Good morning. Welcome to the Willis Towers Watson Third Quarter 2021 Earnings Conference Call. Please refer to willistowerswatson.com 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 Willis Towers Watson's 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 risks 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, investors should review the forward-looking statements section of the earnings press release issued this morning, as well as other disclosures in the most recent Form 10-K and in other Willis Towers Watson’s SEC filings. During the call, certain non-GAAP financial measures may be discussed. For reconciliations of the non-GAAP measures, as well as other information regarding these measures, please refer to the most recent earnings release and other materials in the Investor Relations section of the company's website. I'll now turn the call over to John Haley, Willis Towers Watson's, Chief Executive Officer. Please go ahead, sir.

Thanks very much. Good morning, everyone, and thank you for joining us for our third quarter 2021 earnings call. Joining me today is Andrew Krasner, our Chief Financial Officer; and Carl Hess, our President and our future Chief Executive Officer. Today's call will be my last earnings call as CEO of this great company. Willis Towers Watson looks remarkably different than it did 22 years ago when I first started as CEO of Watson Wyatt and even more so than when I started at the Wyatt Company 44 years ago. It's been an amazing journey and it underscores the resilience of this extraordinary organization. The combination of our exceptional people and strong value has enabled this company to reinvent itself and to continually evolve. Our history has been defined by constant innovation and change. Together, we forged the legacy of quality service and solutions with strong client relationships and have built a Willis Towers Watson culture of resilience, inclusion and client focus. I'm proud of what we have achieved, and I feel fortunate to have had the opportunity to take the company this far with all of you. At the end of this year, I'll officially pass the baton to Carl Hess. Now is a time of reinvigoration for Willis Towers Watson. Carl is a great leader, focused on driving results and accountability by engaging colleagues. He has a wealth of knowledge and experience and he has the skills to best lead the company during this transformative time. I have every confidence that Carl will be successfully creating a new way forward and leading Willis Towers Watson and our top talent to an even brighter future. As we bring our new leadership team into place, we're also building One Willis Towers Watson. One WTW is about working across businesses, geographies…

Thanks, John. We all wish you the best in your retirement at the end of the year. Good morning everyone. Thanks to all of you for joining us. First, I'd like to extend my appreciation to all of our colleagues. We have asked a lot of our teams and our colleagues continue to pull together and deliver. I'm proud of all the work they have done to continue supporting our clients, each other and the communities in which we work and live. As John noted, we continue to make progress in the third quarter, highlighted by another quarter of strong organic revenue growth, continued operational improvement and effective capital management. We are reassured by the continued improved demand for our discretionary services and solutions and by our ability to generate profitable growth. Moreover, we feel we are well positioned to execute on the long-term goals we announced during the Investor Day meeting that we hosted last month. We are excited about the early progress we are making with our transformation efforts. The investments we're making to transform our operations will create better scalability, more flexibility and enhanced colleague and client experience. Through streamlining global platforms, right-shoring operations, rationalizing real estate and modernizing IT, we expect to deliver $300 million in expected cost reductions and contribute 300 basis points of margin improvement toward our fiscal year 2024 adjusted operating margin target of 24% to 25%. Now, I'll turn to the overall detailed financial results. As a reminder, you can see the detailed quarterly continuing operations results for 2020 and 2021 year-to-date on page 9 of the supplemental materials. Income from continuing operations for the third quarter, which included the $1 billion termination fee, was $1.1 billion or 57.3% of revenue, up from the prior year third quarter income from operations of…

Thanks very much Andrew. And as I mentioned at the beginning of the call, we have Carl Hess on the line with us also. We anticipate that most of your questions are going to be about what our results need for the future. And so while I may chime in from time-to-time, Carl and Andrew are going to be answering the vast bulk of the questions. So let's turn to your questions.

Thank you. The first question from Elyse Greenspan with Wells Fargo. Your line is open.

Hi. Thanks. Good morning. My first question is just on the organic guide and also the view for CRB. So you guys put out a 2021 guide of 6% organic, which would imply 6% in the fourth quarter given the year-to-date was 6%. So I just want to make sure that that thinking is correct. And then the second question, within CRB you alluded to an impact from departures having peaked, but you did say that growth there could be compressed through the first half of next year. So should we think that CRB could as a segment remain kind of within that 6% organic for the next three quarters?

Yeah. Sure. Thanks, Elyse. This is Andrew. So I'll take the first part of your question around organic growth for the rest of the year. I think you're thinking about that properly in terms of where we would expect Q4 to align relative to our stated guidance of 6% for the full year.

And this is Carl. Elyse, good morning. With respect to sort of the outlook for CRB on the revenue side, we have seen a mitigation of the departures we talked about at Analyst Day, and we're getting back on the front foot with respect to hiring. There have been some encouraging trends in the business, as we look toward new hires, less terminations, where we've actually in Q3 now seen hiring exceeding terminations for the organization. As we know that, hiring precedes revenue, when it comes to people, but that will help us going into 2022 and forward. We look – new business results for CRB have remained strong and are up on last year thanks to a strong client and sales management discipline and I think a validation of our global light of business model. While we have seen some revenue gains that are through book sales that have impacted the business, those are a continuation of last year. It's on a new phenomenon. And in general, it leads us to thinking that our CRB is going to continue to grow, but probably be at the lower end of the industry averages through the first half of 2022.

And then John had said that, you guys are down 100 colleagues within CRB, this Q3 versus last Q3. What was the peak? I guess, if you were going to look at the peak over the past couple of quarters what would that number have been when it was kind of the worst of the departures just so we can get a sense of like the hiring back that you guys have done?

So I mean, the – I think, it's hard to pin down, but what we've seen is Q3 departures are lower than Q2 departures. So we think, we're past the peak on that. And the other side of that hiring was very low during the period of the business combination, what was out there. That has resumed with a vengeance not just hire, we've already made, but the hire we continue to plan to do. So our open recs are well open – well increased from where they were a year ago at this time.

And one last one, there was good margin improvement in the quarter and in the guide for the full year as well. Is there – are margins been inflated by the level of departures and the lab with hiring meaning is that a headwind to next year's margin, or do you think once the revenue growth gets back on track with the industry that that will kind of offset any expense impact from hiring?

Yeah. I mean, I think what we're willing to say about the margin is that, we're very happy with the margin improvement that we've seen through the first three quarters. We remain positive about our margin outlook. We do expect to deliver margin improvement in Q4. But we do expect sort of as business activity continues to ramp up that, there will be some slowing of the rate of margin improvement.

Okay. Thanks for the color.

Thank you.

Thank you.

Next question, we have Mark Marcon. Your line is open.

Good morning. And thanks for taking my questions. First, John congratulations on a stellar career. It's been a pleasure working with you over the decades. Wondering if you can talk a little bit about the – just kind of the pace of the margin expansion as you progress from this year to your longer-term 2024 targets. How should investors just kind of think about that sort of pacing? How much of it is going to be back-end loaded just in terms of framing appropriate expectations as we start focusing on next year and the following year?

Yes. I saw -- Mark it's Carl. Good morning. I think two parts to that right? There's the margin improvement we get expect to get through operating leverage in the business which I think we would say should be relatively constant through the period maybe some short-term headwinds looking into the first half of 2022 as we've already identified but no reason that shouldn't be relatively steady phenomenon throughout that period. Then there's the effect of the transformation program that we started to lay out at Analyst Day. And we do think like many transformation programs right the costs tend to be front loaded and the rewards a bit backloaded.

Got it. And so it would be reasonable to assume that first half of next year probably margins are going to be a little bit on the tepid side. And as we go out and for the full year probably not a lot of improvement. And then the bulk of the improvement really more in the 2023, 2024 back half of 2023 and going into 2024. Is that fair?

I think what we'd say about margins in the future is that we'd refer to the Investor Day materials and that we're targeting the 24% to 25% by the end of fiscal 2024.

Okay. Great. And then with regards to CRB just in terms of the departures that have already occurred how would you characterize the revenue impact that is going to occur in the future with regards to that group?

I think I'd point out that sort of book sales right which impact the cost side I think obviously revenue multiples on book sales vary but with a pretty well-known range right? I mean book sales make up less than 1% of the revenue we're talking about. So you can take your multiples on that but I don't think the answer in a macro level isn't significant for the enterprise.

Great. And then which part of the business are you the most excited about within HCB at this point in terms of future growth?

Well, so for the current HCB right we identified at Investor Day that we think our Health and Benefits business is one where we see significant opportunity both from a scope perspective and a scale perspective in terms of what we can do for the enterprise. That being said we think all our HCB businesses are valuable contributors to the portfolio. We've got a market-leading retirement business. Our Talent and Reward business has had a phenomenal rebound last year and there's great demand for its services and we think has a lot of prominence in what we do and helps us with all our buyer hubs with respect to human capital benefits. And we've got a very, very strong technology administration services business that continues to gain market share. So there's a lot to like across that entire portfolio.

Thank you.

Thank you. Next question we have Mike Zaremski with Wolfe Research.

Great. growth, Follow-up on the margin guidance and thanks for all the good color. Specifically if I understand correctly you're saying that the near-term margin guidance includes a negative impact from the stranded costs. So are we going to be able to kind of quantify those stranded costs and kind of know how to back them out, or I'm assuming they were contemplated in the long-term margin kind of guidance that you guys have laid out. I just want to understand how material that is and if it's something that we should be thinking about as we think through our numbers.

Sure. That's not something we're going to quantify right now, but as you alluded to is absolutely contemplated in the longer-term guidance of 24% to 25%.

Okay. Got it. And maybe sticking with some of the $750 million of cost. I guess, will -- I know in the distant past there's -- rating agencies have looked at -- have not kind of excluded some of those charges. I'm curious if those charges will be included in the kind of the rating agency governors on how they calculate leverage, when we think about buybacks potential. And then also, as related to the cost program, it looks like a lot of the -- you'll be shedding a lot of your leases, if you look at the 10-K. So I just want to be clear. It seems like, Willis is directionally moving towards more of a remote work flexibility environment versus peers. I just wanted to see if any -- if that's the right way to think about things. Thanks.

Yes. On the first part of your question, we don't expect there to be any impact from the restructuring efforts on our ability to repurchase shares. As to the specific rating agency calculations that may be a question for them about how they're going to treat that. But again, we don't expect that to be a headwind for any of our share repurchase activities or capital allocation plans. I'll ask Carl to chime in on the real estate point.

I think, we've had 45,000 colleagues that have adapted marvelously to the new ways of working that we were afforded voluntarily or not as a result of COVID. We have come through, not just ably, but in a stellar fashion with respect to how we're able to team up with each other and serve our clients. And the lessons we've learned with respect to how we can employ technology to continue to collaborate and have excellent client service, we're taking those lessons and we will be implementing those in our real estate portfolio as you correctly identified. We're going to turn our real estate footprint into collaboration space, rather than come to the office space.

Thank you.

Thank you. Next we have Mark Hughes with Truist.

Yes, thank you, good morning, and congratulations John. In the HCB space, the great resignation here, how long do you think this momentum could last? You talked about a sharp recovery turnaround. Do clients expect these tight labor market conditions to persist? How do you see it playing out?

Could you clarify? I'm not sure you're talking about our workforce or our clients' workforce and the demand for our services.

Yes. Talking about your clients' workforce and their demand for your services. Just what are you hearing from your clients about how long they think this will persist? And then, obviously that impacts your revenue opportunity, so just some perspective on the durability of this upswing.

Yes. So, I mean there's no question that our demand for talent and rewards has been driven by strong demand for work that includes tightening labor markets and that affects our compensation survey business, hiring assessments, employee engagement work. All of these have seen strong demand because of that. We anticipate that to continue, given labor markets continue to be quite tight. And we are making sure that we're adequately resourced to be able to meet that demand across the organization. We don't think that some -- there's a combination of both short-term and near-term economic effects that are going to affect this. You tell us when vaccination rates globally are to a point where supply chains are undisrupted and we'll give you some insight into what that means for some of the global talent markets. But certainly, we think this is a good tailwind for our business and we're doing our best to maximize the value we can bring across the portfolio to us.

Fair enough. And then the -- in CRB, what was the North American organic? What were those regional numbers you gave I think North American international and Great Britain?

We're getting that. Just a second. Yes. So, North America revenue was up 12%.

International 4%; Great Britain 2%; Western Europe basically flat up nominally.

Great. And then one final question. I think you had talked last quarter about the equalization work, the pension equalization work in Great Britain that there was visibility for that to be strong in next year perhaps. Is that still the case?

Yeah. We do think that we'll be seeing higher levels of work related to equalization and expect additional work from schemes that are better funded. And of course, the markets have been kind to pension schemes globally this year. That's remained to be true as we said it after Analyst Day.

Thank you very much.

Thank you.

Thank you. Next, we have Paul Newsome with Piper Sandler.

Just a little bit of a follow-up on the wage inflation question. Are you seeing in your business globally some of these concerns that it's just getting more costly to hire people or keep people broadly? And I guess, just leading with that, is that something that you need to manage through or seeing it any place?

So definitely, we're on the market for new talent across the organization. So we're definitely noticing that there are areas of our business that are definite hot markets for talent. And I think you probably heard that from a number of people in our industry over the last week or so. We are a global business. We are able to source talent globally and that does assist us in that. We can drop a wide range of talent pools, as we manage the organization and it gives us great resources across the organization to be able to staff engagements to make sure we're meeting client demand. We do factor this into our planning as a business. And the management team has been through a few market cycles with respect to talent and I think is very well prepared to deal with it.

Is there any reason why the issues in staffing has been focused on the CRB business versus the commercial insurance business versus other lines of business? Is there anything sort of you think is sort of unique or different about your businesses that may have kept them a little bit more isolated than the commercial businesses?

I think there are a number of our businesses that are extremely team oriented in the way they're constructed and served. So if you -- as an extreme example our technology administrative services business right where our -- each of our relationships with our clients are long-term contracts, typically five to seven years and very much not dependent on any individual team member being with the firm, right? They're extremely institutional. At the other end of the scale, you might have mid-market CRB where it's a very relationship-centric business and maybe a single face to the client. So just fundamentally different sort of dynamics in terms of where the economics the relationship lie.

Great. Thanks for the color. Congratulations to John.

Thank you. Thank you.

Next, we have Greg Peters with Raymond James.

…calling in on behalf of Greg Peters. Good morning. You mentioned CRB growth maybe lower the industry over the next couple of quarters. As you hire, is it right to expect that growth may accelerate as you go towards 2024 towards your $10 billion target?

Yes.

Okay. And then while I understand the nature of reinsurance -- the reinsurance business and how it's more of a stand-alone business, it is margin accretive. Can you clarify the benefits of divesting the reinsurance business and the ongoing progress there?

So the reinsurance business has been historically more profitable than the average. As you pointed out it is a bit of a stand-alone. It's got a different buyer hub than most of the rest of the company. We talked earlier about sort of cost pressures, right? One of the major -- in fact the major cost in our reinsurance business is the people. And this is an area where compensation costs have been increasing much faster than the rest of the industry. It's very possible look to a future where those margins are significantly eroded due to higher compensation costs and that's a problem that will no longer be ours. In addition, at this point in time, right, $1 of every $6 or $7 in the reinsurance market is provided by the capital markets, not traditional reinsurance. Our margins and everybody else's margins for providing services through the capital markets are much lower than they are through traditional reinsurance brokerage. And so that's an additional headwind for that business that we won't have to face. With respect to the divestiture, that is progressing as we thought it would. The timing that we've talked about is unchanged and that we -- the deal is subject to required regulatory approvals and clearances as well as other customary closing conditions and we expect it to be cleared no later than the end of the first quarter of 2022.

Okay. I appreciate that. And maybe just a point of clarification. In the press release, you mentioned gains connected to settlements in CRB. Can you clarify if that was part of organic growth or just a part of segment income?

Yes. That is in the revenue figures for the segment.

Okay. Thank you very much for the questions.

Thank you.

Thank you. Next we have Ryan Tunis with Autonomous Research.

Hey, thanks. Good morning. Question for Carl. Appreciate that it sounds like some of the hiring trends are headed in the right direction. But, I'm more interested in kind of understanding how that headwind is working its way into organic. Would you say that this quarter's organic growth trend kind of reflects the full -- the fully loaded impact of some of the attrition issues you've had earlier this year, or do you think that that headwind -- do you expect that headwind to grow a bit more as we get into the first half of 2022?

Yes. I think as John had alluded to in his prepared remarks, in terms of that dynamic we expect to be towards the lower end of industry average growth rates through the first half of next year and do expect that gap to narrow as we progress throughout the year.

Got it. And then, on BDA, I'm far from an expert in this business. In fact, I barely know how to model it, so I was hoping you could maybe help me in terms of how to think about fourth quarter organic. I mean the comp looks difficult at plus 16%, but the year before it was plus 3%. I'm just trying to get a feel for what are the type of range of outcomes that we can expect given that difficult comparison a year ago?

So, a couple of things maybe as color, right? One is we have begun staffing a bit earlier this year in our TRANZACT business to make sure we're fully staffed for the ramp-up for the 2022 annual enrollment period to capitalize on market demand. We also acquired Omni Direct, which is a full-service direct response media agency focusing on the Hispanic market in July of last year and that's driven higher growth revenue -- revenue growth opportunities in TRANZACT, although it's somewhat lower margin. Q4 is the seasonally highest quarter for our revenue there, right? Revenue is close to 50% for the year. And our revenue growth is tied to the lead acquisition cost so that operating income dollars will grow commensurate to the revenue dollars growth. But overall operating margin should remain about constant. If you sort of look back, right, our year-to-date growth was materially impacted by our strong Medicare Advantage open enrollment period in the first quarter. That was highly correlated to the 2021, a year ago right fourth quarter 2020 annual enrollment period. We had significantly higher Medicare Advantage revenue growth in the annual enrollment period last year plus 57% and that led to strong revenue growth in the open enrollment period in the fourth quarter plus 65%. We anticipate continued strong double-digit growth in Q4, but note that we have a strong comparable from last year with a higher base of revenues we're building off. And the annual enrollment period in Q4 this year is not correlated to the first quarter open enrollment period.

Thank you. Next we have Meyer Shields with KBW.

Thanks. Longer-term question I guess for, Adam. There's obviously, a lot of focus on CRB margins. And I think most of it has been focused on expenses. And I was wondering is there a revenue component that also contributes to maybe the margin differential between Willis and other leading brokers?

Sorry, it's Andrew. Can you clarify, what you mean by revenue component?

Yes. I guess to put it as bluntly as possible, is there any element of Willis' insurance brokers charging less than some other competitors?

No.

Okay. That's certainly, helpful. And then second small...

And hopefully quite clear

I'm sorry

I said and hopefully quite clear. Sorry

Yes. It seems pretty unequivocal here. Is there maybe a ballpark in the impact of the settlements within CRB and the impact on the margins

Yes. Sure. So the impact on margins is -- CRB produced about a 380 basis point of margin improvement during the quarter. The book sales, which we alluded to earlier, contributed about 170 basis points. So without that component there still would have been a 210 basis point of margin improvement in that segment.

Okay. Perfect. Thank you so much.

Thank you.

Thank you. Next we have Shlomo Rosenbaum with Stifel

Hi. Thank you for taking my questions. Most of my questions have been answered. I just want to ask one question. Just in terms of TRANZACT growth and how should we expect that to continue over the next -- going into 2022? You talked a little bit about some of your expectations in the fourth quarter. So it's been a very strong business in -- but it's getting to become a bigger business. And I was just wondering, how well we should think about that in the context of the runway ahead of you.

I think we had some comments during Analyst Day that we still think remain, very germane. First of all as I said a couple of minutes ago, right on the very short term there tends to be a strong correlation between the first quarter activity to the prior fourth quarter. That is the open enrollment period will definitely influence the annual enrollment period. Looking forward, right we see this as a tremendous large addressable market and we think, we have a great position in it. We to a certain extent can control our destiny in terms of how big we want this to be. And as Gene Wickes said during Analyst Day it is about making sure that we sort of make sure, what the picture we have for growth makes financial sense for the enterprise. And we work with Gene to make sure that we maximize the potential of that.

Thank you. Great you can join us. And with that before I pass it back to John to wrap up at least I think Andrew and I here would like to say thank you John. 84 calls and these are very big shoes of yours, we're going to try and fill going forward. You have done tremendous things for this organization and we are all very grateful for what you have done to lead us all this time.

Well, thanks very much. I appreciate that and thanks to all the analysts, for joining us on this call. I would like to say it's been a pleasure to work with you, over the years. From day one, I've been impressed with the quality of our analysts and the work they've done. I haven't always necessarily agreed with your conclusions, but I have always admired the intelligence and the dedication that you bring to your craft. So, thanks very much and good luck going forward. And then Carl and Andrew, will be updating you on our next call. So long.

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.