Q4 2019 Earnings Call
Ladies and gentlemen, this is the operator today's teleconference is scheduled to begin momentarily until that time no lines will again be placed on music cold. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and what we said the Q4 2019 XL Service Holdings Inc. earnings Conference call.
At this time, all participants are in English and the only mode. After the speakers presentation. There will be a question answer session to ask a question. During this session you wouldn't meet the press star one on your telephone.
If you acquire any further assistance. Please press star Zero I would now like to him the conference over to your speaker today Stephen Barlow. Thank you. Please go ahead Sir.
Thank you Carol good morning, Thanks, everyone for joining it sells fourth quarter and year end 29, Chief Financial results Conference call, Steve Barlow Yourself, Vice President Investor Relations with me today in New York for Vice Chairman and Chief Executive Officer.
Really Lee our Chief Financial Officer.
We've had an opportunity to review our Q4 2019 are actually we issued this morning, you also updated on Investor Factsheet any Investor Relations section.
Right.
As you know some of the matters will discuss this call I was looking please keep in mind.
These statements are subject to known or unknown risks and uncertainties.
Actual results to differ materially.
From a fly Fi such statements such risks and uncertainties include what about your true general economic conditions. Those factors set forth in today's press release discussion topics periodic reports other documents filed with Securities Exchange Commission sometimes.
Excel assumes no obligation to update information presented on this conference call.
During our call today make reference certain non-GAAP financial measures, which we believe provides useful information for investors reconciliation of these measures to GAAP.
Actually it's wells Investor Factsheet, I'll now turn the call over to road work it sells chief Executive Officer.
Okay.
Thank you Steve.
Morning, everyone.
2019.
During school.
I'm pleased to report a 29 team right here.
We celebrated its twentyth anniversary as a company and so forth $1 billion an annualized revenues.
We continue to see a fever.
Right.
Andrew proposition is resonating.
Across industries and service lines.
2019, we generated revenues of $991.3 million, which represents annual breaks right.
0.3% on older basis.
Extorting integrated we generated $978.8 million in revenues, which represents a great Street all are deemed 0.1% on a reported basis.
On an organic Austin I don't see basis, we grew by 9.8%.
I just I treat a company in the Pos for years.
In fact, we have been actually bringing our organic constant currency growth range from 7.8% in 2017.
8.9% in 2018 and 9.8% in 2019.
The acceleration, okay, great Threed as people were.
I think I've scaling up large one of two yards transformational engagements.
Our adjusted <unk>, Yes.
$93 at nine cents.
Oh, well trained all 11.6 effect.
Excluding how did your great.
Oh.
Yes.
10.7% to $3 I'm sorry.
Our operations management business [noise] nicely to $634 million revenues.
Okay, 6.1% role.
Yup.
Excluding kind of integrated operations management generated $641.5 million in revenues up 8.1% on an organic constant currency basis.
In the second half of the yard operations management was particularly strong.
<unk> or 10% you're always your four consecutive quarters.
This was powered fired.
Across insurance.
Scott and finance and accounting.
I don't want expenses also had another solid year.
It's running 90 analytics business generated $357.3 million on revenue, which represents a growth of 25.3% on a reported basis.
13.9% growth on an organic constant currency basis.
[music].
Our full stack of capabilities, including data management predictive modeling.
Analytics continues to resonate very well and the market.
Yeah, no participating in your markets.
I didn't larger more complex fees.
And the boss five years I I'm at these revenue has tripled and today.
36% objects outspoken revenues.
Yeah.
We are established as a market leader.
Our friendship by boats this oh I'm scared off the practice.
This is evidenced by our inclusion in the dark no magic quadrant for.
The next service provider does worldwide.
In the fourth quarter I live in fixed business grew by 9%.
On an organic constant currency basis.
The growth rate for analytics this quarter was impacted by the proactive eggs good off some of our small no margin and bomb strategic find engagements.
This is consistent with our messaging last quarter.
Despite these portfolio rationalization actions.
One of your growth rate remained strong at the mid teens.
No I would like to discuss dokey trends that coal and accelerated growth rates part, yet so where do you like GE and will provide momentum for future growth in pretty crazy and beyond.
One.
Our expansion into many more buying centers within existing accounts and Joel on other different design.
Lots scale globally.
Make sense and data management.
Thanks.
I find demonstrating a greater appetite leverage on capabilities across new buying centers.
Our access to seed pod executives.
Referenceability off on existing customer <unk>, well as English in New York, So as the strategic partner of choice well these new opportunities.
This is enabling us to participate did and when I arrived deal fees across new buying centers within our existing clients.
We have also successfully a high level of trust I heard about to be.
Consistent superior execution, and a focus on fine satisfaction.
This is reflected in our high grade amongst these engagements, which ends dawn translates into high growth rates dropped five.
In the boss your article and Fives grew 15.4% on October 35 school, 40.6%.
For example, we recently expanded our relationship with a large national Health plan, you know very meaningful way.
Yes, so how does longstanding relationship with upside.
Acquisition of seal.
Has created a strong foundation preston or the across the organization.
Moreover, we weren't able to demonstrate the value often combined capabilities of the Florida organization.
Let's see liquidity.
We were selected to support that lives for why that community.
Precertification claims.
The second trends I would like to call out, it's not a deeper design and scale.
Data and analytics centers of excellence.
Our clients are seeking partners, who understands that business I guess gave up you send Bose I thought rapid pace.
Our goal would have done a remarkable and demonstrated experience in this space across multiple industries is helping us covered lives on this.
Our approach to lead with a focus on business outcomes, especially resonates very well given the broad scope and size of these engagements.
Have a proven ability combined domain expertise with data analytics.
Right insights at the point of execution.
This is helping us win large nobody is indeed, a analytics that support.
Buying centers.
Today, we have four clients generating more than $25 million in annual revenue you know analytics business comes back.
Three years ago.
One Great example of this demand trend is on recent selection bias up five VNC insurance carrier.
Create a global data management and I don't think center of excellence.
This deal is a culmination off.
Engagements across the insurance value chain and spans multiple business functions.
This when we go to support the U.S. as well as Christine other global markets in Latin America, Asia Pacific and email.
This win was a testament to our market, leading PMC domain expertise and our ability to implement advanced analytics access to support our clients transformation initiatives.
This when it comes in quick succession, following the large insurance analytics center of Excellence Wynn Las Florida.
We continue to see a strong pipeline of similar engagements.
Pretty 19 was also the key all key changes.
Our organization structure and leadership.
We streamlined our organization structure four business units.
Insurance healthcare analytics and emerging.
The depot, what would you guys, they shouldn't and insurance healthcare will accelerate our growth by bringing together our capabilities across operations analytics data and digital within industries as it makes sense.
I undertakes business will continue to remain a growth engine party XL and we will expand our investment Hey, Dave.
Advanced analytic solutions.
Finally, the emerging business unit consolidates, our other watch it goes as well as part of our Anthony and consulting practices.
With this we ask the opportunity to they did you and profitable sources of growth already excess.
At the same time, we have invested significantly strengthens and expand our senior leadership, including the executive Committee, why attracting market, leading talent as well as promoting and done.
We also created an operating committee of our senior leaders to expand executive bandwidth bright enterprise wide initiatives.
Lastly, we have successfully exited be integrated business.
Hi, Mike mitigated our these off chip.
I am pleased with how we have met our cost expectations.
Appropriately and able to employ transitions and successfully manage our client relationships.
The wind down of health integrated operations is now complete and there'll be no more restructuring charges going forward.
Overall, our pipeline remains strong we continue to win new clients as well as expand within our existing clients.
You know operations management I find is strong with strategic views and engagements that price and Duane digital transformation.
I don't know Dick's business also continues to enjoy heavy demand spread across industries and geographies.
The momentum for our business is strong heading into 2020.
Our clients see E checks out as a strategic partner, who can help then reimagine business models and just great value from advanced technologies.
I look forward to party 20 being another great you hopefully axa.
And lastly, and it's my pleasure to introduce you to our new CFO.
The only clearly.
What is your joined US earlier. This month he has a strong background of driving growth and profitability in our knowledge global and data analytics company.
It's rich experience and unique perspective, but just great value for our clients, what our employees I just want to stockholders.
With that I was talking about going overboard and put it.
Thank you wrote it for that one well I'm very excited for the opportunity to be part of yourself.
Over his 20 year history, you XL has established itself as a well managed forward thinking company [laughter] built significant shareholder value.
We've ever is tremendous growth potential in the years ahead, it looks forward to working with a great team.
Good for.
Super joined US this morning I.
I will provide insights into our financial achievements for both the fourth quarter and the full year 2019, followed by our outlook for 2020.
We had a strong quarter with revenues of 256.9 billion up 9.4% year over year and adjusted EPS of 70, Don said, Oh, 6.8% year over year.
On a full year basis, we generated revenues of 991.3 billion up 13% year over year on a constant currency basis and adjusted he P. S $3, a nice adds up 11.6%.
Year over year.
As you are aware, we completed the process of winding down that health integrated business by December 31st My discussion of the financial results encompassing revenues and expenses will be excluding the impact of health integrated in order to underscore performance.
Core business I will discuss health integrated separately later in my remarks.
All revenue growth numbers mentioned.
Your after or on a constant currency basis.
Quarter, we generated revenues of 254.1 billion up 10% year over year.
This is the highest growth rate in 14 quarters sequentially from the third quarter revenues grew 2%.
Revenues from our operations management business as defined by five reportable segments, excluding analytics.
Total of 460.3 billion.
Up 10.7% year over year.
This growth was driven by double digit growth in healthcare insurance and finance and accounting segments.
Healthcare showed strong improvement with a year over year growth of 34.2%. This growth was driven by the ramp up of new client wins in 28, he and the expansion of existing client relationships in the area.
Care management.
Insurance continued its double digit revenue growth performance with 15.6 year over year growth. This growth was driven by expansion in existing client relationships in both our PNC and elevate businesses.
Finance and accounting grew 10.6% year over year, driven by the ramp up of new client wins in both 2018 and 29.
Analytics continues to perform well with revenues totaling 93.7 billion up 9% year over year.
This growth was driven by new client wins and the expansion in existing client relationships in banking and financial services and insurance sequentially analytics group, 5.3% over Q3.
Adjusted operating margin for the quarter was 14.2% down 50 basis points year over year due to investments in digital capabilities.
Our GAAP tax rate for the quarter was 10.8% our adjusted yes, the quarter was 83 cents up 3.7% year over year.
Now moving to our 2019 performance excluding both integrated.
Our revenues for the year were 978.8 billion up 13.9% year over year.
I don't know organic basis, we grew 9.8%, which is the highest growth rate in four years.
This growth was driven by double digit growth in our insurance healthcare analytics in finance and accounting segments.
Our operations management business on an organic basis grew 8.1% year over year. This is also the highest real estate in four years.
Analytics, rubtwenty, 5.6% year over year and on an organic basis rose 13.9%.
Our adjusted operating margin for the year was 14.6% down 40 basis points year over year, driven by the increased investments in digital solutions and capability developments.
Adjusted EBITDA for the year was 173 billion.
8.4% from the 2018 year.
How are the GAAP tax rate for the year was 18.3%.
Excluding the impact of discrete items, namely excess tax benefit on stock compensation.
Prior period benefits and the revaluation of our deferred taxes, our normalized tax rate was 26.1%.
Adjusted EPS for the year was $3 and 31 size up 10.7% year over year.
We exited the year with a very strong balance sheet, we generated 168.4 million in cash flow from operations compared to 92.4 million for the same period last year, an increase of 82%. The increase was due to higher EBITDA loss and better.
We're working capital Madison contributing to our strong cash flow was an improvement in our days sales outstanding by three days 59 days.
Uses of cash during 2019 included 40.1 billion expended on capital expenditures.
Repurchase of 643000 shares at an average price of $62 amounting to 39.9 million.
The reduction of 51 billion in our revolving credit facility.
We ended December with 321.4 billion cash and short term investments and borrowings of 249.9 billion, resulting in a net cash position of 71.5 billion hi, you're right.
No I would like to briefly discussed hope integrated business I'm happy to reconfirm that hope integrated has been wound down.
The December 30, Onest as we completed our contractual commitments revenues for hope integrated were 12.5 billion for the year.
Both integrated diluted our adjusted operating margin 520 basis points, leading to an adjusted EPS was 22 cents for the year Nissan's better and we indicated last quarter.
In addition for the year, you've reported impairment and restructuring charges of 8.7 billion.
The exit costs far onetime costs they are excluded from adjusted.
Yes.
Now moving to our guidance for 2012.
We are providing revenue guidance of 1.04 billion EUR 1.065 billion at current exchange rates. This represents year over year constant currency growth of 5% to 8%.
Excluding hope integrated this represents a 6% to 9% year over year constant currency growth.
Drivers for this revenue growth or expansions in existing client relationships as we increased our digital transformation footprint within our client universe and 2019 client wins.
We expect foreign exchange gains between two and 3 million.
Net interest income of two to 3 billion.
Amortization of intangibles between 14, and 15 billion and stock compensation expenses regime between 30 and 32 billion.
We expect effective tax rate to be in the range of 25% to 26%.
Our free cash flow allocation in 2020 will be a combination of acquisitions that expands our capabilities and geographic reach investment in our operations with capital expenditures in the range of 40 to 48 million the week.
Payment of debt and the execution of our share repurchase program.
We announced in December that our board authorized up to 200 billion in share repurchases Huberty figures 2020 through 2022.
Our intention is to keep our weighted average share count flat over this period.
Based on the above factors, we expect our adjusted EPS for 2022 D. in the range of $3.42.
Dollars, and 58 cents, which amounts to an increase above labs to 16%.
In the first quarter, we expect flat sequential revenue and adjusted EPS growth, excluding health integrated due to the outperformance of the fourth quarter.
As mentioned in our press release, starting from the first quarter of 2020, we will report our results based on four strategic business units.
Sure.
Healthcare analytics and emerging business worldwide with certain operational and structural changes inherent in our business for more details on the change in segment reporting for for detailed built in our press release and our 10-K.
Hey that we will be really which will be released after the market today.
In conclusion as Robert mentioned, the business is very healthy and growing and insurance healthcare and analytics with solid traction in 2019.
The waiver organic revenue growth of 9.8% year over year on a constant currency basis, and adjusted EPS of $3, a 31 cents up 10.7% year over year.
All barb verticals are performing very well with strong visibility into 2020, and we're confident with meeting our revenue and profitability goals now.
And I would be happy to take your questions.
You know [noise].
As a reminder to ask a question you will need to press star one of your telephone to withdraw. Your question you press the pound or has recently you built you will be allowed one question along with one follow up question only please standby we've compiled the Q1 day roster.
Yes.
And once again that is star one for any questions or comments on todays presentation.
[noise] [noise] [noise]. Your first question comes from the line Maggie Nolan with William Blair.
On for Maggie Ah. Thanks for taking my question. So as you shift more towards transformational work and they become larger more complex how has that changed the types of contracts that you have with clients are you seeing changes in the amount.
[noise] transaction or outcome based contract and how does that how does the margin profile of outcome based contracts compared to after the base. Thanks.
Sure.
So I mean, no more digital transformation, but at the end to end or one of the thing that happens and that these become much larger sized contracts and these expand across multiple buying centers within existing funds.
The nature of the commercial arrangement also ships and it becomes a lot more focused on delivering basketball business outcomes.
Our experience has been bad asked me or engage with client and emotional constructs involving golf business outcomes.
Yeah actually in a win win situation for our clients as well as 40 XL Oh, we are very confident of being able to deliver and execute those business outcomes and make tangible improvements to our clients businesses and participate in the value that be created by doing so.
Oh, the marginal part a outcome based businesses in general is higher than goals, which are on structured on John F.D. basis.
That is of course, a lead time for us to be able to get efficiency level and that contribution. So this is a very favorable trend that is playing out in the marketplace and I think Exxon is better positioned to take advantage of that.
Great. That's really helpful color on so then switching over to health care here as a follow up I'm. So now that the wind down of health integrated is substantially complete could you talk about the best opportunities for expansion within the health care segment and then how does the segment change change your go to market approach within number.
Cool thanks.
Yeah. So it's very very pleased with our investments in health care and the franchise that'd be the cabin.
<unk>.
Industry vertical the health care market have you all know as extremely large and a broad based you know marketplace. We think that there's a huge amount of opportunity for us to be able to supplies.
One of these around the operations management and eight analytics.
Hello integrated behind Us.
Leadership team across the healthcare industry vertical and focus our attention on growing and developing our relationships with existing clients and adding off you find for relationships arnica.
We haven't leadership positioning and clinical operations within healthcare, particularly amongst the banners and we will quit six off the top and parents and this up.
She vertical.
And looking to expand our capability set and our customer base more towards a provider space as well as good felt much more engaged in a pharmacy and other than agent is.
The opportunity for us in health care is up one restaurant allow us to actually I'll provide a much faster growth right in house.
Compared to the rest will be XL and allow us to propel the coal trade off the x. I'm going forward. So they're very excited by by the opportunity in healthcare. We've also invested based significantly in leadership talent, which understands the healthcare domain really really well.
So in 2019, we added a number of senior executives.
Got it industry practice.
Of course that the acquisition of steel we brought on by anybody talented senior executives.
He has got industry exports. So we think that yeah, well positioned for this industry vertical I'm very excited about dot work, we can do and pretty funny and beyond.
Alright, thank you.
Your next question comes from the line of Mayank Tandon with Needham.
Hey, good morning, actually how Peterson from my own thanks for taking the questions I'm just wanted to start on the on the margin progression appreciate the color with the drag from health integrated and how that should benefit margins. This year, how should we think about the margins the margin benefit.
From those operations being wound down is that going to be big step up or is the expansion going to kind of build throughout the year I'm just want to make sure we're thinking about that the right way.
Yes, hi, it's a it's Brazil, so our adjusted operating margin for 29 T ended at 14.6%.
Help integrated.
Hurt our margins during the year by about 120 basis points.
Behind US you know, we see adjusted operating margin.
Right around right around 15% within 30 to 40 basis point improvement.
For a 2020 and that's really result of us going through our planning process.
Earlier in the last couple of months for 2020 odd looking at different areas to really find efficiencies improving and that and then that's slightly offset by incremental investments specifically in digital that we're making.
Great. That's that's good color and then I noticed that the the utilities in the UK revenue.
And a little soft compared to a lot of the strong trends you guys were seeing elsewhere in the business.
I'm just wanted to see it or those two things connected or is there anything kind of specific going on in either of those he might want to call out just wanted to see if you guys get expand on that a little bit.
Sure. So I'm trying to piece practice is obviously [laughter] and you know is oh consult.
Our UK business in 2019 was pretty much flat.
But no trendy 18.
We have invested in more leadership in UK and they expect to be able to take advantage off a much stronger pipeline in the UK or geography, So that's something which we won't be focused on you don't think Oh. This is something which is kind of new everything that that's a growth opportunity for us.
The market.
Well I'm focusing on that.
Utilities industry vertical I was being folded in along with other industry protocols into our emerging business unit and we think that.
This will allow us to actually get some size scale and wants to be able to refocus. Our go to market efforts you not consolidated mine up I'd be able to actually provides us a focus and attention that it deserves. So we think that's not huge opportunity for us to create a new growth.
Engine Rdx I'm going forward.
Great. That's helpful color, Thanks, guys nice quarter.
Your next question comes from the line of Joseph Foresi with Cantor Fitzgerald.
Hi, Good morning, ROE and I can't believe were added $2 billion in revenue I'm not sure how that's what that says about how old.
Well the thus far.
But [laughter].
I remember a the invesco hotel for back I or Conseco Im sorry, how far back I go anyways I wanted to ask about analytics I think you talked about some of the partnerships that were being developed in that business. I know you said, you're divesting some of the of kind of low quality.
Business you do there seems like you're kind of reevaluating the direction of that business. Maybe you could talk about a you know why you're doing that now why the realignment now and you know your expectations of growth rate short term and long term.
Sure.
So oh, yeah, it's it's been a while but it's been quite as Johnny and got really delighted with baby, our ending up right now and the effect could be continuing to grow this franchise, it's really exciting.
Oh, the analytics business for us is a.
Great opportunity for us to be able or do you live aren't really value added services to our clients. It's up into segments that we invested already on and we went up a market leading position and data analytics and.
Thank god that going forward over the next three 510 years, the opportunity set and data analytics is gonna be tremendous so it's just a great great. Thanks for us to be end and it matches very well with the skill sets and the talent and the capabilities of big part in Dundee.
And it today, it aligns very well with the market opportunity that we've talked about going forward.
One other things, which we are doing in analytics, which is far off held the portfolio management is to pull down on portfolio such that we can focus in on larger strategic accounts and the more profitable growth oriented accounts, that's something which I think needs to be.
Undertaken you know after several years off a very very rapid growth in this business and making sure that we've got a very healthy portfolio.
And well going forward.
We also have a tremendous opportunity to expand our analytics business on the.
I mentioned off data and data management, and we are focusing on but we're also focusing on building up capabilities around advanced analytics that really leverage AI and machine learning and I've got me, but strong capabilities. All that now many of these are you know it.
These people internally, but a few of them, even if I look in partnership with other <unk> and all other providers and other partners.
Externally available to us.
Over the past few years Weve pretty tough partnerships with a number off.
The credit rating agencies.
Partnerships, but some of the up.
Olympics infrastructure providers.
Okay.
The ships with Oh providers that are allowed data to be migrated to the cloud and so a number of these.
Partnerships are being created.
Now lets to expand the playing field in which we operate.
We think are going forward, a analytics is going to become really really bacon huge Amazon market, leading position, we should be able to take advantage of that so many exciting but.
Okay, and then read too I guess, our past meet again any particular area of focus so as you.
You know.
You know make your initial way into the business and then any thoughts specifically on M&A, there's been obviously with health integrated a spotty track record there.
You know any thoughts on how you're planning on a going about that particular practice. Thanks.
Hey, Joe.
Yeah. So a couple of things to us so just imagine giving up four weeks it.
A couple of areas that I said that Guy you really are kind of high focus for me or really working with a team on our strategic initiatives really grow the business.
We've gotten to a billion, but the opportunity for us that really scale the business and really double it is it's significant.
And it is one of those things that really sparing right at US and you know my my opportunities really go to work with the group and really help with growing the business with internal growth.
But then also supplemented by every day.
And we we've had a number of discussions regarding every day and and we're getting our arms around kind of our strategy really for the go forward and you'll see Oh, you know well, it's growing the business going forward really as a combination of both internal growth supplemented by having a guide I will help us.
Accelerate the rest of the business.
And then other you know focus area for me is also will be the return of the return of capital, it's really ensuring that we're getting our highest return of capital and.
In the various businesses in the various projects that we implemented and then also it every day.
Going forward. So I would say good initially those are really two big areas for me to really focus on on the M&A process guidance, one whereby we look at all the different businesses now that we've restructured ourselves we are really working with each of the leaders rubies, so really homing in on our strategy for each particular.
Piece of the business.
Great. Thanks Congrats.
Your next question comes from the line of Bryan Bergin with Cowen.
Hi, Good morning. Thank you one of the stone revenue growth I can you give us a sense of what the analytics me ops management ranges or that are baked into fixed fiscal 20 growth range and given you've had de accelerating organic growth and 9.8% X HR here can you help us bridge, starting at 6% to 9% for fiscal 2000, just wondering.
And the level of Prudence in there if there's anything else to call out.
Sure I'm, sorry, as we've stated previously our expectations.
No we provide real transferred to me give Tom you would expect so operations management of grow at between 5% to 7% on a constant currency basis, you would expect analytics and all at between 12% to 14% on an organic constant currency basis.
On the blended growth rate for the enterprise would be between 8% to 10% and that's up you know our expectation for the medium Tom If you take a look at our growth rate, increasing 19 that was 9.8% on so talking about be any thoughts and all that range.
The guidance that we've provided on Fannie Freddie and it's a a growth rate on an organic constant currency basis between 6% to 9%. So it's right in the middle of that ballpark.
As the year progresses, we love provide updated guidance in terms of and we think they're going to end up.
Okay can you give us a sense or quantify the amount that the pruning within or within analytics Wade whether it was second half for or for Q.
Oh, it's difficult to provide a you know a quantification off that Brian that's not something which we do as we mentioned in the last earnings call. This is something which we began in the third quarter continuing in the fourth quarter and our expectation is that this will continue in the.
First quarter of trendy 20 as well.
And we will be fully complete.
This portfolio rationalization and our expectation for the full year for analytics and for any R&D is going to be.
So starting with our longer term projections.
Okay. Thank you for that I'm, not just on gross margin and analytics that you had a nice uptick there can you just talked about your view for sustainability I heard your your investments in digital just curious is that more so in the ops management piece or is it is in both.
Sure. So one of the advantage of portfolio rationalization.
Is getting a better margin. That's the reason why we weren't rationalize on analytics portfolio and even though it's hard to.
Oh Threed revenue growth here in the short, though it improves our profitability and you can see that Theyll do you think demonstrate the fault or not on the analytics business.
Our expectation is that on a go forward basis.
Continued to be able to sustain.
Margin improvement in our analytics business and I'll be ever dual up to manage that transition.
Going forward the digital investments that we're going to me.
These are going to be made across both operations management.
Yes.
I don't know next you're going to be focusing unlock more around my management and fonts analytics.
And we think the Super investments from all fall and those buckets.
And operations management again, it's gonna be across multiple technology the ours.
Cross up robotic process automation across.
Other ways smart looks little solutions, so the they're going to be across a number of different capabilities.
Using across hops I'm trying to an island.
Thank you.
[noise] [noise]. Your next question comes on the line of Preneed Jain with JP Morgan.
Oh, Thanks for taking my question.
Oh, I see pursue I'm, most people buying centers within time talking position.
Well that's required changes in the structure or okay. So since in business development teams.
Oh, yes, I mean, I think it definitely will require a change on a go to market strategy. A first of all the conversations that they are having it is now more the C level executives off offline organizations.
That's all we need to have more senior and more seasoned professionals, having those conversations with the C level executives off our existing clients.
Second it's going to be a much more of a strategic conversation that cuts across business lines on asps across new buying centers. So we got to be able to articulate our vision for digital transformation that is that is much more applicable for the entire client enterprise.
Rather than just want a piece of it.
It will also mean bet on investment and client relationship managers that something which we will significantly enhance a as we start to unlock more work without existing clients. So definitely a beat me that is gonna be a ship and profile and the corn from all parts of relationship managers.
Not investment on the front Ben associated with our existing buys.
Okay, and I do you see an even back whether positive or negative from Corona light is in your carbon or any other verticals.
Or any impact on data tamales or but are there any better given back from clients. This isn't making let's say the cycle from Baird.
Yes.
So let me address so it's growing up virus and its impact on XL and its clients in a comprehensive way since you've asked that question I'll first Paul.
We are extremely focused on.
Monitoring the situation, which as you know as rapidly evolving and it needs to be dealt with the utmost urgency on number one priority is to make sure that being shown a safety and security upon employees and back we are great custodians of our client businesses. So that's why you know our focus.
So far we've not seen any real impact associated with growing awareness for our business or our clients.
Fortunately for us I find portfolio and so if you aren't as pretty balanced diversified we don't have a concentration all clients in the travel.
Industry. So that's not really something that's impacting us.
A few things when she was here at all no one.
In order to keep on employee safety, if adopted a number of precautionary steps. So we started to provide sanitize doesn't own opportunities as temperature monitoring which has done some temperature guns facilities now and we start preparedness plans in place to be able to address this you all.
Hi stepped off of communications about employees in a very very significant.
Letting them know what some of the Doosan bones and these are being destroyed that.
Speed advantage point and of course, we have on travel advisory in effect.
We don't know any past with clients in China or in any of the impacted countries currently.
And that Florida.
The impact to us is not at all.
We do have contingency plans in place, which are adults and on the basis of best practices recommended by the heart Health organization and these plans we are enough.
In a state of constantly monitoring these updating bees and sharing it with our clients.
One industry vertical which is likely to have an impact is on healthcare industry article.
And should that be Oh, you know spreading out this virus in the U.S. I think maybe I was kind of industry verticals like he got impacted.
So we are developing contingency plans, let me just bad to be able to address this without clients should the need right at the current Palmer like I said that nothing that as you know a happen and there's no real impact the missing, but it's just going into a very high speed off preparedness.
Can react to it and keep our employees, Dave and help our clients are nice extent possible.
Okay. Thank you.
Your next question comes from the line of Dave Koning with Baird.
Oh, Yeah, Hey, guys. Thanks nice job.
And I guess like Yeah. My first question you know it seems like the new clients are driving a lot of growth clearly it seems like the momentum is good and everything the one question. The new clients. This year were about 28, I believe I think last year. They were 50 is there just a different composition like the clients you're winning in the last year just Darren.
A lot bigger than the ones in the prior year.
Oh, Yes, Dave I think there's no real change in terms of.
Newpark dobbins it could take a look at the up.
The quality of new clients that you signed up and the growth prospects off the 28, new plans to be signed up and running 90, Oh, we think it's as good as hot as the funds that we signed up and running 80.
You can see that though in terms about growth rates that that traction is you know paying out really really well then also seen obviously much more growth stick place from existing clients. So the mix and the balance between new clients, an existing clients actually very good and very healthy.
And you know we think that's on our track record on growth.
Can you, Ontario.
Okay, Great and then on the new segmentation, what's interesting to me.
As you know you think go where the new segments are gonna be health care, you've had tremendous kinda reacceleration, they're a great acceleration insurance analytics is strong and emerging as the last group and typically we think of emerging when we think it most companies as being the faster growth I think it's gonna be maybe even by far the slowest growth part of the business. It is.
That the right way to think about it.
[noise], so prevalent paved the way our emerging business unit as a set up.
It is a slower growing portfolio, but keep in mind. It is our most profitable portfolio as well.
We don't think there's an opportunity for us to be able to fix this portfolio and get it onto a growth track.
By the focus and by the leadership attention that we are putting into place on the emerging business. We think we stand ready to do that.
You also have an opportunity to go into some new industry verticals within this portfolio that will act as catalyst for growth and so really excited about.
Going into some of these new areas and creating opportunities for growth for us and our expectation over the mid to long term, it's not the emerging business unit will also be growth oriented going out for us apart from being a highly profitable business unit.
Okay, Great and just just one final one free cash flow like you crush it I think it was the best conversion you maybe ever had like is that I wouldn't assume that sustainable but is maybe a 100% conversion roughly kind of what you're thinking.
Yeah about that.
So we had a very strong year free cash flow at 168 million versus the prior year 92 million you know we had significant benefits from from.
Our operating.
Like especially in our Dsos you saw feel free cash will go up because of that but overall.
We should see steady positive growth in our free cash flow, maybe not as strong as this year, because we had a couple of one timers in there, but but still significantly.
Benefit as the business going forward.
Great well, thanks, a lot guys nice job.
Thank you.
Your next question comes from the line of Vincent Colicchio, Colicchio, I'm, sorry, with Barrington Research [noise].
Yeah Rohit.
Most of my were answered, but the fiber to clients you added in the quarter are you, a particularly excited about any of them, becoming a larger teacher clients essentially.
[noise] solvent.
I I think for us so like I said, a new clients look between having on Oh, we think the quality and up growth opportunity off these confirmation sensitive meaningful and very significant.
Fee that you know in.
Analytics, we now have clients are you at all times, which are well above $25 million an annual revenue.
Operations management business you have several times, a you know which are off that's kind of magnitude and we do think but you know some of these times.
On his new funds when all the yards, you know grow and expanded relationships and get those types of levels.
Okay. That's it for me thanks.
Your next question comes from the line of David Grossman with Stifel.
No.
Good morning, Thank you.
So Robert I know you don't really speak.
Specifically about bookings. However, can you maybe just share with us the booking trends and you know 2019 versus 2018 and.
You know, perhaps talk a little bit about the kittens bookings throughout the year.
Sure David So.
Oh, I guess, the best color I could provide to you is that when we take a look at our pipeline.
Pipeline as become much larger in size and scale as compared to the previous here and so that's something which is very positive. It's so the pipeline has broadened out the pipeline has become a lot home mature and in terms of value has significantly increasing the size.
Second part off it is it sums up our win rate we are actually quite pleased with how we are winning new deals.
Course, if it is a new deal with a new buying centers at any existing time, our win rates are very high and that obviously is driven from the high levels off a customer satisfaction and trust and credibility that we've established with an existing fives and so that's working up really well.
And then our ability to win new clients, that's continuing on an adequate base as well. So when you kind of think about the bookings and the amount don't business that we have one and 2019, yeah very pleased with the you know how that as you know shaped up and made out and if anything.
Oh, gosh, that's affecting and a much faster growth rate for us in running 19 and that may expect should be able to maintain that growth rate as we provided guidance and carney funny.
Right, but any can you give us any color on how that those bookings you know.
How they ran through 2019 versus how much.
You expect to run through and 2020 and how much visibility you have on 2020 right now due to the where you were last year at the same time.
Oh, Yeah, David BBB, we just don't provide but.
Suddenly and even entirely for us it's very.
We'll be able to.
Oh, a real grip on that eight up because.
It depends on the tenure on all the contract it depends upon how quickly the clients wanting to wrap up.
And that far out we think that there's a fair amount off inconsistency with that data and it's just something which we don't feel comfortable in terms of sharing some of the and buying ourselves.
Okay Fair enough. So you know just I think this question came up earlier about the health care.
Vertical it and now that helps integrated and the wind down to that is behind you.
They give us anymore specificity about really what do you really going after you know in the health care business, where what are the core offerings today is and how do you expect you know that those offerings to evolve you know what do you really focused on driving here in terms of areas that you think you can be relevant.
Grow.
Oh yeah.
So first of all a if you take a look at healthcare article.
And you break it up by the type of price that's been going after we don't break it up into three groups number one is the payers number two would be the provide us and number three would be the pharmacy and the PBM.
And we've got a strongest penetration off our existing business.
On the pinnacle cash and cash management side with the payers.
A pretty strong practice you know on data.
Our next with the providers and the the business, let me have the pharmacy PBM and some of the life Sciences companies is nascent and developing so those are the three.
Strong segments that'd be would go up though.
The kind off.
Services and the kind of capabilities that we are providing out here.
Number one is cash management services or clinical services.
These are isn't requires.
Starting nurse ought to qualify notice on our golf.
Are you able to help and processes like utilization management utilization review Precertification off.
A sudden procedures all the way to the claim settlement.
And that's not helping our clients out.
Second area that.
So as a in a in the healthcare.
Isn't on data and analytics, we do and auto book around fraud waste and abuse as you know enough payment integrity programs.
And as well as helping our clients that population health management, and and being able to see.
You know what kind of risk.
The underwriting and and as they move towards self insured plans for the providers or how should they think about managing that from us.
We are we also have.
Population Health management last fall and therefore, the ability for us to provide.
End to end and dedicated autonomy.
On taking some of these decisions on behalf of our customers that isn't new capabilities that we've added on we've also added on capabilities that provides a lot more transparency and visibility to our clients.
Dumbs off the type off a request that I'm coming in from there or you know a groups that they have been short.
So and so it's a whole variety off.
Service offerings that we have all the healthcare industry.
Thank God that very few players or you know, which our traditional fares that play in the healthcare space and this is rapidly evolving marketplace and we hope to be able to benefit out here and certainly the growth rate and printing lacking of validates our investment in the healthcare industry vertical.
Okay. Thank you for for that and just one last question. Just a you had mentioned that you have some partners.
And analytics and you talked about that I can't remember at maturity or your prepared remarks. So are those partners, just adding capabilities or are they actually acting as a channel partner as well.
Oh, so they don't boat. So let me give you. An example, oh, we have a partnership with Transunion and we are you know our thinking out to market.
Capabilities around C. so.
And ER theme will act as a distribution partner as well as a capability partner along with the excess.
As you know even investors and in a in a company that provides for a smart decisioning platform for analytics.
And that becomes a capability as well distribution channel for us So for analytics. The also partnered with the clients like HSBC on that came by sea and then it's up much more about the capability development and providing.
You know a that's grown for implementing some of these are advanced analytics capability in a comprehensive manner and then expanding into other clients. So you're going to use multiple formats in terms of partnerships with providers and clients in the up and the analytic space and I think that so.
Very fast evolving space as such.
Great. Thank you good luck.
Thanks.
Your last and final question comes from the line of Jetson Denardi with Wells Fargo.
Hi, Thanks for taking my questions. The first one if I heard you correctly.
You ended the year at $3.31 of Vps, excluding helped integrated and when I look at the guidance for three or 46 to 358. It seems a little bit you know low relative to revenue growth given that you're projecting margin expansion. So.
You walk me through kind of some of the headwinds and Tailwinds there.
Hi, it's a it's worth so you have that correct. So we ended the year, you're not adding back the loss of 22 cents gets you to 331.
Our guidance, there's 342 to 358, which is.
It is our initial guidance for the year. It is based on the 6% to 9% growth of revenue so right that middle middle seven to have reset within the revenue growth gets you to right around $3.50 with a little bit of margin improvement of two right around.
15% for our adjusted operating margin.
And given all the other type items below the line that I.
Game ranges Hans will get you to right around that 50, the middle of the range and again that is a data is still our initial.
Our guidance.
And you know as the year goes along we'll update.
Okay and then just last question for me.
You talked a lot about the technology investments that you're making those side to the business.
I think previously you size that at about 100 million over the past three years. So should we think about the level consistent with that run rate on an annualized basis or higher or lower.
Yeah.
Yes.
Yeah, So I think our investment, but it's a pretty much going to be consistent with that offices are we supposed be stepping up our investments as being pulled the size and scale of the company and as we seek traction burned up.
Arms would be commercialization of some of those on digital investments. So you should expect a pickup in terms of those investments as we go forward.
Great. Thank you for the color.
There are no further questions at this time.
Mr. Barlow are there any closing remarks, he would like to make.
Thank you Carol nowhere, concluding the call and we look forward to are presenting our Q1 20 earnings at the end of April. Thank you all for listening.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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