Nov 7, 2013
Executives
Aida Sukys John J. Haley - Chairman, Chief Executive Officer and President Roger F.
Millay - Chief Financial Officer and Vice President
Analysts
Michael Zaremski - Crédit Suisse AG, Research Division Timothy McHugh - William Blair & Company L.L.C., Research Division Sara Gubins - BofA Merrill Lynch, Research Division Paul Ginocchio - Deutsche Bank AG, Research Division Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division Mark S.
Marcon - Robert W. Baird & Co.
Incorporated, Research Division Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division
Operator
Good day, ladies and gentlemen. At this time, I would like to turn the conference over to Ms.
Aida Sukys. Please proceed.
Aida Sukys
Thank you. Good morning.
This is Aida Sukys, Director of Investor Relations at Towers Watson. Welcome to the Towers Watson Earnings Call.
I'm here today with John Haley, Towers Watson's Chief Executive Officer; and Roger Millay, our Chief Financial Officer. Please refer to our website for this morning's press release.
Today's call is being recorded and will be available for replay via telephone for the next 2 weeks by dialing (617) 801-6888, confirmation number 80879673. The replay will also be available for the next 3 months on our website.
This call may include forward-looking statements within the meaning of Section 21 of the Securities and Exchange Act of 1934, that involve risks and uncertainties. For a discussion of forward-looking statements and the risks and other factors that may cause actual results or events to differ materially from those contemplated by forward-looking results, investors should review the Forward-Looking Statements section of the earnings press release issued this morning, a copy of which is available on our website at www.towerswatson.com, as well as other disclosures under the heading of Risk Factors and Forward-Looking Statements in our most recent Form 10-K and our other filings with the SEC.
Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call. During the call, we may discuss certain non-GAAP financial measures, such as adjusted EBITDA, adjusted net income and adjusted earnings per share.
For a discussion of these non-GAAP financial measures, as well as a reconciliation of these non-GAAP financial measures under Regulation G to the most closely comparable GAAP measures, investors should review the press release and the accompanying financial tables we posted this morning. After our prepared remarks, we will open the conference call for your questions.
Now I'll turn the call over to John Haley.
John J. Haley
Thanks, Aida. Good morning, everyone, and thank you for joining us.
Today, we'll review our results for the first quarter of fiscal 2014 and our guidance for the remainder of the fiscal year. These results, the prior year results, and fiscal year '14 guidance reflect the divestiture of our Brokerage business.
The Brokerage business has been reported as discontinued operations in our current financial statements. Reviewing the company as a whole, including the discontinued Brokerage operations, our financial results, revenues, adjusted EPS and margins, were at or slightly ahead of our guidance for the quarter.
The Brokerage business was officially sold yesterday, November 6. Reported revenues for the quarter were $810 million, an increase of 2% over the prior-year first quarter reported revenues and up 3% on an organic basis.
On a constant currency basis, revenues increased 3%. Our organic growth rate adjusts for changes in foreign currency exchange rates, acquisitions and divestitures.
Had Brokerage not been classified as discontinued operations in the first quarter, revenues would have been $851 million. Our EBITDA for the quarter was $146 million, or 18.0% of revenues.
The prior year first quarter adjusted EBITDA was $139 million, or 17.5% of revenues. We no longer have adjustments to EBITDA.
For the quarter, diluted earnings per share were $1.24, up 51%, and adjusted diluted earnings per share were $1.51, up 34%. We're pleased with the overall results this quarter and the focus of our associates and business leaders on the market, while managing several key company initiatives.
We took steps this past quarter to streamline resources, structure and processes to strengthen our long-term growth prospects. Resource alignment continued in the RCS business in EMEA, with a specific focus on the U.K.
We announced the sale of our Brokerage business and we finalized preparations for our initial OneExchange enrollment season. We're excited about the framework we have developed for growth, profitability and continuing to provide market-leading solutions that build value for our clients.
Now let's look at the performance of each of our segments. On an organic basis, Benefits was flat, Risk and Financial Services decreased by 4%, Talent and Rewards grew 11% and Exchange Solutions grew 154%.
For the quarter, the Benefits segment had revenues of $457 million. As forecasted, Benefit segment revenues were flat on a constant currency basis.
Retirement revenues decreased by 2% on a constant currency basis. Bulk lump sum projects were at their peak in the first and second quarters of fiscal '13, making the year-over-year comparables challenging.
While we continue to perform bulk lump sum work, revenue levels will not approach the level we experienced in the first half of fiscal year '13. Health and Group Benefits revenues grew 3% on a constant currency basis.
We continued to deploy resources to prepare for the OneExchange enrollment period. We expect the redeployment of these resources to continue in some manner for the rest of the fiscal year.
However, we anticipate a shift in focus from being weighted at the operations level to more of a marketing focus. Technology and Administration Solutions revenues increased by 6% on a constant currency basis, primarily due to new client work in EMEA and the Americas.
The OneExchange active selling season for 2015 is already in full swing. We typically see employers waiting until after the annual enrollment period to start contemplating the following year's enrollment process.
However, we're already being asked to attend prospect and client meetings, seeing a steady stream of RFPs and talking with our current administration and Retiree exchange clients. We're also very pleased with how the enrollment process is progressing and feel very confident in being able to scale this technology for anticipated growth in 2015.
We're very excited about the success of the enrollment process as we, at Towers Watson, are also living the experience as participants. While Retirement will experience challenging comparables in the next quarter, we anticipate that the Benefits segment should show modest growth for the full year.
Now let me turn to Risk and Financial Services. For the quarter, the Risk and Financial Services segment, excluding our Brokerage business, had revenues of $142 million as compared to $150 million for the first quarter of fiscal '13.
Revenues were down 4% on a constant currency basis, driven by a decrease in Risk Consulting and Software revenue. Risk Consulting and Software revenue declined by 12% on a constant currency basis.
Globally, client demand for discretionary projects continues to be low. We started restructuring efforts last fiscal year and are continuing to take action this fiscal year.
Investment had 11% constant currency growth, led by the Americas. All regions experienced growth this quarter.
We continue to feel confident that the investment business will produce strong results in the long term. However, the revenue growth percentages may be challenging for the second and third quarters due to a significant onetime project in fiscal year '13.
We anticipate discretionary spending continuing to affect the Risk Consulting and Software line of business this fiscal year. However, we see the investment business continuing to deliver strong results.
Next, let's move on to Talent and Rewards. For the quarter, the Talent and Rewards segment had revenues of $154 million, with revenues up 11% on a constant currency basis.
Data Surveys and Technology revenues increased by 17% on a constant currency basis as demand for software implementations continues to increase significantly and demand for employee engagement surveys has resumed after a decline in the prior fiscal year. Reward Talent and Communication revenues increased by 7% on a constant currency basis due to a pickup in demand for general compensation work, sales of new health-care reform education kits and customized benefits communication work as organizations explain their programs in light of health-care reform.
Executive Compensation revenues were up 7% on a constant currency basis. The Americas region led growth for the line of business, a refined marketing strategy resulted in new industry wins.
We expect the Data Surveys and Technology will be the main driver for growth in this segment this fiscal year, but we're generally seeing some positive momentum in all lines of business in this segment. And last, I'd like to move to the Exchange Solutions segment.
For the quarter, the Exchange Solutions segment had revenues of $35 million, an increase of 154% on a constant currency basis. Due to GAAP purchase accounting rules, approximately $6 million of deferred revenues were not recognized in the first quarter of FY'13.
As we mentioned last quarter, we completed another very successful selling season for the annual enrollment process, which typically occurs between October and December. However, we're seeing an extended selling season, as organizations are considering off-cycle enrollments.
The off-cycle enrollments have increased steadily for a fourth year in a row. We've actually won 12 new off-cycle clients since our last call.
This won't have a material impact on FY '14 financial results, but, ultimately, a steady increase of off-cycle enrollments would help level out the seasonality of the business. In general, the enrollment process is going very smoothly.
We've seen progress with the streamlining efforts we've put into place this enrollment season. We've enrolled 15% more members in the same time frame as last year.
We have a small number of Access clients. This is the group of employees we help direct to the public exchanges.
We'll be ready to assist these clients as soon as the federal government exchanges are operational. The delay with the government exchanges has no material impact on our FY '14 financial results.
We continue to be pleased with the long-term prospects for Exchange Solutions. In conclusion, we've had a solid first quarter and we've laid the groundwork for strong long-term growth.
While we're excited about the future, I'd be remiss in not taking a moment to look back. I'd like to acknowledge the Brokerage associates for their commitment and great work over the years and wish them all do best.
They leave behind a strong legacy. Now I'll turn the call over to Roger.
Roger F. Millay
Thanks, John. And good morning to everyone.
I'd also like to add that I'm pleased with our first quarter results. Now let's turn to the financial overview.
As a reminder, our segment margins are before consideration of discretionary compensation and other unallocated corporate costs, such as amortization of intangibles resulting from merger and accounting -- or merger and acquisition accounting costs. Also, per GAAP accounting rules, we moved the revenue and operating expenses related to the Brokerage business to discontinued operations in the first quarter as a result of the sale announcement.
Given the complications of these movements in our statement of earnings, I'd like to reiterate what John said. We're pleased with the results and the total company results for revenues, margins and adjusted EPS came in at or above the guidance we provided at Analyst Day.
For the quarter, the Benefits segment had a 30% NOI margin. Risk and Financial Services, excluding the Brokerage line of business, had a 16% NOI margin.
Continued Risk Consulting and Software revenue pressure impacted the margin. Talent and Rewards had a 29% NOI margin.
Exchange Solutions had an 18% NOI margin in what is typically a seasonally softer quarter for them. The first quarter results do not indicate a change in the overall trend of softer first-half margins for Exchange Solutions.
Net income attributable to common stockholders for the quarter was $88 million. Adjusted net income was $107 million.
The tax rate for continuing operations for the quarter was 15% as compared to our guided rate of 24%. The tax rate was impacted by a $6 million more favorable outcome than anticipated and the onetime tax benefits from resolved tax examination items, plus the benefit of reducing U.K.
deferred taxes down to the new statutory rate. Moving to the balance sheet.
We continue to have a strong financial position. At September 30, we have $358 million in cash available for our use.
For the first quarter of fiscal '14, our free cash outflow was $178 million as compared to an outflow of $202 million for the first quarter of fiscal '13. Favorable client receivables drove the year-over-year change.
As a reminder, the first quarter of the fiscal year is seasonally a heavy period of cash use for the company due to the payment of discretionary bonuses. Free cash flow generally improves through each consecutive quarter.
We have $30 million of borrowings outstanding from our credit facility at the end of the quarter as a result of the bonus payments. This quarter, we began paying down our $250 million term loan, which was used to fund the Extend Health purchase.
The term loan amortizes at a rate of $6.25 million per quarter, with a final maturity date of June 1, 2017. During this quarter, we didn't repurchase any shares.
We planned for about $75 million of share repurchases over the rest of this fiscal year. The general authorization has a remaining balance of $120 million.
As a result of this sale of the Brokerage business, we've updated our fiscal year guidance. Overall, we expect revenues to be approximately $3.53 billion.
The adjusted revenue guidance takes into consideration the reduction of roughly $170 million of Brokerage revenues. We expect our second quarter fiscal '14 revenue to be roughly comparable to second quarter fiscal '13, due to the very strong results last year driven by bulk lump sum activity and significant recovery of receivable reserves.
We're expecting our fiscal '14 adjusted diluted earnings per share to be within the range of $5.75 to $5.82. This excludes the potential gain on sale we expect to realize from the sale of the Brokerage business in the second quarter.
We expect our EBITDA margin for the year to be within the range of 19.0% to 19.5%. This guidance includes severance and restructuring costs of around $10 million for aligning the Risk Consulting and Software business to market demand and adjusting corporate overhead to account for the divestiture of the Brokerage business.
We believe that the second quarter will be the heaviest for the impact of these restructuring costs. We expect the fiscal '14 income tax rate to be around 31%.
This rate includes $21 million of first quarter benefits from resolved tax examinations and the lower U.K. statutory rate.
This estimated range does not include potential tax examinations or other items that could settle in the third or fourth quarters of this fiscal year. For the fiscal year, our guidance assumes an average exchange rate of USD 1.58 to the British pound and an average exchange rate of USD 1.35 to the euro.
We expect average diluted shares outstanding to be about $71 million, GAAP diluted earnings per share will continue to be lower than our adjusted diluted earnings per share. Now we'll review our fiscal year guidance for the segments.
We expect constant currency revenue growth in the low single digits in the Benefits segment. While the business performance continues to be solid, the strong fiscal '13 growth in the Retirement business continues to be an inhibitor to delivering top line growth this fiscal year.
The NOI margin for Benefits is expected to be in the low- to mid-30% range. Next in the Risk and Financial Services segment.
We expect constant currency revenue to decline by low- to mid-single digits. We expect the NOI margin to be in the low-20%.
We expect margins to increase during the year as Risk Consulting and Services realizes the benefit of steps it has and continues to make to realign their business to reflect the current marketplace. In the Talent and Reward segment, we expect constant currency revenue growth to be in the mid-single digits.
While they have a difficult comparable in the second quarter, as a result of the receivable reserves recoveries last year, we continue to feel good about their underlying business momentum for the year. We expect the NOI margin to be in the low- to mid-20% range.
Lastly, in the Exchange Solutions segment, we expect revenue growth of around 65% and we expect the NOI margin to be in the low- to mid-20% range. As a reminder, the Exchange Solutions profitability is seasonally low in the first half of the fiscal year.
The first quarter was not indicative of a change in trend. I'd like to conclude by saying that we had a strong quarter and I'm very excited about our long-term growth prospects.
I also want to add my thanks to the Brokerage associates and wish them much success. Now I'll turn it back to John.
John J. Haley
Thanks, Roger. And now we'd be glad to take your questions.
Operator
[Operator Instructions] Your first question comes from the line of Mike Zaremski with Credit Suisse.
Michael Zaremski - Crédit Suisse AG, Research Division
First question on the Exchange Solutions on net operating NOI range. It's up to low- to mid-20s from low-20% at the guidance at the Analyst Day.
It looks like that could be being driven by the margin this quarter being higher than what I expected. I mean, are you guys just kind of ahead of plan to getting this division to kind of one of the highest at the company or what's driving the beat this quarter in the change to guidance?
Roger F. Millay
Yes. I think that the big thing there was they had a more productive setup for the enrollment period this year than we had planned for.
And that really is, as you say, driving the increase in the guidance for the year.
Michael Zaremski - Crédit Suisse AG, Research Division
Got it. So -- okay.
Got it. So you booked more revenues, so there's more operating leverage.
Okay.
Roger F. Millay
Yes. And it's more in the pattern of the costs that are needed for them to prepare for the enrollment period.
Michael Zaremski - Crédit Suisse AG, Research Division
And so you guided back down to the next quarter, right, because of seasonality. But is there an element where you, for certain of the exchange segments, where you might not have as clear of a lens?
And maybe you could do -- enroll more than you currently plan or that would just be on the retail level and that's kind of small?
Roger F. Millay
Yes. I'd say, again, so what's clear in that business is that the first half of the fiscal year is going to be lower in terms of margin.
The pattern, particularly in the September quarter, the pattern of the ramp-up of resources is less predictable and it kind of straddles that September-October time frame. So again, not really signaling anything different about the business or certainly about revenue expectations.
It's just about the productivity of the ramp-up of costs and the second fiscal quarter, the December quarter, is not unexpected. I mean, that's where we expect it to be, so.
Michael Zaremski - Crédit Suisse AG, Research Division
Okay. And my last question, Talent and Rewards revenue growth, clearly very strong.
I was hoping to get a sense for the initiatives that drove the growth and whether there's an element of seasonality or onetime projects. In the press release, it cites new sectors being targeted and exact comp, it talks about a large project in Rewards, et cetera.
John J. Haley
Yes. So I think the Talent and Rewards is our business that is the most cyclical.
And so we do have -- it's not surprising that we sometimes have much better than we expected in terms of growth and sometimes somewhat lower. We definitely see that there.
I think, as we've said, the technology portion of the business is the one that the -- we're really seeing technology needs in buying increasing this quarter. And we think, for the near future, among all of our clients, we're looking for growth in that business in each region of the world, although some markets will be more active than in others.
I think the key thing there is our suite of tools combined with the domain expertise that Towers Watson has in human capital really helped to set us apart in the market.
Michael Zaremski - Crédit Suisse AG, Research Division
Okay. And so you would expect potentially a slowing because there were some kind of onetime -- some projects talked about in the earnings release or who knows for kind of the rest of the year?
Roger F. Millay
Yes. The other thing I'd add to what John says and there is, for us, while we know the first half of the fiscal year is going to be stronger, there's a little bit of ambiguity and kind of revenue patterns for the first quarter and the second quarter so -- particularly, in the surveys business.
So the underlying momentum of that business is good and I think John went through that. The second quarter guidance doesn't reflect weakening in the business.
It really is all about the difficult comparable from last year.
Operator
And the next question comes from the line of Tim McHugh of William Blair.
Timothy McHugh - William Blair & Company L.L.C., Research Division
I just wanted to ask on the Exchange business to start. The off-cycle enrollments that you described, what -- I guess, what are you hearing from clients that's driving that?
Kind of they just not -- they don't want to wait for the next enrollment period or are they concerned about the too many companies trying to squeeze through in onetime period? And can you talk about whether that's more on the Retiree or the Active side that you're seeing that.
John J. Haley
Okay. So these off-cycle enrollments that we're talking about are all Retiree enrollments that we have here.
I think when you think about it, the off-cycle enrollments offer the opportunity that they're not going when everybody is. It's a lot like a company having their fiscal year sometime other than January 1 to December 31.
They get more attention during the audit, they get a chance to have a little more focus there. So I think those are the kind of things that are attractive about the off cycle.
From our standpoint, the off cycle is attractive because it means we can -- we talked about eliminating some of the seasonality, and it's not just with the revenue, but it's also with our resources. We get to keep resources on a more permanent basis.
Timothy McHugh - William Blair & Company L.L.C., Research Division
Okay. And is it primarily public sector or are you seeing this in the private sector, too?
John J. Haley
No, this is private sector, too. I mean, I wouldn't -- this is 12 clients.
As we said, it's not going to have a material impact on the FY '14 results. So I wouldn't want to read too much into this, but I do think it's a very positive trend and it's one that, to the extent it continues, it will really help us and our clients a lot.
Timothy McHugh - William Blair & Company L.L.C., Research Division
Okay. And then can I ask on a few, I guess, numbers questions.
One, the other expense, Roger, that shows up, I guess the segment results were much better than expected, but then there's a big other expense as I looked at the reconciliation. Can you help me understand what that is?
Roger F. Millay
The other line for corporate nonoperating type items, what's in there is -- so as part of the finalization of the system rollout last year, that positioned us for the final true-up and harmonization of all of our financial policies. And quite frankly, we had hoped that, that was going to come out kind of net neutral.
And we did have in -- as part of that process, we did have $10 million or so this year or this quarter that was a hit in the numbers in truing up policies, all the legacy policies. So that's what that is.
Timothy McHugh - William Blair & Company L.L.C., Research Division
That's a onetime true-up? Is that -- are you...
Roger F. Millay
Yes. We're on the new policies now.
But the catch up to true-up to harmonize policies was a onetime step up, that's right.
Timothy McHugh - William Blair & Company L.L.C., Research Division
Okay. And then can you just -- I missed what you said.
So the guidance includes both restructuring charges and a gain on the sale of the Reinsurance business?
Roger F. Millay
Yes. The gain is not in there.
And we expect a gain now. But the guidance does include what we anticipate for the rest of the year in restructuring costs and we expect the heaviest quarter.
We expect some through the remaining quarters of the year, but we expect the heaviest quarter to be the second quarter.
Timothy McHugh - William Blair & Company L.L.C., Research Division
Okay. And last numbers question, just given -- I know part of the tax rate was an unusual item, but with the U.K.
tax rate also stepping down, what's the kind of longer-term view of a sustainable tax rate for you guys?
Roger F. Millay
Yes. I think we're still, at this point, in that 34% to 35% range.
One of the impacts of the way mix is changing now with the growth in the Exchange business and the disposition of the Brokerage business, because Brokerage had a meaningful position in the U.K. There is actually here, at this point now, a little bit of upward pressure on the tax rate, while at the same time we continue the efforts that we've had the last several years to restructure, to push the rate lower.
So it's 34%, 35%, which kind of incorporates that little upward pressure, but we hope to continue to push it down.
Operator
Your next question comes from the line of Sara Gubins of Bank of America.
Sara Gubins - BofA Merrill Lynch, Research Division
For your updated full year EPS guidance, can you tell us how much taking out the Reinsurance Brokerage impacted EPS?
Roger F. Millay
Yes. I mean, there are several kind of moving pieces to that.
But if, one, kind of net-net, if they were 4.5% or 5% of revenues, the impact is about proportional, although there were, and this was one of the references we made in the script, there were some -- it was an asset sale in the U.S. So some of the corporate-related costs kind of there was an overhang, so the impact in the short term is a little bit more than the 4.5% to 5%.
But again we're restructuring to offset that. So over time, it's about proportional.
Sara Gubins - BofA Merrill Lynch, Research Division
Okay. And that $10 million in severance and restructuring, that had not been in your original guidance, correct?
Roger F. Millay
That's correct.
Sara Gubins - BofA Merrill Lynch, Research Division
Okay. Two quick numbers questions and then an Exchange question.
Could you talk about how you're thinking about discretionary compensation going forward and professional expenses?
Roger F. Millay
Well, I think in terms of discretionary comp, there really isn't a change in the view of mid- to kind of upper-40-percentage-type ranges of pre-bonus operating income. So I don't think we view that any differently at this point.
And are you asking, Sara, about the trend in professional services, is that...
Sara Gubins - BofA Merrill Lynch, Research Division
Sorry. It was -- there was discretionary comp and then asking about the expectation in trends for professional services, in that they were -- it looks like that they were up year-over-year in the first quarter by about $5 million.
And I'm wondering how we should think about that for the next year?
Roger F. Millay
There wasn't a particular driver that I would note there. A little bit of it is because of pass-through expenses, a little bit is because we had a higher level of IT-related professional service and support.
I would -- and I don't have a specific forecast to that line, but I think it could run at these levels or closer to these levels, we're doing more work in the technology space in the company. So I don't expect any big jumps, and that line does jump around a little bit, but I don't think there's a big trend that, that indicates.
Although maybe there's a little pressure for it to be a little higher than it was last year.
Sara Gubins - BofA Merrill Lynch, Research Division
Okay. And then last question.
Could you help us think about your capacity in the Retiree Exchange business and maybe just walk us through how many retirees you're now serving and how you think that should ramp over the course of the year? And what I'm really trying to understand more about is how easy is it for you to ramp your capacity to serve more retirees that you're bringing on to the system?
Because, obviously, there are people involved in that, and so I'm wondering how easy or difficult it is to do that.
Roger F. Millay
Yes. I mean, Sara, it's Roger, I'll give a couple of comments on that and then John may have some other thoughts, too.
And you cached the question in terms of how easy. Well, as you know, it's a very intensive process for us to add large, new client engagements.
So it's something we're very focused on. The technology is there to scale.
And so I think it's maybe a little bit additive to what John said about the 12 clients. Certainly, we have more capacity to add volume as it gets spread throughout the year.
And that's something that we actively talk to clients about and we actively manage as one sales season ends and we move potentially into the next one. We're hopeful of avoiding that pressure of having to add very significant levels of enrollment just in the fall period.
And if we smooth it out, it's good for everyone. It's good for our clients, we can take more onto the platform and it's good for our business.
But it's an intensive planning process and we're very focused on having, I suppose I'd call it maybe Plan A and Plan B to manage through what the demand really is, but it's attention that we have to manage.
John J. Haley
I think, Sara, the other thing I would add to that is that each year with Extend and now with Exchange Solutions, we've seen some fairly significant increases in the number of new lives we've brought on board. And we've been able to scale up repeatedly to handle these very significant increases.
We're hopeful that we're going to be doing that again this next year, too. And as we've done it, we've held ourselves to a standard of not just a good experience for the people who are enrolling, but an excellent experience for them.
And we continue to be able to deliver that. So we feel pretty good about our ability to continue to scale this up.
But, as Roger identified, one of the key constraints is just making sure we can get a lot of good people to take the calls and to handle that.
Operator
Your next question comes the line of Paul Ginocchio of Deutsche Bank.
Paul Ginocchio - Deutsche Bank AG, Research Division
Just -- you mentioned in the press release about 300 clients related to ACA. I guess that's across the platform.
Because I thought the last time you had commented you had 50 Exchange clients. Can you just clarify the difference?
And then Roger, do you have any -- do you know what the net cash from the acquisition's going to be after any taxes?
Roger F. Millay
From the disposition?
Paul Ginocchio - Deutsche Bank AG, Research Division
Yes, sorry.
Roger F. Millay
I don't -- I actually don't have off the top of my head what the net number is. It's actually not taxable in the U.K.
So it's certainly a rate that's lower than -- the overall rate is lower than the U.S. statutory rate, but that's as much as I can tell you sitting there.
John J. Haley
And, Paul, the question on the other one. We have 55 Fortune 500 companies in the Retiree Exchange and then we have about 300 companies in total, and a number of them come from our channel partners.
Paul Ginocchio - Deutsche Bank AG, Research Division
Okay. And if I could ask one more, John.
I know funding levels are up in pensions. Isn't that good for pension projects?
And when will we start to see that kind of pension project work because of increased funding levels?
John J. Haley
Yes. I think that's a good question.
I think the interest rate environment can do a lot of things. It can -- there may be an increased interest in annuity purchases, we may also look at more planned termination analysis for frozen plans, people may look at -- relook at their funding policies and their asset allocation work.
So there's a lot of these things that rising interest rates can generate from the companies changing their budgets to consideration of assumptions, reviews, workforce management issues with people taking their retiring and taking their lump sums early. So there is a lot of things that could happen as that occurs.
I think the -- we wouldn't expect to see that in this next quarter, if there is an uptick as a result of improved funding in the rising interest rate environment, it would be in the second half of FY '14.
Operator
Your next question comes from the line of Tobey Sommer of SunTrust.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
Did you say that so far enrollment is up 15% compared to the period a year ago?
John J. Haley
Yes.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
How much of total enrollment does that represent? Just trying to get a sense for how far through it you are or how much is yet to go.
John J. Haley
We don't have that information right now. Or we're not prepared to share that.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
Curious in the Health Care Exchange business, how far in advance does a client sign up before they actually have their open enrollment? So I'm trying to get a sense for your visibility.
John J. Haley
Well, ideally, if somebody is implementing -- let's take the typical retiree case like that, if they were implementing January 1 of the year, we would like to have it in the first half of the prior calendar year. We'd like to know about it.
We've run into July, on some cases, in doing it. But that's really cutting it pretty close.
It's pretty similar for the Actives, too. Ideally, and I think as we this ramping up more and more, we're going to be looking -- I mentioned the 2015 selling season has already started.
I think we're going to be having some more visibility into that earlier in the year, but it would be in the first half of the year before.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
In terms of the off-cycle enrollments, it's clear that there's some operating benefit to you in terms of utilization and margins within the segment. What are the benefits to a client?
I'm trying to get a sense for whether you're counseling clients to look for off-cycle enrollments or that is emanating from them.
John J. Haley
Yes. I think -- and I analogized it earlier to doing audits off cycle.
And I do think that there is a lot to -- I do think there's a lot of similarity there. We counsel clients about those kind of advantages as being there in terms of doing an off cycle.
It means it's probably lower-execution risk in terms of doing anything. So we will counsel them about that.
We don't actively push people to do off cycle, we leave that more to decide them. But we do try to point out some of the advantages.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
Okay. My last question has to do with capital deployment.
Your cash flow is up this year with the sale of the Reinsurance Brokerage business. Your available cash and liquidity is high.
What are you intending to do with it, because it certainly doesn't seem like there are a whole lot of internal uses for the investment of that cash?
Roger F. Millay
Yes. Maybe I'll just comment on kind of the model that we think about that and which the comment is really that our thoughts haven't changed.
And we continue to prioritize flexibility. Certainly, the fact, as I said, that we expect to buy roughly $75 million of shares for the rest of this fiscal year is the follow-on to the comment that we made at Analyst Day, that we expect to be a more consistent purchaser of our shares.
And that's given the -- I guess that reflects the view that we have now on our flexibility. But we continue to be hopeful of finding good acquisition opportunities that we'll also take advantage of that balance sheet flexibility that we have.
John J. Haley
Yes. And I guess I would just echo what Roger said.
We don't really have any change in the way we think about this. We've always said that doing high-quality acquisitions would be our #1 priority.
But we're careful about the acquisitions we do. So we spend time thinking about those and they have to pass some rigorous tests.
But if we could find that, that's clearly at the top end. And if we can't do that, then we will look to return the money to shareholders.
Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division
If I could sneak in one last one. Do you have any expectations for an impact in the business from the change in use-it-or-lose-it in FSAs?
John J. Haley
No. We don't see a big impact from that.
Operator
Your next question comes from the line of Shlomo Rosenbaum of Stifel.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Just thinking -- I understand that most of your Exchange business is in the Retirees. But to the extent that there's any of the business that you're chasing after in the Active side, has the issues with the federal exchange website led any clients to kind of delay dealing with that right now?
How has that changed that part of business at all, if at all?
John J. Haley
Yes. Thanks, Shlomo.
I think the first thing I'd say is, as you rightly observe, most of our business right now is with Retirees. When I mentioned the selling season having started early, though, that selling season is as much an Active phenomenon, if not more so than our Retiree phenomenon.
We have not seen any real impact from the problems with the federal exchanges causing clients to back off of looking at the kind of exchanges that we offer. I think they're able to distinguish between those 2.
And what we do doesn't really depend on the federal exchanges at all, with the exception of the Access product that we offer, where we offer people access to that. So we haven't seen any impact at all from that.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Okay. Great.
And we've seen in historical years sometimes the Surveys business revenue gets pulled from, let's say, 4Q to 3Q. Is that what's going on this year or is there really a change that companies need to address because of some increased mobility?
Roger F. Millay
And so you're talking about first quarter versus second quarter?
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Yes, the Survey work. I'm just checking is that because you have an overall increase or was there some pull-forward there?
Roger F. Millay
Well, so there's growth in that business. I think the first quarter ended up being a little bit higher than we had forecast.
But again, there is kind of ambiguity in that September-October period. So we saw some growth, but maybe a little different timing.
John J. Haley
We don't -- and I guess, Shlomo, I'd say that we don't think so. We don't think we're seeing a pull-forward of that.
And as you know, when we do see anything like that, we try to be real clear about identifying that. So that's not the way we're interpreting it right now.
Roger F. Millay
I'd just also add that -- and so I think we're referring more to the Compensation Surveys. In our Employee Survey business, we have had some success here recently in getting new clients and see more activity there.
So that's a part of what we're seeing, underlying the good results in Talent and Rewards that John referred to.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Okay. Great.
And then for the adjusted numbers now, are we -- are you guys now absorbing all the stock comp and transaction expenses that we should expect going forward?
Roger F. Millay
Yes. Well, yes, on the stock comp.
With respect to transaction expenses, there were expenses -- normal expenses of bankers and lawyers of selling the Brokerage business. So that is an adjustment that we've made in this quarter.
And to the extent on that kind of M&A activity we would continue to adjust for that, but that's the only caveat that I'd make there.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
But this stuff coming from the Towers parent deal is -- you're not doing that anymore?
Roger F. Millay
It's done.
John J. Haley
Yes, that's all finished.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And then just in terms of -- and this will be my last question, the adjusting the headcount to demand in the RFS business.
Can you just talk a little bit about how we should expect it to play out through the year? I assume that most of it is near term and then kind of trail off.
Are we going to see some in 3Q and 4Q, as well?
John J. Haley
Well, we expect that the adjustment of the supply and demand will occur throughout the whole fiscal year, is what we've said. But I think we've already taken the biggest steps.
Operator
Your next question comes from the line of Mark Marcon of Robert W. Baird.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
With regards to the 12 off-cycle clients that you signed on the Exchange Solutions, did you give the number of lives that were associated with those?
John J. Haley
We didn't. We didn't give it.
But let me just -- it's about 22,000.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
So they're tending to be a little bit smaller? Are they basically coming through the Fidelity relationship or is that kind of a mix?
John J. Haley
No. They're not basically -- there's no particular difference between those clients, the distribution or pattern in them, than the other ones.
We don't have -- we don't have -- some of the large, really, mega clients they tended -- have always tended to be January 1.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
Yes. Okay.
But this really does help in terms of smoothing out the capacity coming on and the utilization.
John J. Haley
This does help in terms of this. And even these 12 that we've added during here, I mentioned that it's not a material impact on FY '14.
But these are actually all through calendar 2014. And so, in fact, I think there's more in the second half of calendar 2014 than in the first half.
So that would actually push them into our fiscal 2015.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
Yes. And with regards to pricing, has there been any change with regards to the pricing for those relative to what we've heard previously?
John J. Haley
No. No change.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
Okay. And then just -- I want to step back to the Analyst Day.
When you did your Analyst Day, you basically ended up -- you were doing that 2 days in front of the Walgreens announcement being on the front page of The Wall Street Journal. Since that time, there's been more press.
There's been more discussion among potential competitors. What would you say has changed relative to what you discussed back then, either in terms of client interest or competitors, pricing?
Anything that would be material as we think about the longer-term outlook.
John J. Haley
So I would just say this, I think by the time we got to Analyst Day, we were feeling very positive about the outlook for the Active Exchange business over the next several years. And when we had talked to folks about 1 or 2 years ago about this, it was something where we were thinking that there was a wide range of outcomes.
And I remember saying that I thought that the low-growth scenarios in that were just a lot less likely, and we were thinking that there would be a significant number of employees that would be enrolled on Active Exchanges. We continue to feel positive about that, whether it's the Walgreens announcement, whether it's the kind of interest that we've seen from clients as we're out talking to them and the kind of interest they show in exchanges, all of that has contributed to our feeling that this is going to be a pretty good-sized business for the whole country and for our organization.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
And any update with regards the retail test in the 50 stores?
John J. Haley
No. That's just under way.
And we'll probably be able to talk a little bit about that in succeeding quarters here.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
Okay. And then quick numbers question.
Roger, you mentioned the policy changes with regards to the system throughput. What exactly does that mean?
Roger F. Millay
Well, so the specific thing that had the biggest impact was around receivables and receivable -- how receivable reserves are established. So as a result of that, there was an increase.
And you may remember I've referred to, over the last couple of years, differences in the policies that we had and how that changed some of the corporate reserving. So now we have one way to do it and it was a onetime -- we stepped up to a consolidated approach to that, starting July 1.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
Okay. So instead of thinking like we originally did that, potentially, there would be positive impact it ended up being more of a negative impact.
Roger F. Millay
Yes. I mean, I think we actually thought it was going to be an overall neutral impact.
But -- that's right, and it ended up to be modestly negative.
Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division
Okay. Great.
And then going back to an earlier question with regards to specifically the pension project work given where rates are today. Is there any reason why that couldn't potentially start in the March quarter?
John J. Haley
No. There is no reason that, that couldn't start then.
And I think it remains to be seen what will happen with that. But I think one of the interesting things about the bulk lump sum work is there's -- it hasn't disappeared at all.
There's been a low level of that, that's continued. And I personally think that it's something around here, it's around here to stay and we'll see some spikes up over the coming years.
I don't think we can necessarily predict exactly which quarters it will be, but this will be a continuing feature of the landscape.
Operator
Your next question comes from the line of Jeff Volshteyn of JPMorgan.
Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division
John, I wanted to go to your comments about corporate, global corporate discretionary spend. It sounded like it was stabilized in 1 or 2 quarters ago.
But your comments today, kind of seemed like it might be going through a double dip. Can you give us a little more color on that?
John J. Haley
This is this with regard to RCS?
Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division
Broadly, but RCS specifically, as well. Yes.
John J. Haley
Yes. Actually, no.
I think what we said a quarter or so ago was that the RCS would be -- would have a challenging environment this whole year. And we didn't expect to really see growth until fiscal 2015 in that business.
And so there's nothing that has changed about our outlook for that and the steps we're taking to try to align the business the right way. I think we're right on target with where we'd expect it to be.
Roger F. Millay
Yes. And I think -- just a clarification of this is where you were going.
Our comments weren't related to global general corporate discretionary spend. It was specific to that part of the business.
John J. Haley
Right.
Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division
Okay. That's a good clarification.
But -- and sort of globally outside of Risk and Financial Services, how do you assess the environment?
John J. Haley
I mean, I think, it's -- one of the interesting things about Towers Watson is that each line of business has its own dynamics and everything like that. But when people ask about the general business environment, the segment that I tend to think of most is Talent and Rewards, because it's the one that is most affected by the cyclicality of the business -- of business generally.
And, frankly, that's a business that's growing. We had a good growth this quarter.
And we're feeling good about the prospects for growth for Talent and Rewards for the fiscal year.
Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division
That's helpful. Going back to the Exchange business.
It seems that -- and based on the comments in the press release, that you're making more changes in the health consulting areas to the help marketing efforts on the active employee exchange. Is that more recent change or that's been sort of gradual through your Analyst Day and prior?
John J. Haley
No. I think what we're seeing is, if you think about it, the focus that we had on this year, in the beginning of the year, was making sure that we had the right administrative platform to handle the clients that we were going to bring on for 1/1/2014.
And we had our health-care folks intimately involved in the plan design and working with the carriers to do that. But now we're saying that we also need to focus a lot of the marketing and the ramp-up for bringing new clients on for 2015.
And that's a shift more of some resources from a general distribution, from administration to health care.
Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division
Got it. And can you update us on the membership on the Active side of the business?
How many lives?
John J. Haley
Yes. Let me just get my note here.
So we have -- the Actives, we should have about 40,000 covered lives for the 2 clients that we have on the Active Exchange. About 30,000 covered lives on the Access client.
That's providing access to the federal exchanges. And then enrollment will be effective April 1.
And that does not include Towers Watson's associates. And we're doing the Active Exchange for our own associates also.
Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division
Great. That's helpful.
I have a couple of model questions. Roger, what percentage of revenue now comes in euro and in pounds, approximately?
Roger F. Millay
Boy, I'll be honest. I haven't looked at specific percentages for that recently.
But I don't think it's changed much from the 33% or so that we had with about 2/3 of that or roughly 22% of the company in the pound and the rest in the euros.
Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division
Great. And then regarding the Reinsurance business in 2013.
Is there a seasonality in that business that we should know about when we model year-over-year comparisons? It seems in the second quarter it was a little heavier than your first quarter run rate of $40 million.
Roger F. Millay
Yes. So the big periods for them for the renewal activity was July and January.
So the March and the September quarters, heavier seasonality.
John J. Haley
Yes. And this January is bigger than July.
Operator
At this time, there are no additional questions in the queue. And I would like to turn the conference back over to management for closing.
Please proceed.
John J. Haley
Okay. Thanks to everyone for joining us this morning and we look forward to reviewing our second quarter results with you in February.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Have a wonderful day.