sheet position continues to strengthen during the year, we successfully issued a 1 billion and senior notes offering to help with the efficiency of our capital structure and provide additional financial flexibility.

Total debt at the end of 2019 was five point.

6 billion compared with $5.9 billion at the end of the third quarter.

Our term loan commitment, resulting from transact acquisition had a $295 million balance as of the end of year down from 463 million as of the third quarter and we had no borrowings at year end under our revolving credit facility. Our next debt maturities. Due date is July 2020.

Lastly, full year free cash flow was 835 million a decrease of 185 million compared to the prior year of 1 billion 20.

Year over year decline of free cash flow is primarily due to higher cash tax payments of 130 million.

Resulting from the us in global tax reform.

On favorable working capital changes, particularly in.

Accounts receivable and negative cash negative cash flows of transact.

In terms of capital allocation flow full year of 2019, we repurchased approximately 150 million and Willis towers Watson stock and paid approximately $329 million dividends.

We remain committed to deleveraging in the near term returning our leverage ratio.

Joe to historic levels, improving our free cash flow position.

Now let me summarize last year's performance, let's look ahead to our guidance for fiscal year 2020.

Turning to revenue for the company, we expect organic revenue growth of around 4% to 5% and 6% to 7% on an overall constant currency basis for 2020.

Our non cash pension income, which is classified within other income net line is expected to improved by approximately $50 million due primarily to improve returns on plan assets.

Pertaining to tax we expect our adjusted effective tax rate to be around 20% for fiscal year 2020, excluding any potential discreet items.

Annual guidance assumes.

Average currency rates of $1.31 to the pound and $1.11 to the euro assuming exchange rates remain at current levels, we expect FX to be a headwind to adjusted EPS by 2020 by approximately 10 cents per share and we expect most of this impact in the first quarter.

Adjusted diluted earnings per share as projected be in line with a range of 11.

$1.80.

To $12.10. This guidance includes the impact from expected headwind headwind items to adjusted diluted earnings per share such as the currency of 10 cents.

Finally, we expect free cash flow to be around 1 billion, which assumes the Stanford settlement will no longer be subject to further appeal and we will make approximately $120 million.

Payment in 2020.

In summary, we've seen good acceleration on revenue growth and positive operating leverage this quarter I'm pleased with the results and the continued momentum of our businesses. There is still a lot of opportunity ahead of us and we remain focused on executing on our strategy. So before I turn the call back to John I do want to mentioned this year.

We'll be hosting an investor day in Washington, DC on March 20-F, and we look forward to seeing you. There. So now I'll turn the call back over few John.

Okay, Thanks, like and with that I'd like to open the call for questions.

As a reminder to ask a question you'll need to press star one on your tell.

So what the CCI your question I found Keith please standby, while we compile the culinary roster.

And our first question comes from the line should LMA from Rosenbaum from Stifel. Your line is now open.

Hi, Good morning, Thank you very much for taking my questions.

Hey, Mike you guys are doing.

Such a good job in improving the organic growth rate of the various businesses.

But the free cash flow is just really a sore point in could you just comment and what is exactly the issue and.

How should we be thinking about dead, what's where were you falling so far behind and how should we think about dead for.

For 2020, what changes are happening that are going to.

Kind of impacted the company a lot more than what we've seen in over the last year.

Sure. Thanks for the question Shlomo I guess first is obviously.

To your point, we're we're working very hard on it we're not pleased with the outcome in terms of where we landed for the current year, but here's what we're doing.

What about it.

One is that we have tide variable compensation to the top 500 people in the company.

To the established goals that we have and that has been implement.

Equally thats true for the operating committee of the of the organization.

Additionally, we are.

During the process of implementing a contract management and cash management system to manage contract terms more directly and consistently and we have established a contracted cash task force with individuals that are 100% dedicated to focus on improved and sustainable performance in the area. So we're very focused on it I guess.

As a bottom line.

And is there any like one specific thing is it a matter of just take.

Communication with the customers is it.

In other words is or few items that you can point to that are saying Hey. This is just where things are not getting done.

I would tell you we look at the higher the entirety of a process Shlomo.

And from top to bottom so.

Area, we can see that theres areas for improvement obviously, we've we've made some progress but we will look at it is the totality of the process itself and are not leaving any stones unturned in terms of going after it.

Okay, Great and then he John can you talk a little bit more about what's going on with.

You said that it had better revenue growth and expected can you just give us a little more commentary about what you expect from this company over the next year end.

The general trends that you're seeing in that business.

Yes, so I think.

Look just Shlomo we.

When we bought transact at we expect that this to be.

For the short to medium term relatively high growth business and.

We had a business case, I think where it was going to grow in excess of 20%. That's the basis, we did the deal on it we thought.

There was even a possibility that revenue growth could get to 30% or even 35% in the first year, we actually passed surpassed all those we grew by over 50%.

And.

It has been.

Our transit transact colleagues have just done a terrific job of.

Yes.

Gearing up and taking all these all this additional revenue.

Our Medicare advantage grew by about 94%, so very very good growth there and what's probably the most important part of that market.

We expect that.

We.

Still have this expectation that we're going to continue to see this be a high growth.

Business.

For the short to medium term and.

Even though we have.

A pretty tough comparable in a base. We're building on we're still expecting to see over 20% growth for the next.

Several years.

Okay, great Okay as one more housekeeping.

Mike what does the currency impact in a dollar basis expected in 2020 noted like 10 cents on the EPA spoke to look at it on revenue is there is there are number you guys have embedded in the guidance.

It's very nominal Shlomo.

It's it's this is really on expenses I mean, it's really is small on revenue.

Okay, great. Thank you.

From.

Thank you Sir our next question comes from the line of Greg Peters from Raymond James Your line is now thanks.

Good morning, Thank you for taking my questions.

First off on organic.

Yes for the fourth quarter, you you posted some pretty impressive results, especially in CRP.

And I know Youve provided guidance for next year around organic.

Is there anything unusual to what happened in the fourth quarter or any any specific items you can call out to help us.

Sense of why it was so strong.

I think our.

Folks.

Really worked hard with clients and delivered in the in the fourth quarter I did call out.

We had some.

We had some onetime projects in construction.

And then natural resources, which were which were a big helped to that and.

Thats, that's actually the nature of construction and natural resources projects tend to be more episodic than in some of the others. So we had a couple of those but.

Frankly, Greg when you look at it.

Our growth was really.

I'd much across the board it wasn't like we just had one area that was way ahead of all the others. They all performed.

I think at the top of what we might have expected.

Yes.

Connectivity to the guidance on the operating margin.

For fiscal year 2020.

You're guiding to him.

Operating margin around 20 point fives, and I think that's just a 20 basis point improvement over 2019.

Seems like there's better opportunities, especially with the growth to your you're posting can you walk us through why you're not anticipating better margin expansion.

Sure.

So as I said in my prepared remarks, when you look at transact.

For fiscal year, 19 isn't really had about a 30 basis points improvement.

So and we had originally targeted being around.

20% and so when when you normalize that gets you more like 20.

Percent and then if you looked at 20.5, and we've talked about 50 to 70 basis points on an annual basis in terms of what that improvement would look like that's really what we're targeting on a normalized basis in terms of thinking about it.

Got it that makes sense.

And then.

Can we pivot to BD X transact because it looks like.

The business slowed down maybe the legacy exchanges business or or can you give some color there.

Yes, I mean I think.

You know BTA is one that we've been talking about.

For a while now that with the with the tremendous success, we've had penetrating that market.

But over the years.

There's there's still opportunities left but the opportunities tend to be more a few mega opportunities that are episodic now and so.

We're not surprised.

The sales cycle on these large.

Ones take some time.

And.

We're continuing to work on them. So we'll see some years, where we have a big jump up but I don't think you're going to see the steady growth because you don't have the same pipeline of clients. There. It's one of the reasons why we're really focused now on.

Our technology and operations to make sure we maintain our market leadership as the go to market.

Good place for the retiree medical.

Got it listen I realize you're not going to.

Makes some announcement regarding management on this conference call, but it feels like when we get to the end of this year.

Going to be retirements and can you give us an idea of when you expect the board and the company to announced.

When they are.

Who is the next lineup of.

Executives are going to be running some of the businesses.

Sure so.

Look as.

You're right, we're not in a position to provide any real details right now, but let me tell you. This the Willis towers Watson board of directors.

Of course, they are the ones who lead the succession process for the role of CEO and the board acting through the governance Committee is actively engaged in the whole succession planning process and this isn't something that is.

As happened this year last year, even just the year before this has been a multi year.

Thinking about what.

Our talent is and how we bring them along and how we develop them and so the board and the governance committee have been.

Regularly involved in that they meet with the they meet with me and our head of human resources on a regular basis, we've engaged a third.

Party to make sure we have an outside look at the experience and attributes of our candidates.

Our expectation is that we will mean, a new CEO in the second half of this year. So we're going to make sure we have enough time to allow an orderly transition.

But other than that.

It's pretty much all I can say at the moment.

Great. Thanks for answers John.

Yes.

Thank you. Our next question comes from the line of lease Grant Greenspan from Wells Fargo. Your line is now fan.

Hello.

Finally in these greenspan from Wells Fargo. Your line is now open please check your mute button.

Yes.

We're hearing anything could we maybe.

Good morning come back to at least a little bit.

Thank you. Our next question comes from the line of Mark Mark Khan from Baird. Your line is now fan.

Good morning, and thanks for taking my questions.

First on CRB within North America really good performance.

Dana bullish.

And what are the specific areas of strength and to what extent.

As how big the cyber opportunity be.

Yes, So let me just and microwave may want to weigh in on this I mean look the CRB and North America grew I think it was 11% in the fourth quarter.

Further.

<unk> percent, so real big number.

But they have they had very good growth even throughout the year not as high as 11%, but still very good growth throughout the year I think when you talk to folks in the industry generally the middle market in particular in North America is one that people are focused on.

And it's one of our relative strength. So we feel pretty good about that I mean, I know when we talked about our projections for this year.

There was some question of was our revenue growth projections were modest in what we said was we prefer to budget on a more modest basis, but we thought we would make sure we grew as fast as the.

Market or faster and I think we've delivered on that and that's pretty much the expectation I think we have going forward.

I think cyber is something where there is fantastic opportunity long run I think.

Thats going to require the market developing the right kind.

The policies and the right kind of.

Solutions for clients I don't think I don't think the market is there yet, but I think we're moving towards that and as we do it will be a tremendous opportunity.

Great and then.

When we take a look at the at the overall guidance for.

For 2020 in terms of 4% to 5% organic growth you mentioned transact should continue to grow at least 20% plus.

Year over year, so that'll drive.

You know that segment for the other segments or we.

Taking the same sort of general stance in terms of generally assuming for.

5% growth for each of those and then we'll walk.

Rosone or how should we think about.

No. We look we obviously, we don't we don't disclose of the old we don't get into all the details of how we do it but mark when we build our overall growth for the company we do it.

Segment by segment almost line of business by line of business. So we go through and we do say for example, I mean.

Just as we clear thick CRB is going to grow faster than retirement.

We just pretty much know that so we build the models that way but.

And then we just give a revenue growth for the company.

Terrific and then a question for Mike just on the free cash flow can you do the aggregate.

Correct.

Of transact relative to the Dsos and what the major.

Source of improvement for for next year is going to be in terms of.

Whether its.

Normalizing.

The goal for Dsos.

Yes, so mark as it relates to transact I mean, we look to transact and we originally the diligence and understood transact.

With the revenue growth rates that was having we knew where there'll be some level of.

Cash.

Implications to it or drag if you will was viewed minor.

But given the growth rates that we had turned a bit more significant because of the build the what we had to do for across the board and licensed agents investments et cetera, and make sure that we could satisfy that what we saw as the market demand in our team there I think that a wonderful job.

And making sure that they were well positioned to be able to take advantage of the that growth.

So I think thats the one issue as it relates to transact I think as it relates to our receivables. We just saw build a bit more and as I said earlier I was really looking at the from contracting and how we set up the.

So ultimately how we collect that cash so contract to cash from a process standpoint, we're very focused on it. So we did see that receivables build.

And so we're very focused on improving that going forward.

So hopefully that gives us some further insight and maybe I could just mentioned.

Mark.

When you when we think about this we had the.

We had transact and as Mike said will be first state. It we had that we had to deal costs for transact and we knew we would have some sort of impact.

Just from a financing the growth there.

And we thought.

Well, we're not going to bother updating our forecast for that it turns out to growth was bigger than we expected and it became a more sizable number as a result to that I think fee. The tax payments were a surprise to us the cash tax payments being higher than what we had projected and thats one of the things that I think.

He has done a good job of putting in a much better forecasting system for this coming year, so that we won't have.

Those kind of surprises but that.

A better forecasting system, which we need it because clearly we missed some things and then also.

We we were focused on improving our cash collection.

What we were focused on improving it without having the right kind of incentives built in to our whole compensation system and the fact that we're now building. These right kind of incentives and I think some very significant incentives into improving our cash collection gives us a lot more confidence going into this year.

Thank you very much I appreciate the.

The long term up with the CEO.

Planning, it's always worked thanks.

Thanks.

Thank you Sir our next question comes from the line offend neat come on from Citi. Your line is now fan.

Thanks, just wanted to.

Go back to the free cash flow for a second just I.

I think last quarter, you guys are pretty optimistic about the 1.1 to 1.2 and.

Obviously, if you said came in below that so and maybe you just answered but I just wanted to clarify what was the prize was it the cash taxes or was it transact.

Something happened just.

We ended the year and I just want to make sure.

Im clear on what that was.

Yes, I mean, I think we actually lowered our.

Cash forecast last year from the 1.1 to 1.2 down to what 900 to 1.1, we had said it would be so we.

Excuse me.

We kept that we stated will go into one point, okay. What we were happy we're concerned about where it would come I guess anyway, but.

But look we had they transact was bigger than we thought we had the.

We had the cash taxes and the cash taxes were about one.

Hundred $30 million higher and so we we knew that was going to be weighing on us to begin with.

And then we had the.

The decline in the receivables, though was something that.

We did not expect that was something that was a surprise to us and I would only at your.

As John I mean, we always know the fourth quarter is an outsize quarter for us just in terms of timing. So when we sat there at the end of the third quarter, we knew exactly where we had stood we knew what we had done in the prior year fourth quarter.

These couple of points of John just raised influenced it but frankly, we were worried about working capital build.

Okay and Thats why we took the guidance down at the end of the third quarter. In fact, that's what we saw actually really build and receivables and so thats really the one of the improvements that we're looking at is really driving that improvement in working capital obviously, the drivers coming back to free cash flow.

We've seen some reduction on Capex, we obviously know operating incomes a big.

Driver of it and obviously working capital and that's that's the area that from a process standpoint again go back to from contracting to make sure. We have looking at our terms at the beginning took the ultimate cash collection process is really where we're going and as John referenced I would not underestimate what this means going forward in terms the incentives we put in place.

Our.

Putting in place and have.

Throughout the organization yes.

Makes sense I guess, if we look at 2020 your cash flow guidance would imply something like.

Hi, teens growth and free cash flow or are you still guiding to kind of longer term that.

Great to be around 15%.

What we're sort of laser focused on what we're going to do for next year right now, but I would say if you if you look at us where we're growing.

Our guidance of the billion dollars is.

After we anticipate paying the Stanford settlement too so it's closer to a 30% to 35% growth.

Free cash flow.

Got it and then just lastly on the capital management or capital return outlook for 2020, I'm, assuming you're going to continue to target double digit growth and dividends, but any color on terms of what you're expecting for share repurchases.

Yes, So you know as you know given the.

And to transact last year, we really had nominal share repurchases, which we're really just to manage.

We weren't dilutive as it relates to our employee benefit programs and we would anticipate doing that again as we think about 20.

Additionally, when you look at our dividend payments.

Hi, there.

Our 350 $370 million kind of range that are there and then equally then you got to look at I'd say, we've committed to paying our debt down or related to transact as I referenced if we've got our current debt to EBITDA ratio is were more in the 2.4 range and we're looking to get closer to 2.0, so that we're really be where we're looking to.

Deploy capital at least as we look at 2020.

Okay. Thanks.

Thank you Sir our next question comes from the line of the lease Greenspan from Wells Fargo. Your line is now fan.

Thank you good morning.

My first question going back to the margin just.

Question on I understand you wanted to earlier questions you pointed to kind of neutralizing for transact right and then still being within that 50% to 70% target, but I guess I'm, we're thinking about.

Segments, and just conceptually maybe you don't want to guide to a certain level, but I thought the goal is to look to impose CRB.

He I know, there's delta between where you guys are and where some of your peers are running in their brokerage business. So does like does this operating margin guide I assume that there's going to be underlying margin improvement in CRB and perhaps also and I are PCB and it just offset by kind of the accounting impact.

One that transact deal comes on.

Well I mean, I think so Elise just just like we do the revenue growth in response to Mark Marcon. His question I was saying, we we project our revenue growth. The line of business by line of business and then build that up to the company here and the revenue growth.

Not the same across all of them we project our margin.

Line of business by line of business and certainly we see more opportunities for margin improvement in.

CRB well were trailing some of our peers in terms, what we have been say retirement, where we're ahead of our peers. So those are.

Acted in our projections, yes.

Okay, Great and then on what should we think about free cash flow on for 2020 on.

I guess kind of understand the seasonality I'm not sure. If you guys have a sense the timing of the Stanford litigation and I know typically cash flow is.

In the first quarter.

And then also.

Is there any seasonality that guide and then another part of that question with the does the 2020 free cash flow guide implies that I'm pretty sure Transactis negative free cash flow perspective does it take that drag into account.

It does take to transact drag into account so start.

With that.

I think Stanford it seems like it's at a place where we should be able to pay up but we've we've thought for a couple of years now we would be able to pay it in the court system drags things on longer than we had thought.

We don't have a particular time when we're estimating it during the year, but we will alert you when.

Weve when we've made the payment.

And then clearly that there's a lot of seasonality.

Our cash flow is.

Highly skewed towards the.

Second half of the year, we have a tax payments tend to come in the.

First quarter, we have our bonus payments so in a first or second quarter and so.

We have a lot of cash strain in the beginning of the year.

Okay. That's helpful and my last question is on leverage on you guys have obviously been mounting debt managing down your leverage you close the transact.

And on does.

I, just kind of want to get a sense at the interest expense expected with the guy Dizzy you're going to pay down more of your leverage.

As we as we move to the 2020.

Yes, So Lisa game plan is to do that and you know.

We're looking to.

Do that.

Part of our capital deployment. So you should continue to see and has use as you've seen us do from a third quarter. The fourth quarter in terms of that reduction youre going to continue to see that over the first half of 2020 in terms of us really addressing that that outstanding balance, which will obviously have the corollary effect to interest.

Yes.

Okay. Thank you.

Thank you Sir our next question comes from the line of year on cannot from Goldman Sachs airline has now been.

Good morning couple more on free cash flow.

First the transact.

Considering that it is.

The.

Yes.

Well of startup mode, so growing very rapidly.

How long do you see that as being a cash drag for for the business.

I mean, who we can we continue to see as with those kinds of growth rates that are there you're on which we projected out over.

The.

Next four to five years.

We're continuing to just to see that but we really look from a cat from a cash standpoint, when we see at about a year out in terms of so the growth rates, we see over the five years were related to cash side of that equation really starting to go only a year or so.

In terms of its drag on cash.

Okay.

And then on the Dsos side, and maybe talking back from seasonality question earlier, I would think that a lot of the contract get renewed at the very end of the year or the very beginning of the year. So I would think that allowed the contract changes in language with regards to do so would be in place by the first quarter.

Of 2020.

And variable comp.

Adjustment that you've made is also probably in place already should there be a little bit of an offset to the regular seasonality just by lift from deals. So the first quarter.

Yes, I mean, we got a lot of factors.

In that first.

Quarter.

As you rightly said in I mean, we're we were attacking the contractual terms that we have to be in place. We're lining up from a variable compensation standpoint, but we also the bonus payments we have tax payments in the in those amounts that come in there and candidly we're looking to make sure. We meet what we're saying we put out there in terms expectations around so.

That's the that's a game plan I understand with a logic, where you're gone, but we feel we see the first half the year being more of a use of cash and really see it and if you look back historically in the company you really see a build over the second half the year with the fourth quarter being outsized in terms of cash coming in and I would just point out that the changes to the variable compensation plan.

Sure are I mean, we've discussed with the with the board and the comp committee they won't be formally put in place until the end of this month at our board meeting but.

We've discussed making these changes with them. So we'll have those in there.

But they weren't in last year and so.

It will we'll see the impact from them in this year, but but.

I would hesitate to ascribe any change any effect to them for last year.

Okay.

And then my other question is just going to be HCV margins I think if we adjust out the discounting catch up the success six margins actually.

Declined by about 50 basis points year over year this quarter.

It is my math, roughly right and B if it is.

What caused that decline considering that organic growth was actually up.

Yes, I mean your calculation here your math calculation seems maybe a little high just in terms of.

How you calculate it weve, okay, we didn't have it and I'm quite quite that way.

So it may be a flat to slight decline really as kind of how we've looked at it you're on so that would be our our thoughts in terms of the numbers just to give you that feedback.

And what would have caused that decline.

Well there is a bit of.

A portfolio shift to retirement is.

Which is the most profitable is growing slower than some of the others.

Okay. Thank you.

Thank you. Our next question comes from the line of Mark Hughes from Suntrust. Your line is now fan.

Yes. Thank you good morning.

Hence within any change in Youre right off of a receivables any change in bed that trends.

No.

Actually we've been going after that.

So it hasn't been if anything we've been really making progress on collecting some of some of the older stuff that we've had.

In terms of.

Dealing with it so no no change in policy now accounting change nothing that that way.

It's fair to think that the faster organic growth.

In the cash drag, it's just really two sides of the same Corey mature.

Or receivables in the business because you're growing the top line faster is that makes us.

Yes, I mean, you look at it on a year over year basis, you know I mean, you know the beginning of December 2018, and how rolled into January 19 in comparison to this December of 19, how rolls into 20, there's definitely some element of that it's always difficult.

Difficult to absolutely.

Hi, it but.

I think to your point, yes, I think that Theres some portion of that.

And then finally I are are you really had the acceleration this quarter, especially thinking relative to Q3.

How much of that.

Carries over into 2020.

Yes, theres definitely multiyear arrangements.

That are included in there and there is definitely an impact.

That's that's there.

But the other thing I guess I'd just point out our reinsurance business in particular was very strong as well as our investment business.

As Weve John commented in his opening comments there.

I mean.

Overall, so yes, there is some some impact to that yes, but let me I think if you think back to a year or two ago, when particularly insurance consulting and technology investments were slower growing and we said we thought.

We like the future outlook for them and I think we're seeing that come out.

Come to fruition.

Mission. This year, so we liked where their position to 2019, we feel good about them going forward I'm not sure theyre going to grow as fast as they did in the fourth quarter of 2019, but we like our positioning and we like our growth prospects there and I think we feel the same way about reinsurance look the whole the whole reinsurance market was very positive very strong in the fourth quarter.

We think we grow as fast as anybody else or faster and so we feel good about that and we think will perform well against the market in the future.

Thank you.

Thank you. Our next question comes from the line of Meyer Shields from KBW. Your line is now fan.

Great. Thanks.

I was hoping for.

With.

Maybe guidance on how much margin headwind you expect in 2020 from the inclusion of transact.

I guess earlier quarters.

So we think thats probably.

About.

What 1% or something like that.

Okay.

Yes, so yeah yeah.

1%, 1%.

So what percent margin rate.

Yes, yes, yes, just a reminder back you remember we acquired transact in July of.

2019, right and you go back from that acquisition you had five months of revenue and five months of expense, obviously, we're going to have it for a full year as we look into 2020.

Right right now I understand that picking that that's actually very good news because there is lot better underlying margin expansion.

Can you give a sense.

In terms of the the nonrecurring.

In the fourth quarter just magnitude.

Hi, yes.

Yeah, we really matter, we're not really don't disclose individual.

Deals or the you know those those particular aspects to it and they the problem with.

With doing that too is.

There when there's a couple of notable ones. We note that we sail those are big ones, but there might be a lot of other smaller ones and we just don't have a system for aggregating.

No that make thats alright, thanks, so much.

Thanks.

Thank you.

Next question comes from the.

Mike Zarinsky from credit Suisse airline has now been.

Hey, good morning to.

I guess starting with.

A question on free cash flow, our our pension cash contributions or maybe capex are those slight year over year.

Your headwinds.

No no we don't see it that way as we as we look at next year, we don't see that Mike now, we see in a reasonable level, saying, yes, saying now.

Okay, and if I just think about.

The organic growth.

Growth.

Look.

What do you kind of categorize organic growth this is kind of being as more of a.

Tailwind in recent quarters and kind of going into 2020 and it also both remind us will what transacts or.

Gross eventually.

Moving to the calculation in the back half of 20.

Yes, so starting with your last question first yes, transact I mean, Susan as we get to same store sales and we will included in there from an organic growth standpoint.

In terms of your question about Tailwinds.

On organic growth.

On certain of our business. We if you looked at we've seen some pricing. So we have you looked back to our marketplace realities report that we put out.

Most recent one in November and December 2019.

Please continue to see price in the marketplace continues to to be a tailwind, but but.

Equally obviously, we got to do the right thing for our customers and clients and and thinking through that but we have seen some pricing tailwind come through that and if you look at our organic growth rates.

We've been right at the market as we look at our peers in terms of what we've been growing at so when we put out there for our organic growth rate for.

The current year, we had 4% to 5% and we build our budgets and we've been pretty consistent around it looking at 4% in terms of how we're more skewed that way in terms of how we think about it but we're being realistic and recognizing the tailwinds that we see out there. So thats why we went with four and 5%.

And the only other thing I'd add to that is that.

Pricing is only one part of the equation for us in the revenue because as prices go up people buy less of it and so it's the net that is what we're trying to sell for.

And I guess, just lastly to follow up to that end can you remind us what roughly if you're on the insurance side of the business.

Breakdown of.

Commission versus see thanks.

Yeah, Mike can we really haven't disclosed that so I appreciate the question, but we hit really haven't given that that information.

Thank you.

Our next question comes from the line upon new some from Piper Sandler Your line is now fan.

Good morning, just one.

The question less.

The does the cash flow.

Change that we had.

19, and I guess plus here in 2020.

Does that have an impact on the speed, which you're going to be deleveraging.

The.

Over the course this year.

Yes, I mean, what in the sense that we kind of know where the the patterns have been I would guess, we said a couple of FFO responding to a couple of earlier questions.

In that we obviously pay bonuses cash bonuses.

At the end of the first quarter, we have tax payments, we have some real outflows of cash, but then we start to see a build through the rest of the year and and intent is obviously to really deal with that.

That term loan that's out.

There are over the first half of the earbuds by the end of it by the end of this second quarter.

Okay. So the intermodal should be done by the end of this.

Hopefully by the.

I think it's a one year term loan so [laughter].

Got it appreciate it thank you very much from.

Thank you. Our next question comes from the line of brine narrative from you'd be yes.

Your line is now fan.

Thanks, I just have one or two quick ones you're left.

One just curious if I look at.

The transact margins you just the impact on margins overall, if I kind of looking on a pro forma basis is transact.

I mean, you have it.

Full year 2020, and it was full year 2019 is it accretive to the BD margins and overall company margins or is it some kind of dilutive or in line.

I understand that the pressure just from a timing perspective, how it's going to her 2020.

Yeah. So we look at a full year it.

It will be accretive overall again, just going back when you when you look at and we talked about this in terms of where the margins ended up in the fourth quarter were actually down for VVA overall and that being down was.

Although transact is very good margins and we're very pleased with their margins that you only have five.

Most of expenses and five months of revenue that was included in there and so you the margin was a bit higher and weve normalize that as we think about fiscal year 20, but as to your first question is absolutely accretive and and very excited about what that growth and what we're going to see right, but accretive but lower percentage margin margins. So.

The transact margins when we bring transact in it adds to the dollars of earnings we have but it's a lower percentage.

So to lower lower operating margin percentage I Gotcha exactly yes got you and I was wondering if theres any difference like seasonality of transact versus the rest of Europe.

Business.

[music].

No what what what that difference compared to our regular exchange business I regular exchange business is a little less seasonal than transact, but not nothing ones worlds apart. Okay. Thats helpful. Lastly, just want to follow Mike's question just wanted to confirm.

With that in your guidance you have nothing assume for kind of improving organic revenue growth on on.

Our business or the.

CB.

Brokerage business CRP business for pricing in the commercial lines marketplace.

Oh, yes, we do it.

Do have so again, there yeah, yeah, and how much roughly and is consistent with wins as we don't so that's what we're saying well two things by line of business segments.

And that's how we build it up but that's not how we build it up and that was.

Answer I made to an earlier question we do.

Build up our things by.

Differentially by segment in terms of revenue growth and in terms of margins.

So it's.

That's clearly impacted.

Gotcha Gotcha very helpful. Thank you appreciate it.

Thank you at this time I'm showing no further questions I would like to turn the call back over to John Haley for closing remarks.

Okay. Thanks, everyone for joining us this morning, and I look forward to seeing all of you in March.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

[music].

[music].

Good morning, welcome to the Willis Towers Watson fourth quarter 2019 earnings Conference call. Please refer to our websites in the press release I put my goal for.

My sense that was issued earlier today today's call is being recorded and will be available for the next three months on our website.

Some of the call My son today's call May constitute forward looking statements within the meaning of the private Securities Reform Act 1995.

Looking statements are subject to risks and uncertainties actually.

My doesn't materially from those discussed today and the company undertakes no obligation to update these statements unless required by law for more detailed discussion on these and other risk factors and that's for sure reviewed the forward looking statements section earnings press release issued this morning.

Disclosures in our recent form 10-K, another one.

Lets towers Watson, that's easy filings.

During the call we may discuss certain non-GAAP financial measures for reconciliation for the non-GAAP measures as well with other information regarding these measures. Please refer to the most recent earnings release and other materials and Investor Relations section of the company's website.

I'll now turn the call with it.

John Haley Willis Towers Watson Chief Executive Officer. Please go ahead.

Oh, Thank you very much and good morning, everyone and thank you for joining us on our fourth quarter earnings call.

With me here today is my quite well, our chief financial Officer, and Rich paper head of Investor Relations.

Today will review our results for the fourth quarter and for the full year ended December 31st 29 cheap.

They will provide a brief commentary on the outlook for 2020.

So as I look back on the last year I think that a results were largely positive we increase revenue we have gross margins that we.

Generated an impressive return for our shareholders that said, we have more work to do to improve free cash flow and where we remain focused on executing against our strategy.

So before diving into the fourth quarter results I'd like to take a moment to update you on some exciting activity that's already.

Heard this year two weeks ago Willis towers Watson returned to Davos to participate in the World Economic Forum No interceptor here as a strategic partner of the World Economic Forum, our delegates convene to address areas of strategic importance to our business, including climate risk of future of work inclusion a diversity as.

Cyber security.

[noise] quite a few members of our delegation led sessions during the week at Davos I took part in sessions. The continue the work of the coalition for climate resilient investment a corporate initiative, which we introduced last quarter. We also launched a new offerings climate quantified.

Which helps organizations to quantify how big will be affected by the climate change trajectory I don't think effects of mitigation with climate adequate and resilient solutions.

We also co sponsored Bloomberg lives. The year ahead, Davos event, where Julie gave our head of human capital and benefits spoke on organizational.

Pain ability, Adam Guerard, our head of corporate risk in broking or international geography participated in a session on advancing cyber resilience for critical infrastructure.

Oh, yes, [laughter] investment risk in reinsurance joined the friends of Ocean actually community session on increasing the role of the.

Okay and to address some of the United Nations Global sustainable development goals.

So the company had a great line up of the Benson speakers across all those in addition to numerous client meetings. We were encouraged by the experience and are excited to play a proactive role within the global community that is working to build a more cohesive and.

Sustainable future.

Now, let's turn to our fourth quarter 2018 results for the fourth quarter of 29 team. We continue to deliver solid financial performance with 14% overall constant currency growth, 6% organic revenue growth and 270 basis points of adjusted operating.

Margin expansion Likewise, we had revenue and operating margin growth in each of our business segments again. This quarter. This marks the sixth consecutive quarter in which we've generated organic revenue growth of 5% or greater along with improved margins.

Our fourth quarter results reflect our efforts to constantly.

Binge ourselves and to deliver more.

Reported revenue for the fourth quarter was $2.7 billion up 13% as compared to the prior year fourth quarter up 14% on a constant currency basis and up 6% on an organic basis.

Reported revenue included 22 million of negative currency.

See movement.

Net income was 551 million up 44% for the fourth quarter as compared to 383 million of net income in the prior year fourth quarter, adjusted EBITDA was $930 million as compared to the prior year fourth quarter adjusted EBITDA of 774 million.

Representing a 20% increase for the quarter diluted earnings per share were $4, an 18 cents, an increase of 45% compared to prior year adjusted diluted earnings per share were $4 a 90 cents.

Reported revenue for the full year of 29 team increased 6% as.

Those are the same period ended the prior year increased 9% on a constant currency basis. It was up 5% on an organic basis.

Now, let's look at each of the segments in more detail to provide clear comparability with prior periods all commentary regarding the results of our segments will be on an organic basis unless.

Specifically stated otherwise.

Segment margins are calculated using segment revenues and they exclude unallocated corporate costs, such as amortization of intangibles certain transaction and integration expenses, resulting from mergers and acquisitions as well as other items, which we consider non core to our operating results.

The segment results do include discretionary compensation.

Revenue for human capital and benefits are HCP was up 4% on an organic and constant currency basis compared to the fourth quarter. The prior year for the full year 2018, HCV revenues grew 4% organically.

Helping.

Its business grew 10% this quarter for new business in product revenue continued to drive revenue expansion in North America, while our increasing market share and global benefit management appointments and new local and regional wins contributed to the growth in other geographies health and benefits revenue growth was also aided by the lower revenue comparable in the.

So your fourth quarter the prior year results reflect the impact of adopting the new standard NFC six so six which resulted in certain revenue not being recognized.

Tyerman revenue increased 1% this quarter, primarily driven by continued momentum in the steady flow of bulk lump sum activity as the market.

For pension risk transfer remains attractive to plan sponsors in North America increased demand for consulting and advisory work in North America and international contributed to revenue growth in both talent and rewards and technology and administration solution.

Actually these operating margin improved by 20 basis points compared to the.

Prior your fourth quarter and improved by 130 basis points for the full year.

As a trusted partner to our clients HCB combines data analytics strategic insight and brokerage and technology solutions to address our clients most complex workforce and benefits challenges as takeaways from Davos.

Forced areas, we had already prioritized re skilling in response to technology advances enhancing diversity and inclusion as part of the sustainability and leveraging AI to enhance the employee experience and improve wellbeing as interesting. These results indicate we believe the segment is well positioned to address these issues and provide solutions.

Keep pace with our clients evolving needs and therefore continue growing profitability.

Now, let's look at corporate risk and broking were CRP, which had a revenue increase of 9% on an organic and constant currency basis as compared to the prior year fourth quarter for the full year 2018, CRB revenues grew 6%.

Organically.

North America is revenues grew by 11% in the fourth quarter, primarily as a result of new business and improved retention the international regions revenues declined 13% as compared to the prior year, there was notably strong performance in construction and natural resources in central and eastern.

Middle Eastern Africa.

These results reflect the benefit of some one time non replacements Western Europe contributed 5% growth with the growth driven by strong new business in Iberia.

France, Great Britain had 6% revenue growth driven by new business in aerospace Infinix.

CRB revenue was $877 million with an operating margin, 30% as compared to a 29% operating margin in the prior year fourth quarter. The margin expanded due to topline performance coupled with continued cost management efforts. We're pleased with the CRB topline growth for the year as well as the margin expansion.

For the quarter and the overall year.

We are big continues to make solid progress toward profitable growth and we feel good about the long term prospects of this business the world Economic Forum Global risks report 2019 rank cyber attacks among the top five global risks developing cyber security resilience is critical to support so.

I feel economic growth, we believe our CRB business has established itself as one of the world's trusted experts in helping leaders that that the REIT strategies to cover the cyber exposure as cyber attacks continue to rise we stand ready to help clients defender innovations and build a more secure digital network world.

Turning to investment risk in reinsurance our IR our revenue for the quarter was 340 million increase of 12% on an organic basis and 40% on a constant currency basis as compared to the prior year fourth quarter with meaningful growth across our core businesses for the full year of 2019 IR.

Revenues grew 7% organically.

Reinsurance with growth of 19% continued to lead the segment through a combination of net new business along with a strong retention ratio across most lines in region insurance consulting and technology grew by 10% from technology product sales and growth in project.

You investment revenue increased 9% with continued expansion of the delegated investment services portfolio on organic basis wholesale revenue.

Increased by 15% driven by growth across the book overall, the wholesale business was up 24% including results from Miller's.

Additional Boston Galer.

Expertise in business grew 3% primarily from increased commission revenue.

Hi, Rob as operating margin grew 700 basis points, the 9% in the fourth quarter compared to 2% in the prior year fourth quarter topline growth in greater operating leverage both.

Visits to the segment's margin improvement overall, we're pleased with the financial results of our IR businesses.

Revenues for the benefits delivery and administration segment or BDCA increased by 53% from the prior fourth quarter on a constant currency basis on an organic basis revenue grew 3% compared to the prior.

Your your fourth quarter, Bdcs expanded mid and large market client base and increased project work resulted in the segment's growth. We continue to see strong demand for benefits Outsourcings core service offerings, resulting in several new client wins for the full year 2018, VVA revenue grew 4% organically.

BB A's operating margin was 52% compared to 61% in the prior year fourth quarter due to the inclusion of transact in the current year media is operating margin improved from 19% to 24% for the full year Transacts revenue growth exceeded our expectations. We're encouraged by.

Transacts performance and we continue to be excited about our joint trajectory as this business continues to gain momentum.

So in closing we delivered another solid financial performance from fourth quarter and for the full year I also want to take a moment to recognize the hard work of our colleagues around the world and extend our appreciation for.

Work they've done this past year and further steadfast dedication to providing top notch client service now I'll turn the call over to Mike.

Thanks, John and good morning to everyone. Thanks to all of you for joining US I'd also like to thank our colleagues for all their efforts and our clients for their continued support and trust in us So now let's turn.

Turn to a financial our financial overview.

Let me first discuss income from operations income from operations for the fourth quarter was 687 million or 25.5% of revenue up 570 basis points from the prior year fourth quarter, a 470 million or 19.8% of revenue.

Adjusted operating income for the.

The fourth quarter was 809 million or 30.1% of revenue up 270 basis points from the prior year of 650 million or 27.4% revenue.

Income from operations for the full year 2019 was 1.3 billion or 14.7% of revenue up 520 basis.

Over the prior year of 809 million or 9.5% of revenue.

Adjusted operating income for the full year up 2019 was 1.8 billion or 20.3% of revenue and up 220 basis points from the prior year of 1.5 billion or 18.1% of revenue. It should be noted that 30 basis points of our.

Margin improvement in fiscal year, 2019 was driven by transact related to the timing of the purchase.

Now, let me turn to EPS earnings per share for the fourth quarters of 2019 in 2018, our diluted EPS was $4, an 18 cents at $2 on 89 cents respectively.

For the fourth quarter of 2019, our Jesse.

Yes was up 23% to $4, a 90 cents per share as compared to $4 per share in the prior year fourth quarter.

For the full years 2019, and 2018 diluted EPS was $8 in two cents and $5.27 respectively for the full year 2019, adjusted EPS was up 13% to $10.

96% per share versus $9.73 per share in the prior year.

Foreign currency caused a decrease in our consolidated revenue of 22 million for the quarter compared to the prior year fourth quarter with a five cents headwind to adjusted diluted earnings per share this quarter foreign currency caused a decrease in our consolidated revenue of $192 million for the full year 2000.

19, as compared to the prior year with a 16 cents headwind to adjusted diluted earnings per share overall for the year.

Moving to taxes.

To provide you with some additional insight into our us GAAP and adjusted tax rates.

Our U.S. GAAP tax rate for the fourth quarter was 18.3% as compared to 19.7% for.

Prior year fourth quarter.

The tax rate for the fourth quarter was 19.4% decreased from 20.4% rate in the prior year fourth quarter, our adjusted tax rate for the fourth quarter is lower than the prior year due to onetime discrete tax benefits.

Full year, the U.S. GAAP tax rate was 18.8% for 2019 as compared to 16%.

For the prior year, while the adjusted tax rate was 20.3% compared to 19.5% for the prior year, excluding discrete items, our adjusted tax rate for the full year was approximately 21% will give forward guidance around our tax rate, we do not project discreet items, which can be positive and or negative.

Moving to the balance sheet.

We continue to have a strong financial position as a reminder, and the first quarter, we implemented a new lease accounting standard. This result had no material impact to our operating income, but did result, an increase in liabilities on our balance sheet, which largely offset by a corresponding increase in assets gross up totaled approximately 1.5 billion.

Our balance sheet position continues to.

Thanks, and during the year, we successfully issued a 1 billion and senior notes offering to help with the efficiency of our capital structure and provide additional financial flexibility.

Total debt at the end of 2019 was 5.6 billion compared with 5.9 billion at the end of the third quarter, our term loan commitment, resulting from transact acquisition had a $295 million.

Balance as of the end of year down from 463 million as of the third quarter and we had no borrowings at year end under our revolving credit facility. Our next debt maturities. Due date is July 2020.

Lastly, full year free cash flow was 835 million a decrease of 185 million compared to the prior year of a billion.

20.

Year over year decline or free cash flow is primarily due to higher cash tax payments of 130 million, resulting from the U.S. and global tax reform.

On favorable working capital changes, particularly in accounts receivable and negative cash or negative cash flows of transact.

In terms of capital allocation flow full year of 2000.

I was 19, we've repurchased approximately 150 million and Willis towers Watson stock and paid approximately $329 million dividends, we remain committed to deleveraging in the near term returning our leverage ratio to historic levels, improving our free cash flow position.

Now, let me summarize last year's performance, let's look ahead to our guidance for fiscal.

The year 2020.

Turning to revenue for the company, we expect organic revenue growth of around 4% to 5% and 6% to 7% on an overall constant currency basis for 2020.

Our non cash pension income, which is classified within other income net line, it's expected to improve by approximately $50 million due primarily to.

Returns on plant assets.

Pertaining to tax we expect our adjusted effective tax rate to be around 20% for fiscal year 2020, excluding any potential discreet items.

Annual guidance assumes average currency rates of $1.31 to the pound and $1.11 to the euro assuming exchange rates remain at current levels, we expect FX.

Headwind to adjusted EPS by 2020 by approximately 10 cents per share and we expect most of this impact in the first quarter.

Adjusted diluted earnings per share as project to be in line with a range of $11.80.

To $12.10. This guidance includes the impact from expected headwinds headwind items to adjusted.

Diluted earnings per share such as the currency of 10 cents.

Finally, we expect free cash flow to be around 1 billion, which assumes the Stanford settlement will no longer be subject to further appeal and we'll make approximately $120 million payment in 2020.

In summary, we've seen good acceleration of revenue growth and positive operating leverage this quarter.

I'm pleased with the results and the continued momentum of our businesses. There is still a lot of opportunity ahead of us and we remain focused on executing on our strategy. So before I turn the call back to John I do want to mention this year, we'll be hosting an investor day in Washington, DC on March 20-F, and we look forward to seeing you. There. So now I'll turn the call back over huge on.

Okay, Thanks, like and with that I'd like to open the call for questions.

As a reminder to ask a question you want me to press Star one on your telephone.

John I guess question I found Keith please standby well, we compile the Q and a roster.

And.

First question comes from the line of ship Longwall from Rosenbalm from Stifel. Your line is now open.

Hi, Good morning, Thank you very much for taking my questions.

Hey, Mike you guys are doing such a good job in improving the organic growth rate of the various businesses.

But the free cash flow is just really is.

Sore point in could you just comment on what is exactly the issue and know how should we be thinking about dad, what's where were you falling so far behind and how should we think about that for 2020, what changes are happening that are going to.

Kind of impacted the company a lot more than what we've seen in over the last year.

Sure. Thanks for the question Shlomo I guess first is obviously to your point, we're we're working very hard on it we're not pleased with the outcome in terms of where we landed for the current year, but here's what we're doing about it.

One is that we have tide variable compensation to the top 500 people in the company.

To the.

Goals that we have and that has been implement.

Equally that's true for the operating committee.

Of the of the of the organization.

Additionally, we are in the process of implementing a contract management and cash management system to manage contract terms more directly and consistently.

And we have established a contact the cash task force with individuals that are 100% dedicated to focus on improved and sustainable performance in the area. So we're very focused on it I guess is a bottom line.

And is there any like one specific thing is it a matter of just like.

Mute occasion with the customers.

Is it.

In other words is there a few items that you can point to that are saying Hey, This is just where things are not getting done.

I would tell you we look at the higher the entirety of a process Shlomo.

And from top to bottom. So every area, we can see that theres areas for improvement.

Obviously, we have made some progress.

But we really look at it is totality of the process itself and are not leaving any stones unturned in terms of going after it.

Okay, Great and then he John can you talk a little bit more about what's going on with transact you said that it had better revenue growth and expected can you just give us a little more commentary about what you expect from this company over the next year.

And.

The general trends that you're seeing in their business.

Yes, so I think.

Look just Shlomo we.

Well when we bought transact we expect that this to be at least for the short to medium term relatively high growth business.

And.

We had a business case, I think where it was going to grow in excess of 20%. That's the basis, we did the deal on it we thought.

There was even a possibility that revenue growth could get to 30% or even 35% in the first year, we actually.

Past surpassed all those we grew by over 50%.

And.

It has been.

Our transit trends that colleagues have just done a terrific job of.

Gearing up and taking on all these all this additional revenue.

Our Medicare advantage grew by.

I about 94%, so very very good growth there and what is probably the most important part of that market.

We expect that.

We still have this expectation that we're going to continue to see this be a high growth.

Business.

For the.

The short to medium term and.

Even though we have.

A pretty tough comparable in a base. We're building on we're still expecting to see over 20% growth for the next several years.

Okay, great. Okay us one more housekeeping.

Mike what does the currency impact in a dollar basis expected in 2000.

20, the noted like 10 cents on the EPA Spotify to look at it on revenue is there is there are number you guys have embedded in the guidance.

It's very nominal Shlomo there.

It's this is really on expenses I mean, it's really is small on revenue.

Okay, great. Thank you.

From.

Thank you. Our next question comes from the line of Greg Peters from Raymond James Your line is now thanks.

Good morning, Thank you for taking my questions.

Just stop on organic.

Yes for the fourth quarter, you you posted some pretty impressive results, especially in CRB.

And I know.

Provided guidance for next year around organic.

Is there anything unusual to what happened in the fourth quarter or any any specific items you can call out to help us.

A sense of why it was so strong.

I think.

Our folks.

Really worked hard with clients and delivered in the in the fourth quarter I did call out.

We had some.

We had some onetime projects in construction and natural resources, which were which were a big helped to that and.

That's that's actually the nature of construction and.

Natural resources projects tend to be more episodic than in some of the others. So we had a couple of those but.

Frankly, Greg when you look at it.

Our growth was really pretty much across the board. It wasn't like we just had one areas that was way ahead of all the others. They all performed I.

I think at the.

Top of what we might have expected.

Connectivity to the guidance on the operating margin.

For fiscal year 2020.

You're guiding to operating margin around 20.5, and I think that's just a 20 basis point improvement over 2019.

Seems like there's better opportunities, especially with the growth you're you're posting can you walk us through why you're not anticipating better margin expansion.

Sure Greg.

So as I said in my prepared remarks, when you look at transact.

For fiscal year 19.

It really had about a 30 basis points improvement.

So and we had originally targeted being around.

20% and so when when you normalize that gets you more like 20% and then if you looked at 20.5 and we've talked about 50 to 70 basis points on an annual basis in terms of what that improvement would look like that's.

Really what we're targeting on a normalized basis in terms of thinking about it.

Got it doesn't make sense.

And then.

Kim can we pivot to mediate X transact because it looks like the business slowed down maybe the legacy exchanges business or or can you give some color there.

Yes, I mean I think.

Our baby a is one we've been talking about that for a while now that with the with the tremendous success, we've had penetrating that market over the years.

There's there's still opportunities left but the opportunities tend to be more.

A few mega opportunities that are episodic now and so.

We're not surprised.

The sales cycle on these large.

Once takes some time and.

We're continuing to work on them. So we'll see some years, where we have a big jump up but I don't think you're going to see the steady.

Growth because you don't have the same pipeline of clients. There. It's one of the reasons why we're really focused now on.

Our technology and operations to make sure we maintain our market leadership as the go to marketplace for the retiree medical.

Got it listen I realize you're not going to make some announcement.

Regarding management on this conference call, but it feels like when we get to the end of this year.

It's going to be retirements and can you give us an idea of when you expect the board and the company to announce when they are.

Who the next lineup both.

Executives are going to be running some other businesses.

Sure so.

Look as.

You're right, we're not in a position to provide any real details right now, but let me tell you. This the Willis towers Watson Board of directors of course, they're the ones who leads a succession process for the role of CEO and board acting through the.

Governance Committee is actively engaged in the whole succession planning process and this isn't something that.

It's happened this year last year, even just the year before this has been a multi year.

Taking about what.

Our talent is and how we bring them along and how we develop them and so the.

Board and the governance committee have been.

Regularly involved in that they meet with they meet with me and our head of human resources on a regular basis. We've engaged a third party to make sure. We have an outside look at the experience and attributes of our candidates.

Our expectation is that we will mean, a new CEO in the second half of this year. So we're going to make sure we have enough time to allow an orderly transition.

But other than that Thats pretty much all I can say at the moment.

Great. Thanks for answers John.

Yes.

Thank you our next.

A question comes from the line of only scratched Greenspan from Wells Fargo. Your line is now open.

Hello.

Finally on the screen span.

From Wells Fargo. Your line is now open please check your mute button.

Yes.

We're hearing anything could we maybe move on and come back to a leasing a little bit.

Thank you. Our next question comes from the line of Mark Mark Khan from.

Baird. Your line is now fan.

Good morning, and thanks for taking my questions.

First on CRB within North America really good performance.

Dana Bill is that.

And what are the specific areas of strength and to what extent.

Is how big.

The cyber opportunity maybe.

Yes, So let me just and microwave may want to weigh in on this I mean look the CRB and North America grew I think it was 11% in the fourth quarter, 11%, So real big number.

But.

They had very good growth even throughout the year.

Not as high as 11%, but still a very good growth throughout the year I think when you talk to folks in the industry generally the.

Middle market in particular in North America is one that people are focused on and it's one of our relative strength. So we feel pretty good about that I mean, I know when we talked about our.

Sections for this year.

There was some question of was our well our revenue growth projections were modest and what we said was we prefer to budget on a more modest spaces, but we thought we would make sure we grow as fast as the market or faster and I think we've delivered on that and that's pretty much the expectation I think we have going forward.

I think cyber is something where there is fantastic opportunity long run I think that's going to require the market developing the right kind of policies and the right kind of.

Solutions for clients I don't think.

I don't think the market is there yet, but I think we're moving towards that and as we do it will be a tremendous opportunity.

Great and then.

When we take a look at the at the overall guidance for for 2020 in terms of 4% to 5% organic growth you mentioned trends that should continue to grow at least 20%.

Plus.

Over year, so that'll drive.

You know that segment for the other segments are we.

Taking the same sort of general stance in terms of generally assuming 4% to 5% growth.

Each of those and then we'll walk.

As on or how should we think about.

Yes, no. We look we obviously, we don't we don't disclose our.

We don't get into all the details of how we do it but mark where we build our overall growth for the company. We do it segment by segment almost line of business by line of business. So we go through and we do say for example, I mean.

Just as we clear thick CRB is going to grow faster than retirement.

We just pretty much know that so we build the models that way but.

And then we just give a revenue growth for the company.

Terrific.

A question for Mike just on the free cash flow can you does aggregate the impact of.

Of transact relative to the Dsos and and what the major.

Source of improvement for for next year is going to be in terms of.

Whether its transaction.

Normalizing for.

The goal for Dsos.

So mark as it relates to transact I mean, we looked at transact and we originally due diligence and understood transact.

With the revenue growth rates it was having we knew where there'll be some level of.

Cash implications to it or drag if you will it was viewed minor.

But given the growth rates that we had it turned a bit more.

Significant because of the build the what we had to do for across the board and licensed agents investments et cetera, and make sure that we could satisfy that what we saw as the market demand in our team. There I think did a wonderful job and making sure that they were well positioned.

To be able to take advantage of that growth.

So I think.

Thats the one issue as it relates to transact I think as it relates to our receivables.

We just saw build a bit more and as I said earlier I was really looking at the from contracting and how we set up the contracts. So ultimately how we collect that cash flow contracted cash from a process standpoint, we're very focused on it. So we did see that.

Receivables build.

And so we're very focused on improving that going forward.

So hopefully that gives us some further insight yeah, and maybe I can just mentioned.

Mark when you when we think about this we had the.

We had transact and.

As Mike said, when we first it we had that we had to deal cost for transact and we knew we would have some sort of impact just from a financing the growth there.

And we thought well, we're not going to bother updating our forecast for that it turns out to growth was bigger than we expected and it became.

A more sizable number as a result to that I think the the tax payments were a surprise to us the cash tax payments being higher than what we had projected and that's one of the things that I think Mike has done a good job of putting in a much better forecasting system for this coming year, so that we won't have.

Those kind of surprises but that the.

Better forecasting system, which we made it because clearly miss some things and then also.

We we were focused on improving our cash collection, but we were focused on improving it without having the right kind of incentives built in to our whole compensation.

System and the fact that we're now building these right kind of incentives and I think some very significant incentives into improving our cash collection gives us a lot more confidence going into this year.

Thank you very much I appreciate the long term up with the CEO of your incentive planning, it's always work. Thanks.

Thanks.

Thank you know our next question comes from the line of some neat come off from Citi. Your line is now open.

Thanks, I just wanted to.

Go back to the free cash flow for a second just I think last quarter you guys are pretty optimistic about.

1.1 to 1.2 and.

Thank you.

That came in below that so maybe just answered but I just wanted to clarify what was the surprise was it the cash taxes or was it transact.

Yeah, obviously something happened just towards the end of the year and I just want to make sure.

Im clear on what that was.

Yes, I mean I.

I think we actually lowered our.

Cash forecast last year from the 1.1 to 1.2 down to what 900 to 1.1, we had said it would be so we.

Excuse me.

We kept that we stayed at 1.1 to one point, Okay. What we were happy we were concerned about where it would come I guess.

Anyway, but.

The.

But look we had the transact was bigger than we thought we had the.

We had the cash taxes and the cash taxes were about $130 million higher and so we we knew that was going to be weighing on us to begin with.

Then we had the.

The decline in the receivables, though was something that.

We did not expect that was something that was a surprise to us and I would only at your comments John I mean, we always know the fourth quarter is an outsized quarter for us just in terms of timing. So when we sat there at the end of the third.

Quarter, we knew exactly where we had stood we knew what we had done in the prior year fourth quarter.

These couple of points of John just raised influenced it but frankly, we were worried about working capital build and Thats why we took the guidance down at the end of the third quarter. In fact, that's what we saw actually really build and receivables and.

So thats really the one of the improvements that we're looking at is really driving that improvement in working capital obviously, the drivers coming back to free cash flow.

We've seen some reduction on Capex, we obviously know operating incomes a big driver of it and obviously working capital and that's that's the area that from a process standpoint again go back to from contracting.

Make sure we have looking at our terms at the beginning.

So the ultimate cash collection process is really where we're going and as John referenced I would not underestimate what this means going forward in terms the incentives we put in place.

Our putting in place and ahead.

Throughout the organization yes.

Makes sense I guess, if we look at.

20, your cash flow guidance would imply from from Mike.

Hi teens growth in free cash flow or are you still guiding to kind of longer term that growth rate to be around 15%.

Well, what we're sort of laser focused on what we're going to do for next year right now, but I would say if you if you look at us.

Where we're growing.

Our guidance of the billion dollars is after we anticipate paying to Stanford settlement too. So it's closer to a 30% to 35% growth in free cash flow.

Got it and then just lastly on the capital management or capital return outlook for 2020.

I'm, assuming you're going to continue to target double digit growth in dividends, but any color on terms of what you're expecting for share repurchases.

Yeah. So you know as you know given the acquisition of transact last year, we really had nominal share repurchases, which we're really just demand.

Manage.

So that we weren't dilutive as it relates to our employee benefit programs and we would anticipate doing that again as we think about 20.

Additionally, when you look at our dividend payments.

There are 350 $370 million kind of range that are there and then equally then you've got to look at I'd say we've.

Committed to paying our debt down or related to transact as I referenced if we've got our current debt to EBITDA ratios were more in the 2.4 range and we're looking to get closer to 2.0, so that would really be where we're looking to deploy capital at least as we look at 2020.

Okay. Thanks.

Thank you Sir our next question comes from the line of Elise Greenspan from Wells Fargo. Your line is now fan.

Thank you good morning.

My first question going back to the margin discussion.

I understand you wanted to earlier questions you pointed to kind of neutralizing for transact right and.

Then still being within that 50% to 70% target, but I guess I'm, we're thinking about.

Segments, and just conceptually maybe you don't want to guide to a certain level, but I thought the goal is to look to improve CRB I know, there's delta between where you guys are and where some of your peers are running in their brokerage business. So does like.

Does this operating margin guide assume that there's going to be underlying margin improvement in CRB and perhaps also and I are PCB and it just offset by kind of the accounting impact of one that transact deal comes on.

Well I mean, I think so Elise just just like we.

Do the revenue growth in response to Mark Marketing's question I was saying, we we project our revenue growth. The line of business by line of business and then build that up to the company here and the revenue growth is not the same across all of them we project our margin.

Line of business by line of business and certainly.

We see more opportunities for margin improvement in.

See our bay, where were trailing some of our peers in terms, what we have been say retirement, where we're ahead of our peers. So those are reflected in our projections yes.

Okay, Great and then on and when should we think about free cash flow.

Now on for 2020 on you know.

I guess kind of want I understand the seasonality I'm not sure. If you guys have a sense the timing of the Stanford's litigation and I know typically cashed always in the first quarter and then also.

Seasonality that guide and then another part of that question with the does the 2020.

Cash flow guide implies that I'm pretty sure transacted negative free cash flow perspective does it take that drag into account.

It does take to transact drag into account so start with that.

I think Stanford it seems like it's at a place where we should be able.

The pay up but we've we've thought for a couple of years now we would be able to pay out in the court system drags things on longer than we had thought.

We don't have a particular time when we're estimating it during the year, but we will alert you when we when we've made the payment.

And then clearly that there's a lot of.

His analysis.

Our cash flow is.

Highly skewed towards the.

Second half of the year.

We have a tax payments tends to come in the first quarter, we have our bonus payments so in a first or second quarter and so.

We.

Have a lot of cash strain in the beginning of the year.

Okay. That's helpful and my last question is on on leverage on you guys have obviously been Manny managing down your leverage you closed at transact acquisition on does.

I, just kind of want to get a sense at the interest expense expected with the Guy does it.

You're going to pay down more of your leverage.

As we on as we move to the 2020.

Yes, So Lisa game plan is to do that and.

We're looking to do that.

Part of our capital deployment. So you should continue to see and has use as you've seen us due from the third quarter the.

The fourth quarter in terms of that reduction you're going to continue to see that over the first half of 2020 in terms of us really addressing that that outstanding balance, which will obviously have the corollary effect to interest expense.

Okay. Thank you.

Thank you our next question comes from.

Your line of Yaron Kinar from Goldman Sachs. Your line is now fan.

Good morning couple more on free cash flow.

First the transact.

Considering that it is a.

Slum startup mode, so growing very rapidly.

How long do you see that is being a.

Cash drag for for the business.

No I mean, who we can we continue to see as with those kinds of growth rates that are there you're on which we projected out over the.

Next four to five years.

We're continuing to see that but we early I'll look from a cat from a.

Cash standpoint, when we see at about a year out in terms of so the growth rates, we see over the five years, we'll really see the cash side of that equation really starting to go only a year or so and.

In terms of its drag on cash.

Okay.

And then on the Dsos side.

Maybe tying back to seasonality question earlier.

I would think that a lot of the contracts get renewed at the very end of the year or the very beginning of the year. So I would think though are the contract changes in language with regards to do so would be in place by the first quarter of 2020.

And variable comp.

I just want that you've made is also probably in.

Thanks already should there be a little bit of an offset to the regular seasonality just by lift from deals. So the first quarter.

Yes, I mean, we got a lot of factors.

In that first quarter you as you rightly said in I mean, where we were attacking the contractual terms that we have to be in place we're aligning it from a.

Terrible compensation standpoint, but we also the bonus payments, we have tax payments and though and those amounts that come in there and candidly we're looking to make sure. We meet what we're saying we've put out there in terms expectations around so that's the that's a game plan I understand with the logic, where you're gone, but we hope we see the first half the year being more of a use of cash and.

Really see it and if you look back historically in the company you really see a build over the second half a year with the fourth quarter being outsized in terms of cash coming in and I would just point out that the changes to the variable compensation plan, which are our I mean, we discussed with the with the board and the comp committee they won't be formally put in place and.

Until the end of this month at our board meeting but.

We've discussed making these changes with them. So we'll have those in there.

But they weren't in last year, and so we'll see the impact from them in this year, but but.

I would hesitate to ascribe any change any affected them for.

Last year.

Okay.

And then my other question is just going to be HCV margins I think if we adjust out the.

Accounting catch up do you see six effects margins actually declined by about 50 basis points year over year this quarter.

It is my math, roughly right and B if it is.

Yes.

What caused that decline considering that organic growth was actually up.

Yeah, I mean your calculation here your math calculation seems maybe a little high just in terms of how you calculate it weve. Okay. We didn't have it quite quite that way.

So it may be a flat to slightly.

The decline really as kind of how we've looked at it you're on so that would be our our thoughts in terms of the numbers just to give you that feedback.

And what would've caused that decline.

Well there is a bit of the portfolio shift to retirement is.

Which is the most profitable is growing slower than some of the others.

Okay. Thank you.

Thank you. Our next question comes from the line of Mark Hughes from Suntrust. Your line is now fan.

Yes. Thank you good morning.

Has there been any change in youre right off of a receivables any change in bed that.

No.

Actually we've been going after that.

So it hasn't been if anything we've I'm really making progress on collecting some of some of the older stuff that we've had.

In terms of dealing with it so no no change in policy now accounting change and that nothing that that way.

Is it fair to think that the faster organic growth.

And the cash drag it just really two sides of the same coin.

That's your.

Or receivables in the business because you're growing the top line faster that makes sense.

Yes, I mean, you look at it on a year over year basis, you know I mean, you know the beginning of the of December 2018, and.

How rolled into January of 19 in comparison to this December of 19, how rolls into 20, there's definitely some element of that it's always difficult.

Difficult to absolutely quantify it but.

I think does it to your point, yes, I think that Theres some portion of that.

Then finally I are are you really had to.

Acceleration this quarter, especially thinking relative to Q3.

How much of that.

Carries over into 2020.

Yes, there is definitely multiyear arrangements.

That are included in there and there is definitely an impact.

That's that's there.

But the other thing I guess I'd just point out our reinsurance business in particular was very strong as well as our investment business.

As Weve John commented on in his opening comments there I mean.

Overall, so yes, there is some some impact of that yes, but let me I think if you think back to a year or two ago when.

Reinsurance consulting and technology investments were slower growing and we said we thought.

We like the future outlook for them and I think we're seeing that come out.

Come to fruition. This year, so we like where their position did 2019, we feel good about them going forward I'm not sure they're going to grow as fast as they did in the fourth quarter of.

2019, but we like our positioning and we like our growth prospects, there and I think we feel the same way about reinsurance look the whole the whole reinsurance market was very positive very strong in the fourth quarter.

We think we grow as fast as anybody else or faster and so we feel good about that and we think will perform well against the market in the future.

Sure.

Thank you.

Thank you know our next question comes from the line of Meyer Shields from KBW. Your line is now fan.

Great. Thanks.

I was hoping.

With.

Maybe guidance on how much.

Margin headwind in 2020 from the inclusion of transact.

I guess earlier quarters.

So we think thats probably about.

What a 1% or something like that.

Yes, so yes.

Yeah.

1%, 1%.

So 1% margin.

Yes, yes, yes, just a reminder back you remember we acquired transact in July of 2019, right and you go back from that acquisition you had five months of revenue and five months of expense.

I see we're going.

I have it for a four year as we look into 2020.

Right right no upside dependent on picking that that's actually very good news because there is lot better underlying margin expansion.

Can you give a sense in terms of the the nonrecurring.

In the fourth quarter just magnitude.

Okay.

Yeah, we really no we're not really don't disclose that individual.

Deals or the those those particular aspects to it.

They the problem with doing that too is.

There there whether there's a couple of notable ones. We note that we say all of those are big ones, but there might be a lot of other smaller ones.

We just don't have a system for aggregating.

No that make thats alright, thanks, a lot.

Thank you.

Thank you.

Our next question comes from the line of Mike Zaremski from Credit Suisse. Your line is now fan.

Hey, good morning to.

Hi.

I guess starting with.

Question on free cash flow, our our pension cash contributions or maybe capex are those slight year over year headwinds.

No.

No we don't see it that way as we as we look at next year we.

I see that Mike now and we see and within a reasonable level same thing now.

Okay.

And if I just think about.

The organic growth outlook.

What do you kind of categorize organic growth this is kind of being as more of a.

Tailwind in recent quarters and kind of going into 2020, and also will remind us will look transacts or.

Gross eventually.

Moving to the calculation in the back half of 20.

Yes, so starting with your last question.

First yes, transact I mean, Susan as we get to the same store sales and we will included in there from an organic growth standpoint.

In terms of your question about Tailwinds on organic growth.

Yeah in certain of our business. We if you looked at it we've seen some pricing. So we have you look back to our marketplace.

His report that we put out.

Most recent want to November December 2019, you definitely continue to see price in the marketplace continues to to be a tailwind, but but equally obviously, we got to do the right thing for our customers and clients and and thinking through that but we have seen some pricing.

Tailwind come through that and if you look at our organic growth rates.

We've been right at the market.

We look at our peers in terms of what we've been growing at so when we put out there for our organic growth rate for the current year, we had 4% to 5% and we build our budgets and we've been pretty consistent around it looking at 4% in terms of how we're more.

Skew that way in terms of how we think about it but we're being realistic and recognizing the tailwinds that we see out there. So that's why we went with four and 5%.

And the other thing I'd add to that is that a pricing is only one part of the equation for us in the revenue because as prices go up people buy less of it and so.

The net that is what we're trying to sell for.

And I guess, just lastly to follow up to that thank you remind us what roughly or if you're on the insurance side of the business the breakdown of commission versus see thanks.

Yeah, Mike and we really haven't disclosed that so.

Appreciate the question, but we hit really havent given that that information.

Thank you.

Next question comes from the line upon new some from Piper Sandler Your line is now fan.

Good morning, just one.

One question last.

Does the cash flow.

Change that we had.

Teen and I guess last year in 2020 does that have an impact on the speed, which you're going to be de leveraging.

The.

Over the course this year.

Yes, I mean, what in a in a sense that we kind of know where the the patterns have been.

Yes, we set a couple of bow responding to a couple of earlier questions in that we obviously pay bonuses cash bonuses.

At the end of the first quarter, we have tax payments, we have some real.

Flows of cash, but then we start to see a build through the rest of the year and.

And then 10 is obviously to really deal with that.

That term loan that's out there over the first half the year by by the end of it by the end of this second quarter.

Okay. So the interim loans should be done by the end of this.

Hopefully by the.

Sure.

I think yes, so one near term loan so [laughter].

Got it appreciate it thank you very much from.

Thank you. Our next question comes from the line and Brian Meredith from you'd be yes.

Your line is now fan.

Yeah. Thanks, I, just have one or two quick ones.

You're left one just curious if I look at.

The transact margins you just the impact on margins overall, if I kind of looking on a pro forma basis is transact assuming you have a.

Full year 2020, it was full year 2019 is it accretive to the BD margins and overall company.

Agent or is it kind of dilutive or in line.

I understand that the pressure just from a timing perspective, I was going to her 2020.

Yeah. So we look at a full year it it will be accretive overall I again, just going back when you. When you look at and we talked about this in terms of where the margins ended up in the fourth quarter.

We are actually down for VVA overall and that being down was.

Although transact is very good margins and we're very pleased with their margins that you only have five months of expenses and five months of revenue that was included in there and so you that margin was a bit higher and weve normalize that as we think about.

The year 20, but as to your first question is absolutely accretive and and very excited about what that growth and what we're going to see right, but accretive but lower percentage margin margins. So the transact margins when we bring transact in it adds to the dollars of.

Earnings we have but it's a lower percentage.

Tonnage.

So to lower lower operating margin percentage I got you exactly yes got you and I was wondering if there's any difference like seasonality of transact versus the rest of your media business.

Not what what what that difference compared to our regular exchange business.

Regular exchange business is a little less seasonal than transact, but not not nothing more wells apart.

Okay. That's helpful and lastly, just one if all of my question just wanted to confirm here in your guidance you have nothing assume or kind of improving organic revenue growth on on an IR business or the.

To be.

Brokerage business CRB business for for pricing and of course lines marketplace.

Oh, Yes, we do you do have so again, there yeah, yeah, and how much roughly.

It is it's consistent we don't go into as we don't know that's what we're saying we don't do things by line of business.

Segments.

And that's how we build it up but that's not how we build it up and that was.

Answer I made to an earlier question we do.

Build up our things by differentially by segment in terms of revenue growth and in terms of margins.

So it.

That's clearly impacted.

Gotcha.

Very helpful. Thank you appreciate it.

Thank you at this time I'm showing no further questions I would like to turn the call back over to John Haley for closing remarks.

Okay. Thanks, everyone for joining us this morning, and I look forward to seeing all of your March.

Ladies and gentlemen this.

Today's conference call. Thank you for participating you may now disconnect.