Q1 2020 Earnings Call
[music].
Good morning, and welcome to the Willis Towers Watson first quarter 2020 earnings conference call.
Please refer to our website, where the press release and supplements information that was issued earlier today.
Today's call is being recorded and will be available for the next three month on our website.
Some of the comments on today's call May constitute forward looking statements within the mean is on the private Securities Reform Act is 1995.
These forward looking statements are subject to risks and uncertainties.
Actual results may differ materially from those [laughter] undertakes no obligation to update these statements unless required by law.
For more detailed discussion on these and other risk factors and best of show reviewed the forward looking statements section of the earnings press release issued this morning as well as other disclosures in our most recent form 10-K and in other Willis towers Watson FCC filing.
During the call we may discuss certain non-GAAP financial measures reconciliations of the non-GAAP measures as well as other information regarding these measures. Please refer to the most recent earnings release and other materials in 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.
Oh, Thank you very much good morning, everyone and thank you for joining no sooner 2021st quarter earnings call.
Joining me today are like are well, our chief financial officer, and rich Keith or head of Investor Relations.
So before we get into our first quarter performance I want to start talking about corporate night cheap and how we're managing Willis towers Watson during this global pin debit.
First of all I hope all view and your families are staying healthy.
Safety and well being of her colleagues it's been our primary focus is the cobot, making creation Cisco laid it and we've mobilized to mitigate the risk to our colleagues.
The cobot 19 pandemic did not have a material adverse impact your financial results for the first quarter fiscal 2020. However, we expect to be impacted cobot 19 on general economic activity could negatively impact or revenue when results for the remainder of 2020.
We're closely monitoring the spread and impact of code 90, while adhering to governmental health directors directives excuse me. We this limited restrictions on business travel off the success meetings and events, we have thorough business continuity, an incident management processes in place including.
Split team operations for central workers and work from home protocols, which are now globally effect.
Communicating frequently with colleagues clubs and critical vendors, while meeting our objectives by a remote working capabilities overseen and coordinated fire incident management response team.
Before the pandemic, we were already experienced in working virtually.
Implemented collaboration technologies and infrastructure for remote remote working that we believe are effective currently more than 90% of or 45 cells and colleagues are working remotely.
For example, our top leaders are spread across the globe and we've effectively operate it this way as a management team for a number of years. So we were able to mobilize quickly to address this situation and the agility of her colleagues is remarkable I.
I'm extremely proud of the way our colleagues have adopted they continue to demonstrate the resilience and their commitment to support our clients' needs and one another.
As you will know where the business of providing solutions, we help clients optimize their benefits we help them manage their risk we help them develop their people, we hope to make sure that they deploy their capital to protect and strengthen their institutions.
These are valuable contributions during good times and they're even more valuable during difficult times, we feel that are services and solutions are highly relevant to our clients, especially now Willis towers Watson will continue to be a source of support and the trusted partner to our clients as they navigate these unprecedented disrupt.
Yes.
Well the long term effects of this global crisis will take some time to manifest we're focused on finding innovative ways to add value in an increasingly unpredictable and competitive marketplace.
We will continue to be at the forefront of the issues and pressures our clients are facing and restructuring or services to meet those needs I think Willis towers Watson and our colleagues are going to be a great part of our clients future success stories.
Overall from a business continuity perspective, we have maintained a high level of productivity to date. Despite the recent disruptions brought on by the pandemic.
Against this extremely challenging backdrop, we reported a solid first quarter.
We realized that the extent to which cobot 19 could impact our business and financial position will depend on future developments, which are difficult to predict for that reason, we're taking a proactive approach to safeguard our company against this future uncertainty.
We're entering this challenging environment from a relative position of strength, so maintaining our financial and operational performance momentum is Paramount we're prepared to take swift actions as necessary to help mitigate adverse consequences and preserve our margins in the event that we might sustain a prolonged negative.
Impact to our operations, we will continue to monitor the situation and assess possible implications to the company enter stakeholders.
Mike will provide further insight about the teams evaluation of contingency plans about capital and liquidity and the company's balance sheet shortly.
Well it conservatively managed company with the strong foundation, while the current economic backdrop is challenging we believed that we're well positioned to manage through this crisis and emerge successful.
I have confidence in our colleagues our strategy and in the strength of our business.
[noise] managing the impact of the Cobot 19 pandemic was not the only development for the company in the first quarter on March nine we announced the entrance into a definitive agreement between Willis towers Watson, a on which provides for the combination of Willis towers Watson in a on it in all stock transaction the carbon.
Nation with a on is a natural next step in our journeys to service our clients in the areas of people risk and capital both Spurs have a shared belief and offering clients strong expertise innovation data driven insights and market leading products and professional services.
Steel gives us the opportunity to accelerate our growth strategy through innovation and collaboration.
Very excited about the step and what it means for Willis towers Watson for our colleagues and for our shareholders as the next step of significant value creation, we expect a transaction to close in the first half of 2021 subject to the receipt of required shareholder approvals required regulatory approvals and <unk>.
This section of other customary conditions to closing.
So now let's move onto our quarter 120, 20 results I'm pleased to report that despite this difficult environment. We've continued to deliver on our strategy and commitments generating solid results for the first quarter of 2021.
Our 2020 excuse it reported revenue for the first quarter was 2.5 billion up 7% as compared to the prior year first quarter and up 8% on a constant currency basis and up 4% on an organic basis.
Reported revenue included $34 million of negative currency movement. Once again this quarter, we experienced growth on an organic basis across all of our segments.
Net income was 313 million up 7% for the first quarter as compared to the 293 million of net income in the prior year first quarter, adjusted EBITDA was 680 million or 27.6% of revenue as compared to the prior year adjusted EBITDA for the first quarter of six.
800.
601 million or 26.0% of revenue, representing a 13% increase on an adjusted EBIT dollar basis, and a 160 basis points of margin improved prudent.
For the quarter adjusted diluted earnings per share were $2.34, an increase of 6% compared to the prior year.
Adjusted diluted earnings per share were $3.34, reflecting an increase of 12% compared to the prior year. Overall it was a solid quarter, we grew revenue and earnings per share and had enhanced adjusted EBITDA margin performance.
Now, let's look at each of the segments in more detail to provide clear comparability with prior periods. All commentary regarding results of our segments will be on organic basis, unless specifically stated otherwise.
Segment margins are calculated using segment revenue and 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.
Segment results include discretionary compensation.
The human capital and benefits HCB segment revenue was up 4% on an organic and constant currency basis compared to the first quarter of the prior year, the health and benefits business delivered strong performance again this quarter generating revenue growth of 7% with increased project activity and proud.
The revenue continuing to drive revenue expansion in North America, while new local country wins and global benefit management appointments contributed to the growth outside of North America.
Talent and rewards revenue increased nominally mostly from increase benchmarking survey sales, which were largely offset by a decline in advisory activity as companies began pulling back on discretionary spending in the latter half to the quarter.
Retirement revenue increased 1% mainly is the result of an uptick in funding in place guaranteed minimum pension equalization and other project work in Great Britain and funding work in Canada.
[noise] technology and administration solutions revenue increased 11% as a result of new business activity in project work in Great Britain.
HCB is operating margin improved by 30 basis points to 25% compared to the prior year first quarter. This improvement reflects topline growth alongside careful cost management efforts HCP is our largest segment and recurrence confident about the future prospects of all of the businesses within it.
In a business environment highly impacted by cobot 19 in the related ECA not make downturn employers look for ways to protect employees customers and operations, while managing costs, a CBS experts are well positioned to provide advice and solutions to help businesses react adapt and sustained.
Through the crisis.
Now, let's look at corporate risk and broke in your CRB, which had a revenue increase of 4% on an organic and constant currency basis as compared to the prior year first quarter.
North America's revenue grew by 11% in the first quarter. The growth was driven from the gain on the book of business sale alongside new business wins, Western Europe contributed 5% revenue growth driven by strong renewals third grade was led.
By strong renewals, including.
Improved facultative business.
Great Britain in International's revenue declined, 3% and 2% respectively for the first quarter. Now. These results were negatively impacted by a change in the remuneration model for certain lines of business.
This change which is neutral to our operating income results in lower revenue and it equal reduction in salaries and benefits expense absent. This change great Britain is revenue increased by 6% and International's revenue grew by 1% primarily from new business with strong performance across most lines have been.
This including financial solutions, FINEX, PC hub and aerospace.
CRB revenue was $739 million this quarter with an operating margin of 17.2%, which is materially flat compared to a 17.4% in the prior year first quarter.
Turning to investment risk in reinsurance or I or our revenue for the first quarter increased 6% to $615 million on a constant currency basis and increased 5% on an organic basis as compared to the prior year first quarter.
Reengage with growth of 7% continued to lead the segment's growth through a combination of net new business and favorable renewals.
Insurance consulting and technology grew by 5% mainly from technology sales.
Investment revenue increased 6% with continued expansion of the delegated investment services portfolio.
Also business was up 12% on an organic basis, mainly from new business wins.
For our had an operating margin of 45.1% as compared to 42.7% for the prior year first quarter. This improvement reflects topline growth alongside the scaling of successful businesses. We continue to feel good about IRS growth trajectory IR ours portfolio of offerings unlocks.
Tangible increased sources of value for our clients by focusing on their business priorities capital strategy operations technology risk and people.
All of these are elements, which remain important in an increasingly uncertain and competitive marketplace.
Revenue for the BDNA segment increased by 71% on a constant currency basis, and 1% on an organic basis from the prior year first quarter.
His 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 services, resulting in several new client wins. The BA segment had revenue of $231 million with a minus 4.7%.
Operating margin up from 10 up over 10% from the minus 15.3% in the prior year first quarter. The margin improvement was primarily driven by the topline growth. We're optimistic about the long term growth of this business BDCA authors practical solutions, which enable plan sponsors to under their commitments to.
Employees and retirees, while reducing long term financial liabilities and administrative burdens. It also helps millions of individuals optimize today's health and welfare opportunities for a better tomorrow. So overall I'm very pleased with our progress we pretty strong revenue growth in the first quarter, we had steady financial.
Performance across all businesses meaningful margin expansion on an organic basis and significant adjusted EPS growth all while adapting to the rapidly changing global environment. So now I'll turn the call over to Mike.
Thanks, John and I'd like to express my gratitude to our 45000 colleagues for delivering another good quarter.
Despite the difficulties we're experiencing as result of the cobot 19 pandemic.
I would also like to thank our clients for continued support and trust in us helping clients solve complex problems at the is at the heart of everything we do and Willis towers Watson and we fully intend to continue being a reliable source of strength for the clients we serve around the world as they confront their unique pandemic related challenges.
First quarter represented a good start to the year with strong organic revenue growth robust margin expansion and underlying adjusted EPS growth.
I will turn to the overall detailed financial results.
Let me first discuss income from operations income from operations for the first quarter was 360 million or 14.6% revenue down 90 basis points from the prior year first quarter income from operations of 359 million or 15.5% of revenue.
The decline was principally due to a noncash charge, which resulted from the abandonment of internally developed software that was no longer commercially viable.
Adjusted operating income for the first quarter was 525 million up 33 million from 492 million in the prior year first quarter.
Adjusted operating income margin remained flat at 21.3% of revenue.
Adjusted operating margin would've been 40 basis points higher if we had normalized for the acquisition of transact.
Now, let me turn to earnings per share.
For the first quarters of 2020, and 2019, our diluted EPS was $2.34 and $2 in 20 cents respectively.
For the first quarter of 2020, our adjusted EPS was up 12% the $3.34 per share as compared to $2, a 98 cents per share in the prior year first quarter.
Foreign exchange was aligned with our expectations, resulting in a net unfavorable impact or approximately three cents for the quarter.
Let me turn to our effective tax rate.
Our U.S. GAAP tax rate for the quarter was 20% versus 18.8% in the prior year.
Our adjusted tax rate for the first quarter was 20.4% up slightly from the 20.1% rate in the prior year.
First quarter.
The prior year effective tax rate was lower primarily due to discrete valuation allowance releases in certain non us jurisdictions.
Turning to the balance sheet.
As the Cobot 19 situation continues to evolve I believe we're well positioned to navigate this uncertain period of time.
We ended the first quarter with a strong capital and liquidity position the broad and global nature of the pandemic has had a profound impact on our clients and broadly reduced liquidity around the world. We believe our business model is resilient and we have completed comprehensive operational and financial planning to prepare for all scenarios, including the possibility.
I have a deep and long economic downturn impacting industries and markets we serve.
Understanding the impact this can have on Willis towers Watson, we're proactively managing our balance sheet to help maximize our financial flexibility.
To that to that end, we exited the first quarter with ample liquidity with cash and cash equivalents of 898 million in 850 million of capacity on our undrawn revolving credit facility.
We aim to continue to maintain a strong and thermal balance sheet and are looking at us conserve cash and this current environment by leaning into our cost and efficiency initiatives.
These actions include implementing a series of cost management strategies, including hiring and travel freezes, reducing our variable cost structure for discretionary spending categories and curtailing some of our capital expenditures. In addition, we continue to monitor the situation and take appropriate proactive measures to further reduce cash outflow.
Preserve adequate liquidity, if demand for solutions or services deteriorates.
For the first quarter of 2020, our free cash flow was negative 43 million versus negative 105 million in the prior year.
Q1 is our seasonally lowest quarter from a cash flow standpoint, due to the impact of incentive compensation payments.
The year over year improvement in free cash flow is primarily due to more timely billings and collections.
In terms of capital allocation, we paid approximately 84 million a dividends and did not repurchase any shares in the first quarter of 2020.
As a reminder, given certain prohibitions as a result of the transaction agreement in connection with our pending business combination with me on we do not expect to repurchase any shares during the remainder of 2020.
Soc about our full year 2020 guidance, we're not yet seeing signs of a real slow down in the business, but the signs of economic concern are all around us as John mentioned earlier, the economic falloff from Cobot 19 had no material impact on the Companys financial results for the first quarter of 2020.
But this is not indigo indicate of of its potential impact on the company results for the remainder of the year.
The duration of pandemic, the full magnitude of its economic impact and the subsequent speed of recovery remain unknown.
Considering this on certainly in this and the economy, we're withdrawing our previous.
Provided guidance for fiscal year 2020, since we are unable to accurately forecast the impact of these factors, we believe that its impractical to provide detailed financial guidance at this time.
The company will reassessment. This position once we have a clear understanding of the depth duration and geographic reach of the pandemic.
However, I want to reassure you that we remain agile and disciplined and the way, we allocate our resources to ensure business continuity and efficient operations, while maintaining still maintaining a very strong balance sheet.
Overall, we delivered solid financial performance in the first quarter. Despite the near term uncertainty in the global market I remain confident in the underlying find the fundamentals of our business we've been through challenging times before as a company and we believe we're well positioned to manage through the current situation and emerge even stronger.
We believe that fundamentally our business is strong we believe we manage our operations well and we have a diverse portfolio of businesses that help us through difficult times, we believe our portfolio of businesses as both resilient and flexible and we believe that our experience our dedication and our operational strength will enable us to whether these tumultuous times.
And to continue to create long term value for all our stakeholders. So now I'll turn the call back to you John.
Thanks, very much like and now we'll take your questions.
Thank you.
The question at this time. Please press Star then one on your telephone to withdraw your question. Please press the pound team again that is star then one if you would like to ask the question.
Our first question comes online some all relevant long.
Hey, Michael Your line is now open.
Hi, Good morning, Thank you for taking my questions John I, just given the pending.
Business combination with a on I wanted to just asking you to maybe comment on.
What you're seeing in your business right now versus kind of in terms of commit that they had.
There are public announcement that theyre going to be broadly reducing salaries in anticipation I'm not sure if its anticipation or if there's something already going on over there.
They are kind of a strategy difference in market difference or.
Well since you are merging with the with them what is your take on that versus what's going on internally in your business.
Yes, so I think Shlomo.
Thanks for the question so.
First of all even though we are emerging and maybe especially because we are emerging we have to make sure that we manage ourselves as independent competitors. During this time running up to this and so.
We're not able to collaborate on anything.
Like how we're handling.
The market or clients are strategy or anything like this so we have to come to completely independent solutions and so I can't.
It's really hard for me to say a lot about what went into.
Hey, I'm, saying I think as as Mike said, when we looked at it from our standpoint.
We wanted to take whatever actions, we needed to and we have been very strong in terms of cutting down.
Turning to cut down really on all discretionary spending that we have we want to really cut that to the boat we want to look too.
Protect our cash flow, we think if we do these things.
Our judgment is that if we can do those successfully they will probably be sufficient but the effective the matter is we just don't know whether we will have to take.
Stricter action depends in part on how successful we are with these initiatives, we have and in part on exactly what the.
Pace of Cobot 19 looks like if we have a.
You know a V or are you recovery or a w. recovery all of those are different scenarios and I think what Mike was emphasizing in their discussion is we think we remain agile and we think we remained ready to react to that but basically as the way. We approach this was to say.
Our first and foremost priority is the safety and well being of our colleagues. The second priority is then that making sure we.
Manage the financial health of our business and that includes making sure we take care of our colleagues from a benefit and compensation standpoint too so.
Well, while there are clearly circumstances, where we would contemplate something like that we're hoping to avoid them.
Okay, great debts. Appreciate the color and then just one thing on transact can you do you can you provide us with what the growth was.
In the last year quarter, I know, you didnt own NIM, which as we get a sense of how that is growing and.
If there were.
The improvement year over year in operating margin for the VA segment is then have to do with operating leverage with the change in kind of the seasonality a little bit of the business because of transaction can you give a little bit of clarity over there there will be helpful.
Yes, Mike do you want to take us through that.
Sure John Shlomo. Thank you for the for the question.
And when you look at transact overall, we have almost 50% of our revenues.
For the BDC segment really come in the fourth quarter, which obviously encapsulates.
Transact and although we are seeing nominal losses, and the first quarter being very pleased with what's happened with with transact. So.
We're seeing obviously carrying the expenses in the earlier period. So small changes and you know last quarter is really don't really impacted as much as what we see really happening overall, so transact continues to grow very nicely for us.
We had 57% growth.
And it continues to be very very strong. So again, just looking at the year Shlomo, obviously over 50% coming in the fourth quarter overall for the BA segment transacting, a big piece of it obviously, we saw some continuing to see growth with it and we're very pleased with the performance of transact.
Thank you.
Thank you. Our next question comes on the line of Mark locking it like Bank your line open.
Good morning, Thanks for taking my question glad to hear that everybody is.
Going well.
I had two broad sets of questions one would basically be.
You could give us a little bit of color with regards to how we should think about the economic downturn John over the course of your career you've been through multiple recessions. Obviously this one's deeper can you just go through a little bit.
In terms of what you've seen segment by segment in terms of.
Second half of March early April impacts what your vertical.
Correct.
But.
Yes.
Yes.
Okay.
We gave some color to the question.
That's terrific can I just ask one quick follow up on can you just talk about what your percentage exposure is to the areas that seem to be the most affected whether its aerospace hospitality global finance, maybe some real estate companies are you thinking about that.
So let me just comment on that overall.
But by client Theres, no client that even gets up to 1% of our revenue so.
When we look at it by industry.
We don't have any parent we don't have high exposure to any particular industry with the exception of insurance related financial generally but insurance in particular, but it's not that's not an area that we've seen has been particularly affected by this so.
We're not we're not particularly worried about any.
Industry effects Mark.
Great. Thank you very much.
Thank you. Our next question comes on the line of Elise Greenspan with Wells Fargo. Your line is now open.
Hi, Thanks. Good morning on my first question on I understand there's a lot of uncertainty out there right now.
And get the desire to want to pull the outlook for the year, but I guess could you give us a fence like as you may see things, even if it's a big range or maybe it's more qualitative throughout your different businesses on.
How does the organic the level of slow down potentially inorganic growth that we could see over the next three quarters and then as part of that question Sarah lag in some of your businesses, meaning that we could actually see.
Thats, what we see more of a slowdown in the third than what we might see in the second quarter.
Yeah. So.
Only slightly let me just say I think the reason we did.
The reason we did pull the guidance is because we saw.
The uncertainty had what we considered a relatively wide range now having said that we're very fortunate there there are some industries like.
Aviation or.
Hospitality or others that have really seen enormous hits to there.
Revenue and we're very fortunate in the sense, we're not going to be seeing that but.
But on the other hand could we see our route revenue decline from what it would have been.
May be.
Even at a double digit rate for the remainder of the this this year that's not impossible, we think thats that that's on the more extreme scenarios, but.
You know depending on how bad you think the hits going to be the general economic activity certainly.
We do well with the economies are doing well and we do less well when the economies are doing poorly so we.
You know as we've looked at it that's kind of the range, we thought about could we get too.
A double digit decline.
That's pretty extreme but it's not impossible. So those are the kinds of things that we looked at it we we didnt attempt to do much more than that at least we did some scenario planning on this but there are just so many.
Variables there that we quickly found we couldn't get to too much more than that but I think the good news is we're not.
I guess I said, we're not in some of these really distressed at industries, where they're going to see enormous hits to their revenue we don't see that are.
As I mentioned in the beginning the kinds of services that we provide our services that are clients need in.
Difficult times as well as in good times and so we for the most part C. Those continuing now in terms of are there. Some lives I think the one area that probably comes to mind. The most is and we've always seen in our human capital and benefits area in our talent and rewards it's the most.
Discretionary of all the services that we have and it's the one where clients will.
Sometimes and.
End up delaying or maybe canceling projects when there is.
When there is difficult economic activity, so could we see that occur in the lead into the third quarter from the second quarter, yes.
And that's something that we've seen in prior downturns. The one thing that makes it.
A little bit different here is that we see some upsides for this kind of work also because.
Clients are faced with new having new ways of working.
Having new deals that are going to be working out further for their employees and.
We think theres. Some we think there may be some opportunity to help clients with that as we go through so maybe this is a talent and rewards is as some upside that we would normally see in a downturn for most of the rest of our businesses I don't think we see.
We see that kind of a lag I think it it's going to be more or less tied to the overall economic activity I think sometimes in the in a downturn.
If the retirement, we can see that we actually have a little pickup in.
Activity right in the beginning because our clients are very concerned with our funded status.
With our contribution levels with their accounting cost so we actually get a bit of a pickup of that at least in the very early months of the downturn and so that might make the.
Third quarter, a little worse than the second but it might be because the second quarter has a bit of a pickup.
That's helpful.
Hey, Tom maybe I just had one comment to two years. There is that I think it's also just to emphasize the point you made which is.
When you look at our our business for example on our HCV business. We have a lot of work that is non discretionary and repeat now for example on retirement that we have going on a recurring work. If you think about it and the nonrecurring worker discretionary projects, yes, you're definitely seeing slow up and Thats.
And the timing of that is debatable, but it but it's being replaced by coven related support work the agile of our colleagues and the way, they're responding and supporting our clients in the marketplace is truly amazing and then what and what they're doing in terms of replacement revenue. So sorry, John I just want to emphasize I point you made.
Thanks, very much like I think one of the as is usual with most things about cobot. So like is right on point with what he's saying the only difficulty is as to how that does that outweigh some of the downturn from some of the discretionary projects that gets delayed or not we don't know the relative the size of those movements so lease.
Okay. That's helpful.
And if we looked at 88 that we entered the quarter the margin actually on it better year over year better than I would've thought and as I recall with your original guidance for 2020.
Okay transact on as being a hindrance tear margins in the first part of the year. It did how that business comes online, but did beyond the DTA sedney like perform was there something going on within that quarter with ongoing improvement maybe in the business away from transact.
Yes, I mean, I think today I think they just had a good quarter.
Is is what we would say I think the.
The biggest point, we want it to make in the.
In thinking about the impact of transact or this year versus last year is that last year, we had transact only at the end of the year and of course, that's when it's highly profitable in those quarters and this year, we had them for the full year and we do have the negative, but but still compared below our.
And improvement in de da and frankly, the beta is a business that we expect to be strong this whole year.
That's helpful. One last question and you might never disclosed on your transportation and entertainment cost as a percent of your expenses or is there. Some way he can give us some cost that some way to kind of understand on how much our expense base could benefit from this slowdown in teeny cost due to call them Alaska channeling.
I don't think we have ever disclose that the we've seen our our travel costs. So we actually have.
You know guidance out for our folks not to be traveling right now and.
As we as we start to see things opening up obviously will be relaxing some of that but throughout most of the world.
We have we have people not traveling I think what what are the things. We expect is as we come back and we actually have a task force working on this we don't think we're going to return to the same ways of working we think there are some things that we're doing with virtual meetings and with.
From home that will become a feature of what we do and so.
Even when we come back we will be traveling again, but we probably won't be traveling the same way or as frequently as we did and so we'll have to see how that impact.
Impact all pays out but for the moment, we've had a reduction in our travel and entertainment expense of course, we've had some increase in the cost for.
Our.
You know our web hosting and some of our virtual meet asked but it's been a net net savings.
Okay. Thank you for the color.
Good.
Thank you. Our next question comes on the line of Greg Peters with Raymond James Your line is now open.
Good morning, I realize that you are limited and what you can comment about the pending transaction, but I'm curious if you anticipate.
Any slowdowns with regulatory approvals as a result of covered.
And.
With the stock down as much as it is in the markets, obviously moved up too, but since the announcement I never really envision that the company would be sold at a price below 200.
Can you update us on shareholder feedback.
So I think first of all led Greg on the regulatory.
Front.
The regulators are working virtual late and I think they are.
Like a lot of other people.
It's some of this is new to them, but I think they've become pretty pretty good at reasonably efficient at that at the margin will that mean that things will be a little bit slower.
Perhaps.
But I think.
We don't we don't see this as being an enormous impact.
I think.
With regard to the.
With regard to the.
It feedback from shareholders.
We've had pretty positive feedback from shareholders I think they they see the value of the opportunity and.
They feel they feel pretty good about what we can accomplish as a combined from that so I said I think they see this is the next step in the evolution.
And then my second question is just around assay six of six obviously, when you're setting up the revenue assumption and the accounts receivable on that revenue.
You, there's embedded assumptions around numbers of employees et cetera, especially like in FCB and with the dramatic rise in unemployment I'm wondering about how you think your AMC six so six assumptions might change through the year.
As a result of.
Just the chaos that's unfolding.
Mike you want to comment, yes, I will John Yes, and we really don't see meaningful.
Change as it relates to it.
And in terms of thinking about of Craig them and so it's a good question something we we're obviously looking at but at this stage right now we don't see meaningful change as it relates to.
The numbers.
Okay.
Thanks, and I guess the final question I should ask is and I know you covered this little bit on your in your comments John.
But I feel like there's among the corporate world, there's a growing sense of social responsibility because of this rising unemployment.
And do you think thats going to impact the synergy objectives, you know when we think out a year or two.
Just because it's it seems so relevant with number of companies and industry with no. We'll lay off pledges et cetera, and I asked the same question of marsh as well, so but I get thrown at you too.
Yeah, I mean I think.
We.
We want to make sure that we have.
We.
We don't want to have.
People that are that we don't have worked for in the big and I think some of our synergy targets are probably around that.
A lot of our synergy targets are also around non people related costs also but.
I think will.
We'll we'll take this all into account, but we want to be a we wanted to be a company.
Willis towers Watson has always been and I think a on has been and I think the combined for will be a company that offers.
Meaningful.
Work and meaningful jobs and has great opportunities for our colleagues and I was asked earlier about how our colleagues feel about the combination and I think one of the things that's been.
Very positive is people see the increased opportunities that are going to be coming from the combination of the firms and so I think thats the excitement.
Thank you for your answers.
Thank you. Our next question from the line on Dave Styblo Jefferies. Your line is now open.
Hi, good morning, Thanks for the question.
Got it earlier talked about 85% of revenue.
Knowing that those what those are going to be for the year. It can you parse that down a little bit more so that we could understand.
What types of projects within there still might get pushed out for example, you noted that does that include things like in talent and rewards where Theres, an annual survey thats done to benchmark employee pay or salary.
And other types of works that that our would be at higher risk of getting pushed out and then if you could provide some color about the other 15% to 20% that that's not known or renewable ever year, what types of projects those are.
So the sub offense for puts and takes as you're evaluating a risk going forward.
Sure, Yes, I want to Dave. Thank you for the question.
So, let's let's just think about it but then I'll turn to hit the highlights versus everything a line of business here, but if you looked at our HCB segment think about retirement.
Whether they're being done for trust or for clients are there now done every year. So there we have multiyear arrangements that are in place and we can never take for granted servicing clients, but we have multiyear arrangements that are in place in terms of doing that so.
I don't know what do you think about maybe 70 30 or something like that that's recurring nonrecurring and just in terms of thinking about that.
And if you look at a nonrecurring you know there they're thinking about do they do bulk lump sum work as I mentioned in my earlier comments or other types of projects on the you're seeing some of that retrench.
In terms of the nonrecurring side of that equation or but equally if you look at our Taz business or you look at our talent rewards business people are thinking about how they manage their workforce how do they deal with Covance 19, and so we're seeing the nature of those projects either shut off but but change but those annual surveys are very important client base in terms of.
What they're looking for so we have multiyear arrangements that again ACB, we fill although the mix is changing you you are seeing some.
Questions around some of that discretionary spend but people are looking to how they manage covert 19, and we're putting solutions on the table.
If you move too if you move to our CRB segment I think you know, obviously youre seeing general economic conditions I think John mentioned this in his comments I mean look if you're not putting up a construction project or obviously, you've seen aerospace or or hotels and anything that related to the hospitality entertainment spot.
Our out there, but yet people still are looking at insurance they may not buying as much insurance are the but they may but they still look at insurance needs and we're seeing that are obviously seeing we're very fortunate see a bit of.
Tailwind on on price and reinsurance and do you think about that our retention rates are going up early high because it's not first on People's mind to say I'm going to change my relationship.
I want it really want to manage that relationship and if you look at our our IR our segment.
In particular in reinsurance or you know again, you know the people are keeping their relationships in place their multi year to be their investment business our multiyear.
Relationships there there that are income included so.
You know Alan and our BDCA segment, our long term relationships in terms of various agreements on arrangements that we have on our exchanges. So yeah. You know there's like as John said, its 15, 20% that's discretionary, but we feel pretty good about it we're very fortunate to be on the situation.
To help our clients be successful and manage manage through it but we are.
Thinking about how is that we manage the the changing nature of the work and obviously meaningfully going after discretionary spend.
To make sure that we manage our cost base aligned with where our revenues.
Okay. Thanks for that and then the second one would just be on transaction list with a on what gets you guys comfortable with potential overlap risk on the reinsurance book, how do you guys characterize that market and and to the extent that you would be concerned about divestitures.
So.
Look we we've had some extraordinarily good advice on the anti trust from on some of the leading law firms in the world.
And.
We feel pretty good about.
Our ability to bring the two firms together.
Okay, and then lastly, just on on transact appreciate the year over year growth color there.
I am just wondering about the impact of Corona Bayer.
Whats How's your ability then to transition all those folks to work from home and not Miss out on potential call volumes and then also on the demand side as seniors are deciding not to shop as much given some of the comments that we've heard other humana about about a slowing sales cycle curious what you guys are seeing.
From from those trends as of going into April I know March was obviously strong year over year, but is the slowdown perhaps in some senior buying manifesting down and transact right now.
So.
Mike you want to take that yes, if I couldn't John I mean, I. So they thanks again for the question I think gene.
And the his management team and BDCA have done an outstanding job of reacting to the changes that have been happening from covert 19 and be able to remark remotely and John prepared remarks. He talked about 90 90, 95% of our people are colleagues are working from home and that includes transact. So.
So much so that it's really you know between Gina and his leadership team and then even specifically drilling into transact have done a really good job of migrate in the business to be able to run virtually and its truly impressive frankly, how well they have been focused on serving clients and their ability to do it and such.
No comes back to some of the things John said is we're really asking ourselves what should be the ongoing business model going forward based on the worst that they've done so I think kudos to our team and the agility to the management team, we feel good about how well they have reacted to it and then and just I, we feel very good about what that means and were very.
Plus some lucky to have that team and the way that they've responded.
And then I guess the other thing I'd add is that we have not seen.
They.
Decline in senior buying.
As a result of this I think.
Theres theres some impact to make some seniors a little less reluctant to buy but on the other hit we see more people at home with time to look at these opportunities also so we.
We don't we don't foresee that as being a major issue as I said, we expect VA to be strong throughout the remainder of the year.
Great. Thanks.
Thank you. This concludes today's question and answer session I would now like turn the call back to John Handy for all three lines.
So thanks very much.
Everyone for joining us on the call today.
Again as I said at the beginning I Hope you and your families all stay safe and we look forward to updating you.
With our second quarter results.
So long.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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