Good day, ladies and gentlemen, and welcome to the First Quarter 2017 Willis Towers Watson Earnings Conference 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 call may be recorded. I would now like to introduce your host for today’s conference, Aida Sukys, Director of Investor Relations. Please go ahead.

Thanks, Kat. Good morning, everyone. Welcome to the Willis Towers Watson earnings call. On today’s call are John Haley, Willis Towers Watson’s Chief Executive Officer; and Roger Millay, our Chief Financial Officer. Please refer to our website for the press release issued earlier today. Today’s call is being recorded and will be available for replay via telephone through tomorrow by dialing 404-537-3406, conference ID 100113029. The replay will also be available for the next three months on our website. This call may include forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, involving risks and uncertainties. For a discussion of the forward-looking statements and the risks and other factors that may cause actual results or events to differ materially from those contemplated by forward-looking statements, investors should review the forward-looking statements section of the earnings press release issued this morning, a copy of which is available on our website at willistowerswatson.com as well as other disclosures under the heading of Risk Factors and Forward-looking Statements in our most recent annual reports on Form 10-K and quarterly report on Form 10-Q and in other Willis Towers Watson filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of this earnings call. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call, we may discuss certain non-GAAP financial measures. For a discussion of the non-GAAP financial measures as well as reconciliation for non-GAAP financial measures under Regulation G to the most directly comparable GAAP measures, investors should review the press release we posted on our website. After our prepared remarks, we’ll open the conference call for your questions. Now I’ll turn the call over to John Haley.

Thank you, Aida. Good morning, everyone. Today, we’ll review our results for the first quarter of 2017 and discuss the 2017 outlook. Reported revenues for the first quarter were $2.32 billion, up 4% as compared to the prior-year first quarter. Adjusted revenues for the quarter were up 2% as compared to the prior-year first quarter. Reported and adjusted revenues include $50 million of negative currency movement. As a reminder, adjusted revenues for 2016 include $32 million of revenue not recognized due to purchase accounting rules for the prior-year first quarter. There were no adjustments made to revenue for the first quarter of 2017. For the quarter, adjusted revenues on an organic basis were up by 5%. Net income for the quarter was $352 million as compared to the prior-year first quarter net income of $245 million. Adjusted EBITDA for the quarter was $708 million or 30.5% of revenues as compared to the prior-year first quarter adjusted EBITDA of $671 million or 29.6% of adjusted revenues. We’re pleased to see year-over-year margin enhancement consistent with our goal. This is a testament to the work the team has done over the past year to both drive growth and drive the benefit of our cost-savings initiatives to the profit line. As a reminder, the first quarter is seasonally high, and while we are on track for our full year margin enhancement goal, margin in subsequent quarters is expected to be seasonally lower. For the quarter, diluted earnings per share were $2.50 and adjusted diluted earnings per share were $3.71. Currency fluctuations, net of hedging, had a negative impact of $0.10 on adjusted diluted EPS. Before moving on to the segment results, I’d like to provide an update on three areas of integration: revenue synergies, cost synergies and tax savings. So I’ll start with…

Thanks, John, and good morning, everyone. Before getting to the results, I’d like to congratulate John on his 40 years with the company. His accomplishments are too numerous to list here, but one fact really stands out. John took the helm as CEO of a private financially troubled company with a value of $120 million, almost 20 years ago. Since then, he’s been masterfully creating shareholder value. He brought Watson Wyatt public, making it the first human resources consulting firm to do so, successfully led the creation of Towers Watson through a merger of equals and, ultimately, helped to create and lead Willis Towers Watson, which now stands at a market value of over $18 billion. John, I hope your next 40 years are as successful as your first 40. I also want to add my thanks and congratulations to all of our colleagues for producing a really great quarter. A lot of work has gone into this merger and integration. And much of the hardest blocking and tackling was accomplished last year. We built the initial foundation for strong financial discipline which will help us obtain our margin enhancement, growth – revenue growth and shareholder value creation objectives. Clearly, there continues to be work to do over the next two years, and we should expect some bumps in the road as we manage through the integration period. However, with the collaboration and the client commitment I’ve experienced firsthand from our colleagues, I’m confident in the long-term success of Willis Towers Watson. Now for our financial results. As a reminder, our segment margins are before consideration of unallocated corporate costs such as amortization of intangibles, restructuring costs and certain integration expenses resulting from mergers and acquisitions. The segment results include discretionary compensation. Income from operations for the quarter was $463…

Thanks, Roger. Now, we’ll take your questions.

Thank you. [Operator Instructions] Our first question today comes from the line of Shlomo Rosenbaum with Stifel.

Hi, good morning and thank you very much for taking my questions. John, it looks like a good quarter, a strong organic growth of 5% organic constant currency. There was a decent amount of commentary about some of the timing items. And just for us to get a sense as to what the underlying growth in the improvement over there, do you have a way to kind of tell us what it either quantitatively you’ve calculated what it would be if you’d normalize for some of those items or just your own gut sense, was this 4% organic, 3% organic? Or how should we look at it in terms of, if I would normalize for some of the timing? And then how should we think about that for the second quarter?

Yes. So I think, Shlomo, as we think about this – so let me just say, first of all, we feel very confident. We had out there the guidance for the year of the 2% to 3%. And we look at this first quarter and we say, we think clearly we’re on line to hit the 2% to 3% growth rate for the whole year. And in fact, if anything, we’d expected to be at the higher end of that, rather than the lower end of that. So that’s just about the overall. To the extent that timing affected things, it’s – we haven’t done an exact calculation of all of these, but it’s probably, it makes it look like a more 4% quarter – in the 3% to 4% range somewhere there, as opposed to 5%. So I think as we – one of the reasons that we love this quarter because we talked about the first quarter being a time where we wanted to establish that the sort of turnaround that we had seen in the fourth quarter of 2016, that, that was really an inflection point. We like what this shows. We’re just not ready to raise our guidance for the year yet though, simply because we think there was a little bit of timing that affected things.

Thanks. And then for my follow-up. Can you just give us a little bit more detail on what’s going on in CRB in North America? That’s – it’s been a focus to try and improve the growth over there. That was still – sounded like it was a negative. Maybe you can talk a little bit more about pipeline or just where it feels like you are? And what we should expect for the balance of the year based on at least what you seeing now?

Yes. As we said, for North America, we did see strong client retention levels. But the new business was not as robust as we would have liked. We are – we think we’re – it had a tough comparison last year. You may remember last year, in the first quarter, North America was plus 4%. And so as we look at that, we have a tough comparable compared to that, the rest of the year was much lower for North America. We expect that, we have been repositioning our strategy, we’ve repositioned some management. We feel very good about some of the new folks we’re bringing on here. So we expect to see some growth as we get into the latter half of the year.

Great. Thank you very much.

Thank you. Our next session comes from the line of Ryan Tunis with Credit Suisse. Your line is open.

This Crystal Lu in for Ryan. My first question is also just kind of around that organic growth timing. How far in advance did you know about the possible impact of the timing? And also, what are the impacts of the restructuring efforts on the organic this quarter?

And so I think we knew about it as it occurred. I mean, that’s - this was unanticipated bring forward a thing, so we didn’t know about it. The only thing we might have known a little bit about was Easter. We had some sense that it would probably be a better quarter because of that. But most of the other things were just things that occurred. I’m sorry, what was your second question?

Just around the restructuring impact on the organic as well.

Roger, do you want to handle that?

Well, sure. I think the main point that we referenced in the script was around the restructuring in Talent Rewards. And I think as John remarked in his script, we anticipate that as the year goes by, that impact will fade.

Okay. And then also on the organic expenses, I saw that the total segment expenses came down around 80 basis points year-over-year. Can you kind of help us think about the impacts of FX? And also, I guess just anything else that might have helped that organic expense number come down.

I think as you point out, so certainly, foreign exchange would have an impact there. But also, again, the restructuring was a result of – were resulted in expenses being lower year-over-year. So it was the combination of those two things.

Okay. Thank you.

Thank you. Our next question comes from the line of Kai Pan with Morgan Stanley. Your line is open. Please go ahead.

Yes, thanks. It’s Mike Phillips in for Kai Pan. Can you talk about share repurchase? Your first quarter looked like it was pretty strong and I think you had got it to about $500 million for the full year. Is that still in place? And any seasonality for the rest of the year or any kind of stock level that would kind of impact that as we go forward for the rest of the year?

Yes. So we continue to attentively look at the intersection of business results and related cash flow on our share repurchase program. And we’re on track for the roughly $0.5 billion that we talked about. And we’ll continue to monitor that through the year, but we’re on track.

Okay, thanks. And then if you could just provide just a little more elaboration on just the restructuring integration progress in terms of expense savings for your targets and how that’s looking. You mentioned in your commentary, but if you could elaborate a little more on that, again, just the restructuring integration for expense savings for the year?

Yes. I’ll lead, I guess, on that. So really, we’re pleased to say that at this point, we’re on track for all of our targets, as noted in the remarks. And there has been a lot of activity, but we’re on track. So it’s going well. And we’ll continue, obviously, to monitor it closely.

Okay, great. Thanks guys.

Thank you. Our next question comes from the line of Adam Klauber with William Blair. Your line is open.

Thanks. The – seems like throughout comments a number of divisions, the European businesses appear to be picking up. Is that true?

Yes. We think we have very good momentum in Europe.

Okay. And that seems sustainable? Do you know? Again, you’re seeing that throughout the first half?

Well, we liked where the first quarter came out. And a number of our European businesses, a number of the countries were quite strong there. And so we would expect to see that – we’d expect to see Europe have a good year.

Okay. And then on exchanges, we’re hearing it’s a pretty active selling season compared to last year. I guess, would you say that’s true? And also you mentioned 150,000 lives in the larger active market. At this point, how does that compare to last year?

It’s the best large market sales we’ve ever had.

Great. And how about the – is the selling season pretty active?

Yes, I think the selling season is pretty active. I mean, I think one of the things, and this is particularly true of the large market, that you’ll notice. You’ll see, we have one large client that has committed to 01-01-2019 already. So the larger clients tend to have a longer timeframe from when they decide to go to when they implement. And that’s because they’re somewhat more complex and there’s a lot more moving pieces in terms of doing them, but active sales season.

Great. Thank you very much.

Thank you. [Operator Instructions] Our next question comes from the line of Mark Marcon with Robert W. Baird. Your line is open.

Good morning. First of all, I’d just like to pass along my congratulations to Roger, it’s been a pleasure working with you over the years.

Thanks very much, Mark. Same to you.

Thanks. Can you talk a little bit more about what you’re seeing on the midmarket in terms of the exchange business? And then I have a follow-up.

So I think, Mark, we’re seeing a more active midmarket. I mean, I think we see it’s – we’ve seen a big growth in the number of clients last year. We saw a very large growth. We’re seeing the same kind of thing occurring this year. I think the sales season for the midmarket as I was mentioning, it’s just a longer sales season because there’s a – we can – a midmarket client can decide to go later in the year, we can implement much faster than for the large company ones. But although we had this great growth, although we have this great results for the large market, we’re still seeing much faster growth in the midmarket.

And are you seeing the full engagement of the Willis health insurance brokers in terms of facilitating that growth? Where would you say we are with regards to the level of execution relative to what you think the potential is?

I would say that the major cause of the big increase in midmarket sales is in fact, the engagement that we have from the Willis side of the HCB. They’ve been absolutely terrific in doing that.

Great. And then on a completely separate note, can you talk a little bit about where you think the bigger, the biggest incremental opportunities are for savings, among all the different cost programs that we have now on an annualized run-rate basis. You have so many, and we’ve always seen some benefits, obviously. But kind of just lay them out.

Yes, sure. And Mark, we don’t necessarily rack and stack them in that sort of way. Maybe I’ll just comment on things that are going to build momentum here this year. And one of the things you’d note in John’s remarks about the cost programs is increasing momentum, actually, in the second half of the year. And it’s really the real estate activities as well as the technology activities that are building now and will be in execution mode as we end 2017 and begin 2018. So I think there’s a lot of focus there right now.

Terrific, congratulations.

Thank you.

Thank you. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Hi, good morning. My first question is just on your margins. I guess, it’s a two-part question. So you guys reaffirmed your guidance, but said Q1 is stronger than the other quarters. Is that in reference to the Q1 on margin in totality or the level of margin improvement you expect on a quarterly basis? And my second point on the margin front. As you guys saw 90 basis points of margin improvement in the quarter. If I look at the expense saves you gave, the merger savings and the OIP savings, I get about 100 basis points of margin just from your expense program. So I’m a little surprised that a 5% organic that we’re not seeing greater leverage on the margin front and more of margin improvement. If you can just talk to that as well?

Sure. So relative, Elyse, to the seasonal patterns, we do have seasonality of margins. That is inherent in the business. So a strong seasonality of revenues in the first quarter, also reasonably strong in the fourth quarter. Those will tend to be higher margin quarters and the second and third, softer. The only thing I’d say about what to expect in the pattern of margin enhancement that is of note and it came out in the script, that is the impact of the fine arts and jewelry settlement last year. So given that, that was in the GAAP earnings, that created a tough comparable for the second quarter, it really needs to be pulled out. So given that, we don’t expect that same kind of growth in margin in the second quarter. I’m sorry, can you repeat the second half of your question?

Yes. So the second part of the question, you guys reported 90 basis points of EBITDA margin expansion in the first quarter. If I add together the OIP savings that you alluded to in the quarter, the $12 million, plus $10 million of merger-related savings, the $22 million, gets me about 100 basis points of margin improvement from expense savings initiatives. So that would mean that there’s actual margin contraction in your core business outside of just the savings coming to the bottom line. I’m just a little bit surprised, if you saw 5% organic revenue growth in the quarter, a strong number. We’ve seen other brokers expand their margins at a greater level, at a lower level of organic revenue.

Yes. Thanks for that, sorry for blanking. But the thing I’d point out relative to that question is – and it’s really the reason we I pointed it out – the E&O related activity of about $20 million this quarter. So that really, it’s all at one-time or whatever, episodic type expense that won’t continue of that level. And that was again, driven largely by a particular settlement that we booked this quarter. So that really offset the savings, but won’t repeat in the next few quarters.

And that comes out in the unallocated expense line?

Yes, it does. Yes.

And then if I could also follow-up on the organic revenue growth in the quarter. So you guys reported a 5%, in response to an earlier question, you said maybe more in the 3% to 4% range, ex timing. Q1 is – when you write, when you book the majority of your revenue, strongest revenue quarter. So if you’re thinking, if you’re leaving your guidance at a 2% to 3%, my math will translate into something of about 1% organic growth over the next three quarters to hit that target. I understand the timing difference between the Q1 and the Q2. But if you are optimistic about the second of the year and some of the initiatives in some of your segments that you alluded to in the prepared remarks, why not raise on the organic growth outlook today?

Well, again, and I think John might have alluded to it in some of his comments and he might want to make more here. But one, the timing, I would say, is of course, quite real here and there were specific transactions. And they did pull some of what otherwise would have been growth in the second quarter. And particularly, the specific transactions that John alluded to. So we’re on track for the kind of overall momentum that we expected for the year. As John said, probably looking more towards the top of the range. And I haven’t – I don’t know yet, I think your 1% calculation might be to get to the bottom of the range. But we feel good about where we are and what we thought for the year, and it would be early to change that.

And I’m showing no further questions at this time. I’d like to turn the call back over to John Haley for any closing remarks.

Okay. Great. Thanks very much, everyone, for joining us this morning, and I look forward to talking to you at our second quarter earnings call in August.

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.