Q1 2025 Willis Towers Watson Public Ltd Co Earnings Call
The end
Speaker Change: Good morning. Welcome to the WTW First Quarter 2025 earnings conference call. Please refer to WTWCO.com for the press release and supplemental information that were issued earlier today. Today's call is being recorded and will be available for the next three months on the WTW's website. Some of the comments in today's call may contain corporate looking statements within the meaning of the private security reform act of 1995. These four were looking statements are subject to risk in it.
Speaker Change: and the company undertakes no obligation to update these statements unless required by law.
Speaker Change: For more details discussed, and these other risk factors, investors should review the forward-looking statement section of the earnings press release issued in this morning.
Speaker Change: as well as other disclosures in the most recent form, 10K, on the other Willis Tower Watson SEC for filings.
Speaker Change: During the call, certain non-GAAP financial measures may be discussed. A reconciliation of non-GAAP measures as well as other information regarding these measures. Please refer to the most recent earnings release and other materials in the Investor Relations section of the company's website. It is now...
Speaker Change: My pleasure to turn the conference over to Carl Hess, WTWs, Chief Executive Officer. Please go ahead.
Joining me today is Andrew Krasner, our chief financial officer.
Speaker Change: Julie Gebauer, our president of health, wealth and career, and Lucy Clark, our president of Risk and Broking are also joining us for our Q&A session.
Speaker Change: This performance was in line with our expectations for quarterly pacing and supports our trajectory toward delivering our full-year goals.
Speaker Change: These solid results are the product of our relentless focus on advancing our strategic objectives.
Speaker Change: In particular, our efforts to enhance efficiency are strengthening our ability to generate operating leverage and support margin expansion.
Speaker Change: We remain fully committed to our strategy and are confident in the benefits it will bring and about to thank all WTW colleagues for their hard work executing our plans.
Speaker Change: On that note, let me share our perspective on what we're seeing in the market and how it may affect our businesses.
Speaker Change: As we discussed in the past, changing economic and regulatory conditions tend to drive demand for our services.
Speaker Change: The current heightened risk landscape and macroeconomic volatility create opportunities for us to help our clients manage their cost and risk profiles and lead their organizations through change.
Speaker Change: In risk and broken, concerns about global trade, potential inflationary pressures and growing geopolitical risks have led to considerable uncertainty and elevated risk for many companies
Speaker Change: These risks are not evenly distributed by industry, and we believe our specialty approach has enabled us to provide tailored counsel more quickly than we could have under our previous geographic alignment.
Speaker Change: For example, the global trade landscape history significantly due to new American tariffs on steel and other industrial goods leading to unexpected cost increases in the rebuilding and replacement of damaged property.
Speaker Change: This poses a financial challenge for businesses dependent on insured property and to address these risks, WTW introduced the tariff guard endorsement, a strategic enhancement to commercial property coverage for natural resources companies.
Speaker Change: Together with the scale and depth of the solutions we offer, WTW is well positioned to continue to serve as a reliable and trusted partner for our clients.
Speaker Change: In HWC, the growing share of recurring revenue streams provides a stable, resilient foundation for navigating the current environment.
Speaker Change: Our deep expertise and strong analytical capabilities position us well to respond to the expected near-term increase in demand for benefits cost management projects, pension forecasting, workforce and total rewards modeling, communication support, and more.
Speaker Change: That said, the heightened geopolitical uncertainty is also creating near-term headwinds in certain areas, particularly in our North America career businesses, where some clients in certain industry sectors may choose to delay discretionary advisory work until they have greater clarity on the macroeconomic outlook.
Speaker Change: Similarly, we're likely to see a modest decline in assets under management based fees in our investments business if capital market conditions persist.
Speaker Change: as a reminder, these businesses are a small minority of HWC.
Speaker Change: The vast majority of our HWC revenues are recurring in nature with client retention rates in the mid 90s making us confident in our ability to sustain growth in HWC even if economic conditions weaken.
Speaker Change: In addition, over the longer term, we expect macroeconomic changes to spur more demand for our services as clients seek support in responding to the new environment, a pattern we've seen in prior periods of regulatory shift.
Speaker Change: I'm confident the resilience of our business and our colleagues who've proven their ability to navigate challenging circumstances.
Speaker Change: Our colleagues' hard work is reflected in the momentum we have built in the market and a strong start we've made this year implementing our new strategy to accelerate performance and
Speaker Change: We've recorded many strategic wins this quarter that highlight our focus on accelerating performance.
Speaker Change: In R&B, the strength of our specialization strategy and our ability to deliver differentiated value through technical expertise, global collaboration and client-centric solutions were key factors in these wins.
Speaker Change: In Europe , we secure a complex construction mandate tied to what is expected to become the largest urban development in the region.
Speaker Change: This opportunity was a result of the close coordination of our construction specialist globally and effective cross-solving from our regional colleagues.
Speaker Change: Also in Europe , we expanded our existing mandate with a major global airline to be the sole broker for property and couchfully in local lines, displacing several of our major competitors due to our specialized industry focus, long-term relationship, and more efficient service
Speaker Change: Finally, we were appointed to provide both construction all-risk and health and benefits coverage for a key player in the mining and metal sector in West Africa, driven by our innovative solutions, exceptional service offerings and competitive premiums.
Speaker Change: Disappointment demonstrates our ability to offer clients, integrated solutions across our R&B and HWC businesses and highlights the value of our global platform.
Speaker Change: In HWC, we successfully accelerated performance by growing our core business and baking smart connections.
Speaker Change: For example, a global appliance manufacturer who arrives on us for global pension actuarial work shows us that their global benefits management work across more than 50 countries because of the strength of our global network and the strategic insight we deliver on program design and financing.
Speaker Change: In another example, we unceded a 20-year incumbent in winning the U.S. health and benefits outsourcing for a major hospitality company.
Speaker Change: They were compelled to make the change because of our engaging digital tools, our enterprise-grade administration platform, and our track record of delivering quality outcomes.
Speaker Change: Against a wide range of competitors, a major European financial institution selected us to assist them in a multi-year effort to redesign their group-wide job architecture, implement a new remuneration system and support them with ongoing pay bench-parking.
Our industry expertise and business align process set us apart.
We continue to focus on enhancing our efficiency through technology.
Speaker Change: I'm pleased to share that Liberty Specialty Markets is now using Neuron, WTW's digital trading platform for live trading of DNL and cyber risks.
Neuron connects brokers and insurers in real time.
Streamlining Complex Specialty Risk Placement. [inaudible]
Speaker Change: We expect more insurers to join the neuron platform this year, further enhancing its value and efficiency.
Dr.
Speaker Change: We do, WTW's enterprise delivery organization is also driving greater efficiency.
Speaker Change: After investing in global service delivery centers for several years to help standardize our service delivery model, we're now better able to leverage automation, data, and AI to further increase margins and deliver more value to clients.
Speaker Change: For example, as part of We Do's Right Technology Strategy, we implemented a tool to automate critical data audit and validation tasks for retirement clients.
Speaker Change: We quickly scale the solution to 22 countries by putting it in the hands of retirement teams in our global service delivery centers.
Speaker Change: Process improvements like this helped WTW increase our agility and reduce costs while securing our client's sensitive data.
Speaker Change: With regard to portfolio optimization, I'd like to highlight WTW's purchase of global commercial credit, a specialist broker focused on trade credit and political risk insurance.
Speaker Change: The acquisition adds to our fast-growing specialty strategy and our geographic footprint in a key growth area of the North American market.
Speaker Change: So it's a smaller acquisition and reflects our focus on increasing our exposure to attractive, high growth and high margin markets within our existing strategy.
Speaker Change: And finally, our re-insurance JV is progressing well. We're encouraged by the momentum and remain confident in its long-term contribution to growth and earnings.
Speaker Change: Overall, I'm pleased with how we started the year, delivering results in line with our expectation.
Speaker Change: We produce solid revenue growth that supported meaningful margin expansion across both segments.
Speaker Change: I remain competent in our ability to deliver on our 2025 outlook for mid-single-digit, organic growth, adjusted operating margin expansion, adjusted DPS growth, and ongoing improvement in free cash flow margins.
Speaker Change: We're actively monitoring the macro-environment and may adjust our outlook depending on how factors like trade negotiations affect economic stability and growth.
Speaker Change: We're prepared to proactively manage through changes and adjust priorities as needed to stay aligned with our financial objectives.
and with that, I'll turn the call over to Andrew.
Thanks Carl, good morning, and thanks for joining us today.
Speaker Change: In the first quarter, we delivered organic revenue growth at 5% in line with our expectations. Adjusted operating margin expanded 100 basis points to 21.6% over Q1 2024, where 80 basis points excluding the impact of transact.
Speaker Change: Adjusted diluted earnings per share were $3.13, excluding the impact of transact, this reflects an increase of 8% over the prior year.
Speaker Change: As a reminder, we completed the Investiture of Trans Act on December 31st, 2024, which created a $1.14 cent headwind to adjusted diluted earnest for chair of the school year 2025.
Speaker Change: As Carl discussed, our businesses are primed up for form and our first quarter results reflect our confidence in the foundation we've established, along with our ongoing commitment to the Strategic Priorities and Financial Framework outlined during our investor day.
Speaker Change: Next, I'll spend some time reviewing our segment results. Note that to provide comparability with prior periods, all commentary regarding the results of our segments will be on an organic basis unless specifically stated otherwise.
Speaker Change: Health, Wealth and Career Revenue grew 3% compared to the first quarter of last year.
Speaker Change: Growth for the Quarter met our expectations and we remain confident in each WC's full-year outlook from mid-single-digit growth and continued margin expansion despite the potential headwinds from economic uncertainty and certain businesses that Carl mentioned.
Carl Hess: Our Health Business Group is 6% this quarter. All regions saw growth with double digit increase outside North America driven by solid client retention, strong new business, geographic expansion in Saudi Arabia, and the ongoing appeal of our global benefits management solution.
Carl Hess: In North America, client retention and new mid-market sales led to an increase in commissions while consulting fees increased with more projects focused on cost management and legislative change.
Carl Hess: With the potential for healthcare inflation to go even higher in the current environment, we expect that demand to continue.
Carl Hess: We continue to expect high single-digit growth in health for 2025 based on global market momentum, the successful introduction of new products, including our enhanced mid-market solution in North America and our focus on sales excellence.
Carl Hess: Wealth Revenue grew 2% in the first quarter, driven by low single-digit growth in the retirement business and high single-digit growth in the investments business.
Carl Hess: In retirement, strong growth outside North America, due to increased de-risking activity and growth in our life-site solutions was partially offset due to the expected negative timing impact of project activity in North America relative to the prior year.
Carl Hess: Our Investments Business delivered high single-digit growth due to new product launches and the positive impact of favorable capital markets performance in the quarter.
Carl Hess: While the recent market volatility may impact second quarter results, particularly for investments, we continue to expect low single-digit growth in the wealth business for the year.
Carl Hess: Career Growth was 1% this quarter, largely in line with our expectations
Carl Hess: While growth was tempered somewhat as economic uncertainty led some client to defer advisory work, we continue to see healthy demand in areas such as pay transparency, incentive design, and paid benchmarking.
Carl Hess: Revenue growth is expected to be weighted towards the second half of the year due to the typical seasonality and compensation surveys and timing of project work.
Carl Hess: As Carl highlighted, the lack of economic and policy clarity may impact the growth of the career business in the short term.
Carl Hess: However, support for legislative changes and cost management will continue to create demand. And as we highlighted in yesterday, our focus on product and technology offerings will further mitigate the downside risk associated with the uncertainty.
Carl Hess: Nonetheless, we see a wider range of potential outcomes for career this year and anticipate growth in the low to mid-single-digit range.
Carl Hess: Benefits delivery and outsourcing saw 1% growth versus 1st quarter of last year.
Carl Hess: BD&O revenue benefited from increased project and core administration work in Europe . We expect growth to accelerate throughout the year with the incidence of special project work to support regulatory changes and the timing of new client implementations.
Carl Hess: We continue to expect BDNO to grow at a mid-single digit rate for the year.
Carl Hess: HWC's operating margin in the fourth quarter was 26.7%, an increase of 160 basis points compared to the prior year, where a 40 basis point improvement excluding the impact of the transactive investiture, demonstrating our ability to consistently deliver margin expansion.
Carl Hess: We have a strong track record of margin expansion in HWC and we will continue to build on that during 2025.
Carl Hess: Moving to risk and broken, risk quarter revenue growth was 7%, marking 9 consecutive quarters of high single digit to double digit growth. Our specialization strategy and our investments in talent, technology and innovation continue to bear fruit.
Carl Hess: Corporate risk and broken had another strong quarter growing 8% when 9% when excluding both book of business activity and interesting come.
Carl Hess: Notably, this is on top of 9% growth in the first quarter of 2024. CRB's growth was broad-based across all regions. Our specialization strategy remains a key growth driver for CRB, and specialty continues to outpace the rest of the segment's growth.
Carl Hess: We continue to see sustained client retention rates in the mid 90s and strong new business generation around the world.
Carl Hess: Globally, our construction, facultative, crisis management, and surety specialty lines where major contributors to the strong growth performance is quarter.
Carl Hess: From a geographic perspective, North America had a solid start to the year with notable contributions from our natural resources, security, and M&A businesses.
Carl Hess: Furthermore, we saw a double-digit growth in our specialty lines across our great Britain, Western Europe , and international geographies driven by strong new business generation.
Moving on to our Insurance Consulting and Technology Business
Carl Hess: Revenue was up 3% across both our technology and consulting practices. As we discussed that investor day, our ongoing investment in technology is driving an intentional shift in the mix of offerings in ICT, creating value for our clients by integrating technology and consulting solutions.
Carl Hess: Q1 Growth in ICT was consistent with our projections and we continue to expect and bid single
Carl Hess: For risk and broken in total, we continue to expect mid to high single digit growth for the full year.
Carl Hess: R&B's operating margin was 22% for the quarter and 120 basis point increase over the prior year
Carl Hess: This is primarily due to operating leverage from organic revenue growth as well as transformation savings partially offset by a combined 100 basis point headwind from foreign currency, lower interest income, and the absence of gain on sale activity.
Carl Hess: As we outlined at our investor day last December , we continue to expect to deliver 100 basis points of average annual
Carl Hess: Justin operating margin expansion in R&B over the next three years driven by operating leverage and additional efficiencies including the deployment of our global broken platform and workflow optimization. Thank you very much.
Carl Hess: Now, let's turn to the enterprise level results. Adjusted operating margin for the quarter was 21.6%, a 100 basis point increase over prior year, primarily driven by greater operating leverage, which includes the benefits of our now completed transformation program.
Carl Hess: Regardless of the macro environment, we remain confident in our operational visibility and control with the strength since our conviction in delivering margin expansion this year.
Carl Hess: Aaron Exchange was a headwind to adjust the DPS of 9 cents for the quarter.
Carl Hess: Based on our current outlook and current spot rates, we expect foreign exchange to have no material impact on adjusted EPS for the full year as the 9 cent headwind from Q1 will unwind by the end of the year
Carl Hess: A US gap tax rate for the quarter was 21.5% versus 19.9% in a prior year. Our adjusted tax rate for the quarter was 22.7% compared to 22.3% for the first quarter of 2024.
Carl Hess: We expect our 2025 tax rate to be relatively consistent with that of 2024.
Carl Hess: Reed Cashflow was negative $86 million for the first quarter of 2025, a decrease of $50 million from the prior year, primarily driven by the absence of cash collections related to transact and increased compensation payments.
Carl Hess: Vince Transact historically recorded cash inflows in the first half of the year, followed by larger cash outflows in the second half of the year, Transact Fail will be a net tailwind to free cash flow on a full year basis.
Carl Hess: As a reminder, free cash flow and free cash flow margin now reflect cash outflows for capitalized software costs for all periods presented in the earnings materials.
Carl Hess: For the full year, we continue to expect to expand our free cash flow margin, driven by the sale of transact, the wind down or transformation related cash outflows.
Carl Hess: and Expected Annual Margin Expansion. But the partial offset from cash taxes on the Willis Reurnout payment, which have not yet been paid.
Carl Hess: During the quarter, we returned 288 million to our shareholders via sharey purchases of 200 million and dividends of 88 million.
Carl Hess: As we discuss that investor day in December , Sherry Purchases will remain our primary form of capital return and essential component of our capital allocation strategy.
Carl Hess: We continue to expect to allocate approximately $1.5 billion to share purchases in 2025 subject to market conditions and potential capital allocation to the inorganic investment opportunities.
Carl Hess: Given our balanced approach to capital allocation, we plan to continue to invest in talent and our platform to drive sustainable growth and expand margins.
Carl Hess: We will also increasingly emphasize M&A aligned with our strategic priorities of improving our business mix, expanding our reach across the insurance value chain, and enhancing our margins and free cash flow.
Carl Hess: In closing, we are encouraged by our business performance in Q1 and expect to achieve our outlook for 2025. With that, let's open it up for Q&A.
Speaker Change: Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. We ask that you please limit yourself to one question, one follow-up. One moment for our first question.
Speaker Change: Our first question is going to come from the line of Gregory Peters with Raymond James. Your line is open. Please go ahead.
Gregory Peters: Good morning, everyone. So thanks for the detail in your comments and just some question around the tariff and trade uncertainty.
Gregory Peters: Carl, you mentioned the career business and the investment businesses having some pressure.
Speaker Change: Andrew, you talked about the health business being high single digit component. Maybe you can, you can
Speaker Change: And pardon me, Mr. Peters, we are having technical difficulties so just hang on a moment and they will be right back with you just a moment everyone.
Speaker Change: Yes, we are, Claudia, okay, Mr. Peters, could I please get you to repeat your question again, sir?
so
Speaker Change: First of all, good morning. But then secondly, in your comments, Carl, you talked about some headwinds from tariffs and potential economic volatility on the career business.
Speaker Change: and the investment business. Andrew, in your comments, you talked about the health business being a high single digits for the year.
Speaker Change: Maybe give us some additional color with driving your expectation for mid-single digits and health wealth and career for the year given all the puts and takes.
Speaker Change: Sure, great thanks and good morning. So, you know, just to set it out right, healthy well, it did grow 3% year-over-year, which was very much in line with our expectations. And we're seeing strong demand for our mobile benefits management offering, for pension consulting, for outsourcing demonstrated by the...
of Folier, Andrew, and Greg, I'll provide some further detail.
Speaker Change: on each of the HWC businesses for the quarter and then hand it over to you.
Julie, to talk more about which she's...
Singh, so Health Head of Organic Revenue, Growth of 6% [inaudible]
Speaker Change: The solid growth was led by a strong client retention and new business [inaudible]
Speaker Change: All regions sought growth with double-digit increases internationally. We saw strong contributions from Pew Graphic Expansion efforts in Saudi Arabia and the ongoing expansion of our global benefits management solutions.
Weld, you know, where we had 2% organics.
Speaker Change: Robes, which driven by modest growth in the retirement business and in high single-digit [inaudible]
Speaker Change: Kourier had 1% organic revenue growth that was tempered by postpone projects as economic
Speaker Change: Artitra Appliance to defer some advisory work. The careers are most economically sensitive business and the broad market uncertainty may continue to weigh on growth within that business.
Speaker Change: BDO, had grew 1% and that really benefited from increased project work in court.
administration.
and the American Heart Association. Thank you.
Speaker Change: and as Carl mentioned, we're still remaining confident in our pipeline in HWC and continue to expect that that segment will have a single digit revenue growth in 2025 and over the long term. Julie? Thanks, Andrew. My view of the HWC segment has not changed over the last 90 days.
Speaker Change: As you said, she won generally performed in line with our expectations and overall we expect the segment to grow in mid single digits for the year.
Speaker Change: We've got resilient businesses with a significant amount of recurring and required work, and we know how to navigate change in uncertainty, emphasizing those solutions that are relevant to clients in this environment.
Speaker Change: In wealth, demand for core to find benefit offerings is strong and so is demand in adjacent areas, so that supports our outlook for low single digit growth.
Speaker Change: No, in career, just remember 70% of our work is from recurring projects like compensation committee appointments or like product, like M-VAR,
Speaker Change: And at the same time there's some areas like pay transparency in the EU and incentive design that still remains drawn. So overall in this environment we've drawn dark outlook and we're now expecting low single digits to mid single digit growth.
hopes for the year.
Speaker Change: Browning it out with BDNO, our core offering, our sticky and stable. We expect growth to accelerate through the year and achieve missing a digital growth.
Speaker Change: So when you put it all together, we are confident in the pipeline that we've got, and we continue to expect that the segment will have mid-single-digit revenue growth in 2025 and for the long term.
Speaker Change: That is excellent detail. Thank you. I guess I'd like to just take the same question and apply it to the risk of broken segment.
you know, because
Speaker Change: The terrorists are a popular topic among all the conference calls and management, even dealing with the challenges there and the potential for economic slowdown.
Speaker Change: Maybe you can, you know, give us some additional detail on how you're thinking about organic revenue growth in the risk of broken business for the year.
Speaker Change: So great, we're really pleased with the 7% organic. We did for Q1 and that gives us confidence to achieve the mid to high single digits growth in R&B. We've seen for the year. The volatility we're seeing in the macro environment creates risk for many companies and we're well positioned to help our clients manage these risks.
Speaker Change: Especially given the structure of our specialization strategy, which enables us to provide for tailored comfort with increased agility, we are seeing strong demand for our services.
is with a specially strong interest in our specialties.
Lucy Clark: so I'll pass it over to Lucy to add some more color.
Lucy Clark: I think that our specialization strategy.
Speaker Change: Will serve us well and our focus is on performing for our clients, our responding to increasing demand for our trade credit and political risks and quickly coming up with new products like the natural resources guys did.
Speaker Change: With tariff guard, so we feel confident about the fundamentals of the business and the mid to high single digit growth for 'twenty five.
Speaker Change: Got it thanks for the answers.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open. Please go ahead.
Elyse Greenspan: Hi, Thanks, good morning.
Elyse Greenspan: My first question is on H W. C. I think in the fourth quarter, you guys had alluded to some timing right.
Elyse Greenspan: Revenue being pushed from Q4 to Q1.
Speaker Change: Career and perhaps in other areas.
Speaker Change: Did that did that revenue come on line in the Q1.
Speaker Change: Or is that now getting pushed back a bit further and when you guys are talking about a stronger half year or two.
Speaker Change: This year.
Speaker Change: So at least good morning.
Speaker Change: We said in our opening comments career does have some near term sensitivity to the lack of economic policy clarity, but we do think that the us support for legislative changes that affect our clients as well as cost management is going to create demand as we review our pipeline our expectations for revenue growth.
Speaker Change: To be weighted towards the second half of the year part of that is typical seasonality of compensation surveys and the timing of some project work and Thats one of the reasons, we have the wider range of outcomes Julie talked about.
Speaker Change: And I'll just add that.
Speaker Change: The reminder, that the first quarter was largely in line with our expectations. So it was muted because of the economic uncertainty and there was a modest impact on the revenue in the quarter because of that.
Speaker Change: I'll just come back to something I previously said, we've got about 70% of our revenue coming from recurring work as Carl mentioned a lot of that come in the second half and we're seeing an increase in our survey participation. This year.
Speaker Change: Our pipeline for work is strong given the focus that we have on the market as a very disciplined focus our teams are initiating discussions with clients and prospects about topics that really matter in this environment and I already mentioned pay transparency, but there are areas like the impact.
Speaker Change: <unk> of market volatility on incentive plan and Thats generating new leads and new sales.
Speaker Change: And the effort that we have to embed our employee experience capability into other offering is also having an impact for example, many of our new outsourcing implementations that are going to happen. Later in this year will include our embarked software or at all and the workforce management work that we are selling include.
Speaker Change: Communication and change management in the quarter.
Speaker Change: So we've got a durable career business and our teams are really equipped to address what our clients need now in spite of the uncertainty slowing down some projects in the first quarter. So we're confident this is going to allow us to grow in the range of low to mid single digits.
Speaker Change: Yeah.
Speaker Change: Thanks, and then my follow up was on free cash flow. If you can just talk about your expectations for the full year and just walk us through.
Speaker Change: Any puts and takes I know you mentioned, Andrew some of the transact.
Speaker Change: First half versus second half in your opening comments, but anything else that we should be thinking about for.
Speaker Change: For free cash flow this year.
Speaker Change: Yes, absolutely.
Speaker Change: Our free cash flow figure of negative 86 million.
Speaker Change: Though below prior year by $50 million. It was right in line with our expectations for the quarter and we remain.
Speaker Change: In line with our planned trajectory to deliver free cash flow margin expansion in 2025 to provide a bit more color around that the year over year decrease in Q1 was primarily driven by two items. One is the seasonality of transact cash flows so transact historically recorded cash inflows.
Speaker Change: In the first half of the year, followed by larger cash outflows in the second half of the year. So on a full year basis transact sale will be a net tailwind to free cash flow, but it was a headwind this quarter and will be for Q2 as well and the second item is increased compensation payments on a year over year basis.
Speaker Change: And as I think about the full year and beyond so I think the right way to think about it is our 2020 for free cash flow margin was 12, 8% that was inclusive of 440 basis points of headwinds from transact and transformation.
Speaker Change: So if you think about our 2020 for free cash flow on a normalized basis for those factors. It was about 17, 2%.
Speaker Change: From that 17, 2% normalized base, we expect further free cash flow margin improvement from operating margin expansion.
Speaker Change: Offset by roughly 200 basis points of headwinds related to <unk>.
Speaker Change: Transformation.
Speaker Change: Cash outflows and cash taxes on the Willis re earn out as I mentioned in the prepared remarks. So you put all that together I think.
Speaker Change: That's how I think about 25.
Speaker Change: And then we continue to be confident in our ability to expand our free cash flow margin beyond beyond that after 2025.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: Our next question comes from the line of Rob Cox with Goldman Sachs. Your line is open. Please go ahead.
Rob Cox: Hey, Thanks first question I wanted to ask about M&A.
Speaker Change: You all talked about it.
Rob Cox: Creasing Lee emphasizing M&A back at the Investor Day, and then and then here today in the comments and we've seen one deal so far.
Rob Cox: Which is a little bit lighter than some of the public and private broker run rate.
Rob Cox: So I was just curious.
Rob Cox: Did you think you would have acquired more businesses by now and you outlined the strategy back in December and.
Rob Cox: Are you still seeing deals out there and what's stopping you from from doing more.
Speaker Change: Yes, Thanks, Rob Good morning, we feel good about our approach to M&A right I mean, just to remind everyone. Because we talked a bit about this at Investor day, we're looking for companies that could be a good fit culturally.
Speaker Change: We're not going to see a lot of business disruption over the integration that they've got to satisfy the following criteria first improve our business mix to enhance our.
Speaker Change: Our presence in key markets, while strengthening our offering in high growth high margin areas of our core business.
Speaker Change: Second they should expand our reach across the insurance value chain.
Speaker Change: To further accelerate our growth while filling gaps in our capabilities and footprint and we wanted to target businesses that enhance our margin and free cash flow profile.
Speaker Change: Yes.
Speaker Change: With regard to timing.
Speaker Change: Our through our growth simplify transform strategy, we solidified our infrastructure we've strengthened the company we have the right business model.
Speaker Change: Focus now we have more efficient processes, we've got the tools to integrate potential targets with WCW and deliver long term value.
Speaker Change: So we are.
Speaker Change: Our eyes on the landscape, we recognize theres going to be others.
Speaker Change: In the space, but we're looking for what's right for us not just to do deals because we see others doing.
Speaker Change: Okay.
Speaker Change: Appreciate the color.
Speaker Change: Maybe as a follow up on the math.
Speaker Change: Macro environment I mean, given Willis is a global business I'm curious when you look out at the operating environment and based on your client conversations are you seeing any more economic weakness or uncertainty in certain geographies.
Speaker Change: Well, yes, we've said in the past right WTO is really well positioned to weather macroeconomic uncertainty.
Speaker Change: And look to our history, you look back to our predecessor companies, we have thrived under many various market conditions and we think the current macro environment is going to create more opportunities for us as we alluded to earlier economic challenges can intensify our clients' needs for sound advice and risk management solutions and many of our clients look to double.
Speaker Change: Tw for help in navigating these obstacles, creating opportunities that drive demand for our services regarding workforce management regarding pension plans regarding risk management solutions, Let me turn a little bit over to Julian Lucy you talked about what theyre seeing in the segments Julien.
Julian: Sure Carl So I'll, just start with repeating something <unk> already said, which is that.
Julian: Is that the vast majority of our work is recurring and require and even in our most economically sensitive businesses in the career area about 70% of our revenue comes from those areas. So we've got a steady base.
Julian: And this ability to navigate and uncertainty is is helpful and that's across the world. We're focused on solutions that are relevant in this environment. So we're well positioned to capture demand where there is a need for workforce management workforce reductions.
Julian: <unk> care cost management is an important topic.
Julian: Now and pension cost modeling, what's going to happen if the environment changes all.
Julian: Very important for us.
Julian: And even as the uncertainty causes some delays for some discretionary advisory work until there's greater clarity. These areas will will hold us.
Julian: So we're confident about our mid single digit growth outlook for the year.
Speaker Change: Yeah. Thanks, Thanks, Julie and thanks, Rob for the question I think I'll also repeat something I've already said, which is that.
Speaker Change: And in these circumstances, however, uncertain the broking business tends to be very resilient.
Speaker Change: Not seeing particular weakness right at the moment from our.
Speaker Change: Our clients in fact, we're seeing increasing demand for some of our specialty products and so really our focus is on just performing for our clients and delivering in these.
Speaker Change: In this uncertain environment.
Speaker Change: Thank you.
Speaker Change: Thank you and one moment as we move on to our next question and.
Speaker Change: And the next question is going to come from the line of Paul Newsome with Piper Sandler. Your line is open. Please go ahead.
Paul Newsome: Good morning, Thanks for the call.
Paul Newsome: Hoping you could give us a little additional color on the risk and broking business on carrier competition. We're hearing a lot about weakness in the large account business and maybe some resilience elsewhere.
Paul Newsome: And.
Paul Newsome: Obviously <unk> has a <unk>.
Paul Newsome: Our mix of business between middle and large.
Paul Newsome: Fluids close, but we know it's important.
Paul Newsome: So any thoughts on what youre seeing in the marketplace plus the implications for your businesses.
Lucy Clark: Hi, Paul It's Lucy Thanks, Thanks for the question.
Lucy Clark: Yes. So first of all we definitely are seeing an improvement in pricing in most lines across the market.
Lucy Clark: Broadly that improvement or falling rates and pricing is mostly in property large and complex risks.
Lucy Clark: Our financial lines have stabilized after a period of.
Lucy Clark: Improvement.
Lucy Clark: And the pricing continues to increase in certain areas such as at North American casualty.
Lucy Clark: In order.
Lucy Clark: So.
Lucy Clark: What does that mean well first of all I think it's important to remember that.
Lucy Clark: While we can't predict what will.
Lucy Clark: Will happen the rating environment is not a surprise for us.
Lucy Clark: Our clients have had many years of steep increases carriers have performed well.
Lucy Clark: <unk> is adequate and so we were expecting.
Lucy Clark: Improving pricing market for our clients.
Lucy Clark: That our business mix is about half.
Lucy Clark: Our commission fee and about half property casualty so.
Lucy Clark: I think we're well positioned and.
Lucy Clark: Of course, we can't predict to what extent the rates will fall.
Lucy Clark: <unk> and <unk>.
Lucy Clark: With I guess, particularly note that the geopolitical and macroeconomic uncertainty may have a dampening effect on the optimism we're seeing today.
Lucy Clark: Yes.
Lucy Clark: That's helpful. Thank you.
Speaker Change: Alternative question, a little bit more of a modeling approach question, so I'm getting quite a bit of questions from investors about market implications equity financial market implications on.
Speaker Change: In career and I think you've touched on this but maybe a few thoughts would be great just to talk about sort of the sensitivity.
Speaker Change: <unk>.
Speaker Change: Those businesses directly as it is simply a matter of just looking at the assets under management.
Speaker Change: The relationship there, but I suspect there is really more to it but any thoughts there.
Speaker Change: Folks who are trying to model this from an asset management perspective.
Speaker Change: So remember Paul.
Speaker Change: At our wealth business really has two major components. The bigger component is our pensions consulting business, where we're typically appointed actuary for defined benefit fund and these relationships are very very stable taken last literal.
Speaker Change: Literally for decades.
Speaker Change: And we've got client retention rates in the high nineties.
Speaker Change: So very very sticky very annuity stable basis, it's smaller part of the wealth segment as our investment business, which is a combination of investment management and investment consulting.
Speaker Change: Our clients, Gary, but theres a lot of them are defined benefit funds, where their asset base is typically quite matched to their liabilities. So our sensitivity.
Speaker Change: To equity markets is probably a bit less than you would think right. We've got exposure to the overall level of assets, but these are quite young.
Speaker Change: Hedge to pension liability so the characteristics very that Julie many further.
Speaker Change: Just add that that in our investments business, which is less than 5% of our overall <unk> revenue.
Speaker Change: That some of our fees are determined as basis points on assets under management that that's not all of our fees. We've got a meaningful portion of our revenue that are fixed fees so that.
Speaker Change: The basis point related fees are the ones that are susceptible to capital market volatility and while that didn't affect us in Q1 because of the favorable performance. The recent performance could could leave us with an impact in Q2 and then the other thing I'll add is that we intend to offset any short term headwinds as much.
Speaker Change: As possible by going to market aggressively with solutions that are currently relevant like workforce management.
Speaker Change: Thank you I really appreciate the help is always very much I appreciate it.
Speaker Change: Thank you one moment as we move on to our next question.
Brian Meredith: Our next question comes from the line of Brian Meredith with UBS. Your line is open. Please go ahead.
Brian Meredith: Yes. Thank you I guess first one Lucy you just could you remind us how big is the transactional business as a part of your overall business is that going to be a headwind at all here as we look forward I know, it's been relatively low, but I thought I picked up second half of last year.
Lee: Hi, Brian It's Lee.
Speaker Change: Thanks for the thanks for the question. So we're not going to comment on the size of our M&A business.
Speaker Change: And so and we don't expect a major impact throughout the rest of the year.
Speaker Change: Okay. Thanks, and then set.
Speaker Change: Second question I'm, just curious on share buyback in the quarter appreciate that the first quarter is usually.
Speaker Change: Weaker the free cash flow quarters.
Speaker Change: But I would have thought with.
Speaker Change: The correction your stock had post fourth quarter results as you have been a little bit more aggressive with share buyback was there anything else to kind of think about that maybe prevented you from buying back more shares in the quarter.
Speaker Change: So there is lots of things that go into the pacing of the share repurchases throughout the year I think the right thing to focus is on the 1 billion and a half that we've committed to for the year.
Speaker Change: With regard to anything we have.
Speaker Change: Opportunities at certain points in time to lean in depending on market conditions and accelerated some of that and that's what we tend to do from time to time since really.
Speaker Change: A combination of.
Speaker Change: Timing.
Speaker Change: Market conditions, and again focus on the phone.
Speaker Change: For the full year.
Speaker Change: Great. Thanks.
Speaker Change: Yeah.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of David <unk> with Evercore ISI. Your line is open. Please go ahead.
Speaker Change: Hey, good morning, I wanted to focus on wealth and BD.
Speaker Change: I think you guys had called out a few areas of project activity timing that negatively impacted you guys.
Speaker Change: Wondering if you could size that impact that each of those had on each of the segment organic growth rates and then maybe just elaborate a bit more on your visibility into those coming online over the rest of the year I get that demand for your services has gone up but.
Speaker Change: If it's project work it sounds kind of discretionary in nature.
Speaker Change: So just wondering what your conversations with clients have been on those and what gives you some confidence that we're going to see that revert back.
Brian Meredith: So let me address <unk> first and then we could talk a bit about wealth, Brian remember the BD.
Brian Meredith: <unk> grew 1% for the quarter and we did have some <unk>.
Brian Meredith: Increased project and core administration work.
Brian Meredith: Europe, we expect growth to accelerate through the year with new client implementations as well as special project work hard that is to support regulatory changes.
Brian Meredith: And part of it can be things that can actually be offsetting.
Brian Meredith: Unfavorable macroeconomic conditions, such as increased Cobra administration, if people are laying additional people off so there is some.
Brian Meredith: Not all the project work is economically sensitive and the way you might think it might be.
Brian Meredith: With respect to wealth.
Brian Meredith: Look we have a variety of projects. They can somebody could be in response to regulatory change, which demands clients annualize the effect of a change on their retirement plans. Some of the contemplation of pension risk transfer activity, maybe Julie you can elaborate a little bit more on the derisking activity.
Brian Meredith: Had a decent amount of that in Q1 as mentioned in the prepared comments that activity dependent on a number of factors. The top factors our pension plans funded status and Carl commented about how that's changing maybe not as dramatically as people lift part and the interest rate environment.
Brian Meredith: And as we look at it those factors are still favorable for many plan. So we do expect that type of activity to continue in the current environment, probably at a slightly slower rate than we initially projected for the year.
Brian Meredith: But we expect clients that arent undertaking derisking initiatives will pick up other project work to evaluate pension volatility to use pensions to support workforce actions and the like so we are confident that we will capture our fair share of that and Thats reflected in our outlook.
Brian Meredith: Low single digit growth.
Brian Meredith: Yeah.
Brian Meredith: Great. Thank you thanks for that that makes sense.
Speaker Change: And then maybe Andrew just.
Speaker Change: Following up on the free cash flow you had mentioned the transact sale was a was a headwind to free cash flow this quarter.
Speaker Change: And what will be next quarter as well I'm wondering if you could just size that how how much of a headwind it was.
Speaker Change: Free cash flow this quarter.
Speaker Change: And then the expectation for the headwind for next quarter, just so I can sort of break down the <unk>.
Speaker Change: Components.
Speaker Change: Yes, sure so for this quarter year over year was a 50.
$6 million headwind.
Speaker Change: In Q2, it will be substantially.
Speaker Change: Smaller about $8 million or so.
Speaker Change: Perfect. Thank you.
Speaker Change: Thank you one moment as we move on to our next question.
Speaker Change: Our next question comes from the line of Mark Hughes with <unk> Securities. Your line is open. Please go ahead.
Mark Hughes: Yes, Thank you and good morning.
Speaker Change: ICT the organic 3%.
Mark Hughes: This quarter.
Speaker Change: 11% without.
Speaker Change: Timing of new business or was there any sort of fundamental transition or inflection there.
Speaker Change: Yes, so remember ICT is a mix of consulting offerings and technology offerings.
Speaker Change: The consulting includes both recurring services such as reserve calculations for insurance companies as well as project work for things like securities issuance or M&A on the technology side, we offer products that support things like underwriting ratemaking reserving for our clients.
Speaker Change: And those sales can.
Speaker Change: It can be large and lumpy and in fact as we pointed that out in Q4 that was one of the drivers for the Q4 growth.
Speaker Change: And.
Speaker Change: Can you just make the pattern from quarter on quarter.
Speaker Change: Little bit jagged alright.
Speaker Change: We think thats a feature not a book.
Speaker Change: Very good and then on the reinsurance JV any change in your estimate for cost through the full year and any quick comments on how thats ramping.
Speaker Change: So Brian.
Speaker Change: Brian This is a new launch like we are still in the startup phase and we're focused on building out the infrastructure and hiring new talent at this point, we will give you more of an update when there's more to share, but we're very pleased with the progress made.
Speaker Change: And we're excited about our return reinsurance Andrew you want to comment on yes, and Jason just to just to confirm there is no change in the outlook at this point for the rest of the year with regard to the guidance. We previously gave.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you and one moment as we move on to the next question.
Speaker Change: Our next question is going to come from the line of Mark Mckinnon with Baird. Your line is open. Please go ahead.
Mark Mckinnon: Good morning.
Mark Mckinnon: Karl in your prepared remarks, you went through a number of new business wins and I was wondering.
Mark Mckinnon: Sounded to me like there's a greater proportion of them that you mentioned.
Mark Mckinnon: Historically mentioned or even.
Speaker Change: Going back to John.
Mark Mckinnon: So I'm wondering number one do you have.
Mark Mckinnon: Do you have any sort of quantification with regards to the number of new business wins and the magnitude of the potential revenue.
Mark Mckinnon: Coming on.
Mark Mckinnon: Relative to prior quarters or any sort of quantification.
Mark Mckinnon: Number one number two.
Mark Mckinnon: To what extent is it coming from some of the new talent that <unk> added relative to some of the existing folks is that a sign of increasing productivity from some of those new hires.
Mark Mckinnon: So while I won't talk about numbers, specifically I will say that over the past few years, we have put a lot of emphasis on being in the market.
Mark Mckinnon: Bringing new revenue and new logos to our client registered that's been a focus of both segments and I think youre seeing that.
Mark Mckinnon: And some late in the revenue growth rates, we have been stronger over the last few years compared to what you might've had over the years before that and so.
Mark Mckinnon: Very pleased to see the discipline and focus we put in the marketplace.
Mark Mckinnon: Off we've got very strong offerings in both segments and it's surprising to me that we continue to see the sort of progress, we're making as demonstrated in our repeat remarks quarter after quarter about the success, we're having in the marketplace.
Speaker Change: Julian This you want to talk a lot about segment strategies with regard to that.
Speaker Change: We've got a clear focus on building market share in our core growth areas and we've been successful at that.
Speaker Change: Discipline and focus on sales management will enhance that and then our focus on smart connections finding the ways that we can bring.
Speaker Change: <unk> service offerings together to address client needs and cross sell where it makes sense.
Speaker Change: It is paying dividends.
Speaker Change: Yes. Thanks.
Speaker Change: I got to say based on the fundamentals of our business I really love our position we have a specialization strategy. That's working we have a market leading digital and technology strategy.
Speaker Change: And we have the capabilities and credentials to compete.
Speaker Change: With anybody in our space. So, yes, I think we're seeing a really strong new business in the quarter that's coming from.
Speaker Change: Our existing colleagues as well as the new strategic hires.
Speaker Change: And.
Speaker Change: We haven't seen the full impact even yet of the strategic hires.
Speaker Change: <unk> of the planned hires we have during the course of the year. So we feel really optimistic about that.
Speaker Change: Yeah.
Speaker Change: Thank you and that is going to conclude today's question and answer session and I would like to hand, the conference back over to Carl Hess for any further remarks.
Carl Hess: Thank you all for joining us and I just wanted to I. Appreciate the hard work of all our WCW colleagues globally, who helped us start the year on such a solid note.
Speaker Change: Also like to thank our shareholders for their continued support of our efforts.
Carl Hess: I wish everyone a great day.
Speaker Change: And look forward to speak with you all soon.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.