Q2 2019 Earnings Call
$4.9 billion.
Let's now review the balance sheet.
[noise] at June 30, cash and cash equivalents totaled $938 million in debt was $11.399 billion.
Resulting in net debt $10.461 billion.
Or not leverage ratio was 4.5 times or trailing 12 month adjusted either die.
[noise] cash flow from operating activities was $391 million in the second quarter cap ex was 155 million and free cash flow was $236 million.
We repurchased $236 million of our stock during the second quarter at an average price of $134.65.
[noise] [noise], what's now turns at 2019 guidance.
We are raising our full year 2019 revenue guidance from between $10.900 billion and 11 billion at $125 million to now be between $11 billion and $11.150 billion.
This guy this assumes the same F.X. had when that was built into our previous guidance of about 100 basis points.
This update to our revenue guidance range is mainly driven by a year to date organic performance in technology and analytic solutions.
And the strong organic outlook in this segment for the rest of the year.
We are affirming or adjusted EBITDA guidance at the mid point of the range and tightening the range by $10 million on both ends as we now have more visibility.
The new range is 2 billion.
385 million to $2.415 billion.
We are also raising our adjusted diluted E.S. guidance by five cents. So the range moves from between $6.20 to $6.40 to between.
$6.25 and $6.45.
Please note that for the below the line items depreciation is tracking a bit lower than expected and interest a bit higher essentially offsetting each other.
We now expect appreciation to be about $300 million.
An interest about $450 million for the year.
The adjusted both tax rate is always lumpy quarter to quarter, but we are still on a trend of about 22% for the year.
Depending on tax efficiencies, we could see favor ability to that number of at least half a point.
They adjusted cast tax rate is still expected to be about 15% for the year.
The Guy was provided assumes that foreign currency rates at June 30 remain in effect for the rest of 2019.
[noise] as in prior quarters, we're also providing guidance for the coming quarter.
[noise] for the third quarter, assuming foreign currency remains at June 30th rates to the end of the third quarter. We expect revenue can be between 2.730 billion and 2 million $780 million.
Adjusted EBITDA to be between 580 million and $595 million.
And adjusted due to D.B.S. to be between.
153 and 159.
Please note face on the tax rate guidance I just mentioned, we do expect third quarter adjusted book tax rates to be about the same as cute too.
But then we expect it will ramp on the fourth quarter, resulting in a full year tax rate guidance that I just discussed.
Year to date. This guy this represents revenue growth of 5.6% to 6.2%.
Adjusted EBITDA outgrowth of 6.3% to 7.3% and adjusted diluted E.P.S. growth.
Of 13.3% to 14.8%.
Oh.
So in summary.
We delivered second quarter results above or at the high end of our guidance ranges.
Technology, and analytic solutions, and R. and D. solution sustained their strong momentum.
T.S.M.S. continued to improve.
Oh see he now has over 50 wins with 20 added so far this year.
The R. and D. team secured another record quarter of poor power gross new business winds of over 800 million.
The book to Bill ratio, including passes was 1.59 times for the quarter.
Eat healthy a book to Bill excluding passes was 1.50 times.
And we have raised our revenue and earnings guidance for the year.
With that let me hand, it back to the operator, and we can open things for Q. and a half.
Thank you, ladies and gentlemen, if you'd like to register a question. Please stuff from one followed by the falling your telephone you will hear three Tom Tom Technology, What class. If your question has been answered and you would like to withdraw your registration. Please passed from one followed by the three.
Are you using a speaker phone please lift your handset before entering your request I can maybe some comedy like Registrar question Kindling press one for on your telephone keypad.
Our first question comes in the line of proper jump at Goldman Sachs pleased to see what's your question.
Oh, great great. Thanks for the questions I guess, just two quick ones on on our D.S. you know Ari clearly mention the strength there.
You know you evidence and all the results and metrics you shared.
Oh, you did grow backlog at an accelerated rate off of what appeared to be a fairly difficult comp.
So it might just be across the board, but I'm curious if there's anything to parse out of maybe where you saw incremental strange.
In this quarter across bookings relative to where you had been trending and then just one housekeeping question I know you guys remove the large dip cancellation last quarter from backlog, but I was curious if you would be willing to share how much of that continued to show up in revenue in the quarter.
Okay, Let me just <unk> the second.
<unk>, Okay. So negligible. So this is behind us essentially whether it would seem to <unk> numbers are willing to rather than member is just out.
The first question you ask was wasn't color on the on the <unk> I I would say.
We had an exceptionally strong booking scooter.
And you know you might have an old to the new just to go to work on the book to be all those other than the fact that.
It just comes to show that what we've been saying forever, which is doing for rely on <unk>.
And they'll use them to compare across the board because there are so many variables that I think that that's fraction.
So you know do we reported 1.59 and moved to be on a six so seeks basis.
Well she's extremely strong.
And excluding <unk> 135, which is also extremely strong when I sort of which is the season. The reason for the disconnect. If you will is a mix issue.
If we had the same proportion of course <unk> be alive, and all that type of work.
Then you know you would have the exact same proportion of pass throughs, we've said before and I want to repeat it here for clarification.
Oh, <unk>, which all the most attractive portion of our business as you know they'll hire margie. They all do do a wholesome suite of services.
Typically come in with more pass throughs.
I still would d. syndication to you here with these very strong 159 number is that the <unk> the relative proportion in the mix of bookings.
<unk> <unk> is significantly higher than it has been on the normalized basis historically.
That's very good news <unk>, hi, you're calling d. bookings.
Now it happens to be the <unk> higher because the revenue.
Which is a denominator in the courtroom is sit is suffering from head to win.
<unk> so you've got two things going on here you have higher quality bouquets with the higher mix relative to normal <unk>.
Right S.U.V. less biased throughs on the revenue denominator.
Because we see executing now.
Historic bookings, which were lured mix of goal Chronicle and as a result of which you've got steel Halloween because of a decline of pass throughs you over your I own that's clear and again do reverse trend on <unk>. When you do the at a T.N. <unk> again, you will see the same explanation I'm just using these.
Extended explanation because I want to a show would that be careful when you were given a book two meter ratio days, a lot and a neat.
And number two in our case, we chose to give you everything is cool.
Hopefully to convey to you how strong the <unk> on not just on the dollar number.
But also.
I think just explain in terms of <unk> and to mix. It included in this mix of course easy very a much higher proportion of cool power.
<unk> clinical trials, all of which are core and all of which come with the low pass throughs because again the all encompassing.
Says of services I hope that it doesn't it seems to me that <unk>, maybe even more <unk> and then you can go to the next question.
Thanks, sorry.
Our next question comes from the line of <unk> <unk> Ross when you can't ever quite I have five piece to see what's your question.
Oh and congrats maybe on the the task business on the Tech business. You know you gave us some good Colorado see obviously that continues that momentum it feels like in general there's a number of other parts kinda contributing and and kind of the the sad face.
Part of the business.
The overall growth rate being elevated and it seems like all so suddenly on the day you brought in over the years, obviously, helping to accelerate growth. There just maybe give us a feel for outside of just go see contributing some of the other pieces that are helping you know that business get the kind of high single digit growth, which you know obviously is the material acceleration of where you've been.
Yeah, well. Thank you for the question was yes, you are correct.
<unk>.
Exactly contributing a huge amount you know because as you know the wind I've just been well coating over the past 18 months and we are Audrey and implementation phase we not yet.
Generating the attractive.
License Sass revenues associated with those deployments were more implementation phase for most of those.
And so that that's to come.
There was this suite of products that country, we did strongly to generating these 7%.
Organic continued 7% organic growth rate.
On ties as you know, we said <unk> on at least meeting and I'm, saying it again here.
These business roughly you can think of any does <unk> one third.
<unk>, our traditional data business and that business essentially you can assume grows adds nothing zero flat.
130, either services businesses outsourcing businesses essentially.
Time, and labor based type of economic model and that grows.
<unk> single digits.
And then you have got to one third of those businesses that are plus you do need more noticeable almost 40 per cent.
Does or the double D.G., hi, growers and those are technology services that includes a swede so products, we've talked about as the Investor conference, including safety compliance V. <unk> vigilance.
There are some of the <unk> products that we that we have introduce a clinical technologies sweet.
So all of those are contributing to very strong double digit growth and I'll technology portfolio and then of course, you've got the real world business, which is very strong as I mentioned in my introductory comments to read.
This is really the future. This is where we are seeing going towards personalized medicine towards being able to N.P.C.'s paid diagnoses earlier without a lot more A.I. in machine learning unpredictable <unk>.
That hopefully you know we can get to a point that we are seeing these already in certain therapies, where we can anticipate that that someone would be diagnosed with with with a specific disease and we hope to talk some more about this in the future. But this is really you know with everyone. It's been striving for we've said before we have the tools. We have the assets. We have the people ended technology. It to bring these together and this is what we've been growing very strong double digit. So that's really what's going on in that segments.
And that is supporting our 7% continued organic growth rate.
Very helpful and they just gone back to.
The question prior on the R. and D. business I mean, it feels like.
You know.
You've obviously had several quarters in a row superior bookings, it's it's quite clear you're gaining share but you are also continuing to invest in the business you see it in the cap ex line in terms of software cap X. and then you know in all of this sort of efforts you outlined at the analysts day and and many of those tools I guess as you think about sort of your advantage versus the peer group continuing to kind of increase how are you thinking about the realization of that at the customer side like you know.
In terms of them continuing to see you have more and more progress I would think at some point, there's sort of a a watershed event, where a <unk>. You know continued larger proportion of customers start coming to you and asking about tools as opposed to you having to push you know some of the next gen offerings out to them on the market like how far do you think we are from that place where that sustainable sizable advantage becomes kind of cleaned or the customers.
Oh, <unk> again, I think in terms of the the runaway ahead of US we are extremely optimistic.
We you know in terms of the specific <unk> technology I mean, we just.
I don't know second adulthood eating the best you know we've.
The ways to go locally we.
We have a you know somewhere around 50 pharma customers that I bought these these solutions on the on the side 175 biotech customers.
We've got you know 12 over the top 20 pharma the doing work. There you know five previously locked account that I've been that it'd be non log.
So there is a lot of potential less you know we've got thousands of clients. We we have a ways to go and I think we've got great great runway.
Thank you <unk>.
<unk>.
Our next question comes from the line of <unk> I'm, calling the last several with Morgan Stanley . Please proceed what's your question.
Yeah.
Okay.
Okay. That's helpful. Thank you.
I think we were gonna Troy Ricky again, if an operator of Ricky Goldwasser this alone.
Our next question comes from the line of Ricky Goldwasser with Morgan Stanley . Please go ahead.
Yes, hi, Thank you for taking the question so.
A question on the on the bookings to your earlier point. The bookings is compose actually have higher quality business. So can you just kind of like remind us what type of margin. The is associated with these bookings versus enterprise and also kind of like how should we think about the timeline or where did lag between when you record the booking and when we see the impact on margins kind of like that margin expansion.
Yeah. So.
The first question I'm not willing to and so its a nice triangle we not.
Given the margin profile lucky highly sensitive and competitive information. So we're not giving margin profile, but it's just a fact, it's a ton of knowledge.
It just the fact that lowest margin.
Yes for FSP wishes.
We provide a lot of.
Of CRH is and maybe a little bit of value, but but essentially is the lowest margin in our.
Our.
Generally in the in the in the CRL marketplace as Youve got the lab business, which has the.
Maybe a little bit higher margins, but not that much.
You get the stat is that business and the data science.
And really the the higher margin.
Basically the one everyone is after is what we call core clinical which is essentially the full outsourcing of the full clinical trial that includes all of the above and Thats, obviously, because it includes the high value added.
Activities.
In a clinical trial by definition have higher margins and relatively lower labor content.
On the total mix of revenue.
So thats the background for whites higher margin to the second question when does that happen as you know it takes time to.
Activate the sites and to start Charles so.
Usually you get to the peak activity within 18 months to two years old.
Of the start of a trial, that's when when you get to.
Peak revenue and margin realization.
Thank you much for taking my question.
Can you talk a little bit.
You updated the OTI contracts can you talk about how many of them were competitive takeaways.
And what is your.
Kind of competitive win rate is recently and has that changed or over the last quarter last six months last 18 months with some of the with that with those CE launch.
Yes, I mean look.
Every.
Every.
Situation is a competitive situation weve competing with the same.
Second of characters on every single one and reclined groups at the same.
Hello solutions that are in the marketplace our win rate somewhere is standardize around two thirds of those 62 thirds.
Some of the competition that we participate in.
So thats does anyone have any protocol historically that we would have won one in three and were now ready to Andrea.
Okay. Thank you.
Thank you Shawn will next question please.
Our next question comes from the line of Jack Meehan with Barclays. Please proceed with your question.
Thank you good morning, I was hoping maybe just a little bit more color on the pacing of the revenue recognition related to some of the OTI deployments and I guess, what I'm trying to get to is if you look at the organic growth in tier yes. It was 7%. The last couple of quarters. Do you think this is actually something that should be stepping up as we go into year end, how should we be thinking about that.
Well look we want to continue selling as strongly as we can and so you will always have.
You don't really use.
On all new.
We'll see deployments and other technology solutions deployments.
As we told you the increasing our full year revenue guidance is mainly driven by our our year to date organic performance in technology analytics solution and of course, we continue to see a strong organic outgrew beauty segment.
For the rest of the year.
I wouldn't assume 7% is in constant currency organic run rate, but we are definitely inching towards sustainable high single digit organic growth in the segment.
And we provided you with guidance.
Multiple for the next three years in terms of and that we expect these to be accelerating.
Towards the double digit that type of rate.
In towards the end of the of that three year period, meaning towards the end of 2022, I mean, if you step back and you look at our business and what we've been doing.
Since the merger there was an integration phase, which we felt would be three years, it's turned out to be only two years.
We're a little bit more than two years.
We now in a in a in at that inflection point, where we are seeing acceleration.
Of our top line.
And we hope to sustain and increase that acceleration.
Over the next three year period and then.
Our expectation is that we will then get too.
The level of scale.
Our end market penetration that we will enable us to hopefully I must say that at the Investor Conference has say now you know our goal is certainly to be double digit territory. When we get to the end of that period.
Make across the businesses. Thanks.
Got Mike I had one quick follow up is there any color you can give just on the pass through or is in the back half I know for R&D I know, it's been a little bit of a headwind. The last couple of quarters do you expect that to persist or could actually flip.
Any color would be great.
Yes, no I think that the pass through headwinds are are lumpy, we've talked about in the first quarter. It was over.
300 basis points.
Second quarter, maybe roughly half that.
And I think that overall, what we're seeing in R&D assets.
Pass through headwind for the year, a little bit higher than what we originally anticipated with with M&A roughly offsetting that so overall, we're getting about the same place.
Makes sense, yes.
I agree with what Mike just said there I think it.
Is lumpy as we go through the year. We told you 100 basis points is embedded in our full year guidance, maybe is a little bit more than that now, but I mean, we're giving you our best estimate that we see right now.
Okay.
Next question please operator.
Thank you. Our next question comes from the line of Dan Brennan, Yes. Please proceed with your question.
Great great. Thanks for thanks for taking the question I joined a few minutes late Im just wondering Ari Mike for the guidance for the rest of your organically.
With anything updated there and can you just can you just kind of clarify that thanks.
Yes.
Are you just mentioned in one of the other questions that have been really were seeing organic strength in the past segment right now weve come at a 7% in Q1, 70% in Q2, so a lot of our full year guidance ranges due to that organic strength that we're seeing in the technology and analytics solutions business I'm I've been saying, 7% is probably the new run rate for the rest of the year is definitely inching towards that high single digit organic growth business.
So we're pleased the range went up $100 million 11 $25 million at the high end.
And we're definitely seeing strength across the board.
And Andrew Thank you for that and then on the R&D side.
Similarly, I apologize, but like anything changed from an organic basis, how you're thinking about the back half.
No no change to what we said before we're still kind of tracking to our expectations for the year.
Got it Okay, and then and then I know earlier in the conversation or you were discussing again.
Some of that.
Kinda Nexgen trends could could you just remind us and I know the analyst day was only a month or so ago like what what percent of your clients have actually seen next gen. Today and kind of you know how would you characterize the win rate on next gen offering versus your non next gen offerings. Thanks.
Yes, again very continues the trend that you. So a month that we discuss a month ago and I just mentioned I guess before you joined the call.
Some of those numbers, we continue to bring this to market and.
You know we have.
Total I guess.
With 8000 going through at the end products, yet and we have 8000 clients plus and the only.
I guess.
200, and maybe a little less than 250, our active customers now with with our our.
The next Gen solution Us Botswana solutions. So we continue the momentum and there is a lot of runway.
Ahead of us, but I mentioned this before so I'm sure you'll get all those numbers. Thank you.
Okay, great. Thank you guys.
If we move to our next question. Please operator.
Thank you. Our next question comes from the line of Sandy Draper with Suntrust. Please proceed with your question.
Thanks, very much most of the operational questions have been asked and maybe just a quick one for Mike.
When you think about the step up in the interest looks obviously the.
Debts going up I don't know just remind me in terms of floating rate. If we continue to see a lower rate environment at some point does that start start to offset and then just sort of thoughts about managing cash flows obviously better this quarter. When we think about balance of this year and into next year. How you guys are thinking about.
Buying back stock versus and using debt to do that just trying to understand what's out a new the nuances of the capital structure. Thanks, Mike.
Sure Sanjay so.
The first question, we have very little exposure to rate variances, we've got.
You know effectively when you look at our fixed versus variable rate.
Mix on the surface, it's about 50 50, but when you look at.
The swaps and caps and the color is all of the pieces effectively we're about 80% fixed.
So to put it in context.
You know 25 basis point rate hike is like $6 million is very very.
Kinda insensitive to rate movements, so I think that very little exposure to rate movements. Overall, we continue to see our stock as a as a very good investment we've still got a significant amount of.
Share buyback authorization as you saw in our earnings release, and I will continue to be a buyer of our stock in terms of debt levels. We ended the quarter at four and a half times, which is right in the sweet spot of where we said we would be.
And as we said at our Investor Conference, we expect to.
Come down.
Overtime.
You know exiting 2022 at more like three and a half to four so we still are in very much the same place and.
Are going to continue to manage the balance sheet as Weve said.
Okay I appreciate it Mike Thank you.
Sure.
Thanks, Andy I think we can move to the next question. Please.
Our next question comes from the line of Erin Wright with Credit Suisse. Please proceed with your question.
Great. Thank you you mentioned the new real World preferred partnership how should we think about the contribution from a win like this in the real world space and and she does contribute more meaningfully over time and what was the Genesis of the relationship how much of it was a function of what you have in terms of the global data assets or what does the company customer that you are working with previously maybe from a next in perspective and.
And then I guess I have a second question just on cost cutting you've obviously been very diligent there I'd during your Investor Day, you highlighted as part of vision 2022 kind of the next wave of Pos Petty and I think you mentioned that you were still identifying some of these key initiatives there and in the progression there on in terms of the cost savings and I guess, what have you identified thus far and how should we be thinking about the progression of the next wave I from a cost cutting standpoint. Thanks.
Yes. Thank you I I guess on the real world side, and just repeat what weve been saying before we've got a unique set of capabilities.
We spoke at length about the.
Schuman data science cloud.
And the infrastructure, we have built which is really what it allows data to be consumed.
This is a critical issue in.
Healthcare and the most vexing problem that many companies have be confronting.
Even assuming you could source order data that's required to scale, that's required and again I want to remind you no. One comes close even at the fraction level.
In terms of scope.
That granularity and global coverage.
But it's the linking of that those data assets the inter operability of those they does it Andy.
Work that we do.
From a technology standpoint to be able to mine in utilizing consume.
Those are those analytics and ended technology may your of artificial intelligence and predictive analytics. That's required. So it's the combination of those assets again with the unmatched.
Therapeutic expertise that our company is I'm not going to be the expertise that our company can.
Bring forwards in any engagement.
Ill remind you we round and we're running more than 2500 trials clinical trials, there's just no one in the world.
That has that kind of therapeutic coverage and scale on a global level. So you combine all of those assets and we spend the bulk of our time over the past few years integrating these assets and developing solutions that are.
Push of a button type of analytics.
And thats kind of very unique and so we would the obvious partner a partner here.
For this consortium of pharma this is an agent.
That is very commonly used.
In a very common procedures and I think every one of US has undertaken at some point in time or another.
And there were the our questions on safety and naturally the FDA and.
These consortium partners came to us and that's just that's over next five years, it's a big job.
Your next five years again in the in the aggregate.
Revenue.
Of our company is it's not going to be something that's going to move the needle in a dramatic fashion that was your question, but again its just one.
Unusual.
The type of engagement that essentially demonstrates that.
We are.
Our capabilities, because head and shoulders above anything that's out there.
[noise].
Okay.
And then the second question.
I would say, yes, I'm constantly heading yep, yeah, I mean look we I give you that.
Color on on that we basically are done with the identification. We know what we are going to be doing is some refinements between now and the end of the year.
But we are essentially be we will be launching these programs new early next year and.
As I said on the other conferences this is not basic.
As DNA and overhead consolidations as perhaps.
A lot of it was after the merger.
This is more.
You know I T based automation based process reengineering base.
This continued offshoring of certain capabilities, where we have scale.
And et cetera, Okay, it's not it's not.
The same type of activities that discontinued procurement.
As we continue to gain scale in some areas.
And we know how to do this this is a operations 101 or one or two.
And to.
And.
We're very confident we have visibility on that.
Maybe one more question I think we're coming up on the analyst. So I think if we just take one last question. Please operator.
Thank you. Our next question comes from the line of John Kreger with William Blair. Please proceed with your question.
Hi, Thanks, very much two questions first art can you talk about the assets that you bought so far.
This year, particularly in Q2, it sounds like Thats, mainly in R&D solutions, but just sort of the nature of the the assets you're buying and the second question I know you've talked about rolling out those C.T. I think later this year as you think about that business of over the next few years is it do you view it as a bigger opportunity.
Then oversee ear smaller just to frame it a little bit thanks.
Yeah.
Okay on the acquisitions.
I think we.
We did very little acquisitions actually we had a.
I think what we spend what what was the number $24 million to $26 million I think we had one small things in technology and the tiny tiny little thing in R&D, We had no acquisitions in R&D in the first quarter.
And in the second quarter like a small thing that I did like a couple million, maybe something like that to our revenue very small.
In R&D the acquisition contribution mostly came from.
Last year as you know in the I think at this in the fourth quarter, we will need an acquisition and that acquisition did actually brought in a little bit more.
And your second quarter than we had anticipated.
It was an under the new contract the generated I think a little bit more revenue, but again, you're talking about single digits here and then a very tiny tiny acquisition and maybe brought in a couple of even if I remember right.
So there is really very little new news here.
On the R&D side and in technology is very small so I really don't want to be able to yeah. Justin Smith, Okay. Yeah.
And then the second question was.
The second question was your thinking on LCT, yes bigger role our opportunity.
It's it's a potentially huge market. It is not a market that has a well defined as the CRM market because the CRM market is very mature market.
That's has been.
There for decades, it used to be on premise.
Type.
Old systems, and the the CRM market for sales reps in meeting in pharma is a very old market.
He will then.
Revolutionized by one a player we introduced the size of the SaaS solution did extremely well and that continues remains to be the leader in that market, but it's a very finite market.
Okay. There's just a number of sales reps and Thats. It you know there's no. It's a finite market and now our growth in that market assembly market share grab it and we'll see more overseas or market share.
Played again is that the large competitor we adjust.
See on that.
No competitor has like 80% plus pockets. We we feel we are in we are is we can claim the fair share of that market and Thats what is actually happening on the back of superior capabilities that were obtained on the bag of more investments in technology and our great partnership with Salesforce with respect to CTG, it's essentially the doubt the clause the clinical.
Suite of activities in the trial.
Deploying tools and technologies to automate.
Our processes that were previously paper based and that included a lot of labor.
Manipulations and prone to error rework and the role of inefficiency.
So it's hard to quantify the size of the market, but I would say, yes, the market is potentially much larger.
And then we'll see and the very attractive marketplace in terms of its growth patterns, because it's really converting that historically paper and labor intensive.
A set of processing into more automated processes and as you know the particularly tier one cities that it's we would like to create automated tools that actually speak to each other and there are interconnected. That's how difference. There are many people were bringing important solutions to the market we are bringing in.
A suite of tools that can be turned on or off and that speak to each other and our power into operable and connected in a seamless suites.
No as we demonstrated.
At the Investor Conference and all of which are built on the Salesforce platform as well.
Okay. Thanks for your question Joan Thank you everyone for taking the time to join US today, we look forward to speaking with you again on our third quarter 2019 earnings.
Hi, Ken and I will be available to take any follow up questions you might have for the rest of the night. Thank you.
Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation enough that you kindly disconnect your lines have a great anyway.