Willis Towers Watson PLC Q2 FY2020 Earnings Call

Good morning, welcome to the Willis Towers Watson Second Quarter 2020 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 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 will now turn the call over to Mr. John Haley, Willis Towers Watson's Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning everyone and thank you for joining us on our second quarter 2020 earnings call. Joining me today are Mike Burwell, our Chief Financial Officer, and Rich Keefe, our Head of Investor Relations. In the second quarter, we continued to navigate through an uncertain and unprecedented economic downturn. Nevertheless, I'm pleased with our financial performance. While our results were somewhat impacted by the pandemic, our overall performance reflects the strength, the diversity, and the durability of our business model. In many of our core businesses we continue to see new business generation, strong retention rates, and increased operating leverage. We also reduced our controllable spending and improved our liquidity through prudent cash flow management. I'm extremely proud of the work we've done to build the Company's operational resilience and strong balance sheet, both of which have provided a foundation for long-term sustainable growth. Before delving further into our second quarter performance, I'd like to give a brief update on a couple of important topics. During our last earnings call, I talked about the COVID-19 crisis, and the measures we have taken to mobilize and mitigate the risk to our colleagues. Now, we're taking what we've learned from the global pandemic to work together even better and are re-imagining our workplace and our work activities. This is no longer about reacting to the COVID-19 situation, it's about proactively using the experience of the last few months to create a more flexible, agile future. We want to leverage and enhance what we've learned to explore how we can work differently. And we want to ensure we maintain the key elements of our culture that keep our colleagues engaged and inspired. A working group that includes leaders from across the Company has been convened to plan for this next phase of our journey. Their work focuses on re-imagining our workplace across core themes, including collaboration, learning and development, and external stakeholder engagement. I continue to be impressed with the agility of our colleagues and their commitment to clients and each other in the wake of this global pandemic. Against the rapidly evolving backdrop of the last few months, our colleagues around the world quickly embraced the immense amount of change spurred by COVID-19 and remained resolute in providing excellent client service. Likewise, our colleagues have rapidly embraced the prospect of the Aon combination and are generally enthused and looking forward to the many opportunities which lie ahead. On July 8, we filed our definitive joint proxy statement in connection with the proposed combination with Aon. We've continued to work towards obtaining the necessary regulatory approvals and consents and we'll hold the necessary meetings for shareholders to vote on the transaction on August 26th. We remain on pace to close the transaction in the first half of 2021 subject to the satisfaction of the applicable closing conditions. We continue to be excited about this next step in our evolution and about the overall future of this industry. We design and deliver solutions that help manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. COVID-19 has highlighted the efficiencies in the way the world approaches risk. These unprecedented times warrant a reappraisal of how companies assess risk on certain dates and strengthen the rationale for the combination with Aon. We're eager to bring new and innovative solutions to our clients to meet their evolving needs and solve global problems. As a general matter, the COVID-19 pandemic did not have a material adverse impact to our financial results for the second quarter of fiscal 2020. However, the pandemic did impact revenue growth, particularly in some discretionary lines, and we expect that the impact of COVID-19 on general economic activity could negatively impact our revenue and results for the remainder of 2020, and potentially even longer. So, now let's move on to our Quarter two 2020 results. Reported revenue for the second quarter was $2.1 billion, up 3% as compared to the prior year second quarter, up 5% on a constant currency basis and flat on an organic basis. Reported revenue included $35 million of negative currency movement. We experienced good financial performance in areas where we have a well-established market position, mature relationships and annuity or compliance-driven business. We didn't perform as well in areas where our revenue is tied to discretionary projects; our clients are facing tough times in making difficult decisions. In that context, initiatives that are aimed at reducing cost and risk are higher priorities. We continue to work with our clients to find practical solutions for these challenges. Net income was $102 million, down 32% for the second quarter as compared to $149 million of net income in the prior year second quarter. Adjusted EBITDA was $441 million or 20.9% of revenue as compared to the prior year adjusted EBITDA for the second quarter of $425 million or 20.8% of revenue, representing a 4% increase on an adjusted EBITDA dollar basis and 10 basis points of margin improvement. For the quarter, diluted earnings per share were $0.72, a decrease of 32% compared to the prior year. Adjusted diluted earnings per share were $1.80 reflecting an increase of 1% compared to the prior year. Overall, it was a solid quarter. We grew revenue and adjusted earnings per share and we had enhanced adjusted EBITDA margin performance. Now let's look at each of the segments in more detail. To provide clear comparability with prior periods all commentary regarding results of our segments will be on an organic basis, unless specifically stated otherwise. Segment margins are calculated using segment revenue and they exclude unallocated corporate costs such as amortization of intangibles, certain transaction and integration expenses resulting from mergers and acquisitions, as well as other items which we consider non-core to our operating results. The segment results do include discretionary compensation. The Human Capital & Benefits segment revenue was down 2% on an organic and constant currency basis compared to the second quarter of the prior year, primarily as a result of a decline in demand in our Talent and Rewards business. Talent and Rewards revenue decreased 19% with the uncertain economic conditions related to COVID-19 having created cost constraints and affecting workforce dynamics at many companies, reducing client demand for advisory work globally. The decline was partially mitigated by modest growth in HCB's other businesses. Our Health and Benefits revenue increased for the quarter. In addition to strong client retention we had an increase in consulting assignments in North America, as well as new global benefit management and local brokerage appointments outside of North America. Retirement revenue increased nominally mainly as a result of an uptick in funding advice and guaranteed minimum pension equalization work in Great Britain. Technology and Administrative Solutions also increased in Western Europe and internationally, attributed to increased project work. Despite the shortfall in revenue, HCB's operating margin decreased by just 20 basis points compared to the prior year's second quarter and that was as a result of careful cost management efforts. We remain confident about the long-term prospects of our HCB business. Employers experienced unprecedented and significant changes to the ways of working in 2020. Our clients are facing many new challenges as they make plans to restore stability. HCB's experts remain prepared to help them rethink human capital efforts and employee benefits in the wake of COVID-19. Now let's look at Corporate Risk and Broking or CRB which had a revenue increase of 4% on an organic and constant currency basis, as compared to the prior year second quarter. North America's revenues grew by 9% in the second quarter from new business wins alongside favorable rates. International and Western Europe's revenue increased 8% and 1% respectively, driven by new business and strong renewals. Great Britain's revenue declined 5% for the second quarter, primarily due to a decline in marine and retail activity that was related to COVID-19. CRB revenue was $701 million this quarter with an operating margin of 19.2% compared to $690 million of revenue with an operating margin of 15.2% in the prior year second quarter. The margin improvement was due to top line growth alongside cost containment efforts. This year has been and will continue to be an extraordinary time for the insurance industry. CRB is committed to keeping our clients fully informed about what they should expect and how to plan for the uncertainty they are experiencing. Turning to Investment Risk & Reinsurance or IRR. Revenue for the second quarter increased 1% to $413 million and increased 2% on both a constant currency basis and organic basis as compared to the prior year second quarter. Reinsurance, with growth of 6%, continued to lead the segment's growth through a combination of net new business and favorable renewals. Insurance Consulting and Technology revenue was flat as growth in technology sales was largely offset by declines in consulting projects. Investment revenue increased 1% with the continued expansion of the delegated investment services portfolio. Our wholesale business was up 1% on an organic basis mainly from new business wins. IRR had an operating margin of 28.7% as compared to 26.9% for the prior year second quarter. This improvement reflects top line growth alongside the scaling of successful businesses. We continue to feel good about IRR's growth trajectory. IRR's portfolio of offerings provides clients with the information needed to make strategic decisions in this uncertain and dynamic environment. We have a deep understanding of risk and all the ways that affects capital and organizations' financial performance. Our core focus is to provide clients with a superior understanding of the risk they face and then advise them of the best ways to manage risk and guard against extreme outcomes. Revenues for the BDA segment increased by 66% on a constant currency basis and decreased 3% on an organic basis from the prior year second quarter. The growth in reported revenues was driven by TRANZACT which contributed $87 million to BDA's topline. The decline in organic revenue was primarily due to a shift in timing in our individual marketplace business. The decline was partially offset by benefits outsourcing increase in revenue, which was largely driven by its expanded client base. The BDA segment had revenues of $209 million with a minus 4.2% operating margin, as compared to a minus 20.1% in the prior year second quarter. The margin improvement was primarily driven by the top line growth. We're optimistic about the long-term growth of this business. In the COVID-19 era sustaining health benefits is more difficult than ever. BDA's solutions empower employers, employees, and retirees to navigate the changing world of benefits through a tailored integrated experience that combines consulting expertise with innovative technology. Overall, I'm pleased with our progress. We delivered steady financial performance across most businesses, modest margin expansion, and adjusted EPS growth, all while adapting to the rapidly changing global environment. Now, I'll turn the call over to Mike.

Thanks John, and I'd like to express my gratitude to all of our colleagues, who have shown remarkable resilience as they continue to collaborate by virtual means and operate effectively through this challenging environment. The second quarter was unlike any other we have seen, and I'm extremely proud of our team and our performance. The results demonstrate the durability of our business model and the agility of our colleagues to not only adapt to rapidly changing conditions, but to continue to deliver for our clients, while also producing solid financial results. The second quarter was challenging, but we are reassured by the demand for our services and solutions, by our ability to reduce discretionary expenses, to manage our cash, and by our team's overall creativity. We're pleased to see continued overall revenue and underlying adjusted EPS growth and robust free cash flow growth. Now, I'll turn to the overall detailed financial results. I'll start with income from operations. Income from operations for the second quarter was $163 million or 7.7% of revenue, down 90 basis points from the prior year second quarter income from operations of $176 million or 8.6% of revenue. Adjusted operating income for the second quarter was $296 million or 14% of revenue, down 60 basis points from $299 million or 14.6% of revenue in the prior year second quarter. Our second quarter 2020 unallocated net expenses grew to $109 million from $58 million in the prior year second quarter. The costs in this category primarily related to corporate functions and other unbudgeted costs that we don't directly allocate to the segments each quarter, including items such as true-ups on benefit and stock compensation expense accruals, incentive accrual adjustments, and Aon legal settlement items. So let me provide additional detail on the increase for Q2. During the quarter, we had a lower-than-normal vacation usage pattern stemming from the pandemic, which required a $12 million vacation expense to be booked within unallocated net. Likewise, we've had some year-over-year increases related to timing around incentives, Aon accruals and business taxes. Now let me turn to our earnings per share. For the second quarters of 2020 and 2019, our diluted EPS was $0.70 and $1.06 respectively. For the second quarter of 2020, our adjusted EPS was up 1% to $1.80 per share as compared to $1.78 per share in the prior year second quarter. Foreign exchange had a de minimis impact on EPS for the second quarter. Our U.S. GAAP tax rate for the second quarter was 42.2% versus 19.7% in the prior year. Our adjusted tax rate was 22.2% up slightly from the 21.4% rate in the prior year. The current year U.S. GAAP effective tax rate is higher due to $35 million discrete tax expense, primarily related to an incremental Base Erosion and Anti-Abuse Tax or BEAT recognized during the second quarter in connection with the temporary income tax provisions of the CARES Act. The temporary provisions of the CARES Act apply to tax years 2019 and 2020. Utilizing these temporary provisions the Company will realize a cash tax benefit in 2020 of approximately $40 million. Turning to the balance sheet. As the COVID-19 situation continues to evolve, I believe that we are well positioned to navigate the uncertainty that lies ahead. We ended the second quarter with a strong capital and liquidity position, with cash and cash equivalents of $1.1 billion and full capacity on our undrawn $1.25 billion revolving credit facility. We aim to continue to maintain a strong, and durable balance sheet, and are looking to conserve cash in the current environment by leaning into our cost and efficiency initiatives. We will continue to monitor the situation and intend to take appropriate measures to further reduce cash outflow and preserve adequate liquidity if demand for our solutions and services deteriorates. For the second quarter of 2020, our free cash flow was $593 million versus $287 million in the prior year, bringing our year-to-date free cash flow to $550 million, an increase of 201% from $183 million for the first half of the prior year. The year-over-year improvement in free cash flow is due to a combination of our cash process improvements, prudent working capital management, and disciplined approach to managing spend. In terms of capital allocation, we paid $171 million of dividends and did not repurchase any shares in the first half of 2020. As a reminder, given certain provisions in the transaction agreement associated with our pending business combination with Aon, we do not expect to repurchase any shares during the remainder of 2020. As John mentioned earlier, the economic fallout from COVID-19 generally had no material impact on the company's overall financial results for the second quarter of 2020. But we believe this is not an indicator of its potential impact on the company results for the remainder of the year and beyond. The duration of the pandemic, the full magnitude of its economic impact, and the subsequent speed of recovery remain unknown. Considering the uncertainty in the economy, we previously withdrew our original guidance for 2020. We continue to be unable to predict the extent of the impact of COVID-19 pandemic. The Company will reassess its position once we have a clear understanding of the depth, duration, and geographic reach of the pandemic. In the meantime, we remain focused on maintaining a strong balance sheet, liquidity and financial flexibility. The changes brought on by COVID-19 pandemic are and continue to be formidable. But I'm very proud of the leadership and personal sacrifices demonstrated by our colleagues in supporting our clients during these very difficult times. The second quarter results are a direct reflection of the continued support from our clients, our colleagues and all our stakeholders. Overall we delivered solid financial performance in the second quarter. Despite the near-term uncertainty in the global market, I remain confident in the underlying fundamentals of our business. And I'll turn the call back to John.

Thanks very much, Mike. And now we'll take your questions.

Your first question comes from the line of Mark Marcon with Baird.

The performance was better than what we were looking for. It looks like results were very resilient in the face of COVID. Can you talk a little bit about how much of the strong performance this quarter was a reflection of just the way the contracts kind of lay out in terms of how far in advance they are set up and how they continue through the quarter, and how we should think about potentially in which divisions we should be most sensitive to a potential drop-off as the COVID impacts end up coming through? And then I have two follow-ups. Thank you.

Sure. And Mark, thank you for the kind comments upfront there. As we've spoken about in the past, at the beginning of the year we had line of sight to 80% to 85% of our revenue base for the year and obviously, Q1 and Q4 tend to be outsized quarters for us. But we feel pretty good about the multiyear arrangements that we have in place, whether there in our Retirement business or the retention rates that we have in our CRB business and reinsurance businesses overall. But obviously in our Talent and Rewards business, as we commented on here, where people have more discretionary ability, we've seen a decline in people taking on those particular projects. So I think on one hand, we feel very good about the runway and our line of sight in terms of what our revenue looks like, but clearly we're seeing fall off as it relates to those discretionary projects and equally as it relates to the insurable base overall as we are not taking on new construction projects or you're seeing that discretionary activity decline. As we've touched on as it relates to the Marine business, those are the areas that we see that are more discretionary.

And with regards to the Talent and Rewards, is there a potential for ramping up in certain practice areas like say, diversity and inclusion given the current environment and could that potentially be an opportunity, is that a practice area to scale up?

Yes, yes, it is, Mark. But John, you want to comment on that?

Thanks, Mike. Mark, one of the things we've seen in other downturns, whether it's the early 2000s or the financial crisis, Talent and Rewards is very sensitive and we can see some of the revenue declines could be reasonably steep in the beginning. It's just as we saw in this quarter in certain aspects of Talent and Rewards. But it's also an area that could ramp up relatively quickly when times get better. And in today's times, there are really quite challenging Talent and Rewards issues whether it's diversity and inclusion, whether it's how you handle the pandemic, whether it's how you re-imagine work for the future. So I think there's a lot of opportunities for us to scale that up over the coming years.

And then with regards to re-imagining work for the future, you referenced this in the beginning John. Can you talk a little bit more about what we could end up seeing in terms of changes and how that could end up impacting the cost base? And then lastly, it sounds like everything is on track with Aon, is there anything that you can envision at this point that would set that off or put it off track?

Yes. So maybe I'll deal with the Aon point first and then come back to the workplace. Frankly, and I think we referenced this in our prepared remarks, what has happened in terms of the economic turmoil from the lockdowns and some of the other changes over the last couple of months have really deepened our appreciation for the merger. We see that there's more innovation required and the basic thesis of this merger was, as we said, not about getting bigger, but about getting better, providing more innovative solutions. And the one thing we've seen over the last few months is the world needs more innovative solutions. So we actually are more excited about the merger today than we were in the beginning of March when we announced it; frankly we were pretty excited then. So that enthusiasm has been redoubled. In terms of the workplace of the future, Mark, we're trying to take a quite thoughtful approach to what we're doing here. One of the things that means is we don't actually know what the answer is yet. We know that we're not going to go back to the pre-COVID world of work, but we also know that we're not going to stay the way we're working today. It's going to be something in between. And what we're trying to do is to understand that. It's been incredible the way our colleagues have embraced working from home and handled the adversity we've had, but that's not a sustainable way of working for all aspects of the business. What we need to do is figure out what we can do in the future. We do know working from home will be a bigger part of that, and it will probably impact real estate and location decisions, but we don't know exactly how that will play out yet.

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

John, last quarter you had said in a worst-case scenario your business could decline in the double-digits organically over the preceding three quarters; obviously Q2 was much better than that. To the point that you made earlier of the resiliency of your businesses, but now one quarter in and recognizing there are some lags in some of the businesses, it would seem like that worst-case scenario even for the back half is no longer on the table. Do you agree?

Thanks for the question. Yes, I would say, you talked about the resilience of our businesses and I would also comment on the resilience of our colleagues — just amazing the way they stepped up during this time. Yes, that worst-case I was looking at earlier was a decline across the second quarter and then further into the back half of the year. The one caution I would give is the situation is a little bit uncertain with potential second waves and some return to lockdowns. So we're still a little uncertain, but I'm nowhere near as pessimistic as I was three months ago.

And then in terms of the Talent and Rewards business, it sounds like the slow down there was very immediate in terms of reaction to COVID. Is that business a larger percentage of HCB in the second quarter than in other quarters? I'm just trying to get a sense of whether that will be less of a headwind in the third and fourth quarter as a percent of business.

No, we don't expect it to be a concentration issue. If there is a bigger impact, it would be because as you go longer into lockdowns you might see more projects canceled, but it's not a concentration issue.

And then on the Aon transaction, you guys laid out close for the first half of next year, which you affirmed in your opening comments. Could you give us an update on where you stand with the regulatory process and what the timeline looks like? Recognizing it's still a ways away from the deal closing.

As you know, there are several global antitrust filings required in connection with the transaction and the specific process varies by jurisdiction. We're planning to submit all of our required filings in the various jurisdictions and we expect to have clearances in the first half of 2021. This is a complex undertaking, but there is nothing that has happened so far that has been any surprise to us and we're continuing to work with the regulators cooperatively. So, we have no change to our plans as to when we expect to finish.

One last question on the unallocated net line. I appreciate the added color. This quarter given the volatility there, is there anything we should be thinking about that could artificially inflate those corporate non-segment expenses in the back half of the year?

No, Elyse, I don't think we see that to be the case.

Your next question comes from the line of Dave Styblo with Jefferies.

I know you guys are not providing full-year guidance, but could you discuss some of the key levers that will affect the outlook? Starting with organic growth — you guys are up 2% year-to-date. How much visibility do you have into the back half? Are you expecting that to turn negative for the rest of the year? Also, can you give color on the expense initiatives you've undertaken and how those might trend over time? At the end of the day, is it reasonable that you can roughly maintain EPS comparable to 2019 or are there other major factors we should consider?

Yes, thanks Dave. I'll try to give as much color as I can, but it's difficult. There's a reason we pulled the guidance. On the revenue side, I'd go back to John's comments — we felt more pessimistic earlier in the year but we're feeling better about the top line for the full year, though it's difficult to predict because of uncertainties. We have line of sight to a lot of our business in terms of renewals; we're seeing strong retention in CRB and reinsurance, and we're seeing the insured base go down with rates coming up a bit. We're getting smarter and more creative in how we work and propose new business remotely across our businesses. On the cost side, we acted quickly to reduce discretionary spending where it made sense. We balanced short-term reductions with not harming long-term investments. We've seen that offset in our overall cost base. Regarding TRANZACT, that deal closed at the end of last year and that business has been very helpful to our BDA segment; it's continuing to grow and exceed expectations and the management team has done a great job. I know you want specifics, but again there's a reason we pulled the guidance, so I can't be more definitive than that.

In terms of softened demand, are you seeing any new business uptake from employers who might be looking for a more sophisticated broker during this challenging environment? Is there incremental market share opportunity because of your scale and capabilities?

Yes. Clients are always looking for different solutions. They're seeing a hardening market and evaluating alternatives. The creativity of our teams has been outstanding and we've delivered in CRB and reinsurance. The culture of Willis Towers Watson — creativity and innovation — has been a hallmark, and in an environment like this where clients want different opinions, we're well positioned to help them think through solutions. That shows up in our results.

I'll just add that I see new business wins come across my email every day. Our colleagues have adapted to pursuing new business virtually and have been quite successful in many cases. However, new business activity is not as robust as pre-COVID; fewer people are going out and pursuing large projects. We've become successful where we can be, but it's a smaller pool of opportunities.

And my last one, on TRANZACT: can you talk about year-over-year same-store performance and churn? There's been some discussion in the market about higher churn at some peers — are you seeing any uptick in churn that might pressure unit economics?

We monitor churn closely and use actuarial analysis and external advisors to annualize it. Unlike some others in the market, we haven't changed our churn assumptions arbitrarily; we've continued to monitor quarter-to-quarter. We're actually slightly conservative in our estimates. So we feel pretty good about the numbers and we don't expect any change in our churn assumptions.

Your next question comes from the line of Greg Peters with Raymond James.

Could you provide perspective on how the positive pricing trends in property and casualty are affecting your CRB and IRR segments? Also, you noted pressure in Great Britain. Looking back, Great Britain has often been a source of challenges; could you provide perspective there?

Starting with Great Britain, it's been a market with particular conditions; others have reported softness there as well. The good news is we operate in many markets — Latin America is up and North America has been strong overall. Great Britain has been a very good market for us for a long time; it's just where we are in its current cycle. On pricing and rates, we're seeing retention rates of our clients up year-over-year, and the insured base itself is down in some areas. P&C rates are increasing and depending on losses that impacts rates. We're seeing a positive tailwind from those rate trends, which helped CRB's results this quarter. Overall, we're pleased with CRB's performance and the work our colleagues have done.

To add to Mike's point, Great Britain has been impacted this quarter by marine and aerospace and related global exposures, but Great Britain remains a deep reservoir of talent and intellectual capital for us. It's a key part of the business and we don't have concerns about its longer-term importance to the firm.

On ASC 606, given the dynamics and uncertainty, how are you thinking about the assumptions you laid out at the beginning of the year? Any potential reset issues or accounting challenges?

No, Greg. We thought through many options upon adoption of ASC 606 and had lots of discussion over the last couple of years. Based on our estimates and projections, we don't see anything unusual coming through 606 at this point.

Just to confirm from a sequencing perspective: the shareholders will be voting on the transaction with Aon before any antitrust clearances are confirmed, correct?

Yes. In all these large transactions, the shareholder vote typically occurs before final antitrust approvals are obtained; that's the case here as well.

Well, congratulations on the results, and John, stay safe; there's a hurricane headed your way.

Yes, I'm hoping it will miss me Greg, but we'll see. Thanks.

Your next question comes from the line of Mark Hughes with SunTrust.

In HCB, I think in the last recession you benefited from some restructuring activity. Could you comment on the potential opportunity here in this cycle and when that might kick in if you start to see more wholesale changes and Talent and Rewards issues that emerge? When would that normally show up?

If we look back to previous downturns, we'd expect the Talent and Rewards revenue decline to persist through at least the third quarter, maybe into the fourth quarter, and then start picking up during the first half of 2021. That would be consistent with prior downturns like the early 2000s and the financial crisis. The uncertainty around potential second waves and lockdowns could change that timing, but we expect more corporate activity and HR-related projects to pick up in 2021. The ability to offer innovative solutions will be enhanced when we combine with Aon, making the combined platform more powerful to address those needs.

On TRANZACT, I think you said it contributed $87 million. Did you provide year-ago standalone results for TRANZACT?

We did not disclose year-ago standalone results. We acquired TRANZACT in the third quarter last year and we have not provided standalone prior period disclosure. What I will say is we are very pleased with TRANZACT — the business is growing nicely, it's profitable, and the team has delivered strong results.

Yes, it's a nicely profitable business and we're very pleased with how it's performing.

Your next question comes from the line of Meyer Shields with KBW.

I wanted to focus on negotiating higher revenues for the work you're doing for clients. Is that dynamic being impacted by the current recession? Are you able to capture pricing or fees for additional work, or is that under pressure?

We're in a competitive industry and when we're pursuing new business, especially virtually, we need to offer competitive and compelling value propositions. That dynamic isn't much different now than six months ago. Ultimately, it's about the value we provide, and as clients see the value versus the cost, they reward us accordingly.

Yes, and to add, we believe we have very good margins overall in our HCB business relative to the industry. We'll be competitive on price but it comes down to delivering value, and our clients continue to reward us when they see the value.

Second question: could you share how Willis Towers Watson employees reacted when Aon first announced temporary salary reductions and then pulled them back? Was there any impact on employee morale or sentiment?

That wasn't something that we discussed across our Companies generally. I'm sure individual colleagues were discussing it, but it wasn't something we surveyed or tracked in a formal way.

There are no further questions at this time.

Okay. Well, thanks very much everybody and we look forward to updating you on our third quarter earnings call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.