Q3 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
Right and welcome to the quarter three 2019, XL surface Holdings incorporated earnings Conference call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone if you're.
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I'd now like to hand, the conference over to your speaker today, even Barlow. Please go ahead Sir.
Thank you said they are good morning, thanks, everyone for joining hands. So third quarter 2019 financial results Conference call, Steve Barlow, Vice President Investor Relations with me today in New York, a workforce, Vice Chairman and Chief Executive Officer child, traversing our Chief Financial Officer.
I hope you've had an opportunity to review our third quarter 29, <unk> earnings release, we issued this morning.
Operator, Investor Factsheet, any investor Relations section of the excels website.
As you know some of the matters will discuss in this call. If it weren't looking please keep in mind that these forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements such risks and uncertainties and close or not limited to general economic conditions. Those factors set forth in today's press.
At least discussing the earnings.
Three out of reports and other documents filed with Securities and Exchange Commission from time to time, you tell assumes no obligation to update the information presented on this call.
During our call today make reference certain non-GAAP financial measures, which we believe provide useful information for investors reconciliation of these measures to GAAP can be found on a press release as well and on the Investor Factsheet I'll now turn the call over to wrote for you felt chief Executive Officer.
Thank you Steve Good morning, everyone and welcome to our fourth quarter 2019 Auditing school.
I'm delighted to report fourth quarter was strong and our revenues this quarter on an annualized basis exceeded $1 billion.
This is a significant milestones in the company's history, which I would like to tackle appliance well They trust and our employees for their hard work dedication.
During the quarter, we generated revenues of $251.4 million, which represents an 8.8% increase on a reported basis.
9.3% increase on a constant currency basis.
Excluding help integrated revenues grew by 9.8% on a constant currency basis.
Adjusted EPS for the quarter increased 18.3% to 84 cents.
Excluding has been degraded adjusted EPS for the portal was 88 cents.
In the first nine months also yard our revenues grew by 14.3% on a constant currency basis to $734.5 million.
I know you'd be us grew by 13.9% <unk> two daughters and 30 cents.
The company has performed very well and the yard is strong in terms of overall performance.
In the first more dog.
Operations management business reported a $162.6 million in revenue up 9.6, the signs you're on your and 10.1% on a constant currency basis.
Excluding health integrated operations management grew by 10.9% on a constant currency basis, which is the highest growth rate since the third quarter of 2015.
We had strong performance in the insurance vertical which grew by 20.9% and that has gotten more to grow which grew by 26.5%.
I'm pleased with the momentum that we have been itself in our operations management business.
And the first nine months of the yard we achieved a growth rate of 7.2% on a constant currency basis, which is the highest in the past four years.
You have grown across geographies industry verticals and businesses.
Operations management comprises approximately 65% <unk> revenues, which are and what do you based and inherently sticky in nature.
Creates a great run rate for our future growth.
[noise] during the quarter analytics revenue grew by 7.8% year over year on a constant currency basis to $88.8 million.
This is the first quarter enriched revenues from see all told analytics are included in our overall analytics revenue on an organic basis.
The growth rate off the analytics business this quarter was impacted by lower growth rate in Seattle.
Proactive exit off some of our small no margin and nonstrategic times engagements.
As part of prudent portfolio management, we will continue to drive these types of actions and have systematic manner.
However, looking at the first nine months off the yard excluding seal analytics grew 15.3% on an organic constant currency basis.
We continue to win new volumes in both our traditional analytics business as well as seal and our pipeline continues to be strong.
We remain confident of our long term growth expectations, often combined analytics business as well to 14%.
No I would like to discuss doing predators, which are critical to our long term growth and sustainable success.
First large strategic deals we are winning due to an ability to reimagine business more of those as a strategic digital transformation partner.
To our companywide efforts to enhance our digital talent and leadership.
Talking about the post imperative reopening larger strategic deals that include re imagining business more of those and driving and Dwayne transformation.
Well I sneak transformation partner Nike X, so well have a deep understanding of that business and the ability to orchestrate domain knowledge with capabilities across the full stack of data and analytics technology platforms and digital solutions.
Our ability to Reimagine business models and deliver sustainable outcomes has driven increased collaboration with C. C suite executives, who have a strong appetite right large scale change.
We're also able to deliver enhanced value to our clients through a combination of innovative deal constructs transparent pricing models and partnerships for accessing nish talent and technology.
This has enabled us to take on a more strategic role in solving clients business problems and ultimately deliver tangible long term business impact or appliance.
This is reflected in the nature of our baseline as much as our recent wins and I would like to shed three such examples today.
But.
We were recently chosen as the strategic partner to Reimagine, Ben and optimize the actuarial function of a leading global insurance company.
This is the largest insurance analytics deal we have ever one.
It is a significant when in terms of the complexity of the walk and the scale also program.
We have established a unique model that's reimagine the actuarial function off a few job, which redesigns process he used to align well with the right skilled resources.
Although many it's a significant portion of representative actuarial das and Leverages, a highly skilled global Scannable does move off actuaries.
Yes, so partnered with a leading consulting to combine our domain expertise talent and capabilities to drive this multiyear transformation.
We plan to leverage this partnership or other deals without global insurance clients.
Second we were recently awarded the mandate to transform and operate the employee benefits customer service is saying.
One of the Lodge life and annuities client.
This win is a direct consequence on deep expertise in the employee benefits space the strength of our front office, but she's done a transformation capabilities.
Strong understanding of the clients business.
This engagement also underscores the growth trajectory on employee benefits practice and the majority of our service offerings.
Moreover, we are currently pursuing other engagements with the same fine on the back all the quality of our delivery and the trust we have both overtime.
Sorry in the healthcare space, we recently expanded our relationship with the commercial services organization of a fortune 50 company.
Leveraging excellent customer experience framework, we are supporting bad members by addressing benefit eligibility and claims experience from our delivery center in Bogota, Colombia.
Our team is also able to tightly coordinated with other departments to expedite resolutions and enhance the complete member experience.
I find thought experiencing for phone ships in that business and expect tangible results from that digital investments.
Our ability to beat that strategic digital transformation box no depends on the timing, but we develop.
I have yet so we have pursued a portfolio and deliberate strategy to acquire huh.
And organize on talent base as a key sourced off competitive advantage.
Our talent development strategy is comprehensive and founded on three brothers.
They just don't leadership.
Digital technologies, and methodologies and digital journey and mindset.
Digital leadership is the ability to partner with clients on digital solution end to end from strategy to execution.
This means developing and acquiring professionals, who are proficiency in both business and technology.
Easily does proactively concise declines on digital transformation opportunities in the context on bed industries and orchestrates solutions.
Tangible outcomes.
Did you see those technologies and methodologies develop expertise I don't spend so big technologies duals and framework required to successfully execute projects for our clients.
Okay mobility efforts are directed towards training on technologies, such as cloud Big data outdoors automation, Yeah, hi, and methodologies, such as I Jive and solution development frameworks.
Finally does it does go children mindset is all about creating the right DNA or high performance in our digital economy.
This includes developing trade, so agility and speed.
Anything I've got a general innovation and collaboration and fostering a mindset to reimagine and think beyond.
This is those culture also builds a foundational self learning and spot as the design for change amongst all of our employees.
In addition to attracting market, leading talent and organizing our teams in an integrated client facing model.
We have trained more than 27000 employees on digital intelligence and our digital E accelerate frame book.
All our leaders are pursuing our digital certification program that is focused on domain.
Oh Geez I have solutions.
More than 6000 off on digital and analytics exports stay ahead of the market through self learning and programs on advanced analytics data management and automation.
Our design facing do does regularly coaching programs on how to implement not scale change management and Reimagine business models.
Digital blueprint and diagnostics.
We have always believed our balance to be a differentiating factor.
And with this investment we continue to remain ahead of the market and enjoy the confidence about lives.
Additionally, the analyst community has responded very positively to our transformational delivery and Ben just talked about it.
He XL was positioned as a leader by Everest group for the full Joe to not role in that 2019, big matrix for life and pensions insurance beat deal.
We were also recognize as leaders in Everis medical care management bps services be matrix, which specifically noted our leadership position in the category off strategic vision and capability.
In closing I pipeline remains strong and includes strategic engagements.
Larger scale and scope, but the proposition all end to end transformation integrated technology enabled solutions and innovative deal constructs.
We have a healthy pipeline in operations management across market segments industry verticals and geographies.
We continue to see a strong demand for a analytics business and have a deep pipeline of large multiyear deals that demonstrate moccasin, Chris you know openstack or analytics offerings, along with end to end data management and analytic solutions.
Overall, we are positioned very well to meet our growth aspirations.
I'm excited as the market activity remains bullish and the opportunity space keeps growing and evolving.
Lastly, as you know after 10 plus years for the XL, Michelle has decided to pursue other opportunities.
We thank him for his contributions and wish him success in his future endeavors.
We are working with a global executive search foam and will provide an update when appropriate.
With that I've been handed over to Michelle.
Thank you it and thanks, everyone joining us this morning.
I would like to start by providing insights into a financial performance for the third quarter and nine months of 2019, followed by updated guidance.
We had a strong quarter, though with revenues up to 51.4 million up 9.2% year over year on a constant guns visits.
Adjusted EBITDA of 84 cents up 18.3% year over year.
As you are not bad we are winding down the health of doing business substantially by December 31st.
My discussion all the financial results encompassing revenues and expenses will exclude the impact of held independent in order to underscore performance all core business.
I will discuss helped into good separately later in my remarks.
All revenue growth numbers mentioned here in after our on constant currency basis.
We generated revenues of 48.5 million up 9.8% year over year.
Sequentially revenues grew 3.6%.
For the quarter revenues from our operations on the business.
Defined by five reportable segment, excluding analytics watered 159.8 million up 10.9% year over year.
This is the highest growth rate and a lot 16 quarters.
This growth was driven by clients from insurance healthcare and finance and accounting segments.
In Sean's continued its double digit revenue growth performance with 21.7% year over year.
This is our highest quarterly growth rates in 2015.
This growth was driven by expansion in multiple existing plan relationships and laptops up 2018 Vince.
Revenue was a further boosted by licensing revenues of approximately two into Hoffman.
Okay showed strong improvement for the year or what are your growth of 56.5%.
The highest growth in the last 13 quarters.
This growth was driven by new business expansions and existing client relationships.
And that's an accounting rule, 8.7% year, what you're doing up driven by wrap up something totally different.
[noise] analytics continues to perform better than the revenues of 88.8 million up 7.8% yona yona or 15.3% year to date on organic basis.
This growth was driven by a new flying by new fine Vince expansion of existing client relationships banking and finance and you're doing these verticals.
Sequentially analytics grew 1.3%.
[noise] I'd, just say the operating margin for the quarter was 15.3% down 10 basis points year over year, Duke investments in digital capabilities.
Adjusted operating margin was up 70 basis points sequentially, primarily driven by operating leverage and investments made in Q2 blinds ramp ups.
I don't just a different though for the quarter was 45.4 million compared to 42.3 million last year up 7.3% utilization.
Our GAAP tax rate for the quarter was 23%.
Excluding the impact of discrete items, namely prior we didn't benefits and the revaluation of deferred taxes on a normalized tax that was 27.4%.
I expected range for the accident is 26 about 97.5%.
Our adjusted diluted EPS for the quarter was 88 cents up 15.8% year over year.
Now moving to nine month performance excluding has integrated.
Our revenues went up event, where 77, Randy 4.8 million up 15.2% deal or what are you.
This growth was driven by double digit growth in insurance healthcare analytics, and finance and accounting segments.
On an organic basis, yes, so grew 9.6% middle price environment growing 7.2% analytics, 15.3% year over year.
Our revenue per employee was 32200 up 1.9% deal yes.
Our adjusted operating margin for the period was 14.8% down 30 basis points year over year, driven by increased investments in digital capabilities and solutions.
I just don't events will not be then was to dollar 47 cents up 13.3 person deal what do you.
We generated strong cash flow from operations, all hundred 6 million in the first nine month or 2019 compared to 47 million for the same period.
Last year.
The increase was driven by higher but done better working capital management.
Yeah. So those are flat at 60 to 60 days.
During the first nine months I'll do you ever we spent 72.3 million on capital expenditures and repurchased 564000 shares what 34.5 billion under the share repurchase program and you paid down 40 million 41 million on our revolving credit facility.
We had to 80.8 million of cash and short term investments and warming up to 44.8 million lumping in net cash of 36 million as up to get September 2019.
No I would like to briefly discuss the heads into good business.
I'm happy to confirmed that has integrated would've been substantially well known as alternative funds December when we complete contractual commitments.
They haven't been no revenues in branded Wendy and hence no material impact to earnings in Brent These Wendy.
Revenues for hesitant because it was 2.9 million for the border compared to 3 million in Q Butala 90.
I didn't think there did had a dilutive impact couple hundred basis points on our adjusted operating margin do you didn't want to adjusted EBIT loss of four cents for the quarter and it seems that you have to date.
In addition, we recorded impairment and restructuring charges of 480000 fall or and then 89004, the portal, which is excluded from the distributor.
For 2019, we expect revenues of approximately 12 million and.
No just do the best loss of approximately 25 cents on James from the midpoint of Oh, the guidance given last quarter.
Yeah, there do you ever recorded restructuring charges of 7.2 million and on a fully I've been to expect doing go pretax impairment and restructuring charges intervene don't eat into half million from 10 million.
Mentioned last quarter.
And they could go up a onetime costs. They are excluded from adjusted deep yet and I'm not following up on guidance.
Cash expenditures in connection with the one dog.
Estimated to be in the range of seven to 8 million as communicated earlier.
Now moving to a guidance for 2019.
We are not always our revenue guidance to 90 to 90 million from 976 million 96 million.
It is upon us plus minus nine months performance and it leaves visibility for the rest of the are.
This includes 12 million of healthy into good revenues.
Our midpoint on the guidance declines by dollar 1 million 95 million, owing to what boom Ilim FX headwinds since our last guidance.
Despite this represents a 13% year all your constant currency growth.
Greetings from a believer that didn't help 11% to 13%.
Sequentially from Q4, we expect me to be flat theres, driven by seasonality and no anticipation of licensing in the quarter.
Our adjusted EBITDA guidance has increased to $1.95 to $2.05 from food ordering it just takes to go door at 98, what a midpoint of T. daughters upfront food All night, you do from our previous guidance.
Excluding has integrated just gdps wages increased to $2 Brent D to C dollar took the sense.
In conclusion has always mentioned the business is healthy and we have delivered nine months revenue growth of 9.6, what have you ever where you're on our organic constant currency basis, excluding has integrated.
I just studiously Sterling has embedded was to dollar 47 cents up 13.3% the other what do you.
Our business is performing well, maybe improving revenue growth since.
Confident that even exist the even stronger went up what range right now.
Now rather than I wouldn't be happy to take questions.
As a reminder, ask a question you will need to press star one on your telephone to withdraw your question press the pound <unk>.
And the interest of time, we actually you. Please limit yourself to one question and one follow up please standby will weaken piled acuity roster.
And our first question comes from my own Tandon with Needham and company. Please proceed with your question [noise].
Hey, good morning, this extra cow Peterson from my own. Thanks for taking the question I'm just wanted to touch on a the ops management.
Oh the growth came in better stronger it seems like its inflecting and the commentary it was all positive.
Is is this growth rate kind of something we should think about is potentially being sustainable moving forward or whether they're just a few deal wins I can kind of everything is kind of fell into place just wanted to see how we should think about that piece of the business.
[noise] shook out.
So our off management business or the momentum is certainly accelerating and we are very very pleased with how the pipeline is developing how we've had some of the new wins and solve some and how some of our clients are ramping up on that business with us.
Oh the growth rate in the third quarter off a 10.9% did include a one time license sale that we had much Michelle mentioned off 2.5 million.
The rest of the business was a pretty much a you know growth as normal so our expectations I want to be that the growth rate off the ops management business.
It's going to continue working remains strong as we move forward.
You would have seen but the growth trade off our insurance and healthcare industry verticals and operations management was particularly strong.
These are areas, maybe gawked strong leadership positioning and as well as the market size on the opportunity out here is enormous so we're very confident off of being able to continue into Brazil and grow our business, yeah longer our growth rate expectations from the operations management business.
Continue to remain between 5% to 7% growth rate on the organic constant currency basis.
Great. That's helpful color and then just a follow up I'm on the analytics piece I'm I knew you guys mentioned the CEO revenue came in a little soft.
Was that just related to either seasonality or kind of lumpiness I'm, just saying kind of the claims processing or is there something.
Anything we should be concerned about with demand or client headwinds or anything like that.
Oh, yes, so revenue was up from steel in the third quarter, well certainly softer than what we had expected.
However, I think what we are really inspired by is that the pipeline is strong we've already won a number of new deals and seal and some of the implementation and the growth in that business is much more visible to us So Q4 onward.
Yes, So we think that's something which will contribute nicely to our growth going forward and this is just about the implementation and the execution of these client wins that we've had a that front drives the growth in industrial business.
Alright, great. Thanks, guys.
Thank you and our next question comes from Dave Koning with Baird. Please proceed with your question.
Yeah, Hey, guys. Thank you and congrats on a good corridor.
Thanks, Dave Yeah, and I guess it first of all just to make sure we understand the health integrated is it fair to basically take the 25 cents out of this year and start with a 2019 base of 325 or so I'm a b P. S. In grow that next year and then maybe as part of that are there a little headway.
And next year I mean, that's obviously, a nice tailwind, but other headwinds of like taxes and gains and stuff to think about for next year too.
So Dave I guess as Michelle you know you're right.
Moving has integrated as we mentioned our midpoint of our guidance of two dollar 25 cents and as I clearly mentioned in my remarks, we don't expect any impact on independent when you've been doing so that would be a fair way to look at it.
Any headwinds and ready trendy from taxes, you know actually the tax rate because of the new laws, which we have in India.
Reviewing them they the tax rate in India has been reduced so we are reviewing those oh videos and we'll probably have better color when we give our guidance in a in 2020.
Okay, Great and then one other thing just I know interest income was a lot higher in Q3 than than we expected was there anything one time gain related or anything in there that falls off in Q4 or is that level sustainable.
So they got then gone or was slightly higher in Q3 because of the fact that up because of the is which we get in India are quite watertight depending on the market conditions that we invest in shocked I'm a you know a mutual funds Oh pension fund, but short term investments.
We are sometimes they get into one of diet. So we did get some benefits, saying that you would see for that.
And we probably will have a more normalized dealers are done in Q4.
Okay, well, thank you nice job.
Thank you next question comes from Joseph Foresi with Cantor Fitzgerald. Please proceed with your question.
Hi, I'm, sorry, if I missed it but what was the organic growth rate.
In order I know you gave the 14.3% and maybe could just give us some.
Color on what your expectations for organic growth next year would be.
Yeah, Hi.
Says that Michelle.
I think rotated excluding has integrated or for the quarter was 9.8%.
Okay.
And then as we talk about 2020, Oh, you know I know you've given some long term growth rates for each business.
Do you expect to still hold in 2020 years or anything else, we should be thinking about as we start to model out that year.
So our growth there does not always mentioned that you know, albeit for modeling automated when do you know you should expect that'd be off my husband Gold trade will goal of between 5% to 7% and analytics with combined.
Okay, so feel wouldn't be between 12% to 14%.
Got it and then last question for me on the margin front, you said I think a healthy integrated was all hundred basis point market margin drag where you get that 400 basis points back next year I know you're going to start with that three I guess 25, starting point, but I'm just trying to get a sense of yeah. Some of the moving parts.
I'm going to basis points in fact, a was for the quarter, but for the year I think it's about 140 basis points so that should.
Come back next year.
Okay. Thank you.
I think your next question comes from Brian Bergot with Cowen. Please proceed with your question.
Hi, good morning, Thank you.
Can you quantify how much the impact of the strategic I guess was within the analytics that you mentioned during the quarter.
Oh, I'm, sorry, Brian you want us to quantify the impact off the strategic though that's the strip object exits that you had like a long time, yeah. So you know that's not something would show you know we provide.
Disposal wrong, but a you know this is something which we do as a an ongoing exercise in terms of evaluating our entire portfolio of clients, taking a look at a you know which finds our strategic which combines a rough profitable and how should be manage our overall portfolio off relationship.
So they've or coupons, which was non strategic low margin and Oh, we decided to exit those kind of relationships because as you know the growth rate in on analytics business is very strong and we wanted to be able to focus on those lines relationships, which all strategic and very weak.
And create value and we can grow our business nicely. So this is an ongoing exercise. So you know that we undertake and I think may impact of that basically is falling in the second half of this year.
Right.
You will see some benefit of that are coming through in the margin line in coming quarters.
Okay, because I was actually going to me. My next question as far as you know this has been pretty consistent here I think 35% or so were just under that gross margins I was curious how should we be thinking about that target level going forward.
Yeah, so as that I'm, you know as I mentioned, it wouldn't be improving trends in the margin profile for the analytics business and you know one of the reason that factors would be.
Yeah, we are optimizing our portfolio.
Okay can you just give me give me a sense of the mix of the analytics portfolio as far as to how much of standalone versus embedded how much is recurring just an update on that mix.
Yeah. So the revenues we report for analytics on all on Standalone businesses or what is embedded in operations management, we don't disclose that it as part of our you know ability to deliver better outcomes will outline send up you know the opsmatic been growth it probably has some impact on that.
But in terms of the Standalone revenues the number of his report out all the Standalone not analytics number so Brian just just to be definitely clear on that.
Any analytics revenue, which is embedded as part of our operations management segment.
Analytics revenue that can you report separately is all 100% Standalone analytics revenue for us.
Okay. So I want there are two thirds mex project versus a recurring yeah. So in terms of Vectoring in energy revenue you know as we had been a golf in both the consistently that remains or the one third to total it wasn't being the second thing and the annuity based.
Okay. Thanks, guys. Good luck for show Thank you.
Thank you and our next question comes from Mackie Nolan with William Blair. Please proceed with your question.
[noise], Thank you and the large analytics wind a rebuild the fact world program.
Yes.
Is this a change in terms of the type of deal you've seen and can you talk for now how the structure of that contracted either similar or different from typical engagement maybe in terms of contract length pricing margin profile, that's tied to thanks.
Oh, absolutely Maggie so yes. This is a very unique deal, but it's also I think all at the beginning of a trend that we're seeing in the analytics business.
So the actual real value for us so it's a long term multiyear deal, which goes across a five years. It is a below where the implementation and the revenue spoken for next year going forward.
It did look transaction, which we have done in partnership with a major Ah you know consulting for them as well. So a this is a unique business model that may have created and you know we can impact a much larger pieces of business for our clients.
The the pricing on this deal is up.
And on our transaction, though you know pricing basis, what it basically allows us to be able to ramp up as we increase the volume up work associated out here.
Oh, there is oh reconfiguration of the work that will be doing okay. If it goes some part of this will get automated some part of this wouldn't be done with the right skill set which doesn't require a fully qualified actuaries to do this work and the rest of it will be done by actuaries on a leveraging our global.
Delivery business far so it is reflective off a much larger sized engagements and deals that were seeing in the analytics pipeline and we remain excited by.
Oh, this will generate a much stronger growth for us in the analytics business.
Right and then for the consolidated company can you remind us how much is it's transaction or outcome based and kind of trends that you're seeing there.
Yeah, so far.
The overall a company the transaction base, an outcome based pricing model is that 36%.
How are they trying to call out there.
Oh, Yeah, I think a this is something which is likely to continue to increase particularly as times embrace digital transformation, then looking for a business impact, which is tangible and realizable and we are quite comfortable in terms of executing on implementing on bad and tying our compensation related to the business outcome.
So our our are thinking is that this person days, we'll continue to increase over the years, but the pace of change is gonna be a a bit gradual because.
Many of our clients are actually not ready for transaction based and outcome based pricing model those even though we as a service provider are fully ready.
For it so the change will take place gradually but it for intervention in a from the 36%.
Thank you.
Thank you and our next question comes from Justin Denardi with Wells Fargo. Please proceed with your question.
Okay.
Hi, Thanks for taking my question just in light of you know the growing number of a large and Dan digital deals can you update us on the level of R&D and digital investments that you're making this year.
Do you see you need to accelerate some of that investment.
To take advantage of this healthy demand environment.
I just in a this is a shot as I mentioned in my prepared remarks. That's you know weve continued to invest in building digital capabilities and solutions.
You know, we don't disclose that number but you know if you add the steady increase all five investments or.
R&D of to develop these solutions and digital capabilities and we'll continue to make those investments.
Okay. Thank you and then last quarter, you talked about some of a number of insurance clients using multiple offerings can you provide any similar level of granularity around clients in your health care in finance and accounting verticals that are.
Using multiple offerings.
[noise] Oh, yes, I think you know that's one trend, which we continue to see I mean, we see that where our clients are actually using multiple service offerings from us and therefore, the penetration and the depth of the relationship continues to expand with existing clients.
Also seeing that as we develop some integrated industry solutions.
These are quickly replicable across multiple appliance and therefore missing an advantage on scandal on size and I don't know leadership positioning out here, so frankly or the growth in a you know insurance and healthcare, it's being driven both by upgrading.
Integration of work that we do without lines as well as the adoption off some of these new industry.
Based on integrated solutions that we are developing.
I appreciate the color. Thank you.
Thank you.
Thank you Wonder next question comes from Vincent Colicchio with Barrington Research. Please proceed with your question.
Yes, I wrote it I think the mix in the UK declined a little bit the year over year is there anything going on there.
Oh no. It says there's no real change out there in the UK our positioning out there continues to remain strong. The pipeline is a you know very attractive and we continue to win new clients out there.
As you also know that for us. So most of our UK revenue is about FX hedge. So you know a substantial portion of that no, but the currency moving up or down doesn't really have a material impact on our business Oh, we don't really see any.
Real impact of Brexit or you know out there are businesses operating pretty much as normal and be continued to grow our business that.
And the show pushing about the a the tax situation in India has there been a decision on how to treat the special economic zone.
So you know those special economic zone.
Then if it's a which are there between you know if you don't have a huge amount, especially from Xone benefit that's why it's accurate as high as compared to last years, but at the new tax law has been Chen Newell laws have been introduced.
Yeah, I can chose whether you want to retain some of those a tax benefits or you have to vote was the door tax rate, though it did other corporate tax level. So that some stuff. That's the study we are performing for our legal entities in India, and I said earlier than they would have a better color to give up though and the tax impact, though when we get about on new guidance.
In many many.
Okay nice quarter guys.
Thanks Vincent.
Thank you and our next question comes from Puneet Jain with JP Morgan. Please proceed with your question.
Hi, Thanks for taking my question can you talk about expose it to macro spending environment within your analytics and consulting within operations management, how much of business is exposed to project spending.
[noise] sharpening up so first of all the you know based on the global economic conditions, We do think that our business model is a defensive business model and.
At times when the overall economic growth rate is slower clients are looking to reduce costs and introduce greater amount of transformation and that benefits us. However, there are discretionary expenses.
And revenues that we have a within analytics and but then consulting.
And consulting or it is a pretty much a entirely a you know project based and discretionary. However, the good news is that for US the consulting business represents a a small portion of our overall revenues.
And analytics.
About a third of our business is.
The project base and is subject to that kind of fall volatility. However, you know we in the past we've not seen a bad to be much of an impact whenever there's been an economic downturn and that growth and the pace at which bonds are adopting analytics our expectation is that.
This should be a pretty smooth even during a time off of global economic go sort of.
Got it and can you also talk about margin benefit from the license revenue 2.5 million driven you talked about in their quotas and what do we expect full license revenue for the putting it on that and how much of that should be viewed as a nonrecurring.
Yeah, So I guess, the best way to take a look at it is a every your we bought expects to get some amount off our revenue coming in as license revenue and that's being on track record for the last Ah you know several years, where each other we will have new client revenue.
Oh the border enriched Shelby gets the license revenue certainly has a material impact on the profitability of our business because the license revenue is a high margin or you know a revenue for us.
We do not expect any further license revenue in Q4. This year. So whatever we've got this year is already included in our financials. This is something which is episodic and we'll continue on your on your Ah, but we can't predict this on a quarter on quarter basis.
Oh, No agreed agreed but what's the baseline level of license or when you have been any any specific here are we typically have a a couple of licensees that they see Joe it depends on the size off the client relationship but be sign up so again, it's very difficult to provide you with a baseline.
On a number a associated with the license sale for the third quarter like we disclosed it's a $2.5 million off a licensing but regarding the third quarter.
Okay, and just to be clear like most of your solutions based business is gonna be passed murder knocked them license space [noise].
Got it.
Oh, it's a combination of both be passes certainly the larger person days off a you know our overall platforms business, but are we do have a license revenue and.
Some associated a you know Oh Solutioning, you know our revenue along with that and services revenue along with it.
Got it thank you.
Thank you and as a reminder, ladies and gentlemen, that's star then one to ask a question and our next question comes from Ashwin Shirvaikar with Citi. Please proceed with your question.
Okay. Thanks, I hate that really parish has let me start by saying, which has been a pleasure working with you.
So.
Yeah.
Hopefully can stay intact.
So I guess the question is more about sustainability off Oh for revenue trends and I guess on the land side. It is you know given all the investments you've made you're getting back towards more of the industry peer growth. It seems to me that they should be sustainable.
Given all the comments on pipeline.
Just wanted to confirm that that could be true and then in analytics easy on the you know.
Considering the impact of normal Tony and all of those kinds of paying it also seems like you're getting back down into a more normalized.
Hi, guys, because lets say adapter multiple years of both organic and inorganic investments so would that be.
Would that be a.
Okay, great assumption.
So it shouldn't I think that's absolutely correct I think the biggest area of confidence for US is when we take a look at the demand environment for operations management and for analytics.
Both of these segments continue to be very strong in operations management, we are seeing larger deals they're seeing more end to end work and we're seeing more transformative deals where the kind of work that we do is much more attractive to our clients and therefore.
Our business model seems to be resonating quite nicely out there.
In the analytics the on demand environment is actually explosive and it's something which is very strong there's a lot of needs to be able to.
Utilized take data management predictive modeling at Incyte generation and we got one of the very few companies that has a full what do you go stack of capabilities in analytics now the demand environment is strong, but we're also seeing us when these large deals and we're also seeing the conversations that we're having.
With our clients and prospects actually get elevated and all the conversations are now much more with the CEO and with the C level executives. So these are much more strategic conversations and therefore, we feel good about the book these businesses as to how they're performing.
Got it and then as I was looking at sort of the a gross margin trajectory across a across media segment.
Yeah, obviously doing doing well in.
Being read insurance Im assuming has carried this is because the feds integrated.
The question I have is about the finance and accounting and what's in that onside. There. It seems to be some kind of fleet at a drop off what an investment that you making.
I know overall, you've done you know you did on the business and operating margin basis, but I'm just trying to figure it out.
You know if there any drivers to look into because of the gross margin.
Yes.
Right. So I think a you're absolutely correct with most of the healthcare business. So it does include a health integrated so the gross margin out there is always effective off of being backed off a health integrated.
The all other a you know segment that being pulled out includes a utilities up banking and financial services and consulting. So that's a you know what we've got that Oh whenever there is a you know and in fact on the revenue got that they're going to be an impact on the margins.
In that particular, Florida.
But you know again.
I think for us they they're seeing.
Good traction take place in banking and financial services. So that's something which is performing well and a you know have really been continued on food price or you know the management of our overall customer mix and our portfolio of that.
Got it and then last question is a as you start putting has indicated behind your sense or are you beginning to look again at a at M&A and obviously this is that within your process and so and so forth or are you going to stay away from sometime.
Right. So for us so M&A is always a a strategic Bob space to grow and being able to continue to look at ASCO ways in which we can acquire assets and integrate them.
Our experience has shown but when we make the right strategic assets. It sometimes takes us sometime to integrate them fully and realize the strategic value about asset, but a these though in general have been good though you know investments that we've made so we could continue to remain focused on not doing M&A.
Right, but we'd also be prudent then comes off or doing acquisitions going forward.
No I shouldn't just to add.
Oh, the backup as indicated on gross margin for healthcare was about 770 basis points.
They get them.
Understood.
Thank you guys.
Thank you operator next question comes from David Rosslyn with Stifel. Please proceed with your question.
Hi, Thank you all good morning, I've just a couple of quick follow ups to some questions that have already been asked some first just on.
The the momentum in the business going into next year can you know I know what did you don't disclose you know.
Backlog or bookings anymore, but can you give us a sense on a year over year basis, you know, what's the you know the backlog and lessons bookings that are gonna be executed and 2020, how that looks kind of going into the fourth quarter on a year over year basis.
Hi, David So a you know look on our backlog in our bookings a continues to progress up nicely and continues to increase so we have.
Oh, good visibility and in terms of our revenues for next year. The size off the pipeline has actually expanded up quite significantly from last year. So we're seeing that more larger deals are coming into the pipeline I'd be happy a larger opportunity to be able to win.
He is a oh tier.
So I think the progression is Ah you know inline with my comments on the growth momentum that we are seeing and bought the businesses and we feel good about where we are currently position.
Great. Thank you for that and just you know on the margins I mean, I think a you know for sure all you mentioned.
I think I've heard of right 140 basis point headwinds from health integrated from Evercore true round numbers around 15%.
Surgeons right for this year or so.
As we look into next year, you know not too you know pigeon hole, you and nothing.
Of course through that's providing guidance for next year, but just at a high level I mean, it seems like.
You know a pretty good expansion on the year over year basis, just you know starting at that point.
Going into next year.
Should we just assume that there you know kind of an investment program that not to expect much expansion on that basis or do you really think that that's your starting point and you're going to expand on that basis.
20 toward.
Hi, David you know.
I mentioned before do you that we always have libors on terms of how it'll improve margins and you know he mentioned that how are now that it makes we're doing some out portfolio pruning to improve our margins.
But there's always a balance between what you would have raised to the bottom line versus what you need to as a management Oh and I think.
I think that foreign call then give little more color then not guidance when we give a guidance and now the and preneed ready.
But doggedly run Oh.
Obviously, there are leveraged for us to improve on margins and you know a dead ends up and if at all to wrap ups. All the cost do you have taken this year the benefit all day investment strategy being all of that is benefits off you know portfolio optimization, a will continue to look at all those and you know come with a balanced approach a when we have to give that.
But when you drill.
Right. So just to be clear you do want us to think about 2019 on that pro forma basis right.
Yeah, No has indeed been an impact on the benefit of that on the margin I will definitely be there.
Right and then just lastly, it in the second question on the margin is that.
Clearly we are the most scale you had in terms of domain expertise is an insurance.
Emerging you know kind of presence in health care.
I think he said seven.
170 basis point headwind on the gross margin in health care, So that puts you.
Similar to the 20, 627% range and I think insurance is in the low thirtys.
You know I know mix you know among other things are going to affect the gross margins but.
Sure the strength in insurance and healthcare you know mix favorably on the margins with that trend continues.
So you could look I've been shows.
I'm, sorry, Yeah reported blended corporate margin.
I think you can clearly see this quarter the insurance margins gross margins improved bite. The bullet, though you are what are your and sequentially.
Healthcare sequentially has also improved.
Turing has indicated that it's improved year over year or so these two you know segments as we expand then we get them more scale and especially in as good I think we will get some margin benefits that.
But the other.
Other segments have fortune bank.
But all we do expect the gross margin to be a tailwind did great management.
Right, Okay, great. Thanks, very much [noise].
[noise] thing you. This concludes our Q many session I would now like to turn it back to Mr. coupon.
Further remarks.
Thank you. So thank you all for attending our third quarter earnings call. I think we are excited about the strong growth about business. This year, but more important phebe momentum that we have built up.
As we think about exiting 2019 and getting into 2020 , Oh, I think the future for our company is good and we remain excited about the prospects going forward I don't want all done that all over to Michel before we end as it is gonna be has lost a call a such bishops'.
I do it.
I would like to tanks to our investors and analysts for a wonderful any other than the CFO be excel.
I really enjoyed meeting all of who'll discuss the excelled investment pieces.
And the success in building shareholder value.
I was Cooley Miss your friendship and out into action.
But I do look forward to keep in touch the deal.
My niece, Android and the management team for a wonderful 10 years, especially Lewis for being a mentor and friend.
I look forward to seeing continued growth OPX, so well the next few years. Thank you [noise].
[noise] [noise], ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.