Good morning. Welcome to the Willis Towers Watson Second Quarter 2019 Earnings Conference Call. Please refer to our website for the press release and supplemental information that was issued earlier today. Today's call is being recorded and will be available for the next three months on our website. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risk and uncertainties. Actual results may differ materially from those discussed today and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investor should review the forward-looking statements section of the earnings press release issued this morning. As well as other disclosures in our most recent Form 10-K and other Willis Towers Watson SEC filings.

Okay, thanks very much. And good morning, everyone, and thank you for joining us on our second quarter earnings call. Joining me here today is Mike Burwell, our Chief Financial Officer and Mitch Keith, Head of Investor Relations. Today we'll review our results for the second quarter and the first half of 2019 as well as update the outlook for the remainder of the year. I'm pleased with our second quarter financial results and the continued momentum in our business. We generated strong organic top-line growth of 6% for the second quarter of 2019 and 160 basis points of adjusted operating margin expansion. This marks the fourth consecutive quarter in which we’ve generated organic revenue growth of 5% or greater and improved margins. Likewise, we had revenue and operating margin growth in each of our business segments this quarter, reflecting solid demand for our solutions and services throughout our portfolio of businesses. This has been an exciting and productive quarter for Willis Towers Watson, and as I reflect on our second quarter and the year-to-date results, I'm extremely pleased with the significant steps we've made to improve the company's growth profile and position the company for continued long-term growth. In our core businesses, we've had great success driven by new business generation, strong retention rates and increased operating leverage across our core businesses. On the acquisition front, I'm delighted to announce that we completed the TRANZACT acquisition yesterday and today we welcome over 1300 talented colleagues from TRANZACT to the Willis Towers Watson community. There is tremendous energy and optimism around the benefits of this powerful combination. The TRANZACT acquisition rapidly accelerates Willis Towers Watson's direct-to-consumer us healthcare strategy and significantly strengthens Willis Towers Watson’s growth profile in the healthcare space. TRANZACT provides Willis Towers Watson with a true end to end consumer acquisition and engagement platform for healthcare, by adding scale, retail capabilities to our portfolio of expertise, and it significantly enhances our reach and agility in penetrating the expanse of the Medicare market.

Thanks, John and I would like to add my congratulations to our colleagues for another good quarter as well as thank our clients for their continued support and trust in us. As John mentioned, we’re very excited about the completion of the TRANZACT acquisition. As this transaction shows Willis Towers Watson renewed focus on strategic M&A opportunities. Our second quarter represented another positive result with strong organic revenue growth, robust margin expansion and underlying adjusted EPS growth. Now, I’ll turn on to the overall detailed financial results. Let me first discuss income from operations. Income from operations for the second quarter was $176 million or 8.6% of revenue, up 540 basis points from the prior year second quarter. Adjusted operating income for the second quarter was $299 million or 14.6% of revenue, up a 160 basis points from the prior year second quarter. Let me turn to earnings per share or EPS, for the second quarter of 2019 and 2018 our diluted EPS was a $1.06 and $0.44 respectively. The prior year quarter was impacted by $0.55 of transaction integration expenses. For the second quarter of 2019, our adjusted EPS was up 5% to a $1.78 per share as compared to a $1.70 per share in the prior year second quarter. Foreign currency caused the decrease our consolidated revenue of $51 million for the quarter compared to the prior year second quarter but had no impact to adjusted diluted earnings per share this quarter. As previously guided, we were adversely impacted by decrease in non-cash pension income compared to the prior year, which resulted in year-over-year decline of 14% this quarter. Excluding the combined headwinds for reduced pension returns of $0.14 and higher taxes of $0.04 versus the prior year second quarter. Adjusted EPS growth was approximately 15%. Talking about…

Thanks, Mike. And with that, I'd like to open the call to questions.

Thank you. Our first question comes from Slomo of Stifel. Your line is open.

Hi, thank you very much for taking questions. Hey, John, it seems like you've had a pretty good run here for the last four quarters with really a good organic growth that is accelerated. And I don't usually ask this kind of question. But 4% to 5% organic growth does imply like you're expecting something else to decelerate from the first half of the year in the second half of the year. But it seems like the momentum is pretty good. Is there just tougher comps it just I wanted to make sure you're 100% of ability to deliver. Can you just give us a little bit more of your outlook for the second half of the year in that context?

Yes, sure. Thanks. Thanks, Slomo. I think we're not. We're not suggesting really that we think anything is going to decelerate here. I guess when we came out with the -- we initially had the 4% growth that we said we'd be at for the year. So, the first is -- the first half came in at five. And so, we said, well, we think we'll be 4 to 5. When we first came out with the 4% growth, I know there were some of our competitors had some higher growth projections. And we said, well, the fact that workflow shouldn't be interpreted as we think we're going to grow slower than the market. And I would say the same thing here. We've just sort of taken the floor and raised it up front to reflect what happened in the first half. You shouldn't think we think we're going to grow slower than the market.

Okay, great. And then do you mind just discussing a little bit about the operating environment in the UK, given the political situation in the Brexit items? It seems like, you know, there was some slowdown just in general in the UK in the first quarter, but it seems like things are seem a lot better right now, if you can just comment on that.

Yes, I mean, our growth, we had some good growth in the UK, it was 4% this quarter. And we feel we feel pretty good about that. And in fact, actually, particularly of CRB, we were receiving some declines last year. So, we feel much better about that. I think, you know, Brexit is still a bit of an uncertainty. We have done a lot of planning around Brexit ourselves, though. And we feel like we're prepared for that. And, so we'll have to see what happens. But we feel we're about as prepared as we could be.

Okay, great. Thank you so much.

Thank you. And our next question comes from Mark Marcon of R. W. Baird. Your line is open.

Good morning and congrats on the strong progress that we continue to see. I was wondering if you could talk a little bit about the 3 different questions. One, free cash flow growth of 15%. How confident are you still in the ability to generate that for this year and then for the next few years? That's the first question.

Okay. I think, Mike will take care of that.

So, thank you for the question Mark. Like prior years, we expect the second half the year to be seasonally stronger from a free cash flow standpoint. Now, during the first half the year we had higher compensation payments, as well as timing related to cash payments for income taxes, which had an adverse effect on our free cash flow. But some of the last year, we knew coming into 2019 that we had to continue challenge around improving working capital and we're taking actions to improve free cash flow during the remainder of the year and specifically focused on working capital.

Great. And then can you talk a little bit about TRANZACT and how we should think about that, particularly as it relates to the fourth quarter? Obviously, that's the time when we get the enrollments and benefit from that?

Go ahead, John.

Yes. I just say, look, we did raise our guidance, as Mike said, and that was mostly the result of TRANZACT, not a 100%. But in TRANZACT will most of the impact the TRANZACT by the overwhelming impact will be in the fourth quarter?

Can you just talk a little bit about the margin? I mean, obviously, seasonally high. So just from a modeling perspective, how we should think about it?

Yes, I mean, TRANZACT from a margin standpoint, we see it consistent with what we targeted for the overall company from a margin standpoint Mark, so we don't see it different.

Okay, great. And then the last thing, Mercer with JLT, yesterday there was some discussion about how their book was looking. I was wondering what you're seeing in terms of opportunities in terms of share gains as a result of that transaction, both in terms of people and business?

Yes, I think, we've seen our reinsurance business being very strong. John commented in his comments or prepared comments at 10% overall. And so, part of that's coming from continued wins and strong market conditions that we've seen out there. So, I think it's encapsulated in those in those numbers, Mark.

Terrific. Thank you.

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

Hi, good morning. My first question goes back to the TRANZACT acquisition as well. When you guys announced this deal earlier this year. I know you had said that it would be accretive relative to earnings. But that was assuming no buyback. And so, you guys return to the market and didn't buy back some stock in the Q2, which seemed sooner. I think the new guys and mistreated expected. Can you just give us a thought around buybacks? And because you're now buying back share sooner. It does seem like the deal might be more accretive relative to your initial expectations.

Elyse, I mean, we've always said and maybe just to make sure that was understood previously that we would buy back shares to make sure, we manage dilution in regard to our benefit programs, to be in place, and that's what we've continue to do. So, there is no different assumptions that that's been there. Obviously, we're very excited about TRANZACT and what we see that's going to do for us in the future. That's what we reflected and taking the earnings guidance up. So, we're very excited about what TRANZACT brings to the company. And as John said, we welcome those colleagues to the company and we're very excited about it.

But just to be clear going forward here. While we're basically paying down the debt for TRANZACT. The only stock buybacks will do will be anti-dilution ones.

Okay, that's helpful. And then also on TRANZACT. Could you give us a sense of what their organic revenue growth has been through the first half of the year? I know when you guys announced the deal, you said, you were expecting 25% to 30% revenue growth. How does that compare to those expectations?

Yes, it's right in that range. So, we're very excited about it. Obviously, it's right spot into that range and maybe pushing the top end of it to be fair. I mean the market is very strong. We've seen that reflected overall and demand obviously, the big piece comes in the fourth quarter. But that's what we're seeing overall in terms of individuals. So, we've kind of put that 25% to 30% that we touched on over the next five years was what we're thinking about.

And we see no reason to change that, that's still our expectation going forward.

Okay. And then lastly on TRANZACT, the margins within your BDA segment are seasonally highest in the fourth quarter. Obviously, negative earnings through the first three quarters. So, I just want to get a sense of we're offsetting our models correctly. I'm assuming your updated guidance assuming TRANZACT follows that same seasonality. So, would report a loss to be margin dilutive for two months of the third quarter since it just closed and then be accretive to your margins in the fourth quarter? Am I thinking about that correctly? Or am I missing anything there and thinking about the guide and how to update for the next couple of quarters?

No. You've got it. That's right.

Okay, thank you very much.

Thank you. Our next question comes from Greg Peters with Raymond James. Your line is open.

Good morning, John. Good morning, Mike. This is this is Marcos calling in for Greg. I had a couple questions. First on HCB. You guys singled out the revenue that wasn't there last year. But I'm just curious if we were to back that revenue and last quarter. What would operating margin expansion look like this quarter?

It would be roughly about 2%.

It's Rich. Are you referring just HCB? What will be the margin? I think that's your question.

Yeah, you guys picked up 200 basis points or so this quarter. So, I'm just curious if that revenue were to be there last year? What would the pickup be this year?

Yeah, it's roughly flat.

Okay. My second question is on free cash flow. And it's related a TRANZACT. If we understand it correctly, the MA and MS business is free cash flow negative the first two or three years. And you guys reiterated your free cash flow guidance. So, let's say if we were to buy TRANZACT, would that imply that free cash flow could be growing in the high teens over the next couple of years?

The overall TRANZACT business is about -- it's not -- it's pretty much neutral. It's pretty close to zero. It's not a negative.

Okay. And then Mike, can you just revisit your comments around pension? And that's all I have. Thanks guys.

So, on pension, if you remember we talked about, with the pension got valued at December 31, 2018, which obviously the market was way down at that point in time, this is still that, that portion of it. That obviously gave a headwind offsetting our pension income that we would have in the current year. And that's what we reflected in our results. Had we not had that amount included in there, it would have been roughly $23 million, that would that would have impacted those numbers had you taken that that out? So, when you adjust for that that pension amount of that $0.14, and equally, you added back the headwind that we had on taxes, it sets our growth rate for the quarter would have been greater than approximately 15%. So that's what that's what I was trying to comment on.

Got it. Thank you.

Thank you. Our next question comes from Mark Hughes of SunTrust. Your line is open.

Yeah, thank you very much. The quarterly revenue spread for TRANZACT. Is it's similar to the underlying BDA business?

Yes.

Yes.

And then did you consider maybe stepping up your investment in TRANZACT and the call centers to accelerate growth seems like the market opportunity is quite strong. Do you maybe try to grab some share here early on?

When we think about it today, we have over 2000 agents that are in place. And obviously, the individuals may come through online, they may come through call centers, they're coming through various aspects of it. Clearly, we're seeing the market is strong and preparing for the annual enrollment period in the fourth quarter. And so, our combined team under Gene Wickes' leadership is really looking at and making sure we're well prepared, given the market dynamics that are in place and working with all the leaders associated with it. So, we definitely see, opportunity, and we think we're well-prepared for it. And we feel good about the size of our organization to support that growth.

I mean, I think that's the key. We think we're prepared to handle the growth that's out there. And so, we feel good.

Understood. And then my final question, is there any concentration among the carrier partners you work with, with TRANZACT? Do you or is there any goal of increasing the breadth of the carrier partners?

Look at it and will continue to evaluate it. I mean, you know, will do that with that leadership team. I mean, you want to be smart about, you know, doing anything when coming up to the annual enrolment period. I know. I mean, obviously, we just close the transaction yesterday. So, we'll continue I know Gene, and the team will evaluate that and, you know, all opportunities that are out there, and we'll consider, you know, what, what makes sense?

Having said that, that we'd like to, we'd like the way things are set now. So, I wouldn't expect it now suddenly see any changes? Will it will always continue to evaluate it.

Thank you.

Thank you. And our next question comes from Meyer Shields of KBW. Your line is open.

Great, thanks. Good morning. John, I'm hoping you could talk about the thought process underlying the changing exposure to incentive payments for the TRANZACT deal.

Yes, so look, I think, from our standpoint, we had a -- we've got some certainty in the payments that we were making there. And, you know, we feel we feel pretty good about getting that because frankly, we're pretty bullish on TRANZACT. And so, we felt that -- we felt this serves us better doing that, and I think, as in all different cases, it has to be something that works for both sides. But I think the other side like the idea of getting some certainty and what they had to and so, we were able to come to an agreement on that, and we're delighted.

Okay, understood. Also, and maybe just question for Mike. Can, we get an update on the margin expansion initiatives specific to CRB?

Yes, I mean, I think if we went back to the last quarter phone call, we had, we had touched on a -- that we would consistently see improvement and CRB margins. And that's what we've can continue to see. So, we're up one point, and the current quarter. Todd, and the team, you know, are working on that. And, as I said, it is going to see some giant ramp ups just slow and steady and continue to see that progress. And I think that's what you're seeing in the 1% growth this quarter.

Okay, thank you very much.

Thank you. And our next question comes from Yaron Kinar of Goldman Sachs. Your line is open.

Thank you. Good morning. First question, just going back to the ASC 606 catch up. Can you quantify what the dollar impact was?

It was roughly 23 million.

Okay. And then going roughly...

It roughly offsets the pension.

Yes.

Right. Okay. And in line what was part of guidance, I guess, for the quarter. Then on free cash flow, I guess on the previous question around 16% growth this year? I think I heard the kinds of the moving elements in the second half of the year, and I fully recognize that second half tends to be much larger. But can you confirm that you're still expecting 15% or greater growth this year?

That's what we're working towards we know, it's a challenge just like it was for us last year in terms of moving in that direction. We have the entire team, you know, very focused on it like we did similar to last year. But yes, it is a it is a challenge for us. And we recognize that. And that's going to work our tails off as a collective team. Just do everything we can to achieve that.

Okay. And then finally, TRANZACT revenues. They will not be going through organic this coming year. Right. They there's they're going to come in through acquired.

That's correct.

Okay. Thank you very much. Best of luck.

Thanks.

Thank you. And our next question comes from Brian Meredith of UBS. Your line is open.

Yes, thanks. One quick numbers question and one more broader question. First, just quickly numbers, like the Stanford litigation payments that's still factored in free cash flow kind of guidance for this year.

Yes, as of right now it is, we're continuing to work on that. If that changes, we will update you.

Yeah. By the way, the Stanford payment may occur this year, but it may not also.

Well I guess the question, would free cash flow growth be greater than the 15%, without Stanford?

Yeah, I mean, right now, we'd always looked at you had the integration costs, the rolling in, you had Stanford coming in there, you have a mix of things in there. We've always said, 15% was kind of where we were in, if we were lucky, we'd be better.

Got you. Terrific. And then just quickly, I'm just curious, you briefly talked a little bit about pricing, what you're seeing pricing and commercial insurance, great growth, obviously, in the wholesale Miller's, what impact are you seeing from a revenue perspective, from pricing, and perhaps maybe, do we see that potentially having a better impact going for particularly from Miller’s as you start to see maybe capital freed-up at Lloyd's?

Well, I think, look, we're -- this is a better environment, then we've had for a while. We've had these years of the rates going down, and now we're seeing most lines workers comp is probably one of the key examples, workers comp and international liability are the ones that where we're seeing rates going down, continuing. But the rest of them, we're seeing some pricing uplift. And that's probably good news for the insurance industry, for a long-time insurance were really competing for market share by driving down prices, and they probably got this something that wasn't really that sustainable. And so that's why we're seeing some of these rate increases. For us, it's one of the things we have to do in the face of some rate increases is see what we can do to get as good a bargain for our clients as possible. And sometimes that is that suggests moving in some business or looking for other alternatives, or maybe buying a little less insurance. So, it's not clear we always get the effect of all the rates. And then sometimes only a portion of our businesses commission based a lot of it in fees also. So, it doesn't automatically flow through but when there's rate increases, generally it does tend to improve our results.

Great. Thanks for the answer.

Thank you. And our next question comes from Michael Zaremski of Credit Suisse. Your line is open.

Hey, this is actually Charlie on for Mike. Just one quick question. Can you guys talk about the mix of cyber business as far as the proportion of consulting versus broking and how this performance or trend in those businesses have been deferring or what trends you're seeing if they're similar? Thanks.

Yeah, I mean, obviously, cyber is been very strong. It's not a huge in terms of its aggregate size, most of it is been brokering and suddenly a brokering business, it's not to say we are doing some consulting, but the majority of it is in the brokering business. And it continues to grow double digit type of numbers, but of a small base, but we continue to see that opportunity, as the marketplace is looking for that solution. And we continue to see that growing in the foreseeable future.

I guess the only thing I'd add to that is that, and as Mike said, this is that we're at the beginning stages of this market really growing. But in addition to North America and Great Britain, we're now seeing some good growth in the emerging cyber insurance markets like Western Europe, Latin America and Southeast Asia.

Got it. Thank you.

Thank you. And I have a follow-up with Slomo Rosenthal of Stifel. Your line is open.

Hi, thank you for letting me back in. Hey, first one, I just want to ask Mike, if you could just help us out a little bit more on the TRANZACT acquisition just in terms of modeling, just because it seems like there's an outsize contribution in 2019 because you're going to have a really big fourth quarter, and not really get the losses that you would get for most of the rest of the year. Would you be able to just kind of help us in terms of contribution that you're expecting in earnings, specifically from the acquisition? And if we were to have it for the whole year, what it would be so that we can kind of model this appropriately for 2020.

You know, I mean, Slomo, I think your premises is right, obviously, we're not having 12 months of expenses, for instance, we closed on July, the end of July here and would have that only that portion of expenses and obvious most of the revenue, as we touched on is coming through the AE, annual period. We had said total growth at 7% to 8%. We said we're at 4% to 5% in terms of organic growth, obviously that’s not the 100% number but it gives you a good direction to it. And most of that is coming in the fourth quarter in terms of what to be in place, and maybe Rich will follow back up with you with any further questions you may have.

I mean the only other things Slomo, we're really not in a position to go through with a lot of detail as Mike is saying right now. But I would say this, and I think I mentioned this in response to an earlier question. Most of the earnings guidance, the earnings increase that we did for guidance that’s almost all due to TRANZACT.

Alright I’m going to follow up after wards also just to see if I can put that little bit out there. And then just one other.

I recognized that it’s a little difficult but as Mike said your premise is right, it’s the money is made in the fourth quarter and the losses in the beginning. But we just don’t really feel where the position to do that right now, that something we do 2020 guidance.

Okay. Just one last one John on following-up on mayors question on the renegotiation of the terms, do you feel like you can hold the sellers feet to the fire with or not being like normally down to like 17 million or so I mean it seems like the I understand that taking up the lower purchase price. But why would -- if there is the same kind of confidence in your side -- is there was -- is there is on their side to execute the way that they would it's only 2020 target your talk about 18 months later it just seems interesting that there kind of reducing their almost their entire risk to that.

I mean I would say two things, one is I think they did very, very well already on the TRANZACT acquisition and getting rid of that and if they have the money right away and some certainty around it then they can invest that and so, that gives them some other opportunities. I mean you really have to ask them exactly why they wanted to do what they wanted to do. But for us TRANZACT was ahead of where we thought they would be, and we feel good about where they are and so it was something that we were happy to do that. The management team to TRANZACT is still on the original deal that we had and the original incentives. So, we feel with them, with no change to the earn out we feel very good about that.

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

Just a few kinds of number related questions first of in terms of the in HCB coming back. You got 23 million this quarter so is the assumption still that the reaming 25 million would come into third quarter?

Almost all of it, yes. I mean that the vast majority.

Okay. That’s helpful. And then in terms of minority interest picked up to 11 million in the quarter, is the only that cause that to just tick up from where it had been trending and then what you know within that line item how should we think about modeling forward.

I mean what drove that was Miller specifically and I think that’s the right, the model going forward and again if you want to give, Rich can give you some more thoughts on that that Miller was the main driver there.

Okay that’s helpful and then in terms of couple of question on the BDA segment margin. So, first of on the legacy BDA before TRANZACT. You guys have shown I know obviously used the margins are negative in that segment for the first three quarters, but they've actually been trending better year-over-year less negative, would you expect that to continue in the third quarter on kind of the legacy BDA business and you still expect TRANZACT to about a 25% which is what you said when the deal is announced.

I mean at least just as it relates to the overall margins in BDA, we really got away from given any segment guidance we come and said overall that we get our operating income around 20% but we continue to focus on improvements in that business and the leadership team will continue to do that. So, there is still opportunity there, but I put it in that particular context and your second question as it relates to TRANZACT what we see that is consistent with what we see for the overall company is in that type of range.

And the only other thing maybe Elyse I would add to that is that we were looking to get margin improvement everywhere and then BDA is no different than that, 600 basis points is a lot. So, I wouldn't necessarily assume that we’ll continue to get 600 basis points.

Okay, that’s very helpful. I appreciate the color. Thank you.

Thank you. And this concludes the Q&A portion of today’s conference. I’d like to turn the call back to Mr. Haley for closing comments.

Okay great thanks everyone for joining us this morning. And we look forward to updating you on our third quarter call in the fall. Have a good day.

Ladies and gentlemen, thank you for your participation in today’s conference. You may disconnect. Everyone have a wonderful day.