Good morning, my name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2, 2017 Willis Towers Watson Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session [Operator Instructions] Thank you. Ms. Aida Sukys, Director of Investor Relations, you may begin your conference.

Thanks, Rob, good morning, everyone. Welcome to the Willis Towers Watson earnings call. On the call today 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 51174595. The replay will also be available for the next three months at 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 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 report on Form 10-K and in other Willis 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 reconciliations to the 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, and good morning, everyone. Today, we’ll review our results for the second quarter of 2017 and discuss outlook for the remainder of 2017. Reported revenues for the quarter were $1.95 billion, that’s flat as compared to the prior year second quarter, up 2% on both a constant currency and organic basis. Adjusted revenues for the quarter declined 1% as compared to the prior year second quarter, but were up 1% on both the constant currency and organic basis. Reported and adjusted revenues include $43 million of negative currency movement. As a reminder, adjusted revenues for the second quarter of 2016 include $26 million of revenue, which was not recognized as GAAP revenue due to purchase accounting rules. The second quarter of 2016 was the last quarter for such adjustments. As a reminder, the $41 million settlement we received from JLT for the Fine Arts and Jewelry business was included in the second quarter 2016 revenues. In the second quarter of 2017, we received $6 million in settlement payments, primarily related to the loss of a team in South Florida. As we mentioned in the first quarter, revenues were positively impacted due to the timing of the Easter holiday, timing of renewals and work that derived from regulatory changes. Therefore, in reviewing the results, our six month results more accurately reflect the business momentum. For the first half of 2017, reported total revenue growth was 2% as compared to the same period in the prior year, and up 4% on both the constant currency and organic basis. Adjusted revenues for the first half of 2017 increased 1% as compared to the same period in the prior year, up 3% on both a constant currency and organic basis. Adjusted revenues for the first half of a 2016 include $58…

Well, thanks, John for those very nice, kind words. And good morning to everyone. Before getting to the results, I'd also like to comment on my retirement. I have had some of the best experiences of my career as CFO of Willis Towers Watson. It's really been an honor and a pleasure to work with a group of such bright and innovative people. And more importantly, people with such deep values and strong sense of commitment to their colleagues, clients and value creation. I've truly entered the challenges, the success and, most of all, the journey. Thank you for the opportunity to share in that experience. As I leave Willis Towers Watson, I feel confident that the team will continue the journey to even greater heights. In addition, I’ve really enjoyed the opportunity to participate in the capital markets and all the back and forth that entails, over time, and the relationships that were built as a result. 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 $124 million or 6.3% of revenues. The prior year second quarter operating income was $136 million or 7.0% of revenues. Adjusted operating income for the quarter was $363 million or 18.6% of revenues, an increase over the prior year quarter adjusted operating income of $357 million or 18.1% of adjusted revenues. The GAAP tax rate for the quarter was 16.8% and the adjusted tax rate was 29.1%. As we discussed last quarter, the first quarter tax rate is generally the lowest of the year. As expected, after reiterating our 2017 tax guidance of 23% to…

Thanks, Roger. And now we'll take your questions.

[Operator Instructions] And your first question comes from the line of Greg Peters from Raymond James.

Good morning. Before I begin with my two questions, congratulations on your retirement, Roger. Certainly enjoyed talking with you through the years.

Great. Thank, Greg, and have enjoyed working with you as well, certainly.

Obviously, there's a lot of questions I have around the release. But why don't I zero-in on to, John, in your comments, you mentioned, I think, $94 million, $95 million of OIP savings. Is that what you expect to fall for the bottom line or is that just a general savings? I know, in the past, we've been challenged to figure out how much of that actually falls to the bottom line?

Yes. I think that's the amount of gross savings that we expect to come out of OIP, Greg. I think as Roger and I have talked about in the prior calls, one of our big focuses is to make sure that we get the bulk of that dropping to the bottom line. But we don't -- we don't have numbers for that until we get our 2018 guidance.

Maybe, Greg, just to add to that, because as John alluded to, we're most focused on margins. So as we look at the first half of the year and the enhancement of operating -- adjusted operating margin, that's where we look to see if the savings, both for integration and for OIP, whether they're impacting the company, which is why I spent the time I did going through the first half margins.

Yes. I mean, and just to maybe emphasize that, if you look at the first half margins, in HCB, it's up from 26% to 28%; CRB, it's up from 16% to 17%; IRR was up from the 31% to 32% range, without the JLT settlement to 36%; and Exchange Solutions was down a little bit due to growth from 24% to 20%. But we're seeing a lot of these things drop to the bottom line this year already and we expect to see that continue next year. But that's where our push is going to be.

Right. And then as it relates to the OIP, is there savings that -- are you going to come when some of the reinvestments that were made previously expire and are not remade? Does that make sense to you?

Yes, it does. I think -- we haven't actually gone back and examined all of the different reinvestments that were made with some of the OIP things. And so I think I don't want to make a blanket statement about how these things are going to be. I think one of the things that we're very much focused on going forward is making sure that we prioritize and rationalize all of the investments we have within the company. And we're embarking on some new investments today. We're consolidating some old ones and we're eliminating some old ones. And so, we're doing all of that and we expect them all to pay off in the future.

And I think, also, just in our planning approach last year rather than go back and try and figure out history and make kind of tactical decisions based on what had happened in the past, we think that by putting emphasis, going forward, in the organization on margin enhancement, the prioritization process will naturally come out. If there were investments, two, three years ago that aren’t paying off, that, that’s where people will go to enhance margins. If those investments were working, then they’ll go somewhere else. So, that’s the – we thought the most productive approach.

Thanks for that color. Now, my second question was just around tax. It is moving around a little bit and I know you cited two numbers: the 16.8% and the 29.1%. Can you give us some additional color around what’s causing all the movements within the tax rate? And what sort of the long-term targets are?

Yeah. So maybe, kind of do a macro thing first and then a little bit on the seasonality. So, we continue to view this kind of range that we’ve talked about, 23% to 24% as being the landing point from a run rate, without any discrete items of where Willis Towers Watson began its life, so to speak. And last year, as you know, we came in a bit lower than that because of discrete benefits that we talked about last year and that I talked about in my remarks. And so we particularly wanted to highlight this quarter that those discrete benefits last year came mostly in the second half of the year. So, when you step back from the tax rate, and if you’d seen last year, without those discrete benefits, the first quarter, we expect going forward will be below mark for the adjusted tax rate. And then quarters two, three, and four will be higher. And it is kind of unfortunate the way the dynamics of the accounting work between the operating results and the adjusting items, but because the adjusting items are in higher tax locations, when you add those back, they add to the tax rate, so that’s what you see between the GAAP rate and the adjusted rate. But also then, in periods of lower operating profitably, you get this big spike, so that’s what you get in quarters two, three and four. So I think that’s going to be the trend, and I think this year, it’s looking like the quarter-to-quarter-to-quarter-to-quarter rates are going to be pretty true to that trend.

And just on the follow-up on that point. When I think about -- push aside the first quarter estimate or results, when I think about the second quarter, third quarter and fourth quarter, how much variability will we see in the tax rate on a go-forward basis between those 3 quarters?

So we would expect -- and this is without getting into predicting kind of plus or minus one point, or maybe even plus or minus two points, but the high 20s rate that we came in for the second quarter, we would expect to be in the higher 20s in the third quarter and fourth quarters as well. I mean and if you do the arithmetic for 23% to 24% versus where we are for the first half, that’s what you get as well.

Perfect. Thank you for your answer.

Thanks, Greg.

Your next question comes from the line of the Ryan Tunis from Crédit Suisse. Your line is open

This is Crystal Lu, in for Ryan. My first question is on the constant currency growth guidance. I think last quarter, you guided to the high end of the two to three full year revenue growth range. And you said that organic growth was expected to accelerate in the second half of the year. We've now achieved about 3% in the first half, but you still maintain the 2% to 3% guide. Are you no longer expecting that growth acceleration in the second half?

No. I don't think -- we weren't saying anything different, I think, than what we've said in the first half of the year. So what we said after the first quarter was we maintained our guidance at 2% to 3%, and I think, then, in a question, somebody asked and we said "Well, we're more likely to be at the high side of that." I think if you asked the question today, I'd say, "Yes, we're more likely to be at the high side of that." We think our outlook is pretty much where it had been. Maybe it's even a little more positive after the whole strong first half. But we don't think there's anything that's calling for us to necessarily raise our guidance now, but we feel very encouraged by the results of the first half.

Okay, great. And then also, John, in your comments in the press release, you alluded to reaching the full potential. And we were just wondering if this full potential refers to achieving that $10 EPS 2018 target discussed before at the Investor Day, or it refers to some other metrics of the company?

Yes, let me just pull up the press release here. So, I'm sorry, I just had to take a quick look at that to refresh my mind. When I was talking about that, I was actually talking about the much broader thing. And I think, as we talk to our colleagues and to our investors and our analysts, there's 2 things we focus on: one is, some of the short-term commitments that we made, relatively short-term commitments we made when we were trying to do the deal as to what we were going to work on, and those are around the synergies, those are around the -- achieving some of those results. And those have -- those are very important to us. We take commitments we make to our colleagues and to investors seriously, so we want to make sure we live up to them. But frankly, when we think about the vision of what we can create at Willis Towers Watson, and what we can do in the longer run, that's much greater than the short-term commitments, and that's what I was referring to in the press release.

Your next question comes from the line of Shlomo Rosenbaum from Stifel.

Before I ask my questions, just to make a point of when you went through the litany of things you put Roger through over the last 10 years, you sounded like you just flat-out wore him out.

Roger is shaking his head vigorously, yes.

He's quite the task master, so...

John, could you just talk a little bit more about the Corporate Risk & Broking. In North America, the commentary was the revenue was flat, you had tough comps year-on-year because of some projects. Could you just talk about, sometimes there's movement between quarters and then, sometimes there's a talk about what does it feel like you're growing at, just in the general sense? Can you make some commentary about that in North America?

Yes, so I think, and Roger, you may want to add to this, too, but I think the -- we had a few really large projects that we had worked on last year in 2016 that we knew were not going to be repeating. And, let me just, we had…

There's some big real estate projects, and particularly, things in the Northeast.

Particularly big things in the Northeast. And so in the second quarter of 2016, we had 6 accounts over $500,000 and it was a total revenue of nearly $4.6 million. And we knew that these were big projects that weren't necessarily going repeated, or well just weren't going to repeat. In quarter two, we have two accounts that are $1.8 million there. So there's a bit of a decline there. But if we just step back from those and look at the business overall, I think we're pretty optimistic about the rest of the business and what is going on there. So as I said in the script, we feel pretty good about the momentum in the CRB business going forward and in particular, I called out North America as a place where we expect the revenues to build in the second half of the year.

Okay. So you feel like you're in an upswing right now in what's it’s called -- in CRB in North America in particular?

Yes. I think that -- I do think that we've sort of passed an inflection point. I think 2016 was a tough year, overall, particularly for North America, but I think it's trending up this year. And again, remember, we did, overall CRB, we did grow by 2% for the first half of the year.

Great. And then you made a comment about the settlements, you had a loss in the team in South Florida. Was that a higher wave, a whole team? Where was it exactly? I don't usually hear about this coming out of your company.

Yes, it was a whole team in South Florida here, and that was in -- gosh, I want to say the fall, maybe October of last year or something like that.

And we had talked about that, I think, when people have asked us questions about some of the turnover and things like that. So it's nothing new from what we've talked about.

But it's healthcare brokerage, it's not insurance brokerage?

Well, it's a mix, but it was more.

I mean, just, Shlomo, just to be clear about that, I think we did talk about that in some of the earnings call because we talked about the fact that we lost the people in that revenue.

We have talked about that, a lot. Because it's the one area -- it's really the one specific thing that we've identified consistently that was a departure kind of out of the norm.

And your next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Hi. Good morning. My first question is on the margin side. So based on my math to hit the whirlwind or the 22% of your margin target for this year, you probably need to see about 130 basis points of margin improvement in the second half, I calculate around 90 ex-JLT in the first half of these year. So I guess what I'm trying to tie together is what's driving the margin improvement in the second half of the year? And also, what drove the unallocated net, that $9 million benefit that hit margins this quarter?

Yes, so let me deal with the second one first. So when you look at the unallocated net, we typically will expect that to run at an expense level that's probably more in the range of what you see for the six month period. When you look at those numbers, it is more consistent six month over six month. The reason for the volatility between the first quarter and the second quarter is that we did have some movement between expenses booked at the corporate level in the first quarter that were then pushed out to the business, so released or created income in that non-operating line, and pushed out to the businesses, the segments in the second quarter. So that’s not a net impact to margins of the company, and something that you generally wouldn’t expect to happen. We just had that movement this period between the first quarter and the second quarters. In terms of overall margins, and maybe just to go back to what we talked about with Greg’s question. So I think the clearest way to look at the margin management success of the company is to look at operating margins. And if you step back from first half operating margins, our operating margin was up some 50 basis points, 60 basis points by itself. But then, if you adjust for the fine arts and jewelry settlement, that will give you another 100 basis points or so, or actually, I think it was up 70 basis points without that. So you have about 170 basis points of operating margin improvement without fine arts and jewelry, which was not operating last year, so you do have to back that out. So, I think that’s the best indicator of our margin momentum. I think when you look at EBITDA margin, it is complicated this quarter because of this FX related hit that we took for intercompany and balance sheet items which does bounce around, but it’s non-operating in nature. So, I think you have to back that out, and that's why I think operating margin is a clear indicator. So, we think we’re on track. As you've said, we've maintained the guidance. In our plans, we think the second half is achievable, the organization is very focused on it, I think, John talked about some of the segment progress, you can see everybody's focused, I think.

So just a follow-up to that. So as you think about the second half margin improvement, it seems like depending upon what level of OIP savings do essentially fall to the bottom line, that’s more of a 2018 margin benefit based off of your comments during previously in the call. So I guess, there could be some benefit from merger savings, but you see yourself hitting your full year margin goal just by greater margins throughout all of your segments, is that how you think about it?

Yeah. I mean, I think it’s the whole company, is in the game. So it’s not just the segments, but it’s also all the functional areas, which you might recall, that’s where a lot of the integration activities are happening. So, it is by creating plans and managing the plans throughout the company to enhance margins. I mean, that’s how we’re going to steadily get there over the next 18 months.

And then my second question, I just want to follow up on one of the questions earlier on the call. I mean, you guys are leaving the organic growth outlook unchanged, but the half year itself probably seems to be, is at the high end. So, as you look to the pipeline and you get a feel for the business that should be coming over the next quarter, next couple of quarters, I’m just finding, why not just raise the target today to enforce the momentum that you’re seeing, or do you -- is there some timing or shifts that might cause you to come in below that 3% in the second half of the year?

No, I mean, look, I think we had a very strong first half. We still feel pretty confident about what we're going to achieve. But I think -- we don't want to keep on, when we do well, raise the target until we make sure at some point, we don't hit it. So I mean, that's just not the game we're interested in playing.

Your next question comes from the line of Mark Marcon from R. W. Baird. Q - Mark Marcon Good morning, thanks for taking my questions. Roger, it's been a pleasure working with you, congratulations and best wishes. Wondering if you can talk a little bit about the Exchange Solutions business? It sounds like it's evolving. How should we think about the margin profile, longer term, within that business as we end up having a bigger merger between what we used to think of as exchange -- pure exchange versus the benefits administration?

John, you probably have some thoughts on this, maybe I'll start. I mean I don't think there's been any change in how we view where Exchange Solutions should be. They should be at least at the overall average margin targets of the company, if not with growth, leveraging -- it is more of an operating type business than the administration and related exchanges areas, so as scale is built, with the opportunity, at some point, to have above average company margins.

Yes. I think that's right, Roger. And look, this is a business that is really in its infancy. And so there's a lot of cross currents that are occurring right now. We feel pretty good about being able to operate in what's a very high-growth business. We feel very good about being -- operate at a reasonable margin now. But we do think that when this builds scale and the market comes down, we are going to have an opportunity to achieve even higher margins.

Great. And then with IRR, you took up the guidance for the growth for the year. Can you comment on specific -- the specific areas that you're seeing the improved trends in? And then, separate from that, can you just discuss any sort of very specific timing issues that somebody should consider as it relates to just a very near-term Q3 outlook relative to Q4, if there's any particular items that we should be adjusting or incorporating into our estimates? Thank you.

Yes, sure, maybe just a comment from me first, and that maybe John will have something to add on. I think when you look across IRR, broadly, as John went through in his script remarks, you're seeing just better performance year-over-year in most of that segment. And reinsurance is performing well, the risk consulting business is performing well, and the investment business is performing well. So taking up the guidance just as a reflection both of first half performance as well as the expectation that trends will be better through the year than they were last year. John?

Yes, I think, to your second question, Mark, there's really nothing we see that are big flows between quarter three and quarter four at this time, so nothing to report there.

Ladies and gentlemen, please note that this call will be ending at 10:00 o’clock a.m. It’s a hard stop. Your next question comes from the line of Bob Glasspiegel from Janney.

Good morning. Thanks for squeezing me in. Cash flow, up nicely for six months was down in the second quarter, 41% versus 76% I calculate. I assume the legal settlement a year ago drove that. This is a relatively thin quarter typically for cash flow. Anything big pushes and shoves in the numbers? And where are you on sort of pension cash expenses for the year in your expectations versus last year?

Yes, so for pension specifically, I think there was roughly $250 million of outflow last year and we think it's going to be a bit below $200 million this year. Overall kind of puts and takes in the first half cash flows, we do have some absorption from working capital in the first half. You see that in the cash flow statement. We have a bid in CapEx, so I think we've talked about this in the past, but you would expect during integration to have a bit of a bump up in capital expenditures as a result of the big IT consolidation projects we have, as well as the big real estate projects, and you're starting to see that more in the first half of this year. And then, as I mentioned in my remarks, you also have an impact from the bonus payments year-over-year. so a bit more cash going out this year because of the half year only payment to the Legacy Towers Watson folks last year.

How much above normal would you say your IT CapEx for restructuring is running?

So CapEx was $20 million over last year. I mean, I don't know if I should call last year a fairly normal year, but we didn't have a lot because the CapEx projects themselves take a while to -- they tend to be more complex type areas. So that's probably the best benchmark that we have about how much in the first half was above normal.

Okay, thanks very much, everyone, for joining us this morning. And I look forward to talking to you at our third quarter earnings call in November.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.