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 supplement information 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 comments on today's call May constitute forward looking statements within the mean is on the private Securities Reform Act and 1995.
These forward looking statements are subject to risks and uncertainties.
Actual results may differ materially from those because today [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 earn this press release issued this morning as well as other disclosures in our most recent form 10-K, and other Willis towers Watson FCC filing.
During the call we may discuss certain non-GAAP financial measures reconciliations of the non-GAAP measures as all of the other information regarding these matters. Please refer to the most recent aren't as relief and other materials in the Investor Relations section of the company's website.
I'll now turn the call it wasn't John Haley Willis Towers Watson Chief Executive Officer. Please go ahead.
Thank you very much good morning, everyone and thank you for joining listen or 2021st quarter earnings call.
Joining me today are like are well, our chief financial officer, and rich keep our 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 pandemic.
First of all I hope all view and your families are staying hoping the safety and well being of our colleagues. It's been our primary focus is to cope with Nike 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 were financial results for the first quarter fiscal 2020. However, we've expected the impact of Cobot 19 on general economic activity could negatively impact or revenue when results for the remainder 2020.
We're closely monitoring to spread and impact of code 19, while adhering to governmental felt directors directives excuse me we've implemented restrictions on business travel off the success meetings and events, we have thorough business continuity and incident management processes in place including.
With team operations for a central workers and work from home protocols, which are now globally affected.
Communicating frequently with colleagues clouds 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.
And they had 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 or 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 are providing solutions, we help clients optimize their benefits we help them manage the risk we help them developed or 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 a 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 Greek part of our claims 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 but 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 or 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 make it a bit.
Back to our operations, we will continue to monitor the situation and assess possible implications to the company and our stakeholders.
Mike will provide further insight about the teams evaluation of contingency plans about capital and liquidity and the company's balance sheet shortly.
We're 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 to a on which provides for the combination of Willis towers Watson in a on it in all stock transaction.
The combination 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. This deal gives us the upper twos.
Need to accelerate our growth strategy through innovation and collaboration we're 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 the satisfaction 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 under dynamic 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 600.
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 proven.
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 head 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. The segment results included.
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.
[noise] 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 NAMIC 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 broking, 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 there Greg 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 Britons 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.
Ranch, principally price 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.
So 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 iron ores 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 PDH segment increased by 71% on a constant currency basis, and 1% on an organic basis from the prior year first quarter BB AIDS expand it 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 BDCA segment had revenue of $231 million with a minus 4.7% operating margin up from tick up over 10% from a minus 15.3% in the prior year first quarter the margin improved.
It 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 the 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 are experiencing as result of the cobot 19 pandemic.
I would also like to thank our clients for their continued support and trust in us helping clients solve complex problems that is at the heart of everything we do those 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.
Our first quarter represented a good start to the year with strong organic revenue growth robust margin expansion and the underlying adjusted EPS growth.
Now I'll 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 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 and 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 29 team our diluted EPS was $2.34 and $2.20 respectively.
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 and 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 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. It was resilient and we have completed comprehensive operational and financial planning to prepare for all scenarios, including the possibility.
<unk> 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 a durable 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.
Reserve 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 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.
Talk about our full year 2020 guidance, we're not yet seeing signs of a real slowdown 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 indicated of its potential impact on the company results for the remainder of the year.
The duration of the pandemic the full magnitude of its economic impact and the subsequent speed of recovery remain unknown.
Considering this uncertain 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 is impractical to provide detailed financial guidance at this time.
The company will reassess 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 discipline in the way, we allocate our resources to ensure business continuity and efficient operations, while maintaining still maintaining a very strong balance sheet.
Yes.
So 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 finally 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 bid.
It's a 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, 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 lift all 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.
Almost 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 comment that they had.
There are public announcement that they're going to be broadly reducing salaries in anticipation of veterans anticipation or if there's something already going on over there.
They are kind of a strategy difference end market difference or.
When you 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.
Tempting 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 our judgment is that if we can do those successfully they will probably be sufficient but the affected a 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 that I 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 them, but just we get a sense of how that is growing and.
It's Stuart.
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 that for the question.
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 expenses in the earlier periods. So small changes and you know last quarter's 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 lock walking with Baird. Your line open.
Good morning, Thanks for taking my question glad to hear that everybody is.
Doing well.
I wanted to broad sets of questions one would basically be.
If 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 exposure is.
And based on your experience how you think those different segments are going to end up performing and how they're going to end up reacting.
Okay.
What.
In regards to since the on announcement and since they've had time to digest that how they're feeling about it and.
If cobot ends up being really significant how could that ends up impacting that the transaction. Thank you.
Sure.
Thanks, very much Mark and.
What I'll do is up I'll start with your first question about our our colleagues around the world and then.
I'll make a couple of comments, but alas like to take us through the details of what we were seeing in the.
Is in March as a result.
Kogut so.
First of all I think.
When we announced the deal on large night and of course that was just win.
Particularly in in Europe spend in the US all of the Lockdowns and shelter in place was just beginning to be announced that week.
Coming out so it was.
Not a great time for us to be able to get out and talk to our colleagues.
Overall.
Paul about this but we have mid April I think to communicate we we had a couple of meetings that very first.
Weak and then we've been able to communicate with folks virtual Lake.
I think one thing it was interesting to us is.
How quickly our colleagues got what we were trying to do with this combination and I suspect.
Gee home in the midst of all these locked down and with this uncertainty from Cobot 19.
Maybe actually helped in some ways because the whole notion of what we're trying to do here is not to be getting bigger but to be getting better and to be building a new firm that is more innovative and were able to address.
New and emerging client needs than either of the two predecessor firms work and I think.
When you see what's happening with the result of Cobot 19, it actually strengthens the case for affirm with that kind of Claude innovative capability and frankly.
Having been through a couple of these big mergers before.
There's always a time in the very beginning where people are asking questions about what this has been and how does this fit I think we've seen a.
A positive embracing of this steel much faster than I had expected and I think thats in large part due to people being able to see the the promise of what will work will deliver together so.
It's still it's still early days, but I think we've had a number of.
Sessions, where.
Great case, and some of the senior leaders have been able to talk to some of our folks and we've had some sessions, where I've been able to talk to some of the and folks and I think we're seeing a lot of excitement from both sides about that so we continue to be I think more excited and more convinced.
About the rationale for this deal today than we were the day, we announced it and we were pretty excited about it that day. So I think generally we feel about as good as we think we we probably could.
Let me just say you're right.
One of the advantages of having been around a lot of time is that you're seeing lots of different lots of different scenarios.
Different recession's different downturns I think this is cobot 19, one is probably more difficulty more challenging certainly at least two to predict than any of the ones. We've been through before I think.
The.
The financial crisis is the most recent ones in memory, but that was one that we actually.
Willis towers Watson managed through both Willis and towers Watson managed through that financial crisis pretty well.
And we have.
We have large.
Recurring revenues.
80% to 85% of our revenues, we pretty much no before we start the year so.
That's that's a big health I think the.
This crisis, though is is a little bit harder because we're seeing its.
Effect on the general economy, it's whether we have clients that are going to out of business that.
Those are the kind of imponderables that we have to deal with that make this a little bit more challenging I think.
We saw some impact it's hard on Mike's going to all as Mike to take you through some of the details, but it's actually hard to strip out some of the co bit impact in the in the first quarter, we certainly know it affected us in Asia.
And in fact, when you through when you see particularly and NCR Bay when I was going through some of the growth rates. You saw international was the was the lowest traditionally that Sarah that's our highest growth rate and see our base, but we had some that we had some impacts from Asia.
There because February and March was when they were hit by a lot of their lockdowns, it's actually a little bit hard for us to completely isolate that but like can you take us through some of the segment by segment.
Yeah, John So if I mean would take it from the HCB segment and give you and each of the segment.
A little bit further color, what we're seeing by line of business. So if you look our retirement business.
Now from a risk standpoint.
So we continue to see.
That as an opportunity in our health and benefits business, our HCV business, we see revenue opportunities now around off cycle products bundled solutions and voluntary benefits. We've also been seeing rather high HIV retention rates in some of the geography is obviously due to call that I'm not putting any kind of changes high on their list.
And this is obviously, helping to offset the risk of renews reduce new business sales.
On the challenge standpoint.
Unemployment with increases in unemployment and they ultimately result in lower Commission has an impact on lower Commission revenue.
And just in terms of thinking about it from a CRB segment standpoint.
Now, we're seeing opportunities and risks analytic services, our risk management consulting activities. We are seeing obviously in the aerospace industry and John mentioned this just in terms of general economic conditions or you're seeing stuff as it relates to hospitality.
Areas.
And even to some degree the global Pfenex Unfinanced solutions lower deal volumes and lower M&A activity, obviously, having some impact overall.
If you look in our IR segment, our reinsurance business.
Clients are using reinsurance as production.
Mr.
Investment portfolios and consequent drop in capital surplus means most clients are likely repaying their current levels of reinsurance purchased.
We're obviously continuing to see rate increase and a tailwind from rate.
And obviously, you know where we're seeing some risk.
Yes as pressure from clients are continuing to look for ways to look at reductions and.
Back to the earlier question around transact.
Has been very strong for us on our BTI segment.
You know the retiree client interest for continuous now the continued uptick and people looking at cost savings and obviously, where we present in our BTA segment real opportunity for people.
To to manage their cost, particularly in a pre and post 65.
Hi through our exchange operations, so hopefully to give you some feeling flare, what's actually happening across our segments without going.
Alan and anymore detail, John I guess, I think I'll pause or in distress just to kind of hopefully gave some color to the question.
Okay Thats 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.
Okay.
By client Theres, no client that even gets up to 1% of our revenues. So.
When we look at it by industry.
We don't have any picked.
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.
Uh huh.
Thank you. Our next question comes on the line of Elise Greenspan with less Ardelle.
Your line is now open.
Hi, Thanks, good morning.
And on I understand there's a lot of uncertainty out there right now.
Got the desire to want to pull the outlook for the year, but I guess could you give us a fan.
As you think seething dividend Inc. rain here or maybe it's more qualitative blattner differences.
You know how did the organic level of slowdown potentially inorganic growth that we can see over the next week quarter alone as part of that.
Question can add in some of your businesses, meaning that we had actually see.
Anthony see more of a slowdown in the third on Ben what we might see in the second quarter.
Yes so.
A lease let me 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 seeing enormous hits to there.
Revenue as well.
Great fortunate in the sense, we're not going to be seeing that but.
[music].
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 extremes.
Marios, but the.
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.
As we looked at it that's created the range, we thought about could we get too.
A double digit decline.
Thats pretty extreme but it's not impossible. So those are the kinds of things that.
We looked at it we we didnt that tends 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 as I said, we're not in some of these really distressed at.
Industry.
For the rewards it's the most discretionary of all the services that we have and it's the one where client.
It's will.
Sometimes and.
End up delaying or may be 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.
As of working.
Having new deals that are going to be working out further further employees and.
We think there. So we think there may be some opportunity to help clients with that as we go through so maybe this is.
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 some.
Signs in in a downturn with 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 direct.
Hey, John 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 business for example on our HCV business. We have a lot of work that is non discretionary and repeat 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 it's now and the timing of that is debatable, but it but it's being run.
Placed by Colvin related support work.
The agile all of our colleagues in the way, they're responding and supporting our clients in the marketplace is truly amazing and the what and what they're doing in terms of replacement revenue. So sorry, John I just want to emphasize I point you made there.
Thanks, very much like I think one it as is usual with most things about little bits of Lake is right on point with what.
The same obviously difficulty as as to how that does that outweigh some of the downturn from some of the discretionary project.
Yes that gets delayed or not we don't know the relative the size of those movements release.
Okay. That's helpful.
We have about 88 that into the quarter the margin actually.
It better year over year, better than I would've thought and as I recall with your original guidance for 2020 point 8-K, transact on as being a hindering care margins in the first part of the year. It did how that business comes online.
Hi, but if the on the DTA gedney like perform like there's something going on within that quarter with ongoing improvement maybe in the business away from China.
Yes, I mean, I think today I think they just had a good quarter.
Is is what we would say I think they.
The biggest point, we wanted to make in the.
In thinking about the impact of transact earlier 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 that we do have the negative, but let's still comparable.
And benefit from this fall down into any cost physical damage, but shortly.
I don't think we have ever disclose that.
The we seen 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 one what are the things. We expect is as we come back in.
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 work.
From home that will become the feature of what we do and so.
Even when we come back we will be traveling again, but we probably.
Probably won't be traveling the same way or as frequently as we did and so we'll have to see how that impacts the 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 lead acid, but it's been a net net savings.
Okay. Thank you for the color.
Good.
Thank you. Our next question comes on the line level, 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 im curious if you anticipate.
Any slowdowns with regulatory approvals as result of covered.
And.
And with the stock down as much as it is in the markets, obviously moved down too, but since the announcement I never really envision that the company would be sold at a price below 200 up.
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 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 is being an enormous impact.
I think.
With regard to they.
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 has 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 HCV and with the dramatic rise in unemployment I'm wondering about how you think your assay so six assumptions might change through the year.
As a result of.
Just the chaos that's unfolding.
Like you want to comment, yes, yes, I will John Yes, and we really don't see meaningful.
Change as it relates to it.
And in terms of thinking about Craig them as it's a good question on 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've covered this little bit on your and your comments John.
But I feel like there's among the corporate world, there's a growing consensus social responsibility because of this rising unemployment.
And do you think thats going to impact the synergy objectives.
When we think out a year or two.
Just because it's it seems so relevant list number of companies in the industry with no we'll lay off pledges et cetera, and I asked the same question of marsh's, while so but I get thrown at you too.
Yes, I mean I think.
We.
We want to make sure that we have.
We.
We don't want to have the 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 one people related costs also but.
I think will.
Well, we'll take this all into account, but we want to be a we want to be a company add 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 spin.
Very positive is people see the increased opportunities that are going to becoming from the combination of the firms and so I think thats the excitement.
Thank you for your answers.
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Thank you Hi next question comes on the line on Dana Farber out with Jefferies. Your line is now open.
Hi, good morning, Thanks for the question.
Got that earlier talked about 80% of revenue.
Knowing that those what those are going to be for the year. If we 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 and talent and rewards where there is an annual survey that Don to benchmark employee pay or salary.
And other types of works that better 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 I just have a sense 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 then I'll turn to hit the highlights versus every single line of business here, but if you looked at our HCB segment think about retirement.
Whether they are being done for trust or for a client or they are 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 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'll see 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 do 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 other client base in terms of.
What they're looking for so we have multiyear arrangements that again ACB, we filled although the mix is changing your 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 to really want to manage that relationship and if you look at our our IR our segment.
In particular in reinsurance arm.
Then 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.
Alan and our BDCA segment, our long term relationships.
In terms of various agreements and arrangements that we have on our exchanges. So yes, 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 this 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 be on transaction was with a on what gets you got comfortable with potential overlap risk on the reinsurance book, how do you guys characterize that market and Anthony 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 there.
Whats How's your ability then to to transitional 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 of human antibody about a slowing sales cycle curious what you guys are seeing.
From from those trends that have 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 could John I mean, I. So the thanks again for the question I think gene.
And the his management team and BD I have done an outstanding job of reacting to the changes that have been happening from covert 19 and be able to rework 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 now 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 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. 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 and 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 a.
Decline in senior buying.
As a result of this I think.
Theres theres, some impacts and 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 don't we don't foresee that is being a major issue as I said, we expect VVA to be strong throughout the remainder of the year.
Great. Thanks.
Thank you. This concludes today's question and answer session I would now I can't recall that think on handy for other in line.
So thanks very much.
Everyone for joining us on the call today.
Again as I said at the beginning I hope you'll your families. All was stay safe and we look forward to updating you.
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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