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Willis Towers Watson Public Limited Company (WLTW) Q1 2019 Earnings Call Transcript

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Willis Towers Watson Public Limited Company  (NASDAQ: WLTW)
Q1 2019 Earnings Call
May. 01, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to the Willis Towers Watson First Quarter 2019 Earnings Conference Call. Please refer to our website for the press release and supplemental information that was issued earlier today. Today's call is being recorded and will be available for the next three months on our website.

Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These forward-looking statements are subject to risk and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law.

For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release issued this morning as well as other disclosures of our most recent Form 10-K and in other Willis Towers Watson SEC filings. The company will refer to non-GAAP financial measures. For reconciliations of the non-GAAP measures as well as other information regarding these measures, please refer to the most recent earnings release and other materials in the Investor Relations section of the company's website.

I'll now turn the call over to Mr. John Haley, Willis Towers Watson's Chief Executive Officer. Please go ahead.

John J. Haley -- Chief Executive Officer

Okay, thank you. Good morning everyone and thank you for joining us on our first quarter earnings call. Joining me here today, Mike Burwell, our Chief Financial Officer, and Rich Keefe, Head of Investor Relations.

Today, we'll review our results for the first quarter of 2019 and the outlook for the remainder of the year. We are pleased with the results this quarter, we were able to generate strong organic top-line growth of 5% and this marks the third consecutive quarter in which we generated 5% more of organic revenue growth.

Moreover, this quarter we faced a challenging comparable of 6% organic revenue growth in the first quarter of 2018, despite that challenge we still managed to generate strong organic revenue growth and more important, we delivered profitable growth, with meaningful margin expansion of 200 basis points and double-digit adjusted EPS growth.

As we discussed at our recent Analyst Day, we have a disciplined strategy focused on generating profitable growth and we feel positive about the strong progress that we've made in this area. I believe this progress is a testament to the immense talent and effort that our colleagues around the world bring to the table on a daily basis.

I'd like to take a moment now to recognize their hard work and dedication. Their commitment to client service and living our values are making deep and lasting impacts on our business. I'm very proud of what they have achieved for the company, for our clients and for our shareholders and for bringing our story to life. I thank them for their efforts and for another solid performance this quarter.

We remain committed to our strategy and we are pleased with the progress that has been made, but we're not standing still. This is demonstrated by our recent announcement to acquire TRANZACT. We extremely excited to bring TRANZACT into our Willis Towers Watson family. They bring exceptional talent and capabilities to bear, including a leading technology-driven, direct-to-consumer solution platform and we think there will be a great fit within our company.

This pending acquisition is an excellent example of our focus on investing in areas that deliver a sustainable competitive advantage. We continually look to identify investment opportunities that are high margin or have a prospect of getting to relatively high margin. Similarly, we like them to be adjacent to our core business and have the potential to disrupt their transforms some existing value chains. We believe TRANZACT checks the boxes across the board and represents a tremendous growth opportunity in the Medicare space.

By leveraging Willis Towers Watson technological infrastructure and scale with TRANZACT's telesales and digital marketing expertise, we will have exceptional distribution and enrollment capabilities as well as a broadening position in the rapidly growing Medicare space. Further, we look forward to unlocking the synergies between the two companies and as we execute on our plans.

Overall, we are excited about the step and what it means for Willis Towers Watson, for our colleagues and for our shareholders, as the next step of significant value creation. At this time, we are still in the regulatory approval process and we expect to -- we continue to expect closing will occur in the third quarter of 2019.

Now let's move on to our quarter one 2019 results. Reported revenue for the first quarter was $2.3 billion, up 1% as compared to the prior year first quarter and up 5% on a constant currency and organic basis. The reported revenue included $84 million of negative currency movement. Once again this quarter, we experienced growth on an organic basis across all of our segments.

Net income was $293 million, up 33% for the first quarter, as compared to the $221 million of net income in the prior year first quarter. Adjusted EBITDA was $601 million, or 26% of revenues, as compared to the prior year adjusted EBITDA for the first quarter of $557 million, or 24.3% of revenues, representing an 8% increase on an adjusted EBITDA dollar basis and 170 basis points of margin improvement.

For the quarter, diluted earnings per share were $2.15, an increase of 34% compared to the prior year. Adjusted diluted earnings per share were $2.98, reflecting an increase of 10% compared to prior year. Overall, it was a solid quarter. We grew revenue and earnings per share and had enhanced adjusted EBITDA margin performance.

Now let's look at each of the segments in more detail. To provide clear comparability with prior periods, all commentary regarding the results of our segments will be on an organic basis, unless specifically stated otherwise. Segment margins are calculated using segment revenues and exclude unallocated corporate costs such as amortization of intangibles, certain transaction and integration expenses resulting from mergers and acquisitions, as well as other items, which we consider non-core to our operating results. The segment results do include discretionary compensation.

The Human Capital and Benefits segment revenue was up 3% on an organic and constant currency basis compared to the first quarter of prior year. The Health and Benefits business delivered strong performance again this quarter with revenue growth of 11% with new business in product revenue continuing to drive revenue expansion in North America, while global benefit management appointments contributed to the growth outside of North America, primarily in Western Europe and Latin America. Health and Benefits revenue growth was also bolstered by the non-recurrence of downward revenue adjustments, which were made in the prior year in connection with the initial adoption of the new revenue standard.

Talent and Rewards revenue increased 3% as a result of increased advisory and survey work in North America and Western Europe. As expected retirement revenue declined 2%, mainly as a result of headwinds from having one less billing days this quarter and the impact of a tough comparable from the prior year, which benefited from the triennial valuation cycle work in both Canada and Great Britain.

Technology and Administration Solutions revenue decreased 2% as new business activity was eclipsed by reduced demand for project work in Great Britain. HCB's operating margin improved by 150 basis points to 25% compared to the prior year first quarter. This improvement reflects top-line growth alongside disciplined expense management efforts. HCB is our largest segment. We're confident about the future prospects of all the businesses within it, on both the short-term and long-term basis. From employee benefits to executive compensation, HCB sits in a position of strength in the markets it serves, attracting top talent, retaining over 90% of its client base and consistently generating industry leading margins.

Now let's look at Corporate Risk and Broking or CRB, which had a revenue increase of 3% on a constant currency basis and 4% on an organic basis as compared to the prior year first quarter. North America's revenues grew by 4% in the first quarter, primarily as a result of new business. The International regions revenue was up 6% compared to prior year, as a result of new business wins in China, Argentina, Venezuela and Central America. Western Europe contributed 5% revenue growth. Their growth was led by France's new business wins in large and mid-market accounts. Great Britain had a nominal decline in revenue.

CRB revenues were $728 million with an operating margin of 17.4% as compared to a 16.8% operating margin in the prior year first quarter. The margin expanded due to the top-line performance coupled with continued cost management efforts. As a side note, I'd like to say how pleased I am with the progress the management team and indeed all of our colleagues in CRB have made over the last few quarters. To see the steady top-line growth and the continued margin expansion is excellent and our outlook on our CRB business remains positive going forward.

Turning to Investment Risk & Reinsurance or IRR. Revenue for the first quarter increased 6% to $589 billion on a constant currency basis and increased 5% on an organic basis as compared to the prior year first quarter. Reinsurance with growth of 6% continue to lead the segment's growth through a combination of net new business and favorable renewals.

Insurance Consulting and Technology grew by 6%, mainly from technology sales. Investment revenue declined because of one-offs in the comparable period and timing of performance fee bookings in the current year. Our Wholesale business was up 5% on a constant currency basis. On an organic basis, Wholesale revenues decreased by 6%, excluding the Alston Gayler acquisition. The organic decline in Wholesale was primarily attributable to reduced marine placements in the Miller unit.

IRR had revenues of $589 million and an operating margin of 43%, as compared to 45% for the prior year first quarter. The margin decline was attributable to softer trading in the Miller unit and one-off timing related items within the investment business. Overall, we continue to feel positive about the momentum of our IRR business for 2019.

Revenues for the BDA segment increased by 10% from the prior year first quarter, primarily as a result of having added about 300,000 lives during the 2019 enrollment period in the mid-market and large market space. Project work and out of scope services further enhanced the segment's revenue growth. Individual marketplace revenue was down nominally as seasonality for this business is shifting, while the remaining businesses in the segment generated 14% growth, primarily led by Benefits outsourcing.

The BDA segment had revenues of $135 million with a minus 15% operating margin. Now that's up 11% from a minus 26% in the prior year first quarter. Top-line growth and greater operating leverage both contributed to the segment's margin expansion. Our BDA offerings remain fundamental to our business growth engines of our enterprise strategy. We are optimistic about the long-term growth of this business.

So, in summary, I'm very pleased with our progress. We produced strong earnings growth in the first quarter, we had strong revenue growth, we had meaningful margin expansion and significant adjusted EPS growth, all were continuing to invest in our future and return capital to shareholders through dividends.

As we look to the remainder of 2019 and beyond, our future is bright. Our business is continue to shift toward faster growing areas. We expect to reap benefits from our investments in areas focused on innovation such as digital and technology and we are confident in our ability to complete and successfully integrate TRANZACT.

Now I'll turn the call over to Mike.

Mike Burwell -- Chief Financial Officer

Thanks, John. And I'd like to add my congratulations to our colleagues for another good quarter and a thanks to our clients for their continued support and trust in us. First quarter represented a good start to the year with strong organic revenue growth, robust margin expansion and underlying adjusted EPS growth.

Now turn to the overall detailed financial results. Let me first discuss income from operations. Income from operations for the first quarter was $359 million, or 15.5% of revenue, up 420 basis points from the prior year first quarter, income from operations of $259 million, or 11.3% of revenue. Adjusted operating income for the first quarter was $492 million, or 21.3% of revenue, up 200 basis points from the prior year first quarter adjusted operating income of $443 million, or 19.3% of revenue.

Let me turn to our earnings per share or EPS. For the first quarter of 2019 and 2018, our diluted EPS was $2.20 and $1.61 respectively. For the first quarter of 2019, our adjusted EPS was up 10% to $2.98 per share as compared to $2.71 per share in the prior year first quarter. FX was modestly worse than previously anticipated due to a stronger US dollar resulting in a significant net unfavorable impact of approximately $0.12 in the quarter.

Likewise, as previously guided, we are adversely impacted by a decrease in non-cash pension income compared to the prior year, which resulted in a year-over-year decline of $0.12 in the quarter. Excluding the combined headwinds from currency of $0.12, the reduced pension returns of $0.12 and a little bit higher tax rate of $0.02 versus the prior year adjusted EPS growth was approximately 20%.

From effective tax rate perspective, our US GAAP tax rate for the first quarter was 18.8% versus 16.3% in the prior year. Our adjusted tax rate for the first quarter was 20.1%, up slightly from the 19.7% rate in the prior year first quarter. This increase in the effective tax rate for the quarter compared to the prior year was primarily due to additional taxes on global intangible low taxed income or GILTI and we continue to evaluate the impact of global tax reform on our effective tax rate, including the effect of new taxes associated with competitions (ph) for changes resulting from update interpretations and assumptions issued by the taxing authorities.

As a result, the effective tax rate is subject to movements and will continue to be updated as more analysis and the information becomes available. The adjusted tax rate for the first quarter is lower than our full year guidance due to one-time or discrete tax benefits related to excess tax benefits, our share-based compensation and valuation allowance releases and certain non-US jurisdictions.

Turning to the balance sheet. We continue to have a strong financial position. In the first quarter, we implemented the new lease accounting standard. This result had no material impact to our operating income, but did result an increase in liabilities on our balance sheet, which is largely offset by corresponding increase in assets. The gross step total was approximately $1.5 billion.

For the first quarter of 2019, our free cash flow was negative $104 million versus $47 million in the prior year. Q1 is our seasonally lowest quarter from a cash flow standpoint, due to the impact of incentive compensation payments. The year-over-year decline in free cash flow due to higher compensation payments as well as some timing related income taxes and pension contributions.

As we think about cash flow generation for the remainder of the year, we expect free cash flow to build as a result of operating income growth, improved working capital and disciplined capital spending. In terms of capital allocation, we paid approximately $77 million of dividends and did not repurchase any shares in the first quarter of 2019.

Thinking about our guidance. For the full year, we are reaffirming our original guidance, we continue to expect organic revenue growth of around 4% and full year adjusted operating income margin to be around 20%. One point of clarification around our guidance. We remind you that our fourth quarter is our seasonally highest quarter primarily as a result of our enrollment activity within our Benefits and Administration and Delivery business.

Also concerning the HCB brokering recapture from the adoption of ASC 606, we recaptured approximately $11 million in Q1 2019 within the HCB segment and expect to recapture remainder by the end of Q3, 2019. The adjusted effective tax rate is still expected to be around 22%, excluding any potential discrete items and we still expect free cash flow growth of 15% or better.

Foreign exchange credited to a $0.12 headwind to adjusted EPS in the first quarter of '19. Assuming exchange rates remain at current levels, we expected an FX headwind of around $0.15 for the full year 2019, despite the additional potential FX headwinds, our adjusted diluted earnings per share guidance will remain unchanged and is projected to be in the range of $10.60 to $10.85.

On the next quarter earnings call, we expect to update our guidance to reflect the TRANZACT acquisition, which is expected to close in Q3, 2019. Overall, we delivered solid financial performance in the first quarter, while I'm pleased with the results and the continued momentum of our business, there's still a lot of opportunity ahead, we remain focused on driving execution.

And now I'll turn the call back to you, John.

John J. Haley -- Chief Executive Officer

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

Questions and Answers:

Operator

(Operator Instructions) And our first question coming from the line of Greg Peters from Raymond James. Your line is open.

Greg Peters -- Raymond James -- Analyst

Good morning. I'll ask a couple of questions. First on organic growth. The first quarter result running ahead of your full-year guidance, if I reflect back on the last couple of years, it seems like the second quarter has always been a struggle. But nevertheless with you running ahead of your guidance is suggesting that maybe some of the quarters, maybe lower going forward than where you were in the first quarter. Can you comment?

John J. Haley -- Chief Executive Officer

Yeah, I mean I think Greg, you know we don't reflect our guidance for what we think are relatively smaller changes, we don't. So, Mike just got for a sake, even though we have the negative currency effect is bigger than we anticipated, we're not changing our guidance, we have a range there. And similarly, with the revenue even though we're a little bit ahead in the first quarter, we're not changing our guidance right now. So, we don't adjust for every small little thing.

Greg Peters -- Raymond James -- Analyst

I got it. I thought we were done with ASC 606, but it popped up in Mike's comments. And if I'm not mistaken the benefit to 2019 was going to be in total around $40 million and you've only booked a $11 million of that. So, that leaves $29 million to fall through in the second and third quarter, is that correct?

John J. Haley -- Chief Executive Officer

Yeah, I'll let Mike comment on that, but let me just say I had that we were talking about this the other day about 606. I thought we were done with it, too, and I was telling folks that have reminded me from the scene in Carrie, where the hand comes up out of the grave to strangle you. We just can't seem to get rid of this, the effects of this standard. So, up, Mike?

Mike Burwell -- Chief Financial Officer

Yeah. So, Greg, the number actually is $59 million in total and the remainder above that above the $11 million that I commented on in my prepared remarks will happen by the end of the third quarter.

Greg Peters -- Raymond James -- Analyst

I love the analogy. And so, should I -- should we look at the $59 million as recurring in nature, going forward. So, when I think about 2020 et cetera, or is this one-time, where it gets pulled out of 2020 in comparison to 2019?

Mike Burwell -- Chief Financial Officer

It will be recurring going forward is how we think about it.

Greg Peters -- Raymond James -- Analyst

All right. I guess the final question would be around the adjusted operating margin, 20% is your target for the year. And then I look at the segment results and I've always felt like CRB had the most opportunity and yet it looked like it was a drag on the consolidated adjusted operating margin at least in terms of improvement in the first quarter. Can you give us some updated perspective on how that might progress through the year?

Mike Burwell -- Chief Financial Officer

Yeah, Greg, so we look at it, I mean that there is no doubt we continue to see opportunity in that business. Todd Jones and the management team there are very focused on it. And we saw improvement in the first quarter in terms of overall margin improvement. We continue to think of opportunity that we'll see and continue to see that happening. So, as we look at the quarter, we are pleased with the progress, they're making. We still see more is about 50 basis points improvement is what we saw in the first quarter for CRB.

Greg Peters -- Raymond James -- Analyst

Okay, great. Thanks for (Multiple Speakers).

John J. Haley -- Chief Executive Officer

And it's hard to compare that to other -- it's hard to compare that to the improvement in other segments because that HCB have some of the 606 changes and other things. So, we feel pretty good about the CRB. They're making -- as I said in my remarks, they're making good steady progress at the margin improvement exactly what we're looking for.

Greg Peters -- Raymond James -- Analyst

I have other questions, but I'll follow up offline.

John J. Haley -- Chief Executive Officer

Okay.

Operator

And our next question coming from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Elyse Greenspan -- Wells Fargo -- Analyst

Hi, good morning. Thank you. My first question. Just trying to get a little sense of the organic revenue outlook for HCB for the balance of the year. So, in the previous question you addressed the fact that we have some rev rec benefit coming back into numbers. But then that was offset this quarter by some timing issues in retirement and then also by the triennial valuation cycle. So, do either of those -- do the impact of either of those two items benefit you in the back three quarters? Are these things that we should be thinking about as being a headwind to organic within HCB for the balance of the year?

Mike Burwell -- Chief Financial Officer

Yeah Elyse, we have -- we really purposely stopped giving segment guidance and really looking at the totality around the 4% overall, but we feel really good about the HCB business and their ability to continue to drive revenue growth. We're not overly concerned from the triennial impacts coming forward, they're very small.

But we feel very confident in the management team and what that business is going to continue to drive and really contribute as we said on an overall basis around that 4%.

John J. Haley -- Chief Executive Officer

I would say that the impact of the triennial evaluations tends to be more pronounced in the first half of the year than in the second half.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay. And then in terms of IRR you guys called out that Wholesale organic was down around 6%, I believe due to reduced Marine business within Miller. Could you just provide a little bit more color there. And if that's something we expect to continue. And was that the driver of the margin deterioration within IRR in the quarter?

Mike Burwell -- Chief Financial Officer

Yes. Elyse, I mean, we were just calling out the particular businesses that we had seen and we just not had seen as much continued growth in that particular business. But, -- so that's what we're highlighting.

John J. Haley -- Chief Executive Officer

And the margin story is little bit complicated with some of the expenses and everything.

Mike Burwell -- Chief Financial Officer

Yeah, I mean, you do have -- we also have some expenses that we've included in there as we run off, continue to run off and close out of our securities business. And equally when you look at where the market has been in terms of some of our performance fees. But we view those all is timing and still feel confident back in terms of our overall guidance from an EPS standpoint at the $10.60 to $10.85 range.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay. And then in terms of the TRANZACT deal, is and I know you said you guys will update on EPS guidance for that next quarter. Is the right way to think about it in that you're getting that business right? If the deal closed in the third quarter, the fourth quarter would be their strongest earning quarter that relative to that type of seasonality there that, that would technically be accretive relative that your initial guidance, or am I missing something and thinking about it that way?

John J. Haley -- Chief Executive Officer

Well, there is something you need to be careful about because we were planning to buyback shares and if we don't buy back shares and we do TRANZACT instead. Those two are offsetting, whether they offset exactly or not that's something we'll address later on.

Elyse Greenspan -- Wells Fargo -- Analyst

Okay, great. Thank you very much.

Operator

Our next question coming from the line of Mark Marcon with RW Baird. Your line is open.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Good morning, John and Mike. I'm wondering if you can talk a little bit more about TRANZACT just in terms of what you've seen post the announcement, just in terms of their continued momentum. They've been growing their policies at a rapid rate of 25% to 30%. Wondering if that's continuing, if that's from what you're seeing from an update perspective.

And then what are you -- what are you hearing with regards to obviously it's early in the political season, but if Medicare ends up being expanded and include say 50 plusers, how is that going to end up impacting their business?

John J. Haley -- Chief Executive Officer

Yeah. So, I think, first of all, we continue to be pleased with the performance of TRANZACT. And they're doing very well and in fact we expect to -- we had some sort of performance related elements to the deal. And we expect to be paying off on them. Ideally, we'd like to pay off on all of them, they really grow. But TRANZACT continues to do -- continues to do very well and we're looking forward to getting together with them.

From the viewpoint of a Medicare expansion, whether it's even to 62 or down into the 50s, I think one of the things we found particularly attractive about the TRANZACT deal is that if the Medicare space does expand it all that just opens up an enormous market. Yes, as I said even in expansion down to 62 would add -- what's that Mike? 10 million new lives or something like that. So, all of that would be good for our business we think.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

That's great. And then can you talk a little bit about what you're seeing in Great Britain? You talked about HCB and CRB, just wondering how should we think about it? Because this has been dragging -- Brexit has been dragging on, and I'm just wondering what you're hearing from your people over there and how they're -- how they're dealing with the uncertainty?

John J. Haley -- Chief Executive Officer

Yeah. So, I would say, I think, it's actually been surprising at least to some of us that how that there is relatively little disruption on our day-to-day work. I mean, when we talked about some of the impacts in GB, when we talked about HCB, you notice what we were talking about was the triennial valuation cycle, not Brexit itself. So, we're not necessarily seeing a big impact from there, even CRB which I mentioned, it has a nominal decline in Great Britain.

Actually the performance of CRB was really pretty good and it was ahead of what we had our internal projections. And the reason is, we had several one-off natural resource projects last year that we knew, we're not going to be recurring. So, then coming in, where they did was actually ahead of where we are. Brexit is something that's been weighing on the British people and British business for a couple of years now. But we're not seeing any necessary acceleration of that, I don't think. And so, like everybody else, we're just waiting to see how this plays out.

Mike Burwell -- Chief Financial Officer

Yeah, maybe, John, I would just add one comment and that is that, Mark, I mean obviously clients come first for us, and obviously clients and colleagues. And we've been thinking about various scenarios and various alternatives, obviously giving our presence and where it sits in that marketplace for some period of time, and have continued to been working at the detail level, at least in terms of working at the various alternatives. So, just to add to John's comments.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Terrific. Thank you.

Operator

Our next question coming from the line of Mark Hughes with SunTrust. Your line is open.

John J. Haley -- Chief Executive Officer

Hello?

Mike Burwell -- Chief Financial Officer

Don't hear anything, operator.

John J. Haley -- Chief Executive Officer

We may have lost the operator.

Mike Burwell -- Chief Financial Officer

Olivia?

John J. Haley -- Chief Executive Officer

Olivia? Can you hear something.

Operator

I'm so sorry. Your line is now open.

Mark Hughes -- SunTrust Robinson Humphrey Inc. -- Analyst

John, can you hear me?

John J. Haley -- Chief Executive Officer

Oh OK. Yeah, we can hear you now.

Mark Hughes -- SunTrust Robinson Humphrey Inc. -- Analyst

Okay, very good. In looking at the BDA business, last year the margin was relatively stable through the first three quarters. It looks like both in absolute dollars and percentage, would we think that should be the same this year kind of relatively steady in terms of that loss?

Mike Burwell -- Chief Financial Officer

Yeah, but less of a loss. I mean obviously, our team there led by Gene Wickes has been very focused on cost management and continue to do continuous improvement like all of our segments, continued our -- continued focused on it. And so I think that's a fair assumption. But I would say that they're focused on continuous improvement.

Mark Hughes -- SunTrust Robinson Humphrey Inc. -- Analyst

And then in the Reinsurance part of IRR, I think you talked about the momentum in renewal. Any comment on how much of that is market conditions, you're just seeing more activity, renewal rates are possibly improved or market share gains?

John J. Haley -- Chief Executive Officer

I think it's a combination of all of those. So, -- and we don't -- we can't actually break that down. But I think -- I wouldn't underestimate the impact of just a change in reinsurance buying behavior among clients too. So, that definitely is an element of it.

Mark Hughes -- SunTrust Robinson Humphrey Inc. -- Analyst

When you say change in behavior?

John J. Haley -- Chief Executive Officer

So, in other words buying more of reinsurance.

Mark Hughes -- SunTrust Robinson Humphrey Inc. -- Analyst

Got you. Thank you.

Operator

Thank you. And our next question coming from the line of Paul Newsome with Sandler O'Neill. Your line is open.

Paul Newsome -- Sandler O'Neill -- Analyst

Good morning. Thanks for the call. Is there any offset to the FX in your thinking about guidance for the year that sort of offsets to get us back to the overall sort of guidance in there that you would highlight?

Mike Burwell -- Chief Financial Officer

I make sure I follow your question or I guess what I heard you asking is saying, look with FX at you're $0.12 overall for the first quarter, we updated our guidance to $0.15 headwind for the year and we did not change our guidance. We kept it at $10.60 to $10.85. So then, therefore that's what we are assuming, we're going to be able to absorb that within that range that we said would be there. And there's really no change to margins. So, that's how we're thinking about it. Or help me if that isn't -- I'm not responding to your question.

Paul Newsome -- Sandler O'Neill -- Analyst

No, that's exactly what I was saying. If there was some sort of -- if you think essentially the strong organic growth offset, or anything that you thought you'd want to point out to?

John J. Haley -- Chief Executive Officer

No, we just thought we would still be in that range.

Paul Newsome -- Sandler O'Neill -- Analyst

Okay. I was hoping you could talk about a little bit of the market environment, particularly for the brokerage operations. And two things I would like you to touch on. One, obviously, there seems to be something going on with insurance pricing. And the other is, there are comments about dislocation of lots of folks from the JLT merger and whether or not that's having any impact on your business?

John J. Haley -- Chief Executive Officer

Yes. So, I mean, I think look, pricing is generally -- each particular area has its own pricing changes. So, auto is different from cyber whatever. But in general across most of them, we're seeing modest price increases. I'd say that's where they -- there's a range everywhere, but they tend to be centered around modest price increases for most of them. I mean cyber is one particular example workers' comp are both probably centered around zero change. No change in rates. But most of them have some slight one. So, that's a headwind for us.

The other question was JLT. And look, we have seen a -- there have been a lot of resumes on the market and I think that's no surprise. This could be an opportunity for us to add some key people, but I think we also want to be careful about just who we bring on and when. So, we're approaching this very carefully.

Paul Newsome -- Sandler O'Neill -- Analyst

Great. Thank you very much.

Operator

Our next question coming from the line of Adam Klauber with William Blair. Your line is open.

Adam Klauber -- William Blair & Company -- Analyst

Good morning. Thanks. The TRANZACT deal that gives you obviously great exposure to the growing senior market. You mentioned part of the business is telesales, part of the business is digital, give any sense just as far as that, that senior market, how much of the market is digital today? In other words, how much the market actually initiates or dose the sales online versus more of the traditional channel?

John J. Haley -- Chief Executive Officer

I don't want to wing it here. So, we don't have a number on that right now, that's something we'll think about putting in when we do our update on TRANZACT for next quarter.

Adam Klauber -- William Blair & Company -- Analyst

Okay. But as part of the thesis that digital online piece is going to grow pretty rapidly?

John J. Haley -- Chief Executive Officer

That's correct. We do expect that to grow. Yes. And it's one of the -- it's one of the things as we said, we like the lot about TRANZACT.

Adam Klauber -- William Blair & Company -- Analyst

And then thinking forward, as you look at other potential deals over the longer term, is it -- are you thinking about more like TRANZACT that have that digital online exposure, are those in the pipeline, I guess what your thoughts on expanding your digital footprint?

John J. Haley -- Chief Executive Officer

So, I think something that has that kind of digital capability and that kind of exposure, that's a feature that makes a deal more attractive. It doesn't mean that every deal has to have that there. So, we'll be looking at that. But in general, what I laid out was, we're looking for businesses that are going to be high-margin businesses, either are already there, or have the capability to get there relatively quickly. We're looking for businesses that fit in and that are relatively near adjacencies to our existing business.

And we're looking for that, simply put, because we want to understand the businesses ourselves. We don't want to be acquiring things that we don't understand inside and out. So, that's why we're looking for things that are relatively near adjacencies. But within that if a deals accretive, it's more attractive than if it's dilutive, if it has more digital capabilities, it's more attractive than if it doesn't. So, we'd be looking about that. I mean, having said that, we're really focused on organic growth too.

Adam Klauber -- William Blair & Company -- Analyst

Great. And then as far as your -- the Benefits business for large and jumbo clients, some of the other competitors there has been some dislocation as you know, some have been splitting their tech and consulting, some trying to figure out, what to do with their technology, has that been a benefit in with you picking up clients in that large and jumbo market?

John J. Haley -- Chief Executive Officer

I don't know that we see that as having a particular -- particularly large impact now.

Adam Klauber -- William Blair & Company -- Analyst

Okay, fair enough. Thank you.

Operator

Our next question coming from the line of Yaron Kinar with Goldman Sachs. Your line is now open.

Yaron Kinar -- Goldman Sachs -- Analyst

Hi, good morning, and I apologize in advance, I missed the first part of the call. Did you talk about the FX impact on margins, and if not, could you maybe talk about that now?

Mike Burwell -- Chief Financial Officer

Yes. Yaron, there were really no real meaningful impact on margins from FX. Not material.

Yaron Kinar -- Goldman Sachs -- Analyst

Okay. And then my other question, I guess, I was called offguard by the half year in terms of the triennial valuation cycle. Should there be any impact from that for the rest of the year? And are there other maybe one-offs that we should be thinking about for the rest of the year?

John J. Haley -- Chief Executive Officer

Yes, I mean I think the answer to that is, no. I mean the triennial -- the triennial valuations have an impact, the whole year, I mean it's this year compared to last year. The effect is more pronounced in the first half of the year than it is in the second half of the year. There's nothing else comparable to that. We did call out that the last year that the triennial valuations were reason that we had good growth last year, so it was something we tried to signal then.

Yaron Kinar -- Goldman Sachs -- Analyst

Okay. I must have missed that. And then finally, so the remaining $48 million of ASC 606 catch up in the second, third quarters. Should those be roughly evenly split? Or do you expect that to be more weighted to one of the two quarters?

Mike Burwell -- Chief Financial Officer

I would think they'd be pretty even, I guess is the best way I would look at it.

Paul Newsome -- Sandler O'Neill -- Analyst

Okay. Thank you very much.

Operator

Our next question coming from the line of Sean Reitenbach with KBW. Your line is open.

Sean Reitenbach -- Keefe , Bruyette & Woods , Inc. -- Analyst

Hi. It seems like going back to Wholesale, it seems like pricing in many Wholesale lines is generally positive and modestly accelerating, but revenues declined, what you guys called out to the marine.

Are there any concerned about the net new business going forward and whether you'd expect kind of to see some positive movement from on renewals due to rate and that be positively impacted going forward?

Mike Burwell -- Chief Financial Officer

Yeah, I mean, as John said, we see the rate is depends on the line and in terms of modest increase in pricing. Obviously that's winning and continue to win more than that new business. So, it's both volume and rate. So, we've had, as we've articulated a little bit of volume change here that's gotten a little soft for us. But let me tell you, the management team is very focused on it and we manage it for the entirety of the year, so we're giving update here at the quarter, but our expectation is to meet what we said in terms of objectives for the year.

Sean Reitenbach -- Keefe , Bruyette & Woods , Inc. -- Analyst

Okay, thank you. That's all my question I had.

Operator

And our next question coming from the line of Michael Zaremski with Credit Suisse. Your lines open.

John J. Haley -- Chief Executive Officer

We're not hearing anything.

Operator

Okay. I'm showing he just removed himself from the queue. At this time, I'm showing no further questions. I would like to turn the conference over to Mr. Haley.

John J. Haley -- Chief Executive Officer

Okay. Well, thanks everyone for joining us today and we look forward to updating you on our second quarter call in August.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This conclude the program and you may now disconnect. Good day.

Duration: 44 minutes

Call participants:

John J. Haley -- Chief Executive Officer

Mike Burwell -- Chief Financial Officer

Greg Peters -- Raymond James -- Analyst

Elyse Greenspan -- Wells Fargo -- Analyst

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Mark Hughes -- SunTrust Robinson Humphrey Inc. -- Analyst

Paul Newsome -- Sandler O'Neill -- Analyst

Adam Klauber -- William Blair & Company -- Analyst

Yaron Kinar -- Goldman Sachs -- Analyst

Sean Reitenbach -- Keefe , Bruyette & Woods , Inc. -- Analyst

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