Willis Towers Watson Public Limited Company (WTW) Q1 2017 Earnings Report, Transcript and Summary

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 revenue synergies. Our merger objective identified three specific areas of revenue synergies: global health solutions, the U.S. midmarket exchange and large market P&C. It’s early in the sales season for both the global and U.S. midmarket health care solutions to provide a lot of color around the sales process. However, we currently have a larger pipeline in our global health care solutions than this time last year, and are very pleased with the health care exchange activity in the U.S. midmarket. Finally, we won 8 large-company broker assignments this past quarter. These wins continue to produce moderate revenues, but we feel very positive about the progress we’re making in developing key relationships and refining our marketing strategies in the U.S. large market P&C space. As mentioned previously, we surpassed our original goal of a 25% adjusted tax rate, a full year ahead of schedule. We’ve already had a number of questions on President Trump’s proposed tax plan. The current tax plan lacks details and we’ll need to wait until the treasury drafts legislation to better understand its impact. Our 2017 guidance anticipated achieving $30 million in merger-related savings. We recognized more than $10 million in savings in the first quarter of 2017. We continue to feel very confident in meeting our 2017 savings objectives and achieving the $125 million 2018 savings goal. Now turning to the Operational Improvement Program or OIP. We’ve saved $12 million year-over-year through the first quarter on a run rate goal of $95 million as we exit 2017. This program remains on track to be completed at the end of 2017. We’ve made good progress in driving OIP and merger-related savings to the bottom line. However, our focus on cost management remains a priority as this is a key factor for obtaining our 2017 and 2018 margin goals. One last note before turning to the segment results. I’d like to make a comment regarding the announcement made last month that our U.K. brokerage subsidiary, Willis Limited, is under investigation by the Financial Conduct Authority for possible agreements or concerted practices in the aviation broking sector. The aviation broking business contributes less than $100 million in annual revenue to our company. We are cooperating with the FCA but beyond that, we are not in a position to comment on the status of the investigation. Now let’s look at each of the segments in more detail. As a reminder, beginning in 2017, we made certain changes that affected our segment results. These changes were detailed in the Form 8-K we filed with the SEC on April 7, 2017. For the quarter, total reportable segment constant currency commissions and fees growth was 5%. Constant currency commissions and fees for Human Capital & Benefits increased 5%, Corporate Risk & Broking increased 3%, Investment, Risk & Reinsurance increased 5% and Exchange Solutions increased 10%. All of the revenue results discussed in the segment detail and guidance reflect commissions and fees constant currency, unless specifically stated otherwise. Turning to Human Capital & Benefits or HCB. HCB commissions and fees constant currency and organic growth was 5%. Retirement commissions and fees were up 3% as a result of increased actuarial project demand, primarily due to legislative changes in Great Britain and additional project work in Western Europe, along with the timing of the Easter holidays in both of these geographies. The Easter holidays were observed in the first quarter of 2016 but in the second quarter of this year. So we expect our second quarter to be somewhat softer than the first. North America also experienced revenue growth as a result of the continued phase in and of new pension administration clients. Talent and Rewards commissions and fees were down, primarily due to a decline in new business in North America and Great Britain. As discussed in the previous earnings call, implementation of our new organizational structure and restructuring took place during 2016, requiring internal focus in the second half of the year. However, with the restructuring behind us, we have additional market facing resources and a renewed focus on clients and sales. We expect to build towards growth as the year progresses. Health care consulting had strong commission and fee growth as a result of strong demand in the midmarket and large market globally. France and Spain placed a number of policies in the first quarter of 2017 that would have normally been placed later in the year, so we may see some softening later in the year. Technology and Administration Solutions or TAS continue to produce strong results due to new clients in the U.K. legislative changes I discussed earlier. We continue to have a positive outlook for the HCB business in 2017, but expect momentum to slow in the second quarter due to the timing issues mentioned above. We expect commission and fee momentum will then build in the second half of the year. Turning to Corporate Risk & Broking or CRB, constant currency and organic commissions and fees grew 3% from the prior year. Commissions and fees [increased] in all regions, except for North America. The international region led with strong performance primarily due to strong client retention levels and new business wins. The region’s performance was also helped by regulatory changes which brought business forward into the first quarter. We also experienced solid growth in many of our Asian operations as a result of new business. Great Britain’s commissions and fees increased due to growth in Construction. As you may recall, both international and Great Britain had low comparables in the first quarter of 2016 as the result of the cancellation of a large energy project. Western Europe grew as a result of retention in new business growth in Southern Europe and most notably, strong new business wins in France. Revenues declined in North America as a result of softness in new business and strong comparables in quarter one of 2016. Client retention stayed strong. The quarter results were helped by the timing of revenue into Q1 and we may experience a slowdown in growth rates in the second quarter. However, we continue to be optimistic about the momentum in our CRB business going forward. The investments we’re making today, coupled with our analytical approach, will create a powerful proposition to help our clients manage their risks. Now to Investment, Risk & Reinsurance. Constant currency and organic commissions and fees increased 5% as compared to the prior-year quarter. The reinsurance line of business represents treaty-based reinsurance only. The facultative reinsurance results are captured in the CRB segment. Reinsurance commissions and fees growth was the result of growth in international and specialty, offset by some softness in North America, which was in line with expectations. International benefit by positive timing of policy placement in specialty grew as a result of new business. Wholesale delivered growth as renewals were stronger than expected and a significant policy renewed in the first quarter of this fiscal year as compared to the second quarter of 2016. Risk Consulting and Software or RCS also experienced strong growth as the result of a greater demand for project work. We’re now seeing traction from the hiring we’ve done over the last 12 months and our updated marketing strategy. Investment commissions and fees increased as a result of increased performance fees and new wins in the delegated investment services business. While the advisory business grew this quarter, we anticipate a secular decline for these services, but offsetting this decline is an increased demand for delegated services. Max Mathiessen delivered strong growth due to higher performance fees as a result of a more robust European equity market and an increase in new business. We continue to feel good about the IRR business for 2017, but expect commissions and fees growth will moderate in the second quarter due to the positive timing related to the reinsurance and wholesale business. We also expect a decline in total segment revenues due to the fine arts and jewelry team settlement received in the second quarter of 2016. As a reminder, we received a onetime $40 million settlement, which was included in other revenues. This not only provides a very difficult revenue comparable, but the second quarter 2016 segment operating margin was enhanced by 8 percentage points. Lastly, Exchange Solutions commissions and fees increased by 10% from the prior year, driven by increased enrollments, our Retiree and Access Exchanges revenue increased 6%. The rest of the segment increased 16%. Increased membership and new clients drove the revenue increase in our active employee exchange. The health and welfare and North American pension outsourcing business continue to grow, primarily due to new clients and special projects related to the ACA reporting requirements. Our 2017 sales pipeline continues to look strong especially in the midmarket. For the active exchanges, we also have 6 large clients with about 150,000 total lives that have already committed for the 2018 enrollment period and one large client committed for the 2019 enrollment period. However, we expect the midmarket to continue to adopt at a faster pace than the large companies. We continue to be optimistic about the long-term growth of this business. As you all know by now, Roger Millay will be retiring in October. So I’ll provide my official congratulations to Roger next quarter. But I’d like to say that Willis Towers Watson has been extremely fortunate to have Roger’s experience and influence during the most crucial period of the merger. We’re clearly seeing the impact of his leadership in these first quarter results. I also want to thank all of our colleagues who have worked so hard for the last year during some of the most difficult actions we had to undertake in this merger. I hope all of our colleagues are excited as I am about the great results this quarter. The quarter was strong across many lines of businesses and while we benefited from some timing issues, our first quarter results should give us all a clear perspective of the strength and potential of the organization we envisioned as we created Willis Towers Watson. Now I’ll turn the call over to Roger.

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 million or 20% of revenues. The prior-year first quarter operating income was $326 million or 14.6% of revenues. Adjusted operating income for the quarter was $681 million or 29.4% of revenues, and the prior-year quarter adjusted operating income was $646 million or 28.5% of adjusted revenues. Our momentum toward clear, consistent and sustainable profit margin growth continues. We like this trend. There was a $20 million increase in E&O expense during the first quarter of 2017. About half of this increase related to an expected settlement of one of the matters discussed in our SEC filings. The settlement will be discussed in more detail in our upcoming 10-Q filing. The GAAP tax rate for the quarter was 11.6% and the adjusted tax rate was 15.6%. The lower adjusted tax rate quarter-over-quarter, contributed approximately $0.15 to the adjusted EPS. The first quarter generally produces the lowest tax rate for the year. The change in stock based compensation accounting policies added $0.01 to adjusted EPS. Before we discuss the segment operating margins, I’d like to remind you that we provided recast segment operating income for the prior periods in the Form 8-K we filed on April 7, 2017. Additionally, our segment margins are calculated using total segment revenues. For the first quarter, the operating margin for the HCB segment was 37% compared to 34% in 2016. Margin enhancement was due to revenue growth, the restructuring which took place in late 2016 and general expense management. CRB had a 19% operating margin has compared to 17% in the prior-year first quarter. Revenue growth accounted for the increase in margin. For the quarter, Investment, Risk & Reinsurance had a 44% margin as compared to a 40% operating margin in the prior-year first quarter. The margin improvement resulted from increased revenues and expense management. Exchange Solutions had a 21% margin compared to 26% last year. Retiree and Access Exchanges and TAS led the segment with 37% and 23% operating margins, respectively. But both businesses experienced a drop in quarter-over-quarter margins. We invested resources into the retiree business to bring up service levels and as we phase in new clients in TAS, we often see a short-term decrease in margin. Moving to the balance sheet. We continue to have a strong financial position. During the quarter, the company refinanced its $800 million revolving credit facility and $218 million associated term loan, both due in 2018, with a new $1.25 billion revolving credit facility maturing in 2022. Additionally, $394 million of the 6.2% notes matured in March 2017. The note repayment was financed using the new revolver as well. Assuming favorable market conditions, we expect to launch new long-term financing in the second quarter of this year. We plan to use the proceeds to reduce the outstanding balance of the current revolving credit facility. Free cash flow was $33 million in the first quarter, a decrease from $71 million in the prior-year first quarter. The decrease is primarily due to the full year payment of discretionary bonuses versus a half-year in 2016 for the former Towers Watson colleagues. We continue to focus on enhancing free cash flow in 2017. This quarter, we repurchased approximately $156 million of Willis Towers Watson stock. As of the end of the first quarter, the remaining stock repurchase authority was more than $975 million. Now let’s review our guidance for 2017. In fiscal 2017, we continue to expect constant currency revenue growth to be in the 2% to 3% range. Constant currency and organic revenue will be closely aligned as we now have a full year of results for all of the 2015 acquisitions. However, we’ve closed on two smaller transactions: the acquisition of the remaining shares of OAAGC in France and the acquisition of a small defined benefit group in Australia, which are not expected to be material to the overall 2017 guidance. We expect the adjusted EBITDA margin to be in the 23% to 24% range for the full year. As a reminder, the first quarter margin is seasonally high, and we expect seasonally lower margins as the year progresses. For segment revenues, we continue to expect low single-digit constant currency commissions and fees growth for HCB, CRB and IRR. Exchange Solutions should have commission and fee growth of approximately 10% with continued retiree growth, enhanced with good growth in TAS and the actives exchange. As a reminder, while we enrolled a record number of employees in the actives exchange, the revenues in this line of business are underweight compared to the retiree revenues. We continue to expect the adjusted tax rate to be in the 23% to 24% range. As a reminder, there were some onetime discrete items in 2016 that will not be repeated in 2017. Adjusted diluted EPS is expected to be in the range of $8.40 to $8.55. Guidance assumes average currency exchange rates of $1.25 to the pound, and $1.08 to the euro. As I mentioned in the last call, 2016 was a year of building a new organization and developing a new focus on financial management. I believe the first quarter of fiscal 2017 shows that we built a foundation for financial success. And while we still have some hurdles to cross as we continue our integration efforts, I remain very optimistic about our long-term prospects. Now, I’ll turn it back to John.

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.