Good day, ladies and gentlemen, and welcome to the Towers Watson Fourth Quarter Fiscal Year 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to introduce your host for today’s conference, Aida Sukys, Director of Investor Relations. Ma’am, you may begin.

Good morning, thank you. Welcome to the Towers Watson earnings call. I’m here today with John Haley, Towers Watson’s Chief Executive Officer; and Roger Millay, our Chief Financial Officer. Please refer to our website for this morning’s press release. Today’s call is being recorded and will be available for replay via telephone for tomorrow by dialing 404-537-3406, conference ID 92166490. The replay will be available for the next three months in our website. This conference call shall not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities nor shall there be any sales of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration of qualifications under security of law of any such jurisdiction. No offer of security shall be made except by means of a prospectus meeting the requirement of Section 10 of the Securities Act of 1933 as amended. In connection with the proposed merger of Towers Watson and Willis, Willis plans to file with the SEC, a registration statement, on Form S-4 in connection with the transaction. Willis and Towers Watson plan to file with the SEC and mail to the respective shareholders a joint proxy statement prospectus in the connection with the transaction. The registration statement and the joint proxy statement perspectives will contain important information about Willis, Towers Watson, the transaction and related matters. Investors and securityholders are urged to read those registration statements, the joint proxy statement/prospectus and the other related documents carefully when they’re available. Investor maturity holders will be able to obtain free copies of the registration statement, the joint proxy statement/prospectus and other related documents filed with the SEC by Willis and Towers Watson through the website maintained by…

Thanks Aida. Good morning everyone and thank you for joining us. Today, we’ll review our results for the fourth quarter of fiscal 2015 and review our guidance for the first quarter of fiscal 2016 and also provide some context for the full-year fiscal 2016. We ended the year with the same strong momentum we’ve seen in each quarter throughout this fiscal year. Reported revenues for the quarter were $888 million, an increase of 1% over the prior-year fourth quarter reported revenues, up 7% on a constant currency basis and up 6% on an organic basis. Our organic growth rate adjusts for changes in foreign currency exchange rates, acquisitions and divestitures. Our adjusted EBITDA for the quarter was $180 million or 20.3% of revenues. The prior-year fourth quarter adjusted EBITDA was $169 million or 19.2% of revenue. Continued strong topline results and the focus on cost efficiencies have helped drive EBITDA margins. For the quarter, diluted earnings per share from continuing operations were $1.28 and adjusted diluted earnings per share were $1.51. We’re very pleased with fourth quarter results and this record setting fiscal year, it’s been rewarding to see our long-term growth strategy take hold and gain momentum. The record revenue growth, EBITDA margin and EPS results we’ve seen this year are a testament to our unwavering commitment to our clients and continued focus on our long-term growth strategy TW 2020. We’ve building towards this strategy is a couple of ways through acquisitions and by developing a culture of innovation. We focus many of our acquisitions since the creation of Towers Watson with an eye towards this framework. EMB, a provider of premier consulting and software solutions to the insurance industry and Aliquant, a health and welfare benefits administration solution provider were added shortly after the creation of Towers Watson.…

Thanks, John, and good morning to everyone. I’ve a few initial points to make before getting into the financial results. First, I want to add my thanks to our associates for a truly outstanding year. We should all be very proud of Towers Watson’s record-breaking financial results and of the great strides we’ve made towards our TW 2020 strategy. Bottom line, it was a great year. So, here is a big virtual high five to the team. Second, I want to echo John’s earlier statement regarding the Willis merger. I’m really excited about the opportunity in front of us. This is a transformative event that will create value for our associates, clients, and shareholders. The cost savings, tax and revenue synergies that we’ve focused on in the transaction economics are only the beginning of the story. Towers Watson, created by a merger of equals, brought us financial strength and flexibility, a top pool of talent and a vehicle to take our best ideas to market. I believe we found a similar opportunity in partnering with Willis, where together we’ll build a stronger Company and create more value for stakeholders than we could as two separate companies. Finally, I also want to welcome the Acclaris team. I’m excited about the market opportunity this acquisition brings to Towers Watson. This breaks us into the fast growing health savings account administration market as well as other consumer-driven accounts. Now, for the financial results. As a reminder, our segment margins are before consideration of discretionary compensation and other unallocated corporate costs such as amortization of intangibles resulting from merger and acquisition accounting costs. For the quarter, the Benefits segment NOI margin was really strong at 36%, up from 33% last year. The revenue growth in Retirement and Health and Group Benefits and cost management,…

Okay, thanks, Roger, and now we will take your questions.

[Operator Instructions] Our first question comes from Ashwin Shirvaikar with Citi. Your line is open.

Thank you, guys, and congratulations on a good solid quarter.

Thanks, Ashwin

My first question was if you could help us size the bulk lump sum revenue and profit impact for fiscal 2015, and it seems like your view is that, that is not sustainable at the same level. So if you can go into sort of the pipeline and the reasons why you think it might not be sustainable.

Sure, Ashwin, I’ll give some numbers on that one and John may have some additional context. I would say at this point, demand is looking a little bit stronger than probably we’ve said on calls the last couple of quarters, but still not at the level going into 2016 that we had in fiscal 2015. So we ended fiscal 2015 at somewhere around $70 million or $75 million of revenues, it looks like fiscal 2016 might be around half of that or so. And the run rate for the quarters maybe at more or like in the first couple of quarters here, more in the $10 million to $15 million range versus in the around $30 million or so per quarter in the first half of fiscal 2015. So I think overall it’s kind of in the first half of fiscal 2016 about half the run rate last year.

Yeah, I guess the only other thing I’d add to that Ashwin about the projections is, and we’ve really been saying this for several years now is that this is a business that has a lot of granularity to it. So you will find particular quarters and particular years where you’ll see revenues spike up and then they will return back. So when you look at what we are projecting in fiscal 2014, we – the revenues we’re projecting for fiscal 2016 are a little bit above where we were -- for bulk lump sums are just a little bit above where they were for fiscal 2014. The outlier is that fiscal 2015, we had one of these big spikes up. We expect to continue to see that periodically. There will be years where there is just a lot of lump sum activity. In this last year, there were concerns with the new mortality table, the particular dynamics of where lump sum interest rates are versus the accounting interest rate. So those things can impact it, particular year-to-year basis.

Okay. Also I had a question on the exchange business. You’re clearly hiring for greater demand and if you could get into sort of the dynamics of that with regards to breaking out the demand for December, I mean, January versus the rest of the year, because I think your comment with regards to sizing for fiscal year, but if you can break it out into first half versus second half?

Well, I will let Roger talk a little bit about that in terms of some of the specifics there. But I guess what we just mentioned in the beginning, as I mentioned particularly, when you look at the retirees, we have 220,000 retirees we expect to enrol this year. That is an enormous gain over what we had last year and so it’s going to require a big spike up in our capabilities. Now, one of the things that we’ve been – we are pretty proud of is the fact that we’ve been able to manage this growth and be able to plan for this kind of growth and do without having any hiccups with our clients. So that’s one of the reasons, we have had great success in this market is we do have a good process about bringing people in and administering them sufficiently. But Roger, you may want to talk about the specifics of the hiring.

I am not totally sure, Ashwin, I apologize exactly what you focused on. So I will just highlight, as John said, so the numbers were 220,000 incremental for retiree 1/1/16 versus 160,000 1/1/15. So that’s going to spike up revenue obviously in the second half of the year quite a bit more than it was in the second half of fiscal 2015. For actives, it looks like we are running about twice the level that we were, may be not quite twice the level we were at this point for signups for 1/1/16. So we have good momentum, but as you say, it’s focused on driving revenue growth in the second half of the fiscal year.

Got it. Just a clarification on that, should we assume that these projections do not include any changes you can effect in to the Willis channel once that acquisition or once that merger closes?

Yes, that's correct.

Okay. Because those would be positive changes that you can do to compensation and such to drive behavior and demand, right?

Yeah.

But all these projections are done on a stand-alone basis.

Okay, got it. Understood. Congratulations and all the best. Thank you.

Thanks, Ashwin.

Thanks, Ashwin.

Thank you. Our next question comes from Jason Anderson of Shlomo. Your line is open.

How are you doing? I’m Ed [ph] for Shlomo here from Stifel. So, sorry guys. Just a question on the - -a little more detail on the -- you mentioned in Exchange business, the 1Q16 margin accelerated higher, could you maybe give us some color on exactly maybe a little bit more detail on what that impact is versus prior year?

Yeah. So I mean what's really going on there again the peak ramp up season is the September and December quarters, as we add people for the retiree business and that just has a huge impact. So I think that's the real driver of the margin being 10% in the first half, first quarter. And it was that kind of mid-teens, I believe last year in the comparable quarter and so that's driven again by the large retiree annual enrolment period preparations and perhaps also a little bit by continuing ramping up of the active segment of the market.

Okay, thanks. And then in regards to, it's just maybe a qualitative question here and I'm sorry if you've answered this before at one point in time, but how big of a difference is there in the sales cycle between -- in the Exchange business between the large deals like with the RFPs and then maybe a smaller mid-size deals. I mean I'm trying to figure out the delta there may be and sales cycle, I don't know if you've ever commented on that before.

I think the only comments we’ve made have been really more around qualitative differences, not necessarily quantitative, but I can say this that the sales cycle in the big plants tends to be much longer than the mid-market plants. And they can expand several years at times. So it's just much longer.

Great, thanks. And then one more if I can squeeze in, along those lines and I think you did allude to some commentary on the pipeline, but I'm just wondering maybe you could retouch over again on the pipeline for the large deals in ’16, but then also in particular in ‘17, I just want to make sure I interpreted your comments correctly on ‘17, it's not like maybe you’re inferring, it was a little bit lighter in ‘17 on the large RFP type deals and I know I realized it's early, but maybe you could comment a little further about that?

No. Actually, here is what I was trying to say about that is that right now, we are seeing a -- and it’s right, this is the very beginning of the 2017 activity, but we’re seeing a somewhat higher proportion of large plants in the RFP activity that we saw at this time last year. But then I went on to say even though we are seeing a slightly higher percentage of large plants in the RFPs, a, it's very early, but b, even if this continued, we still think the midmarket is going to be the strong driver of growth in the short run.

Great, thanks for that. I appreciate it.

Thank you. Our next question comes from George Tong of Piper Jaffray. Your line is open.

Hi, thanks. Good morning.

Good morning, George.

Going into the Exchange, NOI margins have been furthered. Does the step down in margins at this quarter end and next quarter reflect only the accelerated pace of hiring or are there other structural changes in mix in the business or other factors that possibly alter your longer-term expectations for exchange margins?

Yes. So first, George, it doesn't alter any long-term expectations. Again, the big drivers as you look at margins over the last several quarters and going into early next year, the biggest impact is the ramp up for the annual enrollment period for retiree and there could be a little bit as well in there on the active side but it’s mainly retiree.

Got it. And on the fiscal 2016 exchange selling season, how did the 100,000 employees that you finalized for enrollment compare with your expectations and can the number sustain at least low-to-mid 30s full-year exchange revenue growth next year?

My comments first is that we’re not talking about guidance for beyond fiscal ’16 at this point. I mean, I think, we would say that there is a nice ramp up for what we see now for 116 for actives versus 115. I think that we’re showing good momentum across the exchanges business and we’re looking to continue that momentum but not giving specific guidance on beyond ’16 at this point.

I mean and I guess George, just maybe, just some – a couple of additional comments there. This was pretty good growth for us, we’re pleased with that growth. We feel like we have a terrific product here that’s well positioned. It probably depends more on how the market develops than on anything and as we’ve seen this is a market that’s susceptible to wide variations in projections as to how fast it’s going to develop. But we continue to be convinced that this is a terrific long-term market and we expect to be a dominate player in it.

Very helpful, thank you.

Thank you. Our next question comes from Dave Styblo of Jefferies. Your line is open.

Hi, good morning and thanks for taking the questions. I just want to -- I’m still a little bit confused about the enrollment guidance, I want to make sure I got it down straight. So the 220,000 that is the growth that you’re expecting from the December quarter to January or end of the March, is that right?

We’re going to enroll 220,000 retirees on January 1, 2016 that’s essentially what that is.

Okay. I think that’s considerably higher I think the last out of point you told us was about 160,000. So can you talk a little bit more about what changed there or what sort of, was that one customer or several customers rolling on with the nature of that growth?

Well, the big bulk of the -- the big part of that growth of course is -- or higher state retirees and that’s -- I don’t know, 60% of that growth or more, two-thirds of the growth is probably due to that one case, of course we did have that case, we’d announced that a long while ago, so we always knew this was going to be a very good season but it’s turned out to be really a great one.

Okay. And then on the active side, I think I heard you say, 100,000 and then more than double that or about double that but again the anchor point for me wasn’t quite clear, where you trying to reference the movement from December to January or a year-over-year comparison for the whole fiscal year, can you flush that out for us again.

Yeah, so what we were saying there is, we finalized sales for about a 100,000 eligible employees for the 2016, the full annual enrollment season for 2016. And then to put that in context, this year, this time last year, we had about 30,000 eligible employees, which were scheduled for this annual enrollment period leading up to January 1, 2016 but then we also did have one large off cycle which occurred in the spring of 2015. So if I add the large off cycle which is in the spring of 2015 to the 30,000 we had there, than we’ve probably more than -- we’ve probably about doubled.

Right, okay, I can see that. So, the margin profile as you guys are trying to ramp up the business obviously, you talked a little about the drag earlier on. How do you continue to see this play out over time, I know early on you thought it might look like segment margin profits consistent with that business but it’s going to be I’m sure having a lot of noise and investments early on. At what point, do you expect the margins to sort of stabilize out a little bit more and reach a more normalized run rate and ultimately, what do you think that those gets you now that we’ve fast forwarded a few more months and quarters into the exchange movement here?

Well, I think what we’ve always said is that we’re -- the margins we’re projecting for the exchange business are about the same as the whole rest of the business. Now, people can make arguments that indeed if we can skip this business to really scale, they could be higher. Of course, we also think exchanges are a dynamic business and we may be continually making investments in them. So, we are in the projection of margins being about the same as for the rest of the business. We’ve still never met an investment that we didn’t like in this business and so, we’re continuing to do that. So, we’re not projecting anything more than that. We do recognize that particularly it’s more sensitive to the retirees than to anything. The actives tend to be a more mechanized system but the retirees, we have to hire an enormous number of call center folks each year when we bring in a large new base of retirees. So, as long as we’re continuing to grow and we get them, we’re delighted about that. We’ll take the fact that we have to invest in them for the long run profit that they generate. But we’re looking forward to continue and grow the retirees for a number of years more.

Sure. I guess it doesn’t surprise me because as you -- correct me, if I’m wrong, but the first year that you bring somebody on, is it even accretive for a retiree because it’s the labor-intensive and the cost of acquisition must be pretty high. So, let’s bring those folks on a walk them through, signing up for the first time and then after that isn’t a little bit more [indiscernible] from years two and beyond for the period that they’re on there?

That’s correct. That’s what happens. It’s that -- that first year and it’s really that first -- it’s that quarter, although sometimes like we started ramping up earlier this year as Roger was saying, but it’s the period leading up to January 1 when we have to train and we hire and train and certify all of our associates that are going to be helping the retirees to enroll and that’s a labor-intensive business.

Okay. And then just the last one. So, moving over to the risk and financial services, I know you guys talked a little bit more of a stabilization and the teams are being flat to moderately up I think on a constant currency basis for the first quarter after declining several quarters, can you just elaborate and talk a little bit more about what might be either improving or at least getting less worse in the components of that business?

Yeah, I think we’ve been saying through a few quarters that it seems like the RFS business has stabilized either around breakeven in terms of growth or low levels of growth. There are elements of that segment, in the two lines of business in that segment, where we’re seeing [Technical Difficulty] growth software side, in risk consulting and software, and in the delegated and fund side of investment but kind of core traditional more consulting-oriented business really isn’t seeing any catalyst growth right now. And so, that’s what’s behind the guidance for the first quarter. We expect them to be a little bit better than they were overall in fiscal ’15, but we’re not seeing anything at the moment that would drive big bump there.

Yeah, I mean, I would just say also that we went through a restructuring with risk consulting and software the year before last and -- year and a half ago I guess, right, something like that, and I’ve actually been extraordinarily pleased with the way that whole line of business has responded. As Roger mentioned, the margins were kept at a comparable basis and although the revenues did increase 1% here, I mean as we said, that’s the EMEA region, which is a very big region for risk consulting and software had 14% growth for the prior year. So, that was quite a tough comparable. But I think we feel like the restructuring that we’ve done there has really positioned us for good growth and good profitability going forward and we’re very pleased with the performance.

Great, thanks. If I can squeeze in, sorry, one last one, so, initially you were talking about fiscal year EBITDA guidance sustainable around 20% and now I think you had mentioned around 21%, what's the change in improvement that you are seeing there to drive that level up a little bit?

So, we did caution I remember for this last quarter, the quarter before that that after the very strong margin performance that we had in the first half of the year that we are kind of saying don't count on that. But as we looked at our momentum going into fiscal ‘16 and the revenue momentum continues to be good. I mentioned a little bit earlier that the bulk-lump sum activity is turning out to be a bit higher than we thought a quarter or two ago. So, overall, the activity that we've had to manage productivity in the company which has gone well in addition to now continuing solid revenue growth going into fiscal ‘16 gave us confidence that we were going to continue at that about 21% level.

Great. Thanks for the question.

Thank you.

Thank you. Our next question comes from Tim McHugh of William Blair. Your line is open

Thank you. I guess I just want to ask on the exchange business. You made the comment that you don’t -- it's too early in the season to give guidance for the next fiscal year, but in the prior two years you’ve given a number, so I guess what’s different this year versus in the past?

Hey, Tim, and maybe John will add some comment. I think you are referring to the fact that we said last year, either at this time or at the analyst day that we were targeting to have 1.2 million lives. And so that was the number at that time and while we are targeting, I think at this point this year we did have better visibility into some off-cycles. Last year John mentioned that we had a larger client that was coming in. I think it was April 1 as I recall. And then I think we also knew we had a larger retiree off-cycle in the second half of the year. I think we knew that at this point. So we felt like we had better visibility last year and we are probably also a little bit more tuned right now to what the kind of actual cycle of knowing what’s coming in in the broker channel and the smaller and mid-sized active. So we don't have the visibility now. We have visibility to the sales season and what’s going on for 1/1/16.

Okay. And can you give a sense, the 320,000 active, can you directionally help us with how much of that is Liazon versus I guess the jumbo market at this point?

Yeah, I mean as we’ve said I think in prior quarters, we really don't have that breakdown because we do have – we used Liazon for both direct, sub-directed direct business as well as the broker channel. And so we view the channel as kind of fungible, so I don't have a number here and I don't think we're really providing that breakdown going forward.

Okay. And then I guess on the – I guess, you got asked on the exchange margin I guess about kind of long-term do you still -- what you think, but I guess just the math on the profitability of the retiree exchange that you gave, it implies that you're probably losing money and I guess the prior few quarters implied the same thing on the active exchange at this point. Can you talk about when you would expect that piece just to become profitable versus really the long-term target margin, but just when would it move from losing money to being profitable as you look forward?

Yeah, I will just say that from my point of view, we are still anticipating a ramp up in that business and we are investing consistent with that. We don't have a specific target out there at this point, but certainly we will respond with our investment based on the top line volumes that we see. So we are “investing”. We are showing losses in the active business now and you can see that very clearly, it's pulling the margin of the business down. But we certainly target as that business ramps up and towards the kinds of projections that are out there, that will head to breakeven in that period and towards the profit levels that John talked about.

Okay, thank you.

Thank you. Our next question comes from Mark Marcon of Robert W. Baird. Your line is open.

Good morning and thanks for taking my question. My first set of questions relates to the Exchange Solutions business and then I have a broader strategic question. With regards to Exchange Solutions, in this past quarter, can you give us a sense for how Acclaris ended up impacting the margin and how it will impact the margin in the first quarter?

Yes. I think of course, it's quite small and it came in during the quarter. As I recall, there is a few million of revenue and maybe no real impact to adjusted diluted EPS. I think there was a little bit of positive NOI as I recall, but small numbers.

Okay. And then with regards to the broker channel, any feedback at all from your non-Willis brokers in terms of their participation going forward, any sort of tone that you’ve heard there?

It's very early obviously, Mark, here, I mean we have a large number of regional brokers and we don't think there is really any impact from this deal for them. With some of the larger ones, we’re in discussions and we don't -- we’ll just see how that -- there is nothing to report at the moment.

Okay. And then with regards to the 100,000 active that are in the pipeline, can you indicate what percentage of those might be from larger companies, say more than 1000 or I mean more than 10,000 employees. I'm not expecting you to name any brands, but are there any name brand companies in there?

Well, there are certainly companies whose names you would recognize and I characterize it as there are a few above that 10,000 cut-off, but the volume is more kind of small and midmarket business.

So kind of developing the way you expect it, where basically the small mediums are showing the faster adoption, but you are getting a higher number of large companies as well. Is that fair?

Yeah. I think that's fair.

Okay, great. And then a larger strategic question, and I ask this with all respect because I recognize that I don't know anywhere close to what you know about the insurance business and the insurance brokerage business, but are there any sort of developments that could occur at Willis, whether it’s turnover, whether it’s softening in the P&C market, whether it’s alternative investment displacement, any sort of developments that would cause you to have any sort of second thoughts with regards to proceeding with the acquisition or maybe adjusting what the exchange rate is?

So, I think generally, this is really a call to talk about our results and our guidance here and so we really don't want to get into anything with the Willis merger that we have there. But I will say, we've sort of put something in the script just to comment on this. We are very much looking forward to this merger. We think it's a good thing and we remain committed to it.

Okay, I appreciate that. Thanks.

Thank you. This concludes our question-and-answer session. I would now like to turn the call back over to John Haley for closing remarks.

Okay, thank you very much everyone for joining us this morning and just one final note. We’re not going to be having an Analyst Day this year due to the pending merger with Willis, but we do look forward to reviewing our first quarter results with you in November. So long and thanks for joining us.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today's program. You may all disconnect. Everyone have a great day.