Q1 2021 Willis Towers Watson PLC Earnings Call

April 29, 2021

Statements section of the earnings press release issued this morning, as well as other disclosures and our most recent form 10-K, and and other Willis towers Watson and SEC filings.

During the call certain non-GAAP financial measures may be discussed for reconciliations of these non-GAAP measures as well as other information regarding these measures. Please refer to the most recent earnings release and other materials and the Investor Relations section of the company's website I'll now turn the call over to John Haley.

Willis Towers Watson Chief Executive Officer. Please go ahead.

Thank you and good morning, everyone and thank you for joining us today on our first quarter 2021 earnings call. Joining me today is Mike Burwell, Our Chief Financial Officer Today, We will review our results for the first quarter of 2021.

I am pleased with our first quarter financial results and the continued momentum and our business, we generated organic revenue growth of 4% and 110 basis point adjusted operating margin improvement each of our operating segments contributed to the margin expansion this quarter driven by new business generation.

<unk> strong retention rates and increased operating leverage across our core businesses.

Through the first quarter of 2021, our coffee has continued their tremendous efforts to serve our clients through these challenging times and delivered a strong financial performance I'd like to extend my heartfelt. Thanks to all our colleagues for their dedication professionalism and support of one another.

And for continuing to bring your very best and the table every day, you're solidarity and resilience are truly inspiring.

Our accomplishments in quarter, one and reflective of our purpose and action the.

The impact of other work extends to the people and our client organizations to each other and to our communities for many of US. This greater impact is on why it's the purpose behind the work, we do creating clarity and confidence today for a more sustainable tomorrow.

Grounded in this sense of purpose, we've continued to partner with our clients to help strengthen their resilience and progress towards long term success.

The events of the past year have sharpened their focus on.

Clients, our colleagues and our other stakeholders expect us to conduct our business with integrity and in an environmentally and socially responsible manner with high ethical standards. We take these expectations seriously and have embraced principles that are aligned with our business priorities are consistent with.

Our commitment to ethical and sustainable practices and demonstrate our respect for the communities and which we operate around the globe.

For this reason Willis towers Watson has partnered with companies worldwide to increase racial justice by joined the World Economic Forum's racial justice and business initiatives.

The purpose of this initiative is to build more equitable and just workplaces for professionals with underrepresented racial and ethnic identities Willis towers Watson is among 44 founding members representing $5 2 million employees and 13 industries as part of this ongoing global conversation with leading on.

Organizations worldwide, we can both learn from them to increase racial diversity and inclusion inside the company and contribute our own ideas to address the issue more broadly and.

And working towards the goal of improving the communities, which we serve I'm proud to say, we recently announced our commitment to delivering net zero greenhouse gas emissions and alignment with the science based targets initiative by 2015 at the latest with at least 50 per cent reduction by 2030.

Through improvements to energy efficiency, and our operations leveraging virtual meeting tools promoting recycling and encourage you and her colleagues to adapt and environmentally responsible habits. The company aims to minimize its carbon emissions and any other related harmful environmental impacts.

Turning now to our proposed combination with E on and we continue to be excited about the potential of the combined firm and are committed to its completion.

Upon close we will serve a common purpose to serve clients and improve communities blending the best of both of our firms will innovate on behalf of our clients and co create solutions to address unmet client needs.

We will build inclusive and diverse teams engaged colleagues and enable them to deliver their full potential during the first quarter. We continued to build momentum towards closing the transaction with E on and made significant progress and are in a gate integration planning efforts, we anticipate closing and the first half of 2021.

Subject of course to regulatory approvals.

Now, let's move on to our first quarter results reported revenue for the first quarter was $2 6 billion, that's up 5% as compared to the prior year first quarter up 1% on a constant currency basis and up 4% on an organic basis income.

One we continued to face some headwinds due to macroeconomic factors such as COVID-19 and.

And the prior year, we only started to see the impacts near the end of the first quarter. We started to experience some improvement and areas where revenue is tied to discretionary project spending similar to last quarter, we experienced solid financial performance and areas, where we have a well established market position mature relationships.

And annuity or compliance driven business.

Net income was $736 million up 135 per cent for the first quarter as compared to $313 million of net income and the prior year first quarter.

It should be noted we disposed of our Miller wholesale business on March one 2020 for $696 million and proceeds and a gain of $356 million on a tax free basis or $2 73 per share and.

Adjusted EBITDA was $730 million or 28, 2% of revenue for the first quarter as compared to $680 million or 27, 6% of revenue for the same period last year, representing a 7% increase on an adjusted EBITDA dollar basis, and 60 basis of margin improvement for the <unk>.

Quarter diluted earnings per share were $5.63, an increase of 140% as compared to the prior year. This included a net $350 million gain on disposal of operations, mostly resulting from the sale of on Miller wholesale business.

Adjusted diluted earnings per share were $3.64 per the first quarter, reflecting an increase of 9% compared to the prior year. Overall it was a solid quarter. We grew revenue and enhanced margin performance and we increased earnings per share now, let's take a look at each of the segments in more detail to provide clear comfort.

Ability with prior periods all commentary regarding the results of our segments will be on on organic basis, unless specifically stated otherwise.

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

<unk> compensation.

The human capital and benefits H E. B segment revenue was flat on an organic basis and constant currency basis compared to the prior the first quarter of the prior year and generated the similar level of revenue with one less billing day this year.

This result represents sequential revenue improvement compared to our prior quarter, which was driven by increased demand for advisory services across various lines of business.

Talent and rewards revenue decreased nominally with the uptick and executive compensation and rewards strategy work offset by declines in our traditional survey sales and communications and change management offerings.

Our health and benefits revenue was flat for the quarter. We continued to grow revenue from advisory work and North America, and global benefit management and local brokerage appointments outside of North America. However, this growth was offset by lower Commission based revenue, which was tied to prior year book sales.

<unk> revenue was also flat compared to the prior year with funding and guaranteed minimum pension equalization and work in Great Britain offset by declines in North America, resulting from one less billing day and less derisking activity Ted.

Technology and administration solutions revenue grew moderately primarily due to increased project work and new business activity and Great Britain.

Hcp's operating margin increased by 20 basis points compared to the prior year first quarter. As a result of continued expense reduction efforts. We're pleased with HEB sequential improvement and margin growth our long term outlook on H D day remains positive the pin debit.

He has changed the needs and demands of workers and workplaces HCV stands ready to help clients navigate the transition.

Now, let's look at corporate risk and broking, or CRB, which had a revenue increase of 5% on on organic and constant currency basis as compared to the prior year first quarter, Great Britain and international revenue increased 8% and 15% respectively for the first quarter. The revenue increases were primary.

And really driven by new business wins, most notably a natural resource and Phoenix insurance lines.

North America's revenue was up by 6% and the first quarter driven by strong renewals across all regions, but also particularly in the Phoenix lines.

Revenue for Western Europe decreased 2% due to both the timing of some revenue moving to later quarters and the departure of some senior staff, which pressured business and certain geographies.

CRB revenue was $810 million for the quarter with an operating margin of 20.0% compared to $739 million of revenue with an operating margin of 17, 2% and the prior year first quarter.

200 basis, 280 basis point margin improvement reflects the continuation of effective cost containment.

To see the strong topline growth and improved profitability and the first quarter is encouraging and we remain optimistic about both see or be short term and long term growth prospects and a world marked by uncertainty CRB goes beyond their traditional boundaries of insurance products and risk management to deliver services.

And that help organizations prepare for what May lie ahead.

Turning to investment risk and reinsurance or IRR.

Revenue for the first quarter was $605 million and increase of 4% on an organic basis and a decrease of 5% on a constant currency basis as compared to the prior year first quarter reinsurance with growth of 4% continued to lead the segment's growth through a combination of net new business and favorable.

Renewal factors.

Insurance consulting and technology and investment businesses, all contributed to the segment's revenue growth both lines of business were up 8% compared to the first quarter and the prior year, having benefited from increased demand for advisory work and <unk>.

<unk> consulting and technology revenue growth was aided further by increased software sales.

The wholesale business was down 14% on an organic basis although.

Although that's reported as organic about half the decline was because we transferred wholesale special contingency risk business to the CRB segment and the fourth quarter of 2020, the remainder of the revenue decline was largely caused by ongoing pressure on various insurance lines from COVID-19, as a reminder, we sold.

Our wholesale business on March one 2021.

IRR had an operating margin of 47, 9% up 280 basis points as compared to 45, 1% for the first prior year first quarter. The strong margin expansion was the result of careful cost containment efforts, coupled with solid topline growth eye on.

Our helps businesses and communities to sustainably and navigate the risks and opportunities ahead irr's powerful combination of advisory services technology solutions and analytical capabilities continues to create value for companies as they reevaluate risk and reinforce resilience post pandemic.

Yeah.

Revenue for the benefits delivery and administration or BDA segment increased by 23% on on organic basis, and 24% on a constant currency basis from the prior year first quarter the growth and revenue was largely driven by individual marketplace, primarily by transact, which contributed one one.

$48 million to Bda's topline this quarter with growth and Medicare advantage products. The benefits outsourcing business also contributed to the increase in revenue, which was largely driven by its expanded client base.

The BDA segment had revenue of $287 million with a two 5% operating margin as compared to revenue of $231 million and a negative operating margin of minus four 7% and the prior year fourth quarter first quarter excuse me, we continue to feel positive about the moment.

And our BDA business for 2021 for many people. The pandemic has highlighted the importance of securing health and wellness plans that meet their individual needs BDA provides education communication and decision support tools that empower employers employees and retirees to navigate the changing world.

And the benefits.

Overall I'm very pleased with our results. This quarter, we delivered strong overall financial performance with top line growth margin expansion and EPS growth all while continuing to make progress against strategic initiatives and our proposed combination with day on now I'll turn the call over to Mike.

Thanks, John and good morning to everyone and thanks to all of you for joining US first I'd like to extend my appreciation to all our colleagues.

And we've asked a lot of our teams and our colleagues continue to pull together and deliver and I'm proud of all the work they have done to continue supporting our clients each other and the communities and which we work and live.

And we're off to a solid start this year, while we continue to face some headwinds from COVID-19 pandemic. We are reassured by the improved demand for our discretionary services and solutions and by our ability to generate profitable growth. We're pleased to see another quarter of solid revenue growth with other line adjusted EPS growth.

Free cash flow decreased and improve when normalized for certain significant litigation and compensation payments made this quarter.

Now I'll turn to the overall detailed financial results.

Income from operations for the first quarter was $452 million or 17, 5% of revenue up 290 basis points from the prior year first quarter income from operations on $360 million or 14, 6% on revenue.

Adjusted operating income from the first quarter was $579 million or 22, 4% of revenue up 110 basis points from $525 million or 21, 3% of revenue and the prior year first quarter.

And for the first quarters of 2021 and 2020, our diluted EPS from $5 63.

And $2.34, respectively, which included the $359 million gain on disposals.

For the first quarter of 2021, and our adjusted EPS was up 9% to $3 64 per share as compared to $3 34 per share and the prior year first quarter.

Foreign currency rate changes caused an increase on our consolidated revenue of $86 million or 4% of revenue for the quarter compared to the prior year first quarter with 12, <unk> tailwind to adjusted diluted EPS per share this quarter.

Our U S GAAP tax rate for the first quarter was 11, 5% versus 20% and the prior year.

Current quarter tax rate was lower primarily due to the tax exempt disposal of our Miller business or.

And our adjusted tax rate for the first quarter was 25% up nominally from 24% and the prior year.

Turning to the balance sheet we.

We ended the first quarter with a strong capital and liquidity position with cash and cash equivalents of $2 billion and full capacity and our undrawn $1 25 billion revolving credit.

Facility, we also successfully reduced our leverage profile by repaying $500 million of bonds outstanding during the quarter Willis.

Towers Watson remains well positioned from a liquidity perspective, we aim to continue to maintain a strong and durable balance sheet and continue pushing forward on our cost savings and efficiency initiatives as.

As the economic recovery unfolds, we will continue to monitor the ever evolving impact of the pandemic and are prepared to take appropriate measures as needed to preserve our financial position.

Free cash flow was negative $165 million compared to negative $43 million and the prior year. The decrease on a year over year free cash flow was due to the net legal settlement payments of approximately $185 million and respect to the previously announced Stanford and real Istar was Watson merger settlement and higher incentive compensation and benefit related items of approximately 180.

Absent. These one off items free cash flow would have increased more accurate, reflecting our run rate improvements and working capital and cost containment efforts.

We've made tremendous progress to improve our free cash flow and 2020, and we remain dedicated and are focused on maintaining on our progress in this area and 2021.

In terms of capital allocation and the first quarter of 2021, we paid approximately $92 million of dividends, we do not expect to repurchase any shares for the remainder of 2021, given certain prohibitions on the transaction agreement with them and connection with our pending business combination.

Pension contribution to our qualified plans totaled $86 million and first quarter and we are currently projecting contributions of $126 million for 2021.

As a general matter of COVID-19, pandemic did not have a material adverse impact on our overall financial results and 2020 or and the first quarter of 2021. However, the pandemic did continue to impact revenue growth, particularly on some discretionary lines and we expect the effects of COVID-19 on general economic activity may continue to negatively impact our revenue and our results.

For the remainder of 2021 day.

<unk> on the pandemic the full magnitude of its economic impact and the subsequent speed of recovery remain unknown.

In the meantime, we remain focused on maintaining a strong balance sheet liquidity and financial flexibility.

We're very pleased with these first quarter results. There are a direct reflection of our resilience and our continued focus on strategic priorities.

Our first quarter results were very encouraging we have momentum solid financial results and a strong balance sheet and an excellent team, which gives me confidence and our ability to continue driving value for all our stakeholders and I will turn the call back to John.

Thanks, very much Mike and now we'll take your questions.

We will now begin our question and answer session.

Like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question press the pound key please standby for the first question.

Your first question will come from Greg Peters with Raymond James. Please proceed with your question.

Good morning, John Mike and team.

So I'll just ask three questions and I.

First I realize you are bound by Irish takeover law, but I guess it might be professional malpractice. If I don't ask you on merger a question.

Two parts of the merger question you said in your comments Youre still expecting expect to close and the first half of 'twenty one.

Pending regulatory approval I'm wondering if I'm not mistaken the phase two extension from the EC goes into July so that would imply a second half potential regulatory approval and the second piece on the merger as I know you haven't commented on it but.

The disclosures and the press suggests that you're going to exceed the revenue divestiture cap and the purchase documents. So I was just wondering if you could give us some color on those two items.

Yeah, Thanks, very much Greg so.

On the <unk>.

First of all on the EC I think.

I think there.

Tension goes into July that doesn't mean, it has to run that long.

And it's still possible to close June 30th and be consistent with that with that.

Extension.

So no particular a conflict there.

And.

I'm sorry, what was the second question.

This on the divestitures and the <unk>.

The leaks to the price given what we're hearing suggests that you might exceed the $1 8 billion dollar revenue divestiture cap thats and the purchase document and just trying to reconcile that.

And your perspective on that to the extent and I can comment on it.

Yeah actually as and you won't be surprised to hear that we're really not and positioned to speculate on any potential divestitures.

Yeah I figured.

Well, let's pivot to.

<unk>.

Producer retention.

Comment that you made regarding CRB and.

And let's expand that can you just give us an update I know from time to time and you have comment on and employee retention and the past can you give us a sense of how the retention has stacked up through the first quarter.

Have seen reports and the process of certain teams, leaving just curious how the Willis franchise exists today versus where it was a year ago.

Yeah.

So a couple of things, let me say first of all.

I think our.

When we look at our turnover.

And.

Sales of the Rolling 12 months today compared to where it was a year ago and I look at it.

Segment by segment, it's pretty much.

About the same maybe.

Maybe slightly improved in general the one.

Segment that it's up it's BDA and.

And.

And Thats just a function of some of the expansion I think of transact and.

We have a lot of turnover a lot of turnover there, but overall.

If I look at it segment by segment and turnover is slightly.

Improved now at the same time every time a.

Transaction like a big merger are.

Acquisition gets announced there are some people that decide.

They don't want to be part of and new organization and certainly we've seen that in some.

In some instances, but when we look at it in terms of the overall impact it's not it's not necessarily showing up as a big overall impact, but we can certainly point to isolated instances, where that's happened and those are the kinds of things we've seen happen before it and this business and we think we're prepared to deal with them, but it is something we continue to look at.

Got it I guess the final question would be on free cash flow I know you called out the Stanford cash payment settlement and the first quarter.

If we exclude that and think about the full year. How are you feeling about free cash flow for 2021. After what was a phenomenal result in 2020.

Well I'll I'll, maybe just give you a quick reaction from me which is that.

I couldnt be happier with our <unk>.

Cash performance in the first quarter I felt we had a tremendous first quarter last year and I think we did significantly better. This year. So I was really pleased to see what we have been as Mike mentioned, we did have a couple of the.

Trends things that affected us this year compared to last year, but I see continued progress being made but Mike maybe you want to comment on that.

Yes, Thanks, John and thanks for the question Greg.

We have put a lot of effort and a lot of focus to.

Have repeatable processes on.

Our colleagues and I'm, working very hard and and continuing to deliver as John said in terms of delivering that free cash flow. So.

Although as you know, Greg, we're not giving any guidance, but but nonetheless, we're very pleased with what's happened here for the first quarter and as I say I'm very very proud and pleased with what the team continues to deliver.

Got it thank you for the answers.

Great. Thanks.

Your next question will come from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi, Thanks, and good morning.

My first question.

Going back to you had mentioned from senior staff departures right and.

Revenue within Western Europe.

And I guess tying that together with on your response to Greg.

And.

And the fact that I think you said North America is right Theres always some type of you know kind of individuals that will choose to believe is that the only area I guess on your business, where you've noticed on.

On a more significant impact from some inquiries on that might have lessened on conversion.

And I.

I would have to say Elyse I think we've seen.

And you might see.

Half a dozen people leave here or half a dozen people leave there and so you see some isolated ones I think the western Europe, one was probably the most significant one lease up.

Okay, and then as we think about you guys mentioned.

The impact of the economy on.

And a COVID-19 facility and impact on your business right.

On an overall basis for Willis towers Watson right you guys are free.

And on 4% organic revenue growth, which was an improvement from what we thought and the back late quarter. It on 2020.

And just based off of the fact that no vaccines are being rolled out on.

It looks like the economy, one clue on COVID-19.

Should we be other Q1 is kind of the low bar for the year and you know.

It sounds like there should be some tailwind to your organic revenue that other can be quite a bit on 2021 should be better than what we found and the first quarter.

Yeah, I would say so first of all we haven't given guidance and then.

The reason we haven't given guidance is because this is such a volatile environment and it's hard to predict.

Exactly what's going to happen, but I would say this we feel better about the rest of the year today than we did when we entered 2021 and we also feel very good about our ability to grow with the market and to compete so.

And we're somewhat optimistic.

Yeah.

Okay, that's helpful and.

And then from on.

We're talking to expenses and margins and on at.

It sounds like the kind of growth driving margin and put a medic solid expense management throughout the different segments on.

It doesn't sound like there was anything one off within your margins that perhaps you think about not continuing on but.

Is there anything COVID-19 related or is it just kind of a great on good expense management quarter, and we could think about that continuing on from here.

Yeah, I I think the theme that Mike had touched upon was on.

Our colleagues throughout the organization embracing what we needed to do during COVID-19 and responding and we've seen them do that and we do in general. We think these are things that are going to be ongoing.

Okay. Thanks for the color.

Mm Hmm okay.

Your next question will come from sales to find out with Deutsche Bank. Please proceed with your question.

Yeah, Thanks and good.

Good morning, so the growth and transactions continues to be a fantastic, it's outpacing our expectations and if I'm not mistaken. This is the first segment operating margin that was positive for BDA.

Outside of a fourth quarter maybe ever.

Can you talk about the extent to which transact is helping to drive that and the extent to which growth could continue to lap the strong growth we saw last year.

Mike do you want to.

Yes, yes translate and weird.

Really and been very pleased with transact if you go back when we announced transact.

We are very excited about what they brought to the table.

And in terms of their ability to serve the market.

We saw it as a market that was very very strong and we had put out there in terms of organic revenue growth and.

Is it pretty formidable view over the next several years and.

In terms of what the CAGR growth rate was going to be and and.

Transact has exceeded it.

So.

As you said and rightly pointed out in terms of where the margin is in terms of improvement and positive for the first time other than the fourth quarter.

Happening.

Transaction and a big Big contributed on it so I got to tell you we see it as is doing very well and we really like the transaction transact team and what they continue to deliver and we couldnt be happier with their performance.

Okay, Thanks, and so switching gears a bit and just going back to the potential merger with Aon I understood that you don't want to comment on any potential divestitures, but maybe I'll come at this from a different angle.

And if I wanted to take and negative lens.

The view this at.

I could argue that the divestitures and a regulatory approval scenario might be at a.

A forced sale price it will be less and you would get and the.

And the market, otherwise and if I layer on top of that.

Incentive comp retention awards and.

How do you think about these dynamics.

The deal done versus the fiduciary duty to maximize value for shareholders.

I mean, I think we we always have in mind, a fiduciary duty to maximize.

Value for shareholders and when we're considering anything whether it's acquiring a company divesting of company are just running our business. So we that's one of our Paramount considerations.

And so.

And maybe the press on this just a bit and then and then I'll, let it go but is there a level of revenues and and.

Price that you could get for potential divestitures at which.

This starts to feel like the deal doesn't make sense anymore for the Willis towers shareholders.

Well I mean.

Again, I don't want to speculate on things, but let me just address something as a theoretical matter. If you were told you had to give away our businesses and couldn't get anything for them of course that would seem like that would not be a good thing for shareholders. So clearly there is some price at which is the cars.

Yeah.

Okay. Thanks.

Yeah.

Your next question will come from Sumit comment with Citi. Please proceed with your question.

Thanks, I wanted to ask another one on the pending merger.

Can you talk about the client reaction to the deal and obviously, it's been announced its been out there for a year are you seeing any concerns around sort of concentration risk.

With the combined.

And company from from your clients.

Quite the contrary our clients are.

Very excited about the.

<unk> that the new firm can bring to addressing unmet needs and you may remember when.

Great case, and I first announced this.

<unk>.

What we talked about was the possibility for innovation the possibility of the new firm being and are better positioned to address unmet client needs and clients have responded quite enthusiastically about this and and I would say you know the fact of the matter is the businesses we're in.

Across the whole spectrum are all highly competitive businesses and we don't see any concentration risk.

Got it and then on the 400 million dollar retention payment that was part of the deal.

Is any of that being paid now which could be impacting your.

Level of attrition.

No.

So that's all set once the deal closes.

Any retention payments are at the time and the deal closes or after.

Got it and and just one last one on that.

Is there an element here, where the retention payments are effectively being communicated to employees and whatnot.

Not being paid.

Oh, Yes of course, yes, yes, yes.

And have any retention effect, if they didn't really know what they were getting.

Okay got it thanks.

Yeah.

Your next question will come from Mark and Mccallum with Baird. Please proceed with your question.

Good morning, John and Michael and John I, just wanted to start off by saying.

We don't know if we're going to have a second quarter call I'm just given that this is going to end up closing.

Prior so first of all congratulations going all the way back to the Watson Wyatt days.

For all the shareholder value that you've created.

Over multiple decades.

It's been and incredible run.

So I just wanted to start with that.

Can you can you just talk a little bit about.

And if there's if the if the client reaction has all been positive.

You know what.

What would what would be the driver behind <unk>.

Some of the objections that are out there.

Broadly theoretically.

Yeah, So first of all Mark.

Thank you very much for those kind words, it's been a pleasure to work with you over.

Over the years and.

I am I am actually hopeful that this ends up being my last earnings call and that we closed June 30th is as anticipated.

So I think we're.

And when regulators look at.

Markets, They go and they talk to.

They talk to clients they talk to other market participants they talk to competitors and they get a wide variety of.

Comments from them.

On times.

They you could hear from a small minority of.

Market participants and the regulators are still put some emphasis on that so you know there's lots of different ways that you could.

Look at it and it reached at least have the potential to ask some questions about it.

But our experience and of course, you know, we're probably going to hear from the clients that are the most enthusiastic about it I get that but our experience has been that clients are quite excited about the prospects of the combination.

Great and then can you just talk about.

So.

Aggressive law, how big is that now and just from a revenue perspective roughly speaking.

Mike do you have the figure on that don't you.

Mike are you on mute.

Sorry, John Yes, It says about think about it and I don't know its and the $400 million range something in that range.

Okay.

And then Willis re and the U S. How do you wouldn't happen to have that with you Mike.

And I think we really disclose that mark and that kind of breakout.

Sorry would you have and estimation or.

Now now and we just really have I'm, sorry, Mark and we really haven't disclosed that.

Yes, I think mark it's not it's not that Mike doesn't know it's there.

Haven't disclosed that.

Got it.

And I'm, saying and this is a public forum and obviously.

No.

Yeah, I mean, it's fairly obvious what I'm trying to get at.

And just because it does seem like we do.

There are some press reports that we're going to be above the merger cap and there are some that are.

That would suggest that maybe we're gonna be below and so I was just trying to triangulate on some other pieces.

Is there any comment that you can make just with regards to what seems realistic or what the next step.

You've obviously got a long term track record of success, you think about all of the possibilities.

You didn't just.

Youre, obviously super sophisticated and all of your advisors are as well so just.

It's hard to imagine that you havent conceived of some of the possibilities that could come up or and some of the next steps to address those so.

And trying to think through like I mean, even if we if were slightly above the merger cap I mean, there would be a relatively easy reconciliation on that winter.

Yeah, I mean I think.

Mark So first of all I think you're right as we think about any of these things with our.

Our partners at a on about.

Whether we make whether there might be some remedies that we we offer two regulatory authorities.

And so I said to an earlier question, we always have the best interest and the shareholders in mind and doing something that that makes sense, but.

We've you know.

We really we're not in a position right now where we can just comment about any potential and certainly not about press reports, which oh.

Are out there and you know sometimes have some elements of truth, but a lot of times a wildly inaccurate.

Got it.

And just I mean from.

From a purely regulatory strategy perspective.

Does it make sense to think okay. The EC was the first priority next up is the Doj.

And then after that we go to some other smaller countries and.

If the Doj and the ECR both on board.

It's gonna be hard to imagine that some other smaller countries would end up.

Proving to be decisive does that.

I reasonable way about it.

Yeah, well I would say that certainly day, the vast bulk of our business is in.

The other.

AC and including the U K and that and and the U S on the other hand.

We have been.

Meeting with and addressing our regulators in jurisdictions throughout the world and.

And we.

We are we're committed to working with all of them were committed to.

Making sure they understand the transaction and why this is good for the competitive.

Competition and the industry and we're not we're not emphasizing necessarily one over the other but it is true that the bulk of that businesses and those two jurisdictions.

Okay and.

And then.

And Matt I imagine that.

<unk> is growing better than.

You know anybody anticipated say.

912 months ago when.

When we take a look at the growth that we're seeing here and the possibilities going forward I mean, what what inning do you think we're in with regards to transact and how powerful that could end up being.

Yeah. So.

I think we had and.

And and gene Wickes, and Mike Burwell and I. When we were first looking at this and gene and Mike are the ones, who really led the charge on transact.

Had lofty expectations and transact has performed way above our lofty expectations. So we couldn't be more pleased with how that has worked out.

This is a very dynamic market, there's lots of I.

I think growth opportunities and there's lots of potential changes, which could be down to the benefit of organizations like transact. So we think you know where were and the early innings second and third I mean this is there there's a lot left to play out here, yet I think mark.

Congratulations to you John and also to gene if he's listening and Mike and everybody else on the team. So congrats thanks.

Thanks, very much mark.

Thanks, Brian on your final.

Question on queue will come from Meyer Shields with K B W. Please proceed with your question.

Thanks to really brief questions I think one John can you quantify the impact on CRB.

And its organic growth from net transfer of wholesale business.

Mike you have that number don't you.

It's really immaterial.

And there yeah, I think we talked about that on the last quarter. We said it was it was material for the wholesale business, but immaterial foresee our verifone because there'll be.

Yeah, No I just want to see what it is that held up in the first quarter second one yes. It does.

Okay perfect.

Can you sort of lay out the timeline from when the Western European staff left and when do you hooked weighted revenues kind of disappeared, but that at the same time is there a lag.

And it was the middle of last year some time.

Middle to late Middle.

And there's folks left.

But the revenue impact tends to be noticed a little more on the first quarter. When you have a lot of the renewables.

Okay, No that's perfect. Thanks, so much.

Yeah.

And we have reached the end of our question and answer session and I would now like to turn the call back over to John Haley for closing remarks.

Great well, thanks, very much everybody.

This is the time when I traditionally say, we look forward to updating.

Updating you on our second quarter earnings.

And later this year I'm actually hoping that transaction is closed and we don't have that call, but if not we do look forward to updating you then have a good day.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good morning, welcome to the Willis towers Watson first quarter 2021 earnings conference call.

Please refer to the Willis towers Watson dotcom for the pre press release and supplemental information that was issued earlier today.

Today's call is being recorded and will be available for the next three months on the Willis towers Watson's website.

Some other comments and today's call may constitute forward looking statements within the meaning of the private Securities Reform Act of 1995.

These forward looking statements are subject to risks and uncertainties actual results may differ materially from those discussed today and the company undertakes no obligation to update these statements unless required by law.

For a more detailed discussion of these and other risk factors investors should review the forward looking statements section other earnings press release issued this morning, as well as other disclosures and our most recent form 10-K, and and other Willis towers Watson SEC filings.

During the call search and non-GAAP financial measures may be discussed for reconciliations of these non-GAAP measures as well as other information regarding these measures. Please refer to the most recent earnings release and other materials and the Investor Relations section other companies' website I'll now turn the call over to John Haley.

Willis Towers Watson Chief Executive Officer. Please go ahead.

Thank you and.

Good morning, everyone and thank you for joining us today on our first quarter 2021 earnings call. Joining me today is Mike Burwell, Our Chief Financial Officer Today, We'll review our results for the first quarter of 2021.

I'm pleased with our first quarter financial results and the continued momentum and our business. We generated organic revenue growth of four per cent and 110 basis point adjusted operating margin improvement each of our operating segments contributed to the margin expansion this quarter driven by new business generation.

And strong retention rates and increased operating leverage across our core businesses.

Through the first quarter of 2021 our Congress continued their tremendous efforts to serve our clients through these challenging times and delivered a strong financial performance.

And I'd like to extend my heartfelt thanks to all our colleagues for their dedication professionalism and support of one another.

You for continuing to bring your very best and the table every day, you're solidarity and resilience are truly inspiring.

Our accomplishments in quarter, one and reflective of our purpose and action.

Impacted by work extends to the people and our client organizations to each other and to our communities for many of US. This greater impact is on why it's the purpose behind the work, we do creating clarity and confidence today for a more sustainable tomorrow.

Grounded in this sense of purpose, we've continued to partner with our clients to help strengthen their resilience and progress towards long term success.

The events of the past year have sharpened our focus and our clients our colleagues and our other stakeholders expect us to conduct our business with integrity and in an environmentally and socially responsible manner with high ethical standards, we take these expectations seriously and have embraced.

Poles that are aligned with our business priorities are consistent with our commitment to ethical and sustainable practices and demonstrate our respect for the communities and which we operate around the globe.

For this reason Willis towers Watson has partnered with companies worldwide to increase racial justice by joined the World Economic Forum's racial justice and business initiative.

Organizations worldwide, we can both learn from them to increase racial diversity and inclusion inside the company and contribute our own ideas to address the issue and more broadly.

And working towards the goal of improving the communities, which we serve I'm proud to say, we recently announced our commitment to delivering net zero greenhouse gas emissions and alignment with the science based targets and initiatives by 2015 at the latest with at least 50 per cent reduction by 2030.

Through improvements to energy efficiency, and our operations leveraging virtual meeting tools promoting recycling and encourage you gotta colleagues to adapt and environmentally responsible habits. The company aims to minimize its carbon emissions and any other related harmful environmental impacts.

Turning now to our proposed combination with E on and we continue to be excited about the potential of the combined firm and are committed to its completion.

John close we will serve a common purpose to serve clients and improve communities blending the best of both of our firms will innovate on behalf of our clients and co create solutions to address unmet client needs.

We will build inclusive and diverse teams engaged colleagues and enable them to deliver their full potential during the first quarter. We continued to build momentum towards closing the transaction with a and made significant progress and are in a gate integration planning efforts, we anticipate closing and the first half of 2021.

Object of course to regulatory approvals.

Economic factors such as COVID-19 in the prior year, we only started to see the impacts near the end of the first quarter. We started to experience some improvement and areas where revenue is tied to discretionary project spending similar to last quarter, we experienced solid financial performance and areas, where we have a well established.

<unk> market position mature relationships and annuity or a compliance driven business.

Net income was $736 million up 135 per cent for the first quarter as compared to 313 million of net income and the prior year first quarter.

It should be noted we disposed of our Miller wholesale business on March one 2020 for 696 million and proceeds and a gain of $356 million on a tax free basis or $2 73 per share adjusted EBITDA was $730 million or 28, 2% of revenue.

For the first quarter as compared to 680 million or 27, 6% of revenue for the same period last year, representing a 7% increase on an adjusted EBITDA dollar basis, and 60 basis of margin improvement.

For the quarter diluted earnings per share were $5.63, an increase of 140% as compared to the prior year. This included a net $350 million gain on disposal of operations, mostly resulting from the sale of our Miller wholesale business and.

Adjusted diluted earnings per share were $3.64 for the first quarter, reflecting an increase of 9% compared to the prior year. Overall it was a solid quarter. We grew revenue and margin performance and we increased earnings per share now, let's take a look at each of the segments in more detail to provide clear comparable.

With prior periods all commentary regarding the results of our segments will be on on an organic basis, unless specifically stated otherwise.

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

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

This result represents sequential revenue improvement compared to our prior quarter, which was driven by increased demand for advisory services across various lines of business.

And rewards revenue decreased nominally with the uptick and executive compensation and rewards strategy work offset by declines in our traditional survey sales and communications and changed management offerings.

Retirement revenue was also flat compared to the prior year with funding and guaranteed minimum pension equalization work and Great Britain offset by declines in North America, resulting from one less billing day and less derisking activity.

Technology and administration solutions revenue grew moderately primarily due to increased project work and new business activity and Great Britain.

He has changed the needs and demands of workers and workplaces H C V stands ready to help clients navigate the transition.

And by new business wins, most notably a natural resource and Phoenix insurance lines.

North America's revenue was up by 6% and the first quarter driven by strong renewals across all regions, but also particularly in the Phoenix lines.

Revenue for Western Europe decreased 2% due to both the timing of some revenue moving to later quarters and the departure of some senior staff, which pressured business and certain geographies.

CRB revenue was $810 million per the quarter with an operating margin of 20.0% compared to $739 million of revenue with an operating margin of 17, 2% and the prior year first quarter.

And the 200 basis 280 basis point margin improvement reflects the continuation of effective cost containment to see the strong topline growth and improved profitability and the first quarter is encouraging and we rate remain optimistic about those and see our be short term and long term growth prospects and our world.

Marked by uncertainty CRB goes beyond the traditional boundaries of insurance products and risk management to deliver services that help organizations prepare for what May lie ahead.

Turning to investment risk and reinsurance or IRR.

The renewal factors.

The insurance consulting and technology and investment businesses, all contributed to the segment's revenue growth both lines of business were up 8% compared to the first quarter of the prior year, having benefited from increased demand for advisory work.

Insurance consulting and technology revenue growth was aided further by increased software sales.

Wholesale business was down 14% on an organic basis.

Wholesale business on March one 2021.

IRR had an operating margin of 47, 9% up 280 basis points as compared to $45 one per cent for the first prior year first quarter. The strong margin expansion was the result of careful cost containment efforts, coupled with solid topline growth IRR helps businesses and communities.

The sustainably navigate the risks and opportunities ahead, irr's powerful combination and advisory services technology solutions and analytical capabilities continues to create value for companies as they reevaluate risk and reinforce resilience post pandemic.

<unk> contributed $148 million to Bda's topline growth this quarter with growth and Medicare advantage products. The benefits outsourcing business also contributed to the increase in revenue, which was largely driven by its expanded client base. The BDA segment had revenue of $287 million with.

Two 5% operating margin as compared to revenue of $231 million and a negative operating margin of minus four 7% in the prior year fourth quarter first quarter excuse me, we continue to feel positive about the momentum of our BDA business for 2021 for many people.

The pandemic has highlighted the importance of securing health and wellness plans that meet their individual needs BDA provides education and communication and decision support tools that empower employers employees and retirees to navigate the changing world of benefits.

Overall I'm very pleased with our results. This quarter, we delivered strong overall financial performance with topline growth margin expansion and EPS growth all while continuing to make progress against strategic initiatives and our proposed combination with day on now I'll turn the call over to Mike.

Thanks, John and good morning to everyone and thanks to all of you for joining US first I'd like to extend my appreciation to all our colleagues. We've asked a lot of our teams and our colleagues continue to pull together and deliver and I'm proud of all the work they have done to continue supporting our clients each other and the communities and which we were.

And live.

We're off to a solid start this year, while we continue to face some headwinds from COVID-19 pandemic. We are reassured by the improved demand for our discretionary services and solutions and by our ability to generate profitable growth. We're pleased to see another quarter of solid revenue growth with other line adjusted EPS growth.

On free cash flow decreased and approved when normalized for certain significant litigation and compensation payments made this quarter.

Now I'll turn to the overall detailed financial results.

Income from operations for the first quarter was $452 million or 17, 5% of revenue up 290 basis points from the prior year first quarter income from operations of 360 million or 14, 6% of revenue and.

Adjusted operating income from the first quarter was $579 million or 22, 4% of revenue up 110 basis points from $525 million or 21, three per cent of revenue and the prior year first quarter.

For the first quarters of 'twenty, 'twenty, one and 2020, our diluted EPS were $5 63 and.

And $2.34, respectively, which included the 359 million gain on disposals.

For the first quarter of 2021, our adjusted EPS was up 9% to $3 64 per share as compared to $3 34 per share and the prior year first quarter.

Foreign currency rate changes caused an increase and our consolidated revenue of 86 million or 4% of revenue for the quarter compared to the prior year first quarter was 12 cent tailwind to adjusted diluted EPS per share this quarter.

Our U S GAAP tax rate for the first quarter was 11, 5% versus 20% and the prior year.

Current quarter tax rate was lower primarily due to the tax exempt disposal of our Miller business.

Our adjusted tax rate for the first quarter was 25% up nominally from 24% and the prior year.

Turning to the balance sheet, we ended the first quarter with a strong capital and liquidity position with cash and cash equivalents of $2 billion and full capacity on our Undrawn $1, two 5 billion revolving credit.

Facility and we also successfully reduced our leverage profile by repaying $500 million of bonds outstanding during the quarter.

Well, let's towers Watson.

And well positioned from a liquidity perspective, we aim to continue to maintain a strong and durable balance sheet and continue pushing forward on our cost savings and efficiency initiatives.

And as the economic recovery unfolds, we will continue to monitor the ever evolving impact of the pandemic and are prepared to take appropriate measures as needed to preserve our financial position.

And free cash flow was negative $165 million compared to negative $43 million and the prior year, the decrease and that year over year free cash flow was due to the net legal settlement payments of approximately $185 million and respective of previously announced Stanford and Willis towers Watson merger settlement and higher incentive compensation and benefits related items of approximately 180.

Absent. These one off items free cash flow would have increased more accurately reflecting our run rate improvements and working capital and cost containment efforts.

And tremendous progress to improve our free cash flow on 2020 and we remain dedicated and are focused on maintaining our progress on this area and 2021.

In terms of capital allocation and the first quarter of 2021, we paid approximately 92 million of dividends, but do not expect to repurchase any shares for the remainder of 2021, given certain prohibitions on the transaction agreement with them and connection with our pending business combination.

Pension contribution to our qualified plans totaled 86 million and first quarter and we are.

And we're currently projecting contributions of $126 million for 2021.

And as a general matter of COVID-19, pandemic did not have a material adverse impact on our overall financial results and 2020 or on the first quarter of 2021, how long the pandemic did continue to impact revenue growth, particularly on some discretionary lines and and we expect the effects of COVID-19 on general economic activity may continue to negatively impact our revenue and our results from.

Remainder of 2021.

The duration of the pandemic the full magnitude of its economic impact and the subsequent speed of recovery remain unknown in the meantime, we remain focused on maintaining a strong balance sheet liquidity and financial flexibility.

We're very pleased with these first quarter results. There are a direct reflection of our resilience and our continued focus on strategic priorities.

Our first quarter results were very encouraging we have momentum solid financial results and our strong balance sheet and an excellent team, which gives me confidence and our ability to continue driving value for all our stakeholders and now I'll turn the call back to John.

Thanks, very much Mike and now we'll take your questions.

We will now begin our question and answer session. If you would like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question press the pound key please standby for the first question.

Yeah.

Your first question will come from Greg Peters with Raymond James. Please proceed with your question.

Good morning, John Mike and team.

So I'll just ask three questions and I.

First I realize you are bound by Irish takeover law, but I guess it might be professional malpractice. If I don't ask you on merger question.

Two parts of the merger question, you said and your comments Youre still expecting expect to close and the first half of 'twenty one.

Pending regulatory approval and I'm wondering if I'm not mistaken the phase two extension from the EC goes into July so that would imply a second half potential regulatory approval and the second piece on the merger as I know you haven't commented on it but the disclosures and the press.

And that you're going to exceed the revenue divestiture cap and the purchase documents. So I was just wondering if you could give us some color on those two items.

Yeah, Thanks, very much Greg so.

On the.

First of all on the E C I think.

I think there.

On extension goes into July that doesn't mean, it has to run that long it it's still possible to close June 30th and be consistent with that with that extension.

So no particular a conflict there.

And.

And I'm sorry, what was the second question.

This on the divestitures and the <unk>.

The leaks to the price given what we're hearing suggests that you might exceed the $1 8 billion dollar revenue divestiture cap thats and the purchase document and just trying to reconcile that and your perspectives on that to the extent and then comment on it.

Yeah actually as and you you won't be surprised to hear that we're really not and positioned to speculate on any potential divestitures.

Yeah, I figured okay, well, let's pivot to.

On the.

Producer retention.

Comment that you made regarding CRB and let's expand that can you just give us an update.

From time to time, and you have comment on and employee retention and the past can you give us a sense of how the retention has stacked up through the first quarter.

<unk> seen reports and the process of certain teams, leaving just curious how the Willis franchise exists today versus where it was a year ago.

Yeah and <unk>.

So a couple of things, let me say first of all.

I think our.

And we look at our turnover.

Sales.

Rolling 12 months today compared to where it was a year ago and I look at it.

Segment by segment, it's pretty much.

About the same.

Maybe slightly improved in general the one segment that it's up it's D D E and.

And.

That's just a function of some of the expansion I think of transact and.

We have a lot of turnover a lot of turnover there, but overall.

If I look at it segment by segment and turnover is a slightly improved now at the same time every time a.

Transaction like a big merger are.

Acquisition gets announced there are some people that decide.

They don't want to be part of the new organization and certainly we've seen that in some.

In some instances, but when we look at it in terms of the overall impact, it's not and it's not necessarily showing up and its a big overall impact, but we can certainly point to isolated instances, where that's happened and those are the kinds of things we've seen happen before it and this business and we think we're prepared to to deal with them, but it is something we continue to look at.

Got it I guess the final question.

It would be on free cash flow I know you called out the Stanford cash payment and settlement and the first quarter.

If we exclude that and think about the full year. How are you feeling about free cash flow for 2021. After what was a phenomenal results and 2020.

Well I'll I'll, maybe just give you a quick reaction from me which is dead.

I couldn't be happier with our cash.

Cash performance in the first quarter I thought we had a tremendous first quarter last year and I think we did significantly better. This year. So I was really pleased to see what we have but as Mike mentioned, we did have a couple of the.

Trends are things that affected us this year compared to last year, but I see continued progress being made but Mike maybe you want to comment on that.

Yeah, Thanks, John and thanks for the question Greg.

We have put a lot of effort and a lot of focus to.

Have repeatable processes on our colleagues and I'm, working very hard and and continuing to deliver as John said in terms of delivering that free cash flow. So.

As you know, Greg, we're not giving any guidance, but but nonetheless, we're very pleased with what's happened here for the first quarter and as I say I'm very very proud and pleased with what the team continues to deliver.

Got it thank you for the answers.

Great. Thanks.

Your next question will come from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi, Thanks, and good morning.

First question is.

Going back to you had mentioned from senior staff departures right and.

And within Western Europe.

And I guess tying that together with on your response to Greg's question on.

And the fact that I could you said merger is right Theres always some type of you know kind of individuals that will choose to believe is that the only area I guess and you're definitely noticed on on <unk>.

Significant impact from some employees on that might have left the organization.

Hum.

I would have to say at least I think we've seen.

And you might see.

Half a dozen people leave here or half a dozen people leave there and so you see some isolated ones I think the western Europe, one was probably the most significant one lease up.

Okay, and then as we think about you guys mentioned.

The impact of the economy on.

Due to COVID-19 facility and impact on your business right now.

On an overall basis for Willis towers Watson right you guys are putting it on 4% organic revenue growth, which was an improvement from what we thought and the back late quarter is on 2020.

And just based on the fact that no vaccines are being rolled out on.

It looks like the economy, one truth on shall.

And we view the Q1 is kind of the low bar for the year and it sounds like there should be some tailwind to your organic revenue that you know the other can be quite a bit on 2020, one should be better than what we saw on the first quarter.

Yeah, I would say so first of all we haven't given guidance and then.

You know the reason we haven't given guidance is because this is such a volatile environment and it's hard to predict.

We're somewhat optimistic.

Yeah.

Okay. That's helpful on that.

And then from on.

We're talking food and expenses and margins and on at.

It sounds like there was just you know kind of growth driving margin improvement solid expense management throughout the different segments on.

It doesn't sound like there was anything one off within your margins that perhaps you think about not continuing on but was there anything COVID-19 related or is it just kind of a great on good expense management quarter, and we could think about that continuing on from here.

Yeah, I I think the theme that Mike had touched upon was.

Okay. Thanks for that color.

Hmm.

Your next question will come from Phil Stefano with Deutsche Bank. Please proceed with your question.

Yeah, Thanks, and good morning, so the growth and transactions continues to be a fantastic.

Outpacing our expectations and if I'm not mistaken. This is the first segment operating margin that was positive for BDA.

Outside of our fourth quarter and maybe ever.

Can you talk about the extent to which transact is helping to drive that and the extent to which growth could continue to lap the strong growth we saw last year.

Yeah.

Mike do you want to.

Yes, yes, and trends that we and we have really been very pleased with transact. If you go back when we announced transact.

We were very excited about the what they brought to the table and in terms of their ability to serve the market. We saw it as a market that was very very strong and we had put out there in terms of organic revenue growth and.

Is it pretty formidable.

New over the next several years.

And in terms of what the CAGR growth rate was going to be and and.

And transact has exceeded it.

So.

As you said and rightly pointed out in terms of where the margin is in terms of improvement and positive for the first time other than the fourth quarter are happening.

Transaction and a big Big contributed all of it so I got to tell you you know we see it as is doing very well and we really liked the transaction transact team and what they continue to deliver and we couldnt be happier with their performance.

Okay, Thanks, and so switching gears a bit and just going back to the potential merger with E. On I understood that you don't want to comment on any potential divestitures, but maybe I'll come at this from a different angle.

And if I wanted to take and negative lens to view this at.

And.

I could argue that the divestitures and a regulatory approval scenario might be at a.

A forced sale price it will be less and you would get and the.

And the market, otherwise and if I layer on top of that.

Incentive comp retention awards and.

How do you think about these dynamics.

The deal done versus the fiduciary duty to maximize value for shareholders.

Okay.

I mean, I think we we always have in mind, a fiduciary duty to maximize.

Value for shareholders and when we're considering other thing whether it's acquiring a company divesting. Your company are just running our business. So that's one of our Paramount considerations.

And so Adam.

And maybe the press on this just a bit and then and then I'll, let it go but is there a level of revenues and and.

Price that you could get for potential divestitures at which.

And it starts to feel like the deal doesn't make sense anymore for the Willis towers shareholders.

Well I mean I.

Again, I don't want to speculate on things, but let me just address something as a theoretical matter. If you were told you have to give away our businesses and couldn't get anything for them of course that would seem like that would not be a good thing for shareholders. So clearly there is some price at which is of course.

Okay.

Okay. Thanks.

Yeah.

Your next question will come from Sumit comment with Citi. Please proceed with your question.

Thanks, I wanted to ask another one on the pending merger.

Can you talk about the client reaction to the deal and obviously, it's been announced its been out there for a year are you seeing any concerns around sort of concentration risk.

With the combined company from from your clients.

Quite the contrary and our clients are.

Very excited about the possibilities.

Possibilities that the new firm can bring to addressing unmet needs and you may remember when.

Great case, and I first announced this.

<unk>.

And businesses and we don't see any concentration risk.

Got it and then on the 400 million dollar retention payment that was part of the deal.

Is any of that being paid now which could be impacting your.

Level of attrition.

Yeah.

No.

So that's all set once the deal closes.

And he retention payments are at the time and the deal closes or after.

Got it and and just one last one on that.

Is there an element here, where the retention payments are effectively being communicated to employees and but not being paid.

Oh, Yes of course, yes.

And have any retention effect, if they didn't really know what they were getting.

Okay got it thanks.

Yeah.

Your next question will come from Mark and Macomb with Baird. Please proceed with your question.

Hey, good morning, John and Michael and John and I, just wanted to start off by saying.

We don't know if we're going to have a a second quarter call. Just given that this is going to end up closing.

Prior so first of all congratulations going all the way back to the Watson Wyatt days.

For all of the shareholder value that you've created.

Over multiple decades.

Then on incredible run on.

So I just wanted to start with that.

Can you can you just talk a little bit about.

If there's if the if the client reaction has all been positive.

Hum.

What would what would be the driver behind.

Some of the no objections that are out there just broadly theoretically.

Yeah. So first of all mark thank.

Thank you very much for those kind words, and it's been a pleasure to work with you over.

Over the years and.

I am I'm actually hopeful that this ends up being my last earnings call and that we closed June 30th is as anticipated.

So I think.

And when regulators look at.

Markets, They go and they talk to.

They talk to clients they talk to other market participants they talk to competitors and they get a wide variety of.

Comments from them.

And sometimes.

They you could hear from a small minority of.

Market participants and the regulators are still put some emphasis on that so you know there's lots of different ways that you could.

Look at it and at least at least have the potential to ask some questions about it.

Great and then can you just talk about.

So.

Aggressive law, how big is that now and just from a revenue perspective roughly speaking.

Mike do you have the figure on that don't you.

Mike are you on mute.

Sorry, John Yes. So its about you know think about it I don't know its and the $400 million range something in that range.

Okay and.

And then Willis free in the U S. How do you wouldn't happen to have that would you mind.

And I don't think we've really disclosed that mark and that kind of breakout.

Sorry would you have and estimation or.

No no and we just.

I'm, sorry, Mark we really haven't disclosed that.

Yeah, I think mark it's not it's not that Mike doesn't know.

Just haven't disclose on.

Yeah that was.

And I'm, saying and this is a public forum and obviously.

It's I mean, it's fairly obvious what I'm trying to get at.

Just because it does seem like we.

There are some press reports that we're going to be above the merger cap and there are some that are you know.

And that would suggest that maybe we're going to be below and so I was just trying to triangulate on some other pieces.

Is there any comment that you can make just with regards to what seems realistic or what's the next step.

You've obviously got.

Our long term track record of success, you think about all of the possibilities.

You you didn't just you know.

You're obviously super sophisticated and all of your advisors are as well so just.

It's hard to imagine that you havent conceived of some of the possibilities that could come up or and some of the next steps to address those so John.

Just trying to think through like I mean, even if we if were slightly above the merger cap I mean, there would be a relatively easy reconciliation on that winter.

Yeah, I mean I think.

Mark So first of all I think youre right as we think about any of these things with our.

Our partners at a on about.

Whether we might whether there might be some remedies that we we offer two regulatory authorities.

And so I said to an earlier question, we always have the best interest and the shareholders in mind and doing something that it makes sense, but.

We've you know we've.

We really we're not in a position right now where we can just comment about any potential and certainly not about press reports, which.

Are out there and you know sometimes have some elements of truth, but a lot of times a wildly inaccurate.

Got it.

And just I mean from.

From a purely regulatory strategy perspective.

Does it make sense to think okay. The E. C was the first priority next up is the Doj.

And then after that we go to some other smaller countries and.

If the Doj and the ECR both on board, it's it's going to be hard to imagine that some other smaller countries would end up.

And.

Proving to be decisive is that.

And reasonable way about it.

Yeah, well I would say that certainly the the vast bulk of our business is in.

The other.

On EC, including the U K and that and and the U S. On the other hand, we have been.

On meeting with and addressing our regulators in jurisdictions throughout the world and.

And.

We're committed to working with all of them were committed to.

Making sure they understand the transaction and why this is good for the competitive.

Competition and the industry and we're not we're not emphasizing necessarily one over the other but it is true that the bulk of their businesses and those two jurisdictions.

Okay and.

And then if Matt I imagined that.

<unk> is growing better than.

Anybody anticipated say.

912 months ago when.

Yeah. So.

No I think we had and.

And gene Wickes, and Mike Burwell and I. When we were first looking at this and Jane and Mike are the ones, who really led the charge on transact.

Lofty expectations and transact has performed way above our lofty expectations. So we couldnt be more pleased with how that has worked out.

This is a very dynamic market, there's lots of I.

I think growth opportunities and there's lots of potential changes, which could be down to the benefit of organizations like transact. So we think you know where we're and the early innings second and third I mean this is there there's a lot left to play out here, yet I think mark.

Great. Congratulations to you John and also to gene if he's listening and Mike and everybody else on the team. So congrats thanks.

Thanks, very much mark.

Thanks Mark.

Final question in queue will come from Meyer Shields with K B W. Please proceed with your question.

Thanks to really request is I think one John can you quantify the impact on CRB.

And if organic growth from that transfer of wholesale business.

Mike do you have that number don't you.

It's really immaterial.

Mayor.

Yeah.

I think we talked about that on the last quarter. We said it was it was material for the wholesale business split and material foresee our telephone and CRB.

Yeah, No I just want to see whether that held up in the first quarter second one yeah. It does on.

Okay perfect.

Can you sort of lay out the timeline from when the western European and staff left and when do you hooked weighted revenues kind of disappeared without at the same time is there a lag.

And it was the middle of last year some time.

I think middle to late middle that are there.

Folks left.

But the revenue impact tends to be noticed a little more and the first quarter. When you have a lot of other renewables.

Okay, No that's perfect. Thanks, so much.

Yeah.

And we have reached the end of our question and answer session and I would now like to turn the call back over to John Haley for closing remarks.

Great well, thanks, very much everybody.

This is the time when I traditionally say, we look forward to.

Updating you on our second quarter earnings.

And later this year.

I'm actually hoping that transaction is closed and we don't have that call, but if not we do look forward to updating you then have a good day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q1 2021 Willis Towers Watson PLC Earnings Call

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