Nov 2, 2015
Executives
Aida Sukys - Director of Investor Relations John J. Haley - Chairman, President & Chief Executive Officer Roger F.
Millay - Chief Financial Officer & Vice President
Analysts
Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker) Kwan Hong Kim - SunTrust Robinson Humphrey, Inc.
George K. F.
Tong - Piper Jaffray & Co (Broker) Sara Rebecca Gubins - BofA Merrill Lynch Timothy McHugh - William Blair & Co. LLC Ato Garrett - Deutsche Bank Securities, Inc.
Charles Gregory Peters - Raymond James & Associates, Inc. Mark S.
Marcon - Robert W. Baird & Co., Inc.
(Broker) David Anthony Styblo - Jefferies LLC Adam Parrington - Stifel, Nicolaus & Co., Inc.
Operator
Good day, ladies and gentlemen, and welcome to the Towers Watson Q1 FY 2016 Earnings Call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference maybe recorded.
I would now like to turn the conference over to Aida Sukys, Director of Investor Relations. Ma'am, please go ahead.
Aida Sukys - Director of Investor Relations
Good morning, everyone. 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 through tomorrow by dialing 404-537-3406, conference ID 63182009. The replay will also be available for the next three months on our website.
This conference call shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdictions in which such offers, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offer of securities shall be made except by means of prospectus, meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
In connection with the proposed merger of Towers Watson and Willis, Willis filed with the SEC a registration statement on Form S-4 in connection with the transaction that contains joint proxy statement/prospectus. This registration statement was declared effective by the SEC and Willis and Towers Watson mailed the joint proxy statements/prospectus to their respective stockholders.
These documents contain important information about Willis, Towers Watson, the transaction and related matters. Investors and security holders are urged to read the registration statements, the joint proxy statement/prospectus and other related documents carefully.
Investors and security holders are able to obtain free copies of all documents filed with the SEC by Willis and Towers Watson through the website maintained by the SEC at the www.sec.gov or by visiting the Investor Relations sections of Willis' or Towers Watson's website. This call may include forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934 that involves risks and uncertainties.
For 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 net income, adjusted earnings per share. For a discussion of these non-GAAP financial measures as well as our reconciliation of these non-GAAP financial measures under Regulation G to the most closely comparable GAAP measures, investors should review the press release we posted on our website 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 - Chairman, President & Chief Executive Officer
Thanks, Aida. Good morning, everyone.
We realized by rescheduling the call from Wednesday, November 4 to this morning, we may have caused some scheduling issues for our analysts and investors. However, given the activity regarding the merger, we felt it was important to reschedule the call earlier in the week, so thanks to all of you for joining us.
Today, we'll review our results for the first quarter of fiscal 2016 and provide sub-guidance for the full year of 2016. We're very pleased with our first quarter results and seeing the sustained strong momentum, which carried over from our record-breaking fiscal year 2015.
Reported revenues for the quarter were $896 million, which includes $42 million of unfavorable currency movements. Despite the currency headwinds, reported revenues increased 2% over the prior year first quarter and were up 7% on a constant currency basis, and up 6% on an organic basis.
Our organic growth rate adjusts for changes in foreign currency exchange rates, acquisitions and divestitures. Our adjusted EBITDA for the quarter was $183 million or 20.4% of revenues.
The prior year first quarter adjusted EBITDA was $171 million or 19.5% of revenues. Strong top-line results and focus on cost efficiencies continue to help drive EBITDA margins.
For the quarter, diluted earnings per share were $1.78 and adjusted diluted earnings per share were $1.49. Diluted earnings per share for the first quarter of fiscal 2016 include pre-tax items of $55 million gain on the sale of human resources service delivery business and $9 million of transaction and integration expenses related to the merger.
We continue to move forward with our planning for the Willis Towers Watson merger. We hired an outside consultant to help us with integration preparations.
The new operating committee announced on June 30, kicked off integration efforts in July and one of the first orders of business was to assign work streams and to staff them with both Towers Watson and Willis associates to prepare for day one and beyond. The work streams are focusing on such issues as our post closing go-to-market strategies, achieving cost synergies and the organizational structure and operating model.
As we've had a chance to work more closely with the Willis leadership and associates in shaping Willis Towers Watson, we're even more excited about the long-term opportunities this merger presents. Now, let's look at the performance of each of our segments.
All segments grow on both a constant currency and organic basis. On a constant currency basis, Benefits revenues increased 1%, Exchange Solutions increased 37%, Risk and Financial Services increased 1% and Talent and Rewards increased 10%.
All of the revenue results discussed in the segment detail and guidance will reference constant currency, unless specifically stated otherwise. For the quarter, the Benefits segment had revenues of $448 million.
Retirement revenues decreased by 1%. As anticipated, lower bulk lump sum activity in the Americas was partially offset by a strong demand for project work in the UK and Germany.
Health and Group Benefits revenues grew by 4% primarily driven by planned management consulting and product revenues. Technology and Administration Solutions revenues were flat, a decrease in bulk lump sum activity in the Americas was offset by an increase in project work in EMEA.
As a reminder, there are a number of large pension administration projects which will go live throughout FY 2016 at which point, we'll start recognizing revenues for these projects. Due to the strong comparables resulting from the bulk lump sum projects during FY 2015, we expected the Benefits segment will have low single-digit growth during FY 2016.
For the quarter, the Exchange Solutions segment had revenues of $118 million, an increase of 37%. On an organic basis, the Exchange Solutions segment grew by 28%.
Our Retiree and Access Exchange revenues increased 26% due to an increase in the membership base. The Other Exchange Solutions businesses increased 55% and 31% on an organic basis.
Components of this line of business include Health and Welfare Administration, Active Exchanges, and Consumer Directed Accounts. Health and Welfare Administration grew 32% as a result of strong special project work, and an increase in administration activity.
Active Exchanges grew by 21% or almost $1 million as a result of increased membership. Our consumer directed accounts practice contributed approximately $8 million in revenue this quarter.
We continue to be on track for enrolling a record number of retirees for January 1, 2016. We expect to enroll approximately 220,000 retirees this year versus approximately 160,000 enrolled as of January 1, 2015.
In the active space, we are also on track for enrolling approximately 100,000 employees for this 2016 annual enrollment season. We continue to anticipate our broker channel partners, will continue enroll active employees throughout the year, but we do not anticipate a meaningful off cycle enrollment season this fiscal year.
The Health and Welfare Administration business will also be enrolling a record number of new employees for the January 2016 enrollment period. We're starting to see some of the projects in the development phase we've been discussing over the last year go-live during this enrollment season.
We remain confident in the long-term growth in each of these lines of business in this segment and expect revenue growth in the mid-30% range for FY 2016. For the quarter, Risk and Financial Services revenues increased 1% driven by growth in the EMEA region.
Risk Consulting and Software revenues decreased 3%. The decrease was led by the Americas region as a large project was unexpectedly canceled at the start of the quarter.
There was low revenue growth in EMEA due to a top FY2015 comparable. Software sales continued to see strong demand as revenues grew by approximately 15%.
Investment revenue increased by 6%. All regions experienced growth due to an increase in performance fees, new client relationships and project work.
We're seeing a more robust pipeline for delegated investment services across all regions. The Risk Consulting and Software and Investment businesses are expected to have low single-digit growth for fiscal year 2016.
Next, let's move on to Talent and Rewards, which delivered another quarter with very strong results. The Talent and Rewards segment had revenues of $160 million, an increase of 10%.
Executive Compensation revenues were up 3%, as compared to a 11% revenue growth in the first quarter of FY 2015. While all regions experienced revenue growth, Asia led the growth due to clients increased use of equity and performance based pay.
The growth in EMEA was as a result of the increased focused on pay disclosures from regulators and shareholders. Data, Surveys and Technology revenues increased by 19%, 21% organically.
Data, Surveys were delivered ahead of schedule in Q1, resulting in very strong growth this quarter. These Surveys were delivered in the second quarter last year.
So, revenues are expected to be softer in Q2 as compared to historical revenue growth. Strong demand for employee engagement surveys also helped drive growth this quarter.
We sold our Human Resources Service Delivery practice or HRSD in the first quarter of FY2016. We wanted to focus on other targeted areas like software offerings, integrating the Saville Consulting acquisition and continuing to drive market leadership of our core business.
The results of the HRSD business are reported in our operating results year-over-year. First quarter 2016 results include Saville Consulting.
Rewards, Talent and Communication revenues increased 5%, led by strong revenue growth in the Americas and EMEA region. The Growth in the Americas was due to business transformation related projects, while revenue growth in EMEA was focused on transaction work.
We've seen the pipeline soften in the Asia-Pacific region. We continue to see a positive environment for the Talent and Rewards segment, but as a result of the strong FY2015 revenue growth, we expect flat-to-low single-digit revenue growth in FY 2016.
We had another great quarter and we expect our strong momentum to carry us into the merger with Willis. I'd like to thank all of our associates for their hard work in building Towers Watson into a company that I've been very proud to lead.
Looking forward to the Willis, Towers Watson merger and seeing how well the integration teams are working, I'm even more excited as I think about our future and the new opportunities that will create. Now I'll turn the call over to Roger.
Roger F. Millay - Chief Financial Officer & Vice President
Thanks, John. And good morning everyone.
I'd like to add my thanks to all of our associates for another great quarter. And as John mentioned, it's great to see the strong business momentum from fiscal 2015 carrying forward into this fiscal year.
I'm also very excited about the prospects of the Willis-Towers Watson merger. The deeper we get into the integration efforts, the clearer it becomes that we have a unique opportunity to create a powerful organization which is stronger than what we could have achieved as individual organizations.
Combining our companies will give us a leading global footprint with exceptional associates and strong distribution networks in both the mid and large markets, while there is a lot of hard work ahead of us, this merger has the ability to create significant value for our shareholders, clients and associates. Now for our financial results.
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 acquisition accounting costs. While we won't be providing the same level of guidance we have in the past due to the pending merger, we'll provide some details regarding the NOI margin expectations for the rest of the year.
For the quarter, the Benefits segment NOI margin was strong at 34%. Retirement continued to provide strong margins as a result of top-line revenue growth in EMEA and the impact of centralized operations.
This was another impressive quarter from the Benefits team. We anticipate the Benefits segment margin to be in the mid-30% range for the fiscal year.
Exchange Solutions had an 18% NOI margin as compared to 16% in last year's first quarter. Retiree and Access Exchanges led this segment with a 24% NOI margin.
The profitability was driven by an increased membership base. For fiscal 2016 we expect the Exchange Solutions segment margin to be in the mid-teens to high teens.
Risk and Financial Services had a 24% NOI margin. The margin remained consistent with the first quarter of fiscal year 2015.
We expect the Risk and Financial Services segment margin to be in the mid-to-high 20% range for fiscal year 2016. Talent and Rewards had a 30% NOI margin as compared to a 24% margin in Q1 fiscal 2015.
The solid top-line results and ability to recognize the survey revenues in the first quarter helped push margin to this high level. While revenues and margins maybe a bit different than historical quarterly trends, we remain on track for delivering margin for the Talent and Rewards segment in the low to mid 20% range for fiscal year 2016.
As a reminder, margins are seasonally higher in the first half of the fiscal year in the segment. Net income attributable to common stockholders for the quarter was $123 million.
Adjusted net income was $104 million, a 12% increase over adjusted net income of $93 million for the first quarter of fiscal 2015. The tax rate for the quarter was 33%.
Moving to the balance sheet, we continue to have a strong financial position. At September 30, we had approximately $723 million in available cash and short-term investments.
Virtually all of the available cash and short-term investments are outside the U.S. Free cash outflow for the quarter was $176 million as compared to an outflow of $221 million in the first quarter of fiscal 2015, a 21% increase to free cash flow.
Free cash flow strength for the quarter was driven by a net cash tax refund of $26 million versus net tax payments of $64 million in the first quarter of fiscal 2015, which was due to the taxable gain on the sale of our brokerage business. Going forward, we continue to anticipate free cash flow to be in the neighborhood of adjusted net income.
We had a $160 million of borrowings outstanding at the end of the quarter. The proceeds were primarily used for payment of annual bonuses.
We have a $154 million remaining on the current share repurchase activity, however, due to the pending merger with Willis, we've suspended our share repurchase program for the time being. Now let's review our guidance for fiscal year 2016.
While we won't be providing our typical guidance due to the pending merger, there are few items that are worth noting. This commentary excludes any impact from the Willis merger.
We will be incurring transaction-driven costs such as legal costs, bankers' costs, integration costs, tax-related matters, and other merger and integration related items. These costs could be material, as we work through to the closing of the deal and will be adjusted from our GAAP measures.
Overall, we continue to expect mid-single digit constant currency revenue growth for the year, which indicates continuing momentum from the very strong fiscal 2015 results. We also continue to expect our adjusted EBITDA margin to be around 21%, and capital expenditures to be around our historical average.
In closing, it's been a great first quarter. While we see some currency headwinds on revenues in the first half of the fiscal year and a decreased demand related to bulk lump sum, we feel very positive about the underlying business.
As a final matter, we appear to have had a merger dissident trying to stir the pot last week, regarding the resignation of Mike Thompson, our Principal Accounting Officer. So I'll provide additional detail so that our long-term shareholders have the information they need.
Mike resigned last week as he had accepted a new opportunity that advances his career and it is substantially closer to his home and family. His decision was not related to any concerns regarding our financial statements or the prospects of the firm.
In fact, he timed his departure to ensure that he'd be in a position to sign the 10-Q for this quarter. We're excited for Mike and his family and wish him well in his new role.
While, we we'll will miss him as a colleague, we have a very deep bench within the finance organization. Upon hearing the news from Mike, we initiated our succession plan and have announced this morning that Mike will be succeeded by Susan Davies, who joined Watson Wyatt in 2007, after 10 years at PricewaterhouseCoopers, an advance to head internal audit for Towers Watson.
Susan has developed into a strong leader for us and is ready to step up to a new challenge. Congratulations to Susan.
With that, I'll turn it back to John.
John J. Haley - Chairman, President & Chief Executive Officer
Thanks, Roger. And now, we'll take your questions.
Operator
Thank you. Our first question comes from the line of Ashwin Shirvaikar with Citibank.
Your line is now open. Please go ahead.
Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)
Thank you. I just wanted to see if you could provide us an update with where you stand with regards to what's to come in the merger process?
And have you had any discussions with the activist investor, what that might lead to? Any color there would be useful.
Thank you.
John J. Haley - Chairman, President & Chief Executive Officer
So I think, right now, Ashwin, the vote is November 18th, I think, for both Towers Watson and Willis, as we've said. I sort of referenced earlier, we started right away in July planning for the integration.
We identified who the new operating committee would be. We hired an outside consultant to help us with this.
We've been through these kind of large scale integrations several times in the past, so I think we had a bit of a playbook. Everyone is different and everyone has its own dynamics, but we had a bit of a playbook of some things we wanted to do.
We have 12 major work streams that we have going on. I think one of the things that we get focused on around integration is to make sure that we identify a small cadre of folks that work on that and then take it forward and then we let everybody else continue to focus on their clients and continue to focus on the business, and that's something that we look at quite carefully.
I think one of the reasons Roger and I are so gratified by the results that our associates turned in this quarter is because it demonstrates that indeed they did continue to focus on the business. So I think we have all of the integration work streams are in full force and they're moving ahead.
In terms of investors, we have gone out and had extensive dialogue over the last several months with our long-term investors, and we've talked to them about the whole strategic rationale for the deal. I think that has really resonated with people.
We have somebody who bought in at the – after the deal was done and was complaining about it, but we don't expect them to be a long-term shareholder anyway. So we haven't had any discussions with them.
Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)
Thank you for that. And then the second question really is with regards to – it's going to (23:42) on you, but the core retirement business, the PBGC premiums increase.
Do you see any longer-term impact from that? Thank you.
John J. Haley - Chairman, President & Chief Executive Officer
Yeah. I mean, look, I think that has to be – that puts additional reasons for people to consider bulk lump sums.
I think when you look at the cost of the PBGC premiums, which are really – I mean, people are not really getting much for that. That's just a deadweight loss for them.
It especially makes it attractive for both lump sums for terminated vesteds, but it even makes it more attract – but it also makes it more attractive for retirees also.
Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)
Thank you. I'll get back in the queue.
Thanks.
Operator
Thank you. Our next question comes from the line of Tobey Sommer with SunTrust.
Your line is now open. Please go ahead.
Kwan Hong Kim - SunTrust Robinson Humphrey, Inc.
Good morning. This is Kwan Kim on for Tobey.
John J. Haley - Chairman, President & Chief Executive Officer
Hello.
Kwan Hong Kim - SunTrust Robinson Humphrey, Inc.
Could you comment on your broker partner relationship since the Willis announcement, if there's any changes? Thank you.
John J. Haley - Chairman, President & Chief Executive Officer
Yeah. So, look, I think overall there have not been any changes that we have to report at the moment.
I think our broker channel partners – a couple of them were caught by surprise by this. We've been out talking to them.
We really like the relationships we have with our broker channel partners. We think we can continue to offer them really good value going forward and our discussions had been along those lines.
I think there was one of our broker channel partners that was not happy with the announcement and is caught by surprise by that. But as we've talked to all of them and talk about the value we think we can offer them and the way we would like to continue to work with them, we've had very productive discussions.
Kwan Hong Kim - SunTrust Robinson Humphrey, Inc.
Okay. And regarding the exchange enrollments, are large employers making their selections further in advance than previously?
John J. Haley - Chairman, President & Chief Executive Officer
I don't know that they're making their selections further in advance, I think it's a little early to say that, but they're certainly starting the process earlier in advance. And I think a reasonable conclusion is that they would make those solutions.
We're having more serious discussions now about some 1/1/2017 implementations than we did at this time last year.
Kwan Hong Kim - SunTrust Robinson Humphrey, Inc.
Okay. And could you give us additional color on your outlook for the bulk lump sum work going forward?
John J. Haley - Chairman, President & Chief Executive Officer
The bulk lump sum work, I think it's very difficult to give specifics about what might happen in a particular quarter or even a particular year. I would say – I think it's going to be quite granular.
But I do think that we'll probably see – if you look at the average of the bulk lump sum work over the last three years, and you could say, over the next three years, I expect the next three years to on average have a little bit more bulk lump sum work than we've seen over the last three years.
Kwan Hong Kim - SunTrust Robinson Humphrey, Inc.
Okay. Thank you very much.
Operator
Thank you. Our next question comes from the line of George Tong with Piper Jaffray.
Your line is now open. Please go ahead.
George K. F. Tong - Piper Jaffray & Co (Broker)
Hi. Thanks.
Good morning. Can you discuss how Willis performed as a sales channel for private exchanges in the 2016 selling season and how having Willis as part of Towers Watson can enhance exchange sales efforts?
John J. Haley - Chairman, President & Chief Executive Officer
Well, look, we always said that from the time when we first acquired Liazon and we got the broker channel network, we said we think the broker channel network is important. We also said we think we need to develop our own direct distribution network in the middle market.
Now, one of the things that we had not had going on as well as we might have liked was developing that direct distribution network in the middle market. So we're relying more in our broker channel partners than we had anticipated, I think there.
Willis was the largest of our broker channel partners. And I think they were responsible for about 12% – the order of magnitude, that's about right.
George K. F. Tong - Piper Jaffray & Co (Broker)
Got it. That's helpful.
And in the quarter, exchange NOI margins of 18% came in above your guidance of 10% margins you've provided last quarter. You indicated that the margin performance this quarter was driven by an increased membership base in exchanges.
Can you provide some additional color on the sources of margin upside?
Roger F. Millay - Chief Financial Officer & Vice President
Yeah. I think in the comment on the increased membership base was more an overall comment for exchanges and particularly on retirees.
The quarter dynamics really were driven by a little bit lower than we had forecast ramp up of costs in preparation for this retiree enrollment season. And then second, as I think John mentioned in his remarks, the Health and Welfare Administration business had more kind of project – one-off project activity related to this upcoming enrollment season.
George K. F. Tong - Piper Jaffray & Co (Broker)
Great. Thank you.
Operator
Thank you. Our next question comes from the line of Sara Gubins with Bank of America Merrill Lynch.
Your line is now open. Please go ahead.
Sara Rebecca Gubins - BofA Merrill Lynch
Hi, thanks. Good morning.
Just to check, you had talked about expecting fiscal 2016 adjusted EPS growth to be below revenue growth. Is that still the case?
Roger F. Millay - Chief Financial Officer & Vice President
I think, Sara, that the guidance that we gave for overall fiscal 2016, the message is that it hasn't changed since what we discussed in August.
Sara Rebecca Gubins - BofA Merrill Lynch
Okay. And then within Talent and Rewards, the expectation of flat to low single-digit revenue growth, does that incorporate the loss of revenue from the business that you sold, meaning, is that what we should actually see on a reported basis?
Roger F. Millay - Chief Financial Officer & Vice President
Yes. It is.
Sara Rebecca Gubins - BofA Merrill Lynch
Okay, great. And then, last question, I don't know if you can address this, but you've been on the road a lot to talk about that proposed merger, could you give us some color on bigger story as a push back that you've been getting and how you've been addressing that?
John J. Haley - Chairman, President & Chief Executive Officer
So, I think when we started out in the first couple of weeks after we announced the merger, we got a lot of questions from investors. And I think investors were somewhat surprised by the change.
It was a very big change and they didn't have models to incorporate that. And so there was a lot of questions about strategically what we were doing.
We had some investors that were quite enamored of the exchanges and there was some concern about having a lower exposure to the exchanges than they had had before. And there was some questions about the valuation.
I think the questions about the exposure to the exchanges, they're still there a little bit. There are some investors that I said were quite enamored of that.
So, actually some of them have moved on, too. But we – those are not – I don't think we're seeing that concern quite as much as we did before.
I think we still get questions every now and then about the valuation. We still get some questions about that.
But the biggest change I think we've seen is two-fold. I think one, the strategic rationale for the deal.
We've seen investors feel pretty good about that. I mean, more than pretty good, I think we've particularly with our larger long-term investors, we've had very good discussions about that and that seems to be resonating quite well.
And then, I think people have done a lot of work on the synergies and I think they feel pretty good about the synergies we put out there. So, that's a quick summary.
Sara Rebecca Gubins - BofA Merrill Lynch
Thank you.
Operator
Thank you. Our next question comes from the line from Tim McHugh with William Blair.
Your line is now open. Please go ahead.
Timothy McHugh - William Blair & Co. LLC
Yes, I guess just a high level first on the exchanges, has the selling season progressed? I mean, how is it – as you view of, I guess this upcoming enrollment, has it been slower than you would've thought three months ago when you gave us an update or is it about what you would've expected at that time just kind of some more color on how the last few months have developed with that?
Roger F. Millay - Chief Financial Officer & Vice President
Yeah, hey, Tim. I think it's really about what we expected as we know the principle, the largest activity, the principle activity occurs into the summer.
And so, it's been largely consistent with what we expected.
Timothy McHugh - William Blair & Co. LLC
And so, the 100,000 for the enrollment, I guess for the Active Exchange and if you're saying you're not expecting much off-cycle – in other words, for the fiscal year, is that roughly how much you would expect the overall active to grow, recognizing there is a little bit that your partners might do throughout the year, but trying to just think about on a fiscal year basis like you used to guide to.
Roger F. Millay - Chief Financial Officer & Vice President
Yeah. I think that's right, that's what we're working to communicate, the 100,000 is employees enrolled for 1/1/2016 in the actives.
And then, we don't see at the moment big off-cycles, but as you say, the continuing momentum, underlying some of the smaller activity on the active side, I guess and the retiree side.
Timothy McHugh - William Blair & Co. LLC
Okay. In Talent and Rewards, you talked about the timing issue in terms of the delivery of some of the surveys or data?
Can you help – I mean, how much shift in maybe from Q2 into Q1, because of that?
Roger F. Millay - Chief Financial Officer & Vice President
Sure. Yeah, it looks like about $6 million.
Timothy McHugh - William Blair & Co. LLC
Okay. And then, lastly, the Acclaris, you mentioned the revenue contribution, but just I guess the integration more.
I guess operationally, how was that tracking, any change in your thoughts on the potential for that business or how you're approaching it?
John J. Haley - Chairman, President & Chief Executive Officer
That's right on target with what we've been planning for, no change at all. By the way, Tim, let me just mention quickly, the prior question of yours was about the surveys and the thing and – this is a continuing thing we've had, if you look back over the last three or four years, the survey is always come in as of the end of the first or beginning of the second quarter.
So this is something that just – we see that happen from year-to-year that it can move between quarters.
Timothy McHugh - William Blair & Co. LLC
Okay. Thanks.
Operator
Thank you. Our next question comes from the line of Paul Ginocchio with Deutsche Bank.
Your line is now open. Please go ahead.
Ato Garrett - Deutsche Bank Securities, Inc.
Hi. Good morning.
This is Ato Garrett on for Paul. I just want to get your thoughts on Willis.
Looking at the Willis management has guided to mid-single digit growth for this year and that's been – the target has been reiterated. But looking at the year-to-date performance, it doesn't look very likely to happen.
So, just as you are looking to take the helm of the combined business, can you give us your thoughts about – a little bit more reason behind your confidence in turning that business around and why do you think growth is on the cusp of accelerating versus decelerating.
John J. Haley - Chairman, President & Chief Executive Officer
So, look I think the key is when we look at the combined organizations. We identified three areas that were creating a lot value here.
We identified the cost synergies that we have of $100 million to $125 million. We've had our integration teams working on those.
We see a path to those. We feel confident we can get that.
We identified the tax savings that we have and those tax savings are at least $75 million a year. We still see a very clear path to those.
We feel very confident about getting those and then we see the revenue synergies we have out there and we feel confident about generating those also. So I think the things we've laid out – when we laid them out to begin with, we had some things that we felt were all reasonable expectations, not that we could get them by just bailing it in that we had a work to get them, but we thought there were reasonable expectation as we've been digging into this more and more we continue to feel good about that.
Ato Garrett - Deutsche Bank Securities, Inc.
Okay, great. And one more on the active enrollment, with the 100,000 employee enrollment that you're looking at for 1/1/2016, in your view, what will it take to really accelerate that penetration and do you think that a risk downturn in the economy might affect that?
John J. Haley - Chairman, President & Chief Executive Officer
A downturn in economy could help I think marginally. I think if you're talking about what's really going to accelerate it, I think there is – I actually think the catalog tax is going to be the most likely accelerant at the moment, I think as we get closer to that as businesses see what can happen there, I think we can see some acceleration.
I also believe there will be a bit of a herd effect. Once we get a bit of a critical mass to people having adopted exchanges then I think we'll see an acceleration too.
Ato Garrett - Deutsche Bank Securities, Inc.
Okay, great. Thank you.
Operator
Thank you. Our next question comes from the line of Greg Peters with Raymond James.
Your line is now open. Please go ahead.
Charles Gregory Peters - Raymond James & Associates, Inc.
Good morning. Thank you for hosting the call.
A couple of questions for you. First of all, I know you've talked a little bit about the merger process and I was wondering if you could provide an update on your dialogue with the proxy advisory firms?
John J. Haley - Chairman, President & Chief Executive Officer
Well, I don't – not really much to say about that, I don't think Greg. I mean we have a proxy advisory firm.
We're using them and we're talking with them periodically about what goes on. We're happy with the work they're doing.
Charles Gregory Peters - Raymond James & Associates, Inc.
I was specifically referring to ISS?
John J. Haley - Chairman, President & Chief Executive Officer
Oh, those – yeah, so my understanding is that ISS – sorry, I didn't understand that. My understanding is that ISS typically comes out with the recommendations 10 days to two weeks before and our call is scheduled for November 18.
Charles Gregory Peters - Raymond James & Associates, Inc.
Okay. Can you just characterize the nature of your discussions, is it ongoing or is it just a one-time meeting that you've already had, just some additional color there?
John J. Haley - Chairman, President & Chief Executive Officer
Yeah, we've had a meeting with them and I think they follow a fairly disciplined process. So, they try to just have one meeting.
We thought the meeting went very well, but that's – we don't have a lot of experience doing this. So, I would take our thoughts with a grain of salt.
Charles Gregory Peters - Raymond James & Associates, Inc.
Perfect. In listening to your competitors in their conference calls, they talked and talked about opportunities and delegated investment consulting and both Aon and Marsh talked about growth with cloud-based solutions and outsourcing.
I was wondering if you could provide us with some commentary about Towers Watson's competitive positioning in those areas.
John J. Haley - Chairman, President & Chief Executive Officer
Well, of course, when you look at the delegated investment solutions, that's where we're really the – we consider ourselves the leader there. I mean we basically have been doing that and I think we've got the bulk of the work there.
So, let me just pull something up here. In terms of the cloud-based solutions or different things like that, we acquired Saville Consulting that was earlier in this calendar year and we've been very pleased, that was a smaller acquisition, but we've been relatively pleased with the way that – I mean, more than relatively pleased.
We've been very pleased with the way that service has integrated there. And that kind of thing is what we expect to do a lot more in – particularly in Talent and Rewards.
Our growth of course, this for Talent and Rewards, we've had double-digit growth now for four consecutive quarters and some of the reasons for that growth are our strategic choices with having a balanced portfolio that's focused on both products and services like Saville Consulting. So we feel good about what we're bringing on there, as we've said before, that's been part of what our TW: 2020 strategy is that we were going to be focused on more products and solutions and its one of the reasons why we were excited about the whole Willis merger, because if you're going to be a company that focuses a little more on these products and solutions, then you want to have a distribution system in the middle market and that's one of the things we get, particularly in the U.S.
from Willis.
Charles Gregory Peters - Raymond James & Associates, Inc.
Right. Two final questions.
I know you were – you spent a fair amount on the call appropriately so commenting on both lump sum activity and the Benefits business. And historically, I used to think about this business in the context of a low single-digit growth business and with a NOI margin in the low 30%s, sometimes running up to the mid-30%s, but generally gravitating back to the low-30%s.
And I'm just curious if conditions have changed such that maybe a mid-30%s is more of a sustainable expectation on a longer-term basis?
John J. Haley - Chairman, President & Chief Executive Officer
Greg, I don't think so. I tend to think of the business pretty much the way you described it.
I tend to think of it as low single-digits with an overlay of both lump sums popping up periodically and giving you particularly strong growth in particular quarters or particular years. And so maybe that overlay if you average it out over a cycle is an extra 1% or 1.5% a year from the bulk lump sums, so I look at it like that.
I do think of it as about the low-30%s with better margins in the quarters where you have the bulk lump sums. I still think that's the right paradigm.
Charles Gregory Peters - Raymond James & Associates, Inc.
Okay. Perfect.
Just one final numbers question and I apologize if you guys provided. Roger, you may have provided in one of your answers.
You gave us the new enrollment expectations for 2016 or for the year-end, I was actually curious about what the total enrollment numbers will look like beginning 1/1/2016, both from an active and retiree side?
Roger F. Millay - Chief Financial Officer & Vice President
Let's see. Well, I think we haven't given that.
So if you go – we were as we said on the last call, we were a little shy of $1.2 million in total lives. So, we haven't given a number for the full year or any totals, but again if you add roughly 220 in the 100,000 of employees, of course you'd have to gross that for lives, but you know that'll get you to the neighborhood, I think of where we're going to be.
Charles Gregory Peters - Raymond James & Associates, Inc.
So, I guess this is a – it's a back ended way of asking if I look at last year's enrollment numbers, has there been any natural attrition or decline in those numbers or are those pretty steady?
Roger F. Millay - Chief Financial Officer & Vice President
No, I think we incorporate that into the numbers that we give you, so.
Charles Gregory Peters - Raymond James & Associates, Inc.
Okay. Okay.
Thank you very much for your answers.
Operator
Thank you. Our next question comes from the line of Mark Marcon with Robert W.
Baird. Your line is now open.
Please go ahead.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
Good morning. And thanks for taking my questions.
I got two series of questions, one has to do with the exchanges, the other one has to do with Willis. With regards to the exchanges, just as it relates to the active lives, can you discuss a little bit about how you would expect that to breakout between for the 100,000 employees that you expect to add?
How do you expect that to breakout between small, medium versus large and then, as we look towards 1/1/2017 particularly with the Cadillac tax coming on, what would your expectations be in terms of the mix, would we start seeing more large companies? And then I have a Willis question.
John J. Haley - Chairman, President & Chief Executive Officer
Okay. So I think about 70% of the employees come from the broker channel.
So it's basically small and medium size there, not a 100%, but that's basically that. And then 30% come from the direct and that's almost all medium and large.
So you know that's probably order of magnitude about right there, that breakdown. I think, Mark, its anything we would give you on the effect of the Cadillac tax and how it would change the relative breakdown, it would probably be speculative here.
There is – could you say that the – if the Cadillac tax you get slightly more in the larger than you have currently, probably, but I mean – but I don't think we can give you any kind of good quantitative answer there.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
I guess the most important thing at the end of the day is any data that you can give with regards to the efficacy, with regards to the reduction in terms of year one, with regards to the healthcare cost. And then, on an ongoing basis further positive variance relative to what normal healthcare inflation rates are, because at the end the day, that's what's going to the matter.
John J. Haley - Chairman, President & Chief Executive Officer
Yeah. Fair enough.
So look, here is the 2014 numbers, but we don't have the 2015 yet, obviously. But the 2014 savings were a little over $1,400 per active employee and we expect to be about the same level for 2015.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
And that's exclusive of the auctorial value of the plans chosen?
John J. Haley - Chairman, President & Chief Executive Officer
That's correct. That's what the employers are actually saving.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
Yeah.
John J. Haley - Chairman, President & Chief Executive Officer
And then – and what they do is they pass about $500,000 of that – I mean about $500,000, about $500 of that to the employees and the employers keep about $900 themselves is really how that works.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
Yeah.
John J. Haley - Chairman, President & Chief Executive Officer
And for the – in terms of the rate, last year we had a 1.8% growth rate, which was very close to the CPI, about 1.5%, and that compared to some other measures that ran between 4% and 5.3% for some other exchanges or for some mid-size or large employers generally. So, we like the fact that not just did we get a nice savings to begin with, but we bent the curve somewhat.
We don't have the numbers for this year, so we'll see how that comes out. But that's what it was last year.
I think that's a compelling proposition and we're hopeful we'll come in around same place this year.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
And employee satisfaction, John, on that?
John J. Haley - Chairman, President & Chief Executive Officer
Employee satisfaction is incredibly high, it's a 93% I think something like that.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
I mean, why on earth couldn't somebody sell more of it, given all these positive metrics?
John J. Haley - Chairman, President & Chief Executive Officer
I wonder why – look, I think, we've mentioned this before, healthcare is just a very sensitive benefit that people provide, and there is a natural conservatism of employers for things that appear to be very new and different.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
All right. I appreciate that.
Then with regards to Willis, you've obviously done a ton of work starting earlier this calendar year. Obviously the pace has picked up; you've had a lot of joint meetings.
Since the initial discussions that you presented to the Street, what have you learned about Willis and about the potential transaction that your perspective is this could actually be better than what we initially talked about and what are some of the things that might be potentially more challenging. Can you give us any feel there?
John J. Haley - Chairman, President & Chief Executive Officer
Yeah. Okay.
I would mention three things. I think, one, it has been striking to us as to how close the management teams are together in terms of their relative outlook about how to do business, and about how the world work.
And right from almost the very beginning, the two teams meshed together and worked together very well. So I think that that was terrifically gratifying.
I think as we've gotten involved in looking a big, big thing for Willis is this whole skyline and their cost savings. As we've gotten involved in that and looked at it, we are very impressed with the management they are bringing to it, with the discipline, with the kind of consultants they have there.
So we have felt better about that as time goes on. Again, we're not saying that this is easy to do by any means but we feel like they are doing all the right things there and we feel pretty good about that and are looking for that to be something that we'll work with too.
And then the last thing, I guess, I just say that is it's interesting. We are bringing together – when we created Towers Watson, we were – that was a scale merger which brings together two firms that are very, very similar in everything they do with similar personality types and everything.
I think as we bring together Willis and Towers Watson, there is elements of scale, but there is also elements of scope. And one of the elements of scope, you should get different people with different personality types and cultures and everything.
So we'll have a little bit broader range of that within the firm. Two things stood out about that is we were looking at it.
One is the values that the two firms operate within are very, very similar. And so when we look at – not just what we say the values are, but actually how we manage the firms, and how we encourage people to act, and what we reward.
Those are also very similar. Now within each of our cultures we have sub-cultures that are a little bit different than everybody else.
We have the retirement actuaries and others in Towers Watson. We have some brokers and others in Willis, there may be a little different than some of the others.
But they actually mesh very well within the overall culture. And so, I think we're pretty excited about this whole prospect of having this new firm that's going to operate within this umbrella and the value we'll create out of that.
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
I mean, given everything that you just said, do you think it's possible that the synergies are going to be significantly or materially better than what you originally thought?
John J. Haley - Chairman, President & Chief Executive Officer
No. We put $4.5 billion out there, that's a big, big number.
I hope but...
Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker)
Okay. Fair enough.
Thank you.
John J. Haley - Chairman, President & Chief Executive Officer
Okay.
Operator
Thank you. Our next question comes from the line of David Styblo with Jefferies.
Your line is now open. Please go ahead.
David Anthony Styblo - Jefferies LLC
Sure. Good morning.
Thanks for the question. So just to tie backup to the guidance for this year, can you just help us reconcile the better-than-expected first quarter results against a backdrop of full-year guidance that seems relatively unchanged.
Is there some sort of new headwind that's now in the numbers that we weren't thinking about before or is it fair to think that there is some conservatism in keeping the EBITDA margin around 21% there?
Roger F. Millay - Chief Financial Officer & Vice President
Well, yeah, there is. I mean, again, it's the first quarter of a fiscal year and there was some timing in this first quarter.
So of course that's incorporated. There is no signaling at all really that we see any business headwinds that we saw differently from August, just kind of early in the year and mid-single digits is a pretty big range.
And we do believe the margin levels that we're at now are an appropriate run rate margin. So we still expect to balance around there.
So, really, we think what we want to communicate most clearly here, given the pending merger, is that we see the same business momentum and feel positive about where the business is headed going into the merger and what will be the new fiscal year of calendar 2016 for Willis Towers Watson.
David Anthony Styblo - Jefferies LLC
Okay. And FX, things may have gotten may be a little bit worse for some firms there.
Are you still around $0.12 for the year?
John J. Haley - Chairman, President & Chief Executive Officer
Yes.
Roger F. Millay - Chief Financial Officer & Vice President
I mean, of course, we all wish we were FX prognosticators, right? I think it's bounced around a lot.
It hasn't been that different. I think when you net things out.
So really no big change in outlook on FX.
David Anthony Styblo - Jefferies LLC
Okay. And, John, I know we talked about it with sprinkles throughout the call here about the merger.
It certainly sounds like you're more encouraged about the combined opportunities. If you had to sort of list off in two or three, what areas do you feel more confident about.
And, again, kind of to come back to the synergies during the initial announcement call, you had talked about the $100 million to $125 million of synergies feeling really good about that perhaps even conservative or you – I mean, is there upside to the $125 million to ask it more directly?
John J. Haley - Chairman, President & Chief Executive Officer
Yeah. Look I think if you look back to the Towers Watson merger, we put out about $80 million of cost synergies that we thought we would achieve and we got to a $110 million at the end of the three years.
When I look at the $100 million to $125 million, I mean in some ways, if you look at – if we come out with the $100 million there would have been upside of 25% easily to get to the $125 million. We actually – could we get better than $125 million?
Yes. But we should also recognize we're talking about doing this in the context of the whole big skyline, the other cost operation.
And so, I think that probably limit some of the upside that you might get there. But I think when we look at the whole package of skyline plus the cost synergies we get there, we feel very good about achieving those and we think that will be a terrific result for everybody.
David Anthony Styblo - Jefferies LLC
Okay. That's helpful.
And then lastly just to make sure looking back on the Exchanges, have you have any folks or employers drop-off over the course of the last year or as we head into 2016. So, is that – as I do the math, it looks like 30% or 35% membership growth as we move into next year.
Is the gross, the net basically the same thing there?
John J. Haley - Chairman, President & Chief Executive Officer
Yeah. There is nobody that I know that we've dropped off.
Now, when you have some of these smaller ones it's possible, I guess, that they could have been, we don't necessarily see the individual ones, but nothing of note any of it.
David Anthony Styblo - Jefferies LLC
Okay. And then, lastly, just a tone of the conversation, is it more of a situation where folks are just taking a look at this and just continuing to keep it idle and watching it?
Are there folks who are finally saying this is just isn't right for me, there is too many hurdles or there is – it complicate things. The administration of it might just be still too tricky in our mind or do you kind of get a sense if those are growing consensus that folks are leaning more towards wanting to do it, it's just we still haven't had quite enough time to implement it because the layers of bureaucracy and a larger employer are so thick?
John J. Haley - Chairman, President & Chief Executive Officer
Yeah. I think what we would say is that it is closest to the third one you said out there in that the discussion seem to be more serious and more focused upon questions around how they would integrate or I mean how they would adopt something like this as opposed to just education about it.
So, I think we would say it's probably more serious, I wouldn't read too much into that, but to the extent we have those three to choose from, it's closer to the third.
David Anthony Styblo - Jefferies LLC
Okay. Thanks.
Operator
Thank you. Our next question comes from the line from Shlomo Rosenbaum with Stifel.
Your line is now open. Please go ahead.
Adam Parrington - Stifel, Nicolaus & Co., Inc.
Hi. This is Adam Parrington for Shlomo.
All my questions were answered. Thank you.
John J. Haley - Chairman, President & Chief Executive Officer
Oh, okay. Thank you.
Operator
Ladies and gentlemen, this does conclude today's question-and-answer session. I will now turn the call over to John Haley, Chief Executive Officer for closing remarks.
John J. Haley - Chairman, President & Chief Executive Officer
Okay. So, thank you all for joining us this morning.
And just one final note. This will most likely be the last Towers Watson earnings call before the merger, and I wanted to thank all of our analysts and investors that have been just really great partners for many years.
As I think you can tell, we're very excited to officially start building on the success and momentum of both Willis and Towers Watson. We encourage all of you to vote for the merger prior to the November 18 Special Shareholder Meeting, and I look forward to talking to you on the first Willis Towers Watson earnings call in February.
Thank you.
Operator
Ladies and gentlemen, this does conclude today's program. You may all disconnect.
Everybody have a wonderful day.