Q2 2021 Willis Towers Watson PLC Earnings Call
[music].
Good morning, welcome to the Willis towers Watson second quarter, 2021 earnings conference call.
Please refer to Willis towers Watson Dot com for the press release and supplemental information that was issued earlier today.
Today's call is being recorded and will be available for the next 3 months on Willis towers Watson's website.
Some of the comments on 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 and best.
You should review the forward looking statements section and on the earnings press release issued this morning, as well as other disclosures and the most recent form 10-K and in other Willis towers Watson's SEC filings.
During the call certain non-GAAP financial measures may be discussed a.
For reconciliations of the non-GAAP measures as well as other information regarding these measures. Please refer to the most recent earnings release and other materials and the Investor Relations section of the company's website.
I'll now turn the call over to John Haley Willis Towers, Watson's Chief Executive Officer. Please go ahead Sir.
Thank you good morning, everyone and thank you for joining us on our second quarter 2021 earnings call. Joining me today is Mike Burwell, Our Chief Financial Officer Today, We will review our results for the second quarter of 2021.
Let me start by thanking our 45000 plus colleagues for their resilience their commitment and their focus on serving clients with excellence.
And Willis towers Watson, our colleagues have persisted through an unprecedented global pandemic, while simultaneously preparing for a proposed integration and for potential divestitures.
Our teams have accomplished is nothing short of extraordinary.
We're now moving forward with clarity.
Today, I'm going to share some observations on the termination of our proposed combination business combination agreement with day on but.
But I really want to focus on our strong second quarter results and excellent returns to shareholders.
In Q2, our team delivered outstanding results with organic revenue, increasing by 8% compared to the second from 2020, all our business segments contributed meaningfully to this result, our adjusted operating margin improved by 390 basis points. This translates into 40.
8% adjusted EPS growth rate in Q2, and 30% free cash flow improvement when normalized for 1 time items.
Our 6% organic revenue growth for the first half reflects mid single digit or greater organic growth and 3 of our force segments.
Turning now to the termination of our proposed business combination with AI and we recently announced our mutual agreement to move forward independently.
On behalf of Willis towers Watson I'd like to thank our counterparts, a day on <unk> for their professionalism over the past 16 plus months since we announced the transaction.
Again would also like to thank our Willis towers Watson colleagues for all of their efforts as well as our clients for their continued support throughout this process.
The proposed combination had significant regulatory momentum and.
Notable exception was the United States, where the parties reached an impasse with the department of Justice and the and working closely with E. On we decided to terminate our agreement.
We're confident this is the right decision for Willis towers Watson for our colleagues for our clients and for all of our stakeholders, including our shareholders Aon has already paid the $1 billion termination fee.
[laughter].
We now move forward with confidence and from a position of strength.
As we look to the future we will build on our successes, which have been significant as evidenced by our performance over the last several quarters. We will also leverage our formidable resources, including our durable client relationships, our talented colleagues and our healthy financial position, it's worth noting that our client retention.
Rates have remained at the same level as prior years regarding colleagues, while we're disappointed that we've lost some valued colleagues and what has become a hot talent market. Our top leadership ranks remain intact and our ability to compete continues unabated.
We were pleased to announce last week that we would be reinstating our share buyback program, which had been suspended to comply with the terms of the agreement with AI.
Our announcement noted that we would be increasing the share repurchase program by $1 billion.
This will include $500 million and accelerated share repurchases and $500 million and our normal program.
Subject to market conditions and other factors, we believe we should be able to execute a majority if not all of the repurchases by the end of 2021.
Our board of directors has authorized a 13% increase and our quarterly dividend payment given our continued improvement and free cash flow, we've been paying down debt and we expect to have retired almost $1 billion and total by the end of the year.
This together with the significant capacity, we generate it provides us with plenty of capacity to invest in both organic and inorganic growth going forward. We intend to use this capacity to make investments and our businesses. So that we're well positioned to address evolving client needs and we're excited about the signature.
<unk> opportunities across our whole portfolio of businesses, both brokerage and consulting as a result, we've asked each of our business segment leaders to look at potential areas of growth for investment.
We look forward to providing you with more details about this as well as an update on the overall company at our upcoming Investor Day on September 19.2021.
I'd also like to announce today that we are conducting a review of strategic alternatives for Willis re our reinsurance operations. The board has authorized us and our advisors to initiate such a process.
While we highly value the Willis re platform and our colleagues who contributed to its success. We believe now is an appropriate time to explore strategic alternatives for this business.
There can be no assurance the strategic alternatives review process will result in a sale of Willis rate or other strategic change or outcome.
1 other question that has been raised about how we won't move forward independently as what is my transition plan.
As part of our ongoing planning process. The board of directors has been working with me on CEO succession, I still intend to retire and I will continue to work with the board to ensure a smooth transition of the CEO of growth. This will require and announcement of my replacement and inadequate timeframe to ensure this is accomplished.
Now, let's move on to our second quarter results reported revenue for the second quarter was $2.3 billion up 8% as compared to the prior year second quarter up 4% on a constant currency basis and up 8% on an organic basis and.
And Q2, we experienced clear improvement and areas, where revenue is tied to discretionary project spending as the economy continues to recover.
Net income was $186 million, that's up 82% for the second quarter as compared to 102 million of net income and the prior year second quarter adjust.
Adjusted EBITDA was $557 million or 24, 4% of revenue for the second quarter as compared to $441 million or 29% of revenue for the same period last year that represents a 26% increase on an adjusted EBITDA dollar basis and 3 <unk>.
Hundred 50 basis points of margin improvement.
For the quarter diluted earnings per share were $1.41, and increase of 96% as compared to the prior year adjusted diluted earnings per share were $2.66 per and the second quarter, reflecting an increase of 48% compared to the prior year.
Overall, it was a very strong quarter. We grew revenue we enhanced margin performance and we increased earnings per share.
So now we'll look at each of the segments and more detail to provide clear comparability 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 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 discretion.
Larry compensation.
The human capital and benefits or HCP segment revenue was up 5% on on organic basis, and 4% on a constant currency basis compared to the second quarter of the prior year.
This result represents a strong return to revenue growth, which was driven by increased demand for advisory services across various lines of business.
Talent and rewards revenue increased 22% with a major uptick and executive compensation and rewards strategy work. We anticipate continued strong demand for broad based rewards and transaction product in the second half of the year with demand evident across all geographies. We are also experiencing strong.
Participation rates across various day the survey products in the midst of a tight labor markets and companies looking to attract and retain talent, which should fuel growth and the second half of the year.
Our health and benefits revenue increased 1% for the quarter on top of similar growth and the second quarter of 2021 weeks.
We continue to grow revenue from advisory work, and North America, and global benefits management and local brokerage appointments outside of North America. However, this growth was partially offset by lower Commission based revenue, which was tied to prior year book sales and.
And this business, we anticipate a stronger second half performance driven by U S legislative changes alongside pent up demand for strategic benefits reviews.
Retirement revenue was up 3% compared to the prior year, driven primarily by funding and guaranteed minimum pension equalization or GMP work and Great Britain, we expect high demand for GMP work to continue through the remainder of 2021 and into 2020.2 and 2023.
Technology and administration solutions revenue grew 2%, primarily due to increased project work and new business activity and Great Britain, we're optimistic about growth opportunities for this business as clients are engaging with us to deliver more high touch solutions with higher and service levels to support their employee base.
Yeah.
Hcp's operating margin increased by 210 basis points compared to the prior year second quarter. As a result of continued expense reduction efforts. We're very pleased with HEB sequential improvement and margin growth our long term outlook on HCP remains positive.
Now, let's look at corporate risk and broking, or CRB, which had a revenue increase of 8% on an organic and constant currency basis as compared to the prior year second quarter.
North America's revenue was up 13% in the second quarter driven by gains on book of business sales alongside new business across all regions, particularly in the Phoenix and marine lungs rare.
Revenue for Western Europe increased 3% due to new business and renewal expansion, particularly in retail and FINEX, Great Britain, and International's revenue increased 2% and 9% respectively from the second quarter. The revenue increases were primarily driven by new business wins across multiple lines, including Fedex.
Aerospace construction and marine and retail insurance lines.
CRB revenue was $788 million for the quarter with an operating margin of 22, 9% compared to 701 million of revenue with an operating margin of 19, 2% in the prior year second quarter, that's up 15% from 2019.
370 basis point margin improvement contributed to a 2 year increase of 770 basis points and reflects the continuation of effective cost containment.
Consistent with last quarter CRB once again delivered strong top line growth and improved profitability CRB second quarter performance is encouraging as we look towards the future as the economic outlook improves we believe our corporate risk and broking segment will see the demand for mitigating assays exposures and other <unk>.
<unk> and risk mitigation strategies increase set against the backdrop of a firm market, we expect to see investment and large scale infrastructure projects building volumes and transportation and increasing deal volume and M&A. Our CRB segment is focused on delivering industry and product expertise and hasnt matured.
Your strategy in place across all its global lines of business, we believe that the depth of our talent and these global communities, coupled with our connected broking and risk and analytics strategies continue to enable us to deliver innovative solutions to both existing and prospective clients.
Turning to investment risk and reinsurance or IRR revenue for the second quarter was $400 million and increase of 15% on an organic basis and a decrease of 7% on a constant currency basis as compared to the prior year second quarter.
Organic growth is on top of 3% revenue growth and the 2022nd quarter constant currency change reflects the divestitures of our wholesale subsidiary Miller and our maximum Tees and business.
The investment business with revenue growth of 44% lead the segment's growth with new business and higher feed investments growth was aided further by increased performance fees insurance consulting and technology revenue was up 13% compared to the second quarter of the prior year when revenue growth was modest this benefit.
And this business benefited from increased demand for advisory work.
Reinsurance revenue grew 4% through a combination of net new business and favorable renewal factors revenue growth was partially offset by a decline and investment income due to lower interest rates.
IRR had an operating margin of 33, 3% up 460 basis points as compared to 28, 7% from the prior year second quarter. The strong margin expansion was the result of careful cost containment efforts, coupled with solid top line growth our investment risk and reinsurance segment is seeing.
Strong demand from insurers for technology advice, and analytics, driving new business across our insurance consulting and technology and reinsurance businesses. We believe we are well positioned to provide leading advice and innovative solutions to our clients and the transition to a low carbon future.
<unk> powerful combination of advisory services technology solutions, and analytical capabilities continues to create value for companies as they reevaluate risks and reinforce resilience post pandemic. We believe this unique combination enables us to deliver industry, leading expertise and innovative solutions.
<unk> to help our clients navigate challenges and leverage opportunities as the associated economic legacy of the pandemic continues to evolve and the world adapts to meet the increasing challenge of climate change events.
Revenue for the benefits delivery and administration or <unk> segment increased by 14% on on organic basis, and 16% on a constant currency basis from the prior year second quarter the growth and revenue was largely driven by individual marketplace, primarily by transact, which contributed 100 and.
$16 million to Bda's top line this quarter with its growth and Medicare advantage products.
The benefit outsourcing business also contributed to the increase of revenue, which was largely driven by its expanded client base.
BDA segment had revenue of $242 million with a negative 4.3% operating margin as compared to revenue of $209 million and a negative operating margin of 4.2% in the prior year second quarter.
This nominal margin decline was largely due to our increasing sales capacity ahead of the 2020.2 annual enrollment period, which will usher and expansion opportunities for both our individual marketplace and benefits outsourcing and lines of business. We continue to feel positive about the momentum of our BDA segment for the remainder of 2000.
'twenty 1.
So overall I'm very pleased with our results this quarter, thanks to our colleagues outstanding efforts and our clients commitment we delivered strong broad based overall financial performance across all of our business segments. We saw good topline growth, we saw meaningful margin expansion and we saw EPS growth on top of a solid second.
Quarter, and 2020, 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 over the past 16 months and.
They have continued to deliver they remain committed to our vision and upheld our values and they went above and beyond to support our company our clients and 1 another.
And I'm extremely grateful for their patients commitment and resilience.
We delivered continued progress for both the quarter and year to date period, including 8% revenue growth and Q2 through.
Through the first half of the year, we translated strong organic revenue growth and excellent operating income growth and almost doubled earnings per share demonstrating the resilience of the Willis towers Watson and business model.
We continue to expense expect mid single digit revenue growth for the full year 2021.
I would note that our reported revenue included the favorable impact from changes in FX rates driven by weaker U S dollar versus most currencies.
Our strong revenue growth and ongoing operational discipline as well as sound cost management contributed to an adjusted operating income margin growth 390 basis points, and Q2, and 240 basis points through the first half of the year.
It should be noted the growth and our margins was driven by the speed of revenue growth, which outpaced our expense growth.
Well, we made investments and people operations and technology to enable long term growth of the first half we expect to increase these investments during the second half from here.
We also anticipate some resumption on <unk> cost over the second half of the year as well, though we anticipate continued leverage of technology to conduct much of our business remotely and ammo.
Anything else to sustain our improved efficiency and reduced carbon footprint.
Looking forward, we expect to deliver margin expansion for the full year 2021 and over the long term.
Moving back to the results from the second quarter. We've translated strong operating income into adjusted EPS growth of 48% and Q2 and 23% year to date.
Foreign currency changes had a favorable impact to revenue of $87 million or 4% and Q2 versus the prior year and no impact and delivered diluted earnings per share.
Currency was to remain stable at today's rates, we would expect a modest tailwind to adjusted diluted earnings per share for the full year.
As John mentioned and and WCW mutually agreed to terminate our business combination agreement and move forward independently.
In accordance with the business combination agreement and has paid the 1 billion and termination fee.
Free cash flow increased 30% year to date when adjusted for the $185 million for the previously announced Stanford and Willis towers, Watson merger settlements and higher incentive comp and benefit related items of $249 million.
We expect and we continue to expect to drive free cash flow growth over the long term building on our efforts over the past couple of years.
We expect our capex expenditures to increase and the second half of the year as we invest in technology to grow our business.
Given our outlook for long term free cash flow growth, we see share repurchases as the highest return on capital opportunity for capital allocation.
As John noted, we plan to implement and accelerated share repurchase strategy of 500 million. In addition to our normal share repurchase plans.
We look to execute as much as practical and fiscal year 2021, and we also raised our dividend by 13%.
Now turning to our balance sheet and debt capacity we have.
And $2.2 billion of cash on our balance sheet at the end of the quarter, we plan to pay off $150 million of debt outstanding and August 2021.
We have no borrowings outstanding under our $1.5 billion credit facility. We remain we remain confident and the strength of our balance sheet and manage liquidity risks through a well lettered debt maturity profile.
And considering our June 30 balance sheet, we have plenty of additional debt capacity for discretionary used and the second half of the year over.
Over the long term, we expect to return to our past practice, we are growing debt and EBITDA growth.
It should be noted that free cash flow generation and the second half of the year, a seasonally strong stronger than in the first half of the year and we will look to allocate cash for our best views based on return on capital.
In summary, we ended the second quarter and a very strong position as we delivered strong topline and bottom line results while.
The termination of our and carbon or combination with and was not the outcome. We originally intended the opportunity for Ww as a standalone business is strong and exciting.
We believe our disciplined approach to return on capital combined with our continued improved cash flow delivery and increased debt capacity provides flexibility to improve shareholder value creation over the long term.
It should be noted our U S. GAAP tax rate for the second quarter was 33, 8% versus 42, 2% and the pre.
Our year, our adjusted tax rate from the second quarter was 19, 3% versus 22, 2% rate and the prior year.
The current year quarter effective tax rate includes a $40 million deferred tax expense related to the enacted UK statutory tax rate change over the prior year effective tax rate was higher due to additional expense recognized in connection with the temporary provisions of the care Act, we anticipate our annual effective adjusted tax rate will be between 2020.1.
Per cent for the full year.
We're very pleased with the second per results and they are a direct reflection of our incredibly talented colleagues and unwavering commitment to client service on.
Second results our second quarter results were very encouraging we have momentum we have solid financial results 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 you John Thanks, very much Mike and now we'll take your questions.
Thank you and the floor is now open for questions. If you would like to ask a question Press Star then the number 1 on your telephone keypad.
And your first question is from Greg Peters of Raymond James.
Good morning.
The first question will focus on retention and.
And John I know you said that your client retention remains strong through the second quarter, but you also did highlight that there were some departures on the employee side and I was wondering if you could give us some more color behind that.
And the past you've talked about retention as a percentage of the total employee base.
Obviously I think most of your investors are concerned about these departures and its impact on future organic revenue results on any color you can add here will be helpful.
Yeah. So thanks very much.
For that question, Greg I think.
We.
When we look at our overall attrition over the last 16 months or so.
That attrition is within the normal historical balance we have now we've seen our attrition go up a little bit more and the second quarter than we did before then but that's actually something that I think and it's been seen by companies.
Across the board there.
And but the biggest issue we've had is not so much the attrition, although we have lots and value of colleges and let me be clear about that but the issue is we are while.
While we were in the process and the merger it was harder to hire new people.
And to bring them on and because of the uncertainty of exactly how they would fit into the new organization and I think what we're gonna be doing now is going out aggressively re.
Recruiting and looking to replace some of the talent we've lost.
Ken can you just as a follow up to that John can you give us a sense within HCP.
The if you lost some health care brokers can you give us a sense within and CRB, where the losses have been whether it's western Europe or North America.
There are just some some additional color there. So we can sort of use it to help build out our projections going forward.
So hey, Greg on for Mike.
Comments on 1 is as you might imagine when you when you think about our merger we've lost.
1 of the biggest places we've lost Franklin has been our corporate and some of our corporate areas overall and the business with the anticipation of the business combination as John mentioned.
We have lost some teams, but when you compare when you look at and our HCV. Our CRB. We are IRR. We've lost some you know sometimes when we compare it our turnover isn't different than what we saw back in 2019. So we have had some.
Reinsurance team and I'll, let has been masked, let's say and Australia or things like that.
And we're highlighting.
Window of looking at it and M&A deal, but that's a normal process that had been happening and maybe slightly accelerated here recently as John mentioned, but when I look at the numbers and just in terms of your overall turnover numbers, they're not that different from where we were in 2019, I mean to give you.
And the turnover.
Generally in the.
10%, maybe 11% range I think.
And because of the nature of that business is the 1 outlier where we have.
Relatively high turnover rates, but we hired the people up for the seasonal fourth quarter and then and then they go away. They go with Yep Yep makes it makes sense and then the other related area retention bonuses I think and came out on their call and they expressed their intent to pay the retention bonuses to their employees.
And whats what's your view on retention bonuses for your producers going forward.
So our view is that we.
Employee retention is something that we're managing constantly not just during deals and.
So we have various incentives that are embedded within our employees compensation structure. The retention award for the business combination.
They were communicated it.
<unk> with the proposed combination to address specific risks and contingencies that could arise from that transaction.
And since the transaction was no longer pending we don't think those incentives are necessarily the ones. We should have in place that doesn't mean, we won't put other ones in place and we won't make sure we manage retention on on ongoing basis, we will.
Yes, I would expect that.
I guess my last question and I'm, sorry, but.
The hammer the retention thing would just be Mike I think and your comments you called out the benefit of <unk> and certainly in your response reduced corporate expenses when I think about just the overall expense structure going forward is it fair to say that youre going to be making investments and this business. So the expense.
Inside of the house may start to increase relative to what we saw on the second quarter.
Yes.
And I think that's a fair statement, but I would also point to the comment that I made which is that we're focused on continued annual improvement and we anticipate margin improvement from year. So we'll look at those in terms of what the run rate of the company as if we're making specific investments we'll call them out, but our intent is to drive continue to drive.
Margin improvement and margin expansion and and maybe just as a quick.
In addition to that Greg.
I think.
As I referenced and I think as Mike referenced in his comments, we're very excited about the growth prospects and so we will be making investments and the business, but those are those are investments that we expect to be generating revenue too and so we're looking at both organic and inorganic we have.
A lot of enthusiasm around some of the prospects we say.
Got it thanks for the answers and good luck and the future. Thanks.
Thanks Sue.
Thank you. Your next question is from Elyse Greenspan of Wells Fargo.
Hi, Thanks, and good morning on.
My first question on John in your prepared remarks on <unk>.
Net youre planning to retire on which we know with kind of plan in conjunction with al on margin as well I understand that your contract run through and does this year or so and the desire to put someone in place and advance of the timeframe is there the potential to extend your contract and can you just tell us and <unk>.
Internal and external candidates on beacon.
Centered from your home.
Yes, I think that thanks, very much elyse, yes.
Yes, my contract runs through the end of the year and I think the intention would be not to extend that lead to identify a successor and.
And have that successor named before that time.
And I'll be working with the board on that the board has a very thorough process and.
Considers considers everything of course.
This is not new we've been doing this for a lot of years and so we're not just starting at square 1 here.
Okay, Great and then on.
And the leverage side.
Leverage is now.
Hello, and 2 times EBITDA and you'll have some debt that's coming due shortly.
Shortly so I guess at the time and expense.
And you guys mentioned that you could book to add to your debt capacity over the long term on.
Is it just to find that and I'm, assuming on you'd be willing to go up to 2.5 times EBITDA I think thats historically, where he helped on and it can do you add to that.
Additional share repurchases be considered fair and additional capital in addition to.
And looking to pursue growth.
So at least thanks for the question.
And when we think about leverage at times, we have gone up that high on leverage, but we're always a commitment to get it down more and that kind of 2 to 2.3 range is kind of where we have been so.
And so that gives us plenty of capacity to think about investments that we can make both organically and inorganically and the business, which we're very excited about and.
And we have lots of opportunities its just making sure we deploy that and the best.
Return.
Thought process, but as we think about that obviously, we will look continue to look at share repurchases and that's an important element to look at that return as we look at all 3 components in terms of thinking about allocation of capital. We've been we've talked about the dividend increase that we had this quarter. We will continue to look at dividends, we will look at share repurchases.
And obviously, we're looking at inorganic and organic growth and thinking about all 3 of those and in a balanced way going forward.
Okay, Great and then on the revenue guidance I think you said.
Full year, you guys would be at mid single digits.
Total revenue or organic or was that men kidney bone.
It's meant to be organic full year.
And then so I guess you guys were at 8% per.
Q2, 6% for the half year.
On your third and businesses I mean, I know you guys address on Monday.
Retention and employee attrition issues and premium.
Good question, but and.
And you're expecting a slowdown in the half and the second half given some of the retention and stuff or is it more conservatism given on.
Economic uncertainty and as you think about going from I.
I guess kind of what seems to be maybe sex and the back half of the year.
Yes.
The quarters, the Q1, and Q4 tend to be our largest borders and particular Q4 being the largest quarter and Q3 being losses per quarter. I think you may have used the word conservative and there.
We can add on and fifth conservative it's our best estimate in terms of where we are right now and we thought that guidance would be helpful.
Okay. Thanks for the color.
Okay.
Thank you. Your next question is from Paul Newsome of Piper Sandler.
Good morning.
And I'm curious if there is.
A lot of difference between the organic growth.
And you saw by account size and as opposed to segment.
Basically across the broking as well and health care businesses.
Was there more.
Improvement in the larger account stuff.
And then what were middle market or or about the same.
It was about the same.
But at the same yeah.
And perhaps you could talk a little bit about the pricing environment, and what sort of windfall that helped you with and the broken and so on a little bit more.
Yes.
And we published twice a year, our marketplace realities, which.
We published on April and October as a general rule and we include in there what our view of the marketplaces in terms of pricing. It continues to be a hard market, we continue to see a pricing tailwind.
We have seen continued increases and most recently cyber being up almost 50%.
And but obviously those are what youre seeing in terms of quoted prices. Our role is to do the best thing that we can for our clients and obviously, we look to manage those risks help them understand those risks on price both risks appropriately.
And so we think about that and we look at property has still been on general liability has been up cash.
And he's been up and.
And we've seen some moderation on and workers comp and DNO, but again in aggregate across the board, we're seeing pricing tailwind overall, so yes, we are seeing that reflected and the business.
Were there any notable.
Geographic concentrations with from the organic growth.
You know it was pretty balanced across the board when you look at our our geographies I mean, we didn't see any particular warm.
I would call out on otherwise, we would've and.
And specifically said that we really saw it across all 4 of our segments.
And comparison to where they should be and.
And the prior year and equally we saw it across all our geographies.
Franklin businesses run and very strong and we're very proud of and the second quarter results and I think where there were some differences across the geographies that did call them out and I went through the segment review alright, great.
And I appreciate it thank you congrats on the quarter.
Thank you.
Thank you. Your next question is from Shlomo Rosenbaum of Stifel.
Hi, good morning, and thank you for taking my questions.
John and I, just ask you a little bit about when you when you have a merger like this that you are anticipating.
A lot of times.
Company will go ahead and delete certain initiatives the anticipation of a certain joint strategy post the deal close and.
No with the Willis.
Willis towers Watson going out on their own more what items might have been placed on ice before that will now be revisited or what are some strategies that you are going to be pursuing that you might that have been pursuing beforehand, and now that the companies and on its own and I don't know if they're spin.
Specific areas, you could talk about more and acceleration of investments into specific areas or specific.
No verticals and any color you could provide there would be helpful.
Yeah. So thanks very much for that question Shlomo.
And we.
We clearly had some initiatives that we were delayed in anticipation of the combination and our leaders are going through and doing a review of those right now, but they are and they are and all of our businesses that we see that in the CRB.
We see it and IRR, we see it in HCV and so all of these all of the different businesses. We're looking at them, we're prioritizing them and at Investor Day, we're going to be presenting you a comprehensive plan and about how we're attacking them and taking them forward. So I think.
And there are clearly ones there are some other initiatives.
And that we've continued to pursue.
Even during these last 16 months for example, our leadership on climate change, which we think is.
Important from.
Just the perspective of the good work, we're doing there, but also we think that will be a very nice business for us going forward.
Okay, and then just the company posted very strong growth 8%.
Clearly also for a week or 2 to comp if we're going ahead and just looking at what the momentum underlying momentum and the business feels like.
Did you say it feels more like mid single digits like what you guided to for the year or maybe just some kind of.
Color around what what would be if you are looking at this on more of a normalized year over year number.
Yeah, I mean I.
Think we've been talking for a couple of years now about the overall market growing at about mid single digits and that's growing.
At least as fast and the overall market I would say if we look at it today, we feel slightly more bullish than that so it would be at least mid single digits and what we see from a longer run.
And.
Okay, great. Thank you.
Yes.
Thank you and the interest of time, we do ask that you. Please limit yourself to 1 question and 1 follow up and your next question is from Sydney come off of Citi.
Alright, great. Thanks.
Back on on retention just a quick 1.
Are there any agreements in place between you and and regarding recruiting and hiring each other's talent.
There are not I mean, I think there are limitations on the use of confidential information that we've exchanged but.
That's basically it.
Okay, and then and the CRB business, I think and a press release, he talked about growth tied to.
Settlements and book of business sales. So I just was hoping you could give us a sense of how much did that contribute to the growth and a quarter and.
And as normal course things or it should be we be viewing this as some of this as onetime in nature.
And then.
Think we.
As we referenced like we've had book business sales and that's an ongoing feature of the business that we're in and so we had some last year. We had some this year, we probably had a little more this year than in prior years, but it's not something that we really break out.
Okay.
And that's fine thanks.
Okay.
Thank you. Your next question is from Mark Hughes twist.
Mike what would be a good way to approach other income it was $74 million and this quarter whats a good proxy and the future quarters.
Yeah, I mean, I think this quarter is probably a reasonable representation of what we should expect or think about I mean, there are obviously and can be some slight ups and downs, but I think it's a reasonable proxy to think about.
Okay, and then John Willis re decision at this time could you expand a little bit more on what Youre thinking is about maybe divesting the why and anything else that might fall into that category.
No as I said and the as I said and the call.
We have great appreciation for the Willis re business for our colleagues and and the work they've been doing we just thought that.
Coming off the termination of the deal with AI and was an appropriate time to consider strategic alternatives.
That's the that's the only business we're looking at this point.
Thank you.
Thank you. Your next question is from Ryan Tunis with Autonomous research.
Hey, thanks.
Quick 1 for Mike on free cash flow what are you thinking.
Youll be able to do for the full year of 2021 and after we got through the second quarter.
Yes, and we have not given guidance and.
And on attendant to note I mean, just given.
And the marketplaces.
Covid variance et cetera in terms of giving a specific free cash flow guidance I believe that we will continue to improve from what we've delivered previously.
And <unk> seen were up on.
30, 31% year to date on it and if you look at on a run rate basis from the first half, which I think is consistent with where we've been over and now over the last couple of years and.
And I think that's accentuated in terms of our increased.
On a dividend that we did our board and we announced here as of today I think we continue to work on free cash flow I mean, Theres continued view inside the organization on how important that is.
And for us to have that cash that we can reinvest and the business and buy back shares and do a variety of different things that we can do with that cash and so I can just tell you. There's a lot of focus on it and we're very proud of what we continue to do there and we'll look to continue to improve it.
Thanks, and then.
Okay.
It seems like there's a little bit of a mixed message on.
Investing versus buyback, you're saying that you want to invest organically and inorganically, but and Youre divesting Willis re.
And the buyback could clearly be bigger than it is so I guess thinking about the decision to sell Willis re.
And what are you thinking about in terms on.
Revenue replacement type of options or is there any opportunity we could just see a larger share repurchase program.
I think we.
And we have that Investor day, coming up September 9th and we intend to talk.
And somewhat more specifics about.
<unk>.
Growth plans, but.
As we said in our remarks, we see a lot of growth opportunities in all of our businesses.
Whether it's broking or consulting or BDA businesses, and we're going to be going through and thinking about them and prioritizing what we're looking at but we think that's probably there are opportunities there that are going to be the best use of capital to the extent we don't.
Find ones that are as attractive as we'd like we will probably do more share repurchase, but we're going to be guided by what's best for shareholders. There in terms of the.
Financing growth.
Thanks for the answers.
Thank you. Your next question is from Mark Marcon of Baird.
Good morning, and thanks for taking my questions.
Just wondering with regards to this kind of a margin outlook for the second half of the year.
How should we think about that visa b.
And you know.
Yeah.
Some replacement hiring.
And related to replacement hiring.
Generally speaking when we take a look at the top leadership team within Willis towers, Watson and and then perhaps the layer or 2 below how should we think about.
The retention.
On a go forward basis.
Obviously, there were some agreements that were put in place.
To basically hold things together through the merger and.
And and.
And some of those obviously are no longer relevant so how should we think about that.
Because as we look through and until the <unk>.
Accessories named.
Yes, so I think.
And we.
1 of the things we.
Learned we've had really incredible performance during the 16 months.
That we've been in this combination.
And where we're looking forward to that and.
And the reason we've had that is because of the performance of our colleagues overall, but especially because of the performance of our leaders and the broad leadership group within Willis towers Watson has been nothing short of outstanding and.
We have we have incredibly deep talent in this organization and I think we will.
We recognize that we're going to make sure we do the appropriate things to retain them and day motivate them, but we're moving forward with a lot of confidence there mark.
Great and what.
What would you highlight that to a greater extent on on September 9.
And again whats how should we think about the margin.
Outlook over the.
And over the next 6 months to the extent that you can illuminate that yeah.
Yes, I think we will highlight some of that on.
On September 9th I think.
For the margin we have we have 2 things that we say we.
Were relative were proud of the margin expansion, we've seen over the last couple of years here. We think we can continue that we're recognizing that there are some features like some travel and entertainment expenses are probably artificially low.
However, as we continue to do more of that.
We're going to be.
Looking to make sure that we increase TNA to the extent that drives revenue and that's what we're going to be trying to make sure. We do so we feel pretty good about.
About continuing to drive margin expansion over the longer timeframe.
Great. Thank you.
Mhm.
Thank you. Your next question comes from Meyer Shields of K B W.
Thanks, I guess first question probably for John can you talk about how you came up with $1 billion and.
And the share repurchase and I'm asking that because of how much cash was on the balance sheet.
Well, if you think about.
And.
And the share repurchases, we've had in the past have.
Bounced around somewhat from year to year, but if you look at what we would have been expected to have done during the 16 months, that's about $1 billion.
Okay. No that's fair, that's that's going to catch up.
Second question and I know, we've been talking about retention a lot, but it really does seem to be top of mind for investors is there anyway.
Guiding or ballpark ing the impact on revenue growth either in the second quarter or maybe over the next 12 months from from the people that you want.
No I mean, I think the I think probably if you look at that.
And what Mike said about we're expecting a mid single digit growth I mean, I think that gives you the net of everything so.
We don't we haven't broken things down any finer than that right.
Okay. Thank you.
Yes.
Thank you. Your next question is from Brian Meredith of UBS.
Yes. Thanks, so 2 questions the first 1.
Mike I think I recall, a couple of years ago, you're talking about the need to integrate systems to really drive.
Meaningful margin improvement and the CRB business, where are you and that process and the day on <unk>.
<unk> agreement kind of put a hold on some of that integration.
No I mean as the teams continue to continue to invest and and systems and technology.
As appropriate and we've continued to do that we're obviously, we're mindful of thinking about what that could mean.
But we've continued to.
Most of the CRB and SUS and supported really bye bye to systems and and.
That's really the way.
We've continued to invest in those systems. They are core to our brokering capabilities and operations and so Adam and the team are very focused on it and continue to drive efficiency and effectiveness and I see you are seeing that being reflected in their results.
Great Thanks and.
My second question I'm, just curious on.
The sale of Maxim <unk> from the sale of Millers was that all driven by this merger and if there are certain things that maybe happened that you may not have done as a result of the merger agreement that maybe you want to kind of built rebuilt and that area.
No actually both Miller and Max and the case and we're started before we announced the merger.
Were there anything that you probably did during the course of the merger that maybe youre doing and anticipation of it.
You'd want to do some reinvestment in that area.
I don't think there's anything specific like that is as we did say we expected that we would there are some things that we were going slower on and we'll address them on September 9th that we're going to.
Reinvigorate some initiatives we had but.
Nothing.
And nothing major like business, a whole businesses or anything like that.
Great good to hear thank you.
Okay.
Your next.
And as from Phil Stefano of Deutsche Bank.
Yeah, Thanks, and good morning on the margin conversation it feels like and at least from from most of your investors, we talk to them as a focus on the adjusted EBITDA margin.
When you most recently gave guidance it was on the adjusted operating margin maybe you could talk about which of these is more important if there is 1 and where you want us to be focused on our margin thoughts looking forward.
I mean, I think we tend to focus on operating margin.
Overall, and the business and so I think that that's an appropriate spot for you to focus on as well.
I mean, do you have depreciation and amortization.
And are in there.
As well, but I think that's really the focal point.
Okay.
My follow ups.
And there's always the strategic actions that could be happening and and announced over the next couple of months.
You know that.
Essentials and share repurchase didn't do we or don't we lever up the debt the strategic review for Willis rate, how should we think about the time line for all these things with the understanding that.
We don't have a new CEO and place and and presumably this will be part of the the jamba appeal to someone externally used to be.
On this strategic footprint and and flexibility around them. So maybe you could talk about the timeline for these these strategic decisions with the idea that we don't have a CEO looking forward.
I mean, I think we are.
We're.
Working as I said on a review of.
What opportunities we have across all the businesses both ones, we have deferred both new ones. We've identified during the last 16 months and what we should be doing and effort that is a broad based effort across our leadership and so it will have the buy in of book.
The whole leadership of the company and we.
We think it'll be something that will be and the words oven ready for the new CEO to execute on.
Thank you we have no further questions at this time I will hand, the call back over for any additional or closing remarks.
Okay. Thanks, very much everyone for joining us on today's call and we look forward to seeing you on September 9th.
And we'll be discussing the company's growth plans at our Investor Day, and New York City.
Okay.
Thank you. This does conclude today's conference call you may now disconnect.
Okay.
Okay.
Okay.
So let's.
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