昆泰 (IQV) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the IQVIA Fourth Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded Wednesday, February 14, 2018.

I would now like to turn the conference over to Andrew Markwick, Vice President, Investor Relations.

Please go ahead.

Thank you.

Good morning, everyone.

Thank you for joining our fourth quarter 2017 earnings call.

With me today are Ari Bousbib, Chairman and Chief Executive Officer; and Michael McDonnell, Executive Vice President and Chief Financial Officer.

Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast.

This presentation will also be available following the call on the Events & Presentations section of our IQVIA Investor Relations website at ir.iqvia.com.

Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements.

Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, including the impact of the changes to the revenue recognition accounting standards, which is discussed in the company's filings with the Securities and Exchange Commission, including our annual reports on Form 10-K and subsequent SEC filings.

During this call, we will discuss accounting standard ASC 606, Revenue from Contracts with Customers, preliminary 2017 financials that we've provided inclusive of the adoption of ASC 606.

The recap of these financials will be finalized during the first quarter of 2018 and is, therefore, subject to change.

In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to, and not a substitute for, financial measures prepared in accordance with GAAP.

A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation.

I would also like to point out that as with other global businesses, we've been impacted by year-over-year foreign currency fluctuations.

I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

Thank you, Andrew, and good morning, everyone.

Thank you for joining our fourth quarter 2017 earnings call, where we will close out 2017 and provide guidance for 2018.

I'm pleased to report that we finished 2017 with strong financial results.

For this final quarter, we delivered revenue and profit numbers at the higher end or above our guidance range.

The IQVIA team delivered solid operational performance and executed well on integration plans during our first full year as a merged company.

Let's review the quarter.

Fourth quarter revenue of $2.161 billion grew 10.7%.

And when adjusting for merger-related deferred revenue in the fourth quarter of '16, revenue grew 7.7%.

Fourth quarter Commercial Solutions revenue growth was 10.6%; R&D Solutions, 6.6%; and Integrated Engagement Services revenue was down about 3%.

Adjusted EBITDA was $582 million.

I'm pleased to report that we delivered on our financial commitments during our first full year as a merged company.

We were able to achieve this even as we began a complex integration process and invested heavily in the business for future growth.

Our integration teams have made great progress as we reorganized the business during 2017.

We leveraged the legacy IMS operating infrastructure, implemented organizational and sales force changes at the country level and regional level, and we unified our go-to-market approach across the R&D and commercial businesses.

We invested in new resources, ramping our next generation of clinical development headcount during the year.

We now have approximately 200 professionals performing new activities who were not here a year ago, and we should be at 250 soon.

The R&D business closed the year with another solid quarter of new bookings.

The R&D business posted LTM net new business of $4.5 billion.

We're very pleased with the bookings traction we've gained post-merger.

To put this in context, and looking at bookings under the old as-awarded approach, we actually had over $5 billion of gross awards in 2017.

I believe this is a record number for R&D -- our R&D business ever.

This uptick in our new business performance is driven, as you know, by 2 main factors: The first one, we implemented a strategy called see more, win more, where we aim to capture more of the available opportunities in a given quarter.

In fact, I think the number of RFPs that came in during the fourth quarter was significantly higher compared to last year.

The second reason is the innovation that we've been discussing all along.

Our next-generation capabilities represented about 20% of the $5 billion gross awards in '17.

And in fact, we finished '17 with over $1.2 billion of post-merger awards with these capabilities.

We saw an uptick in the emerging biopharma space during the quarter, with over 70% of Q4 next-generation awards coming from these customer segments.

I want to give you some color and give a couple of examples.

We had a win of 3 schizophrenia studies with a U.S.-based biopharma focused on central nervous system disorders.

Our differentiated approach to analytics-driven site ID and our ability to drive patient referral was key to this win.

A biopharma company based in Asia awarded us a lung cancer trial.

Again, this was driven by our differentiated approach to site ID.

Another biopharma company, also focused on oncology, awarded our team a breast cancer study.

The client had done no work with us in the past, but the insights we provided on patient populations across North America, Europe and Asia demonstrated true differentiation and secured the win.

Switching to our commercial segments.

I want to highlight our tech business, which had another solid year.

As you know, technology has always been an investment focus for us, and so it was in '17.

In addition to re-platforming our commercial applications onto Salesforce's marketing cloud and force.com, we've also begun to build a suite of clinical technology offerings.

Leveraging a strategy from the IMS commercial tech playbook, we completed a number of small tuck-in deals throughout '17.

We're now working hard to integrate these assets as we create a single platform of clinical and commercial technology.

We launched our new Orchestrated Customer Engagement offering, or OCE, a successor to the CRM platforms, in December.

Over 100 clients joined the event in Philadelphia.

And as you know, since then, we won a significant OCE deal with Pierre Fabre, which we recently announced.

I'm also pleased to report that during Q4, we had a number of multiyear OCE wins with clients in the U.S. and Canada.

The other bright spot in our commercial business is our Real-World Insights business, which posted another strong year, growing, in fact, high teens in the fourth quarter and solid double digits for the year.

During Q4, we signed multiple deals with a top 5 pharma client, who will benefit from our analytical and technology-driven approach to Phase IV research.

We also signed a deal with a top U.S. pharma company to run an enriched study for osteoporotic fractures in 6 countries.

This study will combine retrospective database analytics with prospective data collection, which, I'll remind you, combines the capabilities of both real-world legacy teams.

With that, I'd like to turn it over to Mike McDonnell, our Chief Financial Officer, to take you through the financials in more detail.

Thank you, Ari, and good morning to everyone.

As Ari mentioned, we're pleased with our strong finish to the year, and now let's review the details.

Fourth quarter revenue of $2.161 billion grew 10.7% reported and 8.4% at constant currency.

You will recall the $55 million deferred revenue adjustment in the fourth quarter of 2016.

This was a noncash adjustment and was the result of purchase accounting rules, which, at the time of the merger, required the elimination of IMS Health deferred revenue, which would have otherwise converted to revenue.

Adjusting for this $55 million of deferred revenue, fourth quarter revenue grew 7.7% reported and 5.5% at constant currency.

Commercial Solutions revenue of $1.027 billion grew 10.6% reported and 7.8% at constant currency.

R&D Solutions service revenue of $947 million grew 6.6% at actual FX rates and 5% at constant currency.

Integrated Engagement Services revenue of $187 million declined 3.3% at actual FX rates and 4.7% at constant currency.

And now turning to profit.

Fourth quarter adjusted EBITDA was $582 million.

GAAP net income was $1.076 billion, and GAAP diluted earnings per share was $5.02.

GAAP net income and GAAP diluted earnings per share benefited from a $977 million provisional onetime reduction of net deferred tax liabilities in the U.S. This reduction, which is related to the Tax Cuts and Jobs Act enacted in 2017, resulted in the revaluation of our deferred taxes at the lower U.S. corporate tax rate of 21% and the reversal of our deferred tax liability on undistributed earnings net of the newly enacted transition tax.

Importantly, approximately $400 million of this adjustment is equal to a permanent tax liability reduction, and this will be realized as cash tax savings that we will see over time as we will now repatriate overseas cash without additional U.S. tax expense.

Adjusted net income was $300 million, and adjusted diluted earnings per share was $1.40 in the fourth quarter.

Now let's take a look at the full year results.

I'd like to call your attention to the more meaningful combined company comparisons in the center of the page.

Full year revenue was $8,060,000,000 and grew 4.3% reported and 4.2% at constant currency.

In addition to the $55 million deferred revenue adjustment in the fourth quarter of 2016, you will recall that deferred revenue negatively impacted the first and second quarters of 2017 by $8 million.

When adjusting for this, and on a combined company basis, full year revenue grew 3.7% at actual FX rates and 3.5% at constant currency.

Commercial Solutions revenue of $3.638 billion grew 4.4% at actual FX rates and 4% at constant currency.

The Commercial Solutions growth rate was impacted by the sale of the legacy Quintiles Encore business as well as headwinds from the legacy Quintiles advisory consulting business.

The sale of the Encore business resulted in a drag of about 1.5% to full year Commercial Solutions growth.

On a combined company basis, R&D Solutions service revenue of $3.647 billion grew 4.3% reported and 4.4% at constant currency.

Growth in this segment was impacted by a decline in our early clinical development business due to the closing of a facility in Europe during 2016 as well as weaker bookings and higher cancellations during the third quarter of 2016.

Facility closure resulted in a drag of about 1% to full year R&D Solutions growth.

Integrated Engagement Services revenue of $783 million declined 2.6% reported and 2% at constant FX.

Full year revenue growth in the IES business was impacted by a onetime $9 million royalty acceleration in the second quarter of 2016.

Now turning to R&D Solutions net new business and backlog.

Closing backlog at December 31, 2017, was $10.54 billion as compared to $9.5 billion at the end of 2016.

We're very pleased with our new business performance in 2017.

Now as Ari mentioned, our gross new business awards were over $5 billion for the year.

Contracted net new business was $4.54 billion for the 12 months ended December 31, 2017.

Both LTM net new business and LTM book-to-bill metrics improved significantly during the year as our next-generation capabilities and new go-to-market model are resonating very well with clients.

I do want to remind you that this is a long-cycle business, and quarterly bookings can ebb and flow.

So we still encourage you to focus on overall backlog and LTM metrics rather than the book-to-bill in a given quarter.

You should also focus on the absolute dollar values.

And now turning to profit for the full year.

Full year adjusted EBITDA was $2.047 billion, and our adjusted EBITDA margin of 25.4% expanded 30 basis points.

GAAP net income was $1.309 billion, and GAAP diluted earnings per share was $5.88 for the full year of 2017.

Both GAAP net income and GAAP diluted earnings per share benefited from the $977 million onetime provisional reduction of net deferred tax liabilities that I mentioned previously.

Adjusted net income was $1.039 billion.

Adjusted diluted earnings per share was $4.67 for the full year 2017.

And now let's spend a few minutes on the balance sheet.

At December 31, cash and cash equivalents totaled $959 million and debt was $10.2 billion, resulting in net debt of about $9.3 billion.

Our gross leverage ratio was 5x trailing 12-months adjusted EBITDA.

And net of cash, our leverage ratio was 4.5x.

Now as we told you at our Analyst and Investor Conference in November, we will target net leverage over the medium term of 4x to 4.5x trailing 12-months adjusted EBITDA.

We feel very comfortable at this level given our high rate of cash conversion and revenue visibility.

Cash flow from operating activities was $233 million in the fourth quarter.

Capital expenditures were $102 million, and free cash flow was $131 million.

During the month of November, we repurchased $255 million worth of our shares from our private equity sponsors.

And toward the end of the quarter, we repurchased an additional $114 million worth of our shares in the open market for total share repurchases of $369 million during the fourth quarter.

Our board today also authorized an increase in our post-merger share repurchase program from $3.5 billion to $5 billion, leaving us with a remaining authorization of approximately $1.7 billion.

And now before we turn to guidance, let's discuss the change in revenue standard ASC 606, which is effective January 1, 2018.

To date, we have recognized revenue in the R&D Solutions segment on a milestone basis.

As of January 1, 2018, we are required to adopt ASC 606, which requires percentage-of-completion revenue recognition.

This means that for every project, we are required to calculate total costs incurred as a percentage of total estimated costs and recognize revenue on the basis of that calculation.

These percentage-of-completion calculations are required to be updated on a regular basis, and changes in estimates will cause fluctuations in our revenue recognition.

Given that our business is a long-cycle business and projects run over several years, these changes can have a significant impact on the period in which revenue is recognized.

In addition to the change from the milestone basis to the percentage-of-completion basis, ASC 606 requires that service revenue and reimbursed expense revenue, which included items such as investigator payments with revenue and costs in equal amounts, be treated consistently.

This means that reimbursed expense revenue will be included in the percentage-of-completion calculation and will be presented with service revenue as one line on the income statement going forward.

Please note that there is pass-through revenue not just in our R&D business but also in Commercial Solutions and Integrated Engagement Services segments, primarily in Integrated Engagement Services.

Due to these changes, we have provided a preliminary recast of 2017 financials on the new basis.

Revenue recast under the new standard now includes pass-through revenue.

And due to the nature of pass-throughs, this results in adjusted EBITDA margin compression of approximately 5 percentage points.

This margin compression is optics only.

The economics of the business are unchanged.

In addition, when 2017 financials are recast under ASC 606, it results in a negative adjustment of $37 million to both revenue and profit as the revenue adjustment resulting from the new approach is allocated to prior and future periods.

This negative adjustment is due to the fact that we happen to have a higher proportion of our projects in earlier phases, where pass-throughs are incurred at a slower pace.

It could have been a positive adjustment if our overall mix was at the latter stages of product [life] cycle.

And as a result, we currently expect pass-throughs to be a drag on revenue growth.

Therefore, when recasting 2017, our full year results would have been as follows: Revenue of $9.702 billion, adjusted EBITDA of $2.01 billion and adjusted diluted EPS of $4.55.

Before we look at 2018 guidance on the new basis, to help with comparability, let's look at guidance on the old basis.

Absent the implementation of ASC 606: Full year 2018 revenue, $8.45 billion to $8.65 billion; adjusted EBITDA, $2.19 billion to $2.26 billion; and adjusted diluted EPS, $5.35 to $5.60, which is a year-over-year growth of 14% to 20%.

Let's turn to 2018 guidance inclusive of the adoption of ASC 606.

Our full year 2018 revenue guidance is $10 billion to $10.2 billion.

This guidance assumes a negative adjustment to both revenue and profit resulting from the new revenue standard, which, in 2018, is expected to be in the same range of -- as 2017.

It also includes pass-through revenue, which is expected to be approximately $1.6 billion in 2018.

Of this amount, our IES and commercial segments have pass-throughs of approximately $175 million, with the remainder being in R&D Solutions.

You should note that pass-through revenue can vary depending on the mix of clinical trials.

As a result of the significant new business that we generated in 2017, more of our trials are in their early phases, and pass-through revenue is not normally generated until later in the trial.

Due to this higher mix of trials in the start-up phase, pass-through revenue is expected to dampen 2018 R&D Solutions revenue growth by about 3.5% to 4% and total company revenue growth by about 2%.

Again, this is just optics.

The economics of the business are unchanged, which you will see when you look at the limited impact these headwinds have on our 2018 guidance for both adjusted EBITDA and adjusted diluted EPS.

This revenue guidance also assumes currency rates remain at current levels for the remainder of the year.

As a reminder, we have a high level of visibility into our full year revenue.

Under the new revenue standard, we have line of sight into approximately $4.5 billion of 2018 R&D Solutions revenue, and the Commercial Solutions business has historically been about 70% recurring.

For the full year profit, we expect adjusted EBITDA to be between $2.15 billion and $2.22 billion; and adjusted diluted EPS to be between $5.20 and $5.45, which represents year-over-year growth of 14% to 20% or the exact same growth rates as the old accounting basis.

Both adjusted EBITDA and adjusted diluted EPS reflect the adjustment resulting from the new revenue standard that was discussed earlier.

The adjusted diluted EPS guidance assumes interest expense of approximately $390 million, operational depreciation and amortization of approximately $275 million, other below-the-line expense items such as minority interest of approximately $35 million and a continuation of our share repurchase activity.

Tax rates are now expected to be approximately 24% for the adjusted book tax rate and approximately 17% for the adjusted cash tax rate.

You will note that the adjusted book tax rate is about 4 percentage points lower than it was last year, and this is partially as a result of tax reform in the U.S.

For the first quarter of 2018, assuming current FX rates remain constant through the end of the quarter, we expect revenue to be between $2.42 billion and $2.47 billion, adjusted EBITDA to be between $520 million and $540 million and adjusted diluted EPS to be between $1.23 and $1.30.

And so to summarize, we had a solid performance in 2017.

We closed the year with a strong quarter of financial performance.

Our integration teams drove solid execution of their plans.

We reorganized the business during 2017 to leverage the legacy IMS operating infrastructure, implemented organizational and sales force changes at the country level and unified our go-to-market approach across R&D and commercial.

R&D Solutions gross new business awards totaled more than $5 billion for 2017.

Our R&D business, enhanced by next-generation capabilities, saw success in the market with over $1.2 billion of post-merger awards.

Our commercial team launched our new OCE SaaS-based offering, which is gaining traction in the market.

Real-World Insights grew solid double digits.

We invested heavily in the business for future growth.

We repurchased $3.6 billion of our shares at an average price of $82.76 since the merger.

We successfully merged 2 large organizations, repositioned the company in the market and rebranded the company as IQVIA.

And of course, we were honored to be included in the S&P 500.

We look forward to delivering another year of strong financial performance in 2018.

And with that, I would like to ask the operator to please open the lines for Q&A.

(Operator Instructions) And our first question comes from the line of Erin Wright with Crédit Suisse.

The next-gen offering, I guess, continues to gain traction here with now associated business wins of $1.2 billion.

Are you addressing more of the incoming RFP flow with the next-gen offering?

I guess where does that percentage stand at this point?

Yes.

Thank you, Erin.

We are indeed seeing a lot of interest and a lot of traction in the market.

We originally thought that we would be able to target up to 20% of the pipeline with our next-gen capabilities.

But as we progressed and taking these 2 markets now that it's becoming operational, we see that it can be applied to a much -- a bigger proportion of the trials and -- potentially 50% or 60%.

So we're very excited.

We certainly are ahead of our original plans in terms of next-generation capabilities-based awards.

I think in our premerger, at the time of the merger, we were hoping to have booked by now about $300 million of next-gen-based capabilities wins.

But in fact, we are at $1.2 billion, so we are very pleased with the traction we are getting so far.

We also find that in the biotech area, and that was particularly true in the fourth quarter, it is very applicable and very compelling.

It's probably also easier generally because the decision-making process is simpler in the EVP segments and generally have very senior leaders at the sponsor that are exposed to our demos directly and can make a decision.

So in fact, 70% of the next-generation awards during Q4 were with emerging biotech.

And of course, as we noted previously, we are very pleased that many large pharma companies that had previously done 0 business with Quintiles legacy CRO business have awarded us significant trials on the back of those capabilities since the merger.

Great.

That's very helpful.

I guess a quick follow-up to that.

Where are you leveraging the fixed price model as well?

And I'm curious if you're seeing any sort of competitive response to that in the market.

(inaudible)

Yes.

Again, we have to be -- obviously, this is new.

We are very careful about this.

We don't disclose really how much of our new business is fixed price.

There are, obviously, commercial elements to this strategy.

We've said previously that about maybe up to 1/4 of the next-gen capabilities awards have either, in totality, a fixed pricing contractual arrangement or a hybrid fixed pricing contractual arrangement.

There are aspects of the project that lend themselves more to fixed price.

We hope, over time, that this will apply to more of the pipe.

And again, we will be monitoring this carefully.

We always -- as I always say, we are in the business of growing our market share and our revenues.

We're also in the business of growing our margins.

So thank you, Erin.

And our next question comes from the line of Tycho Peterson with JPMorgan.

This is Tejas on for Tycho.

Mike, just one quick question here on the guidance.

Can you just quantify the impact of FX and acquisitions, along with the embedded headwinds from the Encore divestiture and the closure of the early development facility in R&D Solutions?

Obviously, the latter 2 are presumably a headwind to your guidance, but the prior 2 hopefully are a tailwind.

So just would hope to get some color on that.

Yes.

Do you want to answer, maybe Mike or Andrew?

Yes, sure.

I can take it.

So I think in terms of acquisition contribution, if you look at the full year '17, I think our growth was a little under 4%.

And obviously, we've had headwinds, as we said, all year from Encore and ECD.

Mike called out the drags of about -- for the full year by segment.

I think if you take it up to the total company level, you got about 100 basis points of drag there.

And then IES has also been a little bit of a drag of kind of 20 basis points or so.

So you have growth really excluding those drag that's closer to 5%.

Now as we've said all year as well, we've been aggressively kind of trying to build up in the clinic and tech space.

So we've done a number of acquisitions, things like DrugDev, Wingspan, HighPoint [also, too].

So we've done more than we usually would do, so we're at the higher end of our usual range, which is usually kind of 1 to 2 points.

So we're kind of at the couple of points or so of organic -- inorganic contribution in the fourth quarter.

Full year.

For the full year that is, rather, sorry, not fourth quarter.

Got it.

And you're expecting a similar run rate in terms of your 2018 outlook as well?

Yes.

I think, I mean, over the medium term, we've always said it's kind of 1 to 2 points of contribution from acquisition.

I think, again, it's probably going to be higher -- to the higher end, given the amount of clinical tech stuff we did during 2017.

So probably at the higher end of that 1 to 2 points range.

Right.

And that's because those acquisitions were done through the year, so roughly about half of the revenue that they would have contributed came into '17.

And so the other half, when we have the full year, will come in '18.

So that's what's in the numbers, yes.

Got it.

And one quick follow-up for you, Ari.

Just in terms of the IES decline in 2018, it looks like you're calling for about 7.5% to 13% down year-over-year.

Can you just talk to us a little bit about what specific measures you're putting in place to, perhaps, help stabilize that business?

Yes.

So as you know, I don't think it was a secret.

We spent -- we had a lot to do in other parts of the business, and we spent a considerable amount of time working on the R&D and the commercial integration.

We decided to explore strategic alternatives for the business.

And we went through that process and as a result, kind of left the segment fairly on a -- fairly much alone during the year.

We had a few reviews, but we carved out the financials.

We stood it up as a separate business entity, even though, again, this business is a very local business, probably the single most local business in all of the businesses in our portfolio.

The decisions are very much country level, very local.

But we left this operating as a global segment.

We'll continue to report it as a segment for now, but we made the decision to integrate it more with our regional go-to-market business model and to have our commercial leaders take ownership for it at the regional level.

So that's the first big change that we had.

That is we are going to take it to market alongside the rest of our commercial products and services suite.

Separately, from a product side, obviously, we have a lot of capabilities, whether it's information assets or technology applications, we talked about OCE, that we are going to factor into the equation when we go to market.

Again, to the degree we can equip our sales reps with more capabilities, data and tech, we believe they can be more effective in the marketplace.

And to the degree we can at least partially price that with customers, then we probably have -- potentially have a winner in terms of beginning to turn around that business.

So that -- these are the 2 main things: Reorganization of the go-to-market, relocalize the business; and two, bring more capabilities to the floor.

And we want to be realistic and conservative in terms of what we expect given the market dynamics of an overall relatively stable to declining sales rep headcount globally and pockets of the markets where that is declining.

Bear in mind also, we don't have that business in many regions.

Many regions of the world like, I think, the entire Asia Pacific region doesn't have -- we don't have any presence whatsoever in this business, and that is a region where, actually, there are market opportunities -- market growth opportunities.

With the exception of Japan, we have no presence in those markets.

So again, by integrating the business more regionally, we potentially have an opportunity to address segments that we were not previously addressing when the business was more stand-alone.

Thanks for the question.

And our next question comes from the line of Robert Jones with Goldman Sachs.

Just looking at the R&D Solutions backlog conversion.

It fell a little bit sequentially.

I know there's a lot of moving parts in quarter-to-quarter conversion, but anything worth calling out that might have weighed on the conversion?

And then, Ari, with the traction you're seeing in next-gen, as that constitutes more and more of the bookings each quarter, how should we think about the conversion rate picking up as we trend through 2018?

Thanks for your question.

Look, it's hard to focus on a quarterly burn rate metric.

Burn rates kind of fluctuate for a number of reasons.

If you win a large multiyear study, and we did win quite a few, the burn rate will go down.

If you win more FSP awards, the burn rates may go down depending on the length of the contract.

A very strong bookings quarter may cause the next quarter's burn rate to go down.

So also, our burn rates tend to fluctuate with seasonal trends as well, so it's hard to draw conclusions from one quarter.

So in theory, you should see for the industry as a whole, for the industry as a whole, we should see burn rates reduce as a trend simply because patients are becoming harder to find and trials are becoming more complex.

So product gets stuck in the backlog and patient recruitment kind of stalls.

So this is why applying next-generation capabilities and using our analytics and technology and so on, we are having success rescuing these studies.

And over time, you are correct, those should help us do better than overall industry.

No, I got it.

I appreciate that, Ari.

And then, Mike, if I could just sneak one in on guidance.

Anything there contemplated around share repurchases?

How would you expect for us to trend out or model out the $1.7 billion authorization over the course of the year?

Yes.

So Bob, we do have a new authorization.

And certainly, we continue to see our stock as a very attractive investment, and we will continue to be a buyer.

You shouldn't expect the pace that you saw perhaps that we did in 2017.

But certainly, we're going to continue to be a buyer of our shares, and we factored at least some of that into our thinking for the 2017 guidance -- or 2018 guidance, excuse me.

And I think that the authorization that we announced today also sets us up very nicely for repurchasing stock not only in 2018, but beyond that as well.

Our next question comes from the line of Ross Muken from Evercore ISI.

On the tech solutions side, it seems like you're getting pretty good momentum with the OCE product, in general.

It also seems like you added a couple of pretty interesting new capabilities via acquisition over the last quarter or 2. Could you just give us a little bit more color about the breadth of demand on some parts of tech solutions and then maybe just a little bit about sort of the cadence of how some of these new pieces will kind of supplement the overall growth rate?

Yes, Ross, thank you for the question.

And by the way, welcome back.

We, as you know, have had the tradition at IMS historically to develop technology capabilities.

We did this partially in-house and partially through acquisition of capabilities.

And typically, we buy a small company that has 1 or 2 applications, and then we take them to a different level by integrating them into the rest of the applications, number one; and number two, by allowing our sales force to take it to market, to clients who would not have otherwise considered buying from a small outfit.

That has been our strategy.

And early on, post-merger, we identified a great opportunity on the clinical technology side that is redoing the same thing we've done on the commercial side, which culminated, as you mentioned, with this OCE offering, which is Salesforce platform-based.

Do the same thing on the clinical technology.

And by the way, we're working also hand-in-hand with Salesforce and other partners on the clinical side.

The reason why we feel this is different and unique -- this is not new.

Many people have identified this issue.

Processes are very, very manual in life sciences, a lot of paper, a great opportunity for automation of what really are standard processes.

The processes are already standardized because they're highly regulated in many instances.

And the history and the tradition has been that these were largely paper-based and manual.

So when you look at it in a wholesome fashion, really, from the clinical side to the commercialization side, you see that they all leverage the same data inputs and really could be handled on a seamless technology platform, and that is where we want to play.

There are, in the market, many technology applications, some of them very successful, whether it's a mass data management application or a CRM application.

But they are very siloed.

Our strategy is to build a technology platform across the board.

Now it doesn't mean that you have to buy the entire platform, the entire suite.

You can buy your module, and it's a plug-and-play.

But you get material benefits, both in terms of deployments of the platform and implementation.

You noted maybe that we bought a company in the fourth quarter called HighPoint.

That's a technology implementation services company.

And the reason we did this is because we want to continue to develop this idea that we can help our clients do better, be more efficient and deploy state-of-the-art capabilities and we want to provide implementation.

Many times, when we go-to-market, clients tell us, "Well, this is great, but how do I make it work, right?

I mean, this is -- it looks good, but I just don't have the capabilities in-house." And today, when they buy one application from a technology vendor, they've got to go out and ask people like Accenture, or IBM, or what have you, to come in as a third-party implementation vendor.

And while we do work with those as well, the reality is it is a lot better and more seamless experience for the customer when we take ownership responsibility for the delivery of the technology and the operationalization of the technology with the client's personnel directly, without another implementation partner in the middle.

So that's our strategy, and we think it's a little different than others.

And we are very excited by the prospects also on the clinical side.

And our next question comes from the line of Eric Coldwell with Baird.

I've got a few questions, if you'll bear with me.

First off, I know you said current rates in the revenue guidance.

I'm curious if you can give us more specificity on what you think the current rates contribute to revenue growth in 2018.

Yes.

I would say this, Eric.

We think it's the best way to guide.

We put the guidance in based on current rates and where they sit today and gave you the growth indications by segment.

Obviously, our guidance assumes that those rates are going to stay consistent throughout the rest of the year, which we think is the most appropriate way to guide.

And that's just kind of how we calculate and how we do it.

And hopefully, that's the way that makes the most sense.

Yes.

No, it does.

I'm just -- I'm thinking about maybe an FX revenue tailwind of maybe 2% to 2.5% right now.

Is that a fair approach?

Yes, no, it would be much smaller than that.

No.

At the most, it's a point.

(inaudible) point, yes.

Much less than that.

At most, it's a point now?

Yes, yes.

You mean when comparing actual rates across '17 versus the rate at which we're planning for '18, which essentially is the end-of-year rates of '17.

That's what you mean, right?

Just the average year-over-year contribution as the year progresses.

We can handle it off-line but...

Right, right.

So it's about a point.

I understand your question.

It's about a point.

Okay, okay.

That's helpful.

The commercial segment, a more important question here.

The commercial segment had a really strong fourth quarter.

I know there were some seasonal items and some timing items, and you've, I think at points through the call today, maybe addressed this generally.

But I'm hoping for a lot more detail on this north of $50 million revenue beat in the fourth quarter compared to Street models.

What did we and everybody else get wrong here in terms of that fourth quarter trend?

And then the guidance for commercial also seems to be particularly good for 2018.

I'm curious if perhaps some of this heightened M&A pace is helping that segment.

If -- I don't know if you've reclassified anything into that segment from other segments, but any more detail on the strength in commercial growth would be very helpful.

No, okay, fine.

So I'm going to take that and ask you guys to chime in.

The -- well, it's a good observation.

First of all, the fourth quarter hockey stick has always been true on the commercial side.

I'm speaking now about the legacy IMS piece of the commercial side, which is the bulk of the business.

So we always had fourth quarter -- what -- the reason this happens, frankly, Eric, is that our clients have budgets that they plan on, and they tend to be prudent earlier in the year.

And then the summer is kind of the doldrums, so the third quarter typically is low.

And then in the fourth quarter, people kind of get busy again and set up the year.

So they set up the data needs.

So they purchase the data.

They finalize the technology plans.

And so there's a lot of last quarter activity going into November, December on the commercial side.

That has always been the case.

You go back to the IMS historical numbers, you see fourth quarter, always very strong.

Second driver, particularly this year, is the real-world business, which we -- was, I would say, the largest part of the legacy Quintiles business that we inherited from the merger and that came into the commercial -- new commercial segment.

It wasn't doing that great earlier in the year or at the time of the merger.

And a considerable amount of work was put into reorganizing this business and integrating it.

And it's a little bit of a shorter cycle.

It also has long-cycle pieces, but it's a little bit of a shorter-cycle business.

And we were able to see early on great results from that.

And we saw in the fourth quarter the beginning of the turnaround on the Quintiles real-world legacy business, the real-world late phase, which integrated -- we've always said that was -- I recall, I'll remind you, this was the original area of collaboration with Quintiles that led to the merger was on the real-world side.

And so we kind of had a head start, if you will.

And the fourth quarter was particularly strong there and also is responsible for some of that, perhaps, higher uptick in the fourth quarter on the commercial side.

Anything else, guys, you want to suggest on the commercial side?

Yes.

The Encore thing, that was kind of a big drag for -- on the commercial side, this Encore stuff really was 150 basis points of drag for the year.

So when you add that back, it kind of gets you to about 6 points of growth for the -- for '17, approximately.

And that's kind of what we've been generating year in, year out in the legacy IMS business.

We have some more drag here because we moved a clinical tech -- the CTMS business to clinical.

But let's say 6 points, of which, as we said, this acquisition, there's always going to be acquisitions, 1 to 2 points.

So it's very consistent with our history once you clear up the drag from Encore.

Yeah, that's really helpful.

I'll just do one more, and we can follow up later.

The last couple of quarters, you've helped us out -- and Ari, I know I'm going to be in trouble for asking because you hate the quarterly backlog and bookings questions.

But I'm old school, so I have to do it.

FX, Mike, I don't know how much FX contributed or took away, but I would assume a little contribution to that book-to-bill.

And was there any M&A-affiliated addition to the bookings or the backlog this quarter?

No.

The book -- I mean, I want to be very clear.

Mike, you can -- I want to be very clear.

We showed you book-to-bill ratios exclude FX, okay?

If you add FX, the book-to-bill ratio is north of 1.3.

That's not -- we took out FX.

When we show you those book-to-bill metrics, we want to show you what is the underlying growth of the business.

If you want to look at -- if you want to just look at -- want to see what actually is the revenue built into the booked backlog for the future and look at it at actual FX, it's going to be higher than that.

It's going to be higher than that.

And the backlog reported at $10.5 billion -- $10.54 billion, that's at the close -- year-end close backlog.

And maybe there is -- what do you want to say?

How much of that is...

FX?

Yes.

Yes.

Maybe like $100 million.

Yes, $100 million maybe of that.

1%.

Very small.

Yes, yes, is really coming from...

The 1.24 LTM, to make it very clear, we pulled FX out of that to make it more apples-to-apples.

Our last question comes from the line of George Hill with RBC.

I'll keep this simple because Eric kind of stole my question on the commercial business.

I guess, maybe Mike or Ari, can you talk about -- you talked about trial complexity.

How should we think about how the time line is changing from bookings to trial starts?

And I guess, do you feel like next-gen is helping you get to trial -- get the trails up and running sooner?

And I'm kind of trying to tie this all into the new accounting standard.

Kind of like -- and I guess, how should -- just how should we be thinking about, as we're modeling lag from book -- as we do the bookings to backlog to revenue, like what is the lag looking like now?

And kind of how are you guys thinking about [that opportunity]?

Yes.

Well, first of all, it's hard to model overall so -- because we have so many projects going on.

Some of them are next-gen, some of them are not, some of them are FSPs.

It's different across the overall book of business.

What I can tell you is that for the projects -- and soon, we're going to have well over 100 trials that are actually active based on next-gen capabilities, and we're looking forward to reporting those metrics for a larger base.

If you remember, at the November conference, Cindy Verst, who runs now that platform for us, reported some metrics in terms of acceleration of the time lines between booking and site start-up, and those were quite significant.

Now we did point out at the time that this was a very small sample of -- this was a small sample of trials.

So we don't want to say that, that improvement is going to be true across the board.

We don't feel confident enough to say that it's going to be as high as it was.

But I mean, we can certainly go back -- you can certainly go back and look at the numbers, and it was quite significant improvements on the time lag.

Now as we do more and more next-gen-based trials, you will see that we will report and we will tell you how many results that was.

But we -- just to give you a sense and refresh the numbers that Cindy showed, these were really early proof points.

We don't think it's enough to make it a model, but the benchmark from booking to site selection is typically 80 to 100 days.

And with next-gen, we're able to do it in less than 30 days.

So you see a dramatic improvement.

The site -- that was -- to site selection.

The time line to site start-up is usually between 60 and 300 days, thereabouts.

With the early next-gen results, we were between 15 and 240 days.

And then the time to patient enrollment -- and we have a metric there, which is measuring the speed at which patients are enrolled.

So the benchmark we're using is 0.29 patients per site per month.

That's kind of the baseline metric that we've had over a large, large number of trials over a long period of time.

With next-gen, the early proof points, we are enrolling 0.46 patients per site per month, so a dramatic improvement from 0.29 to 0.46.

Again, I don't want to say this is what we are targeting, this is what we are going to promise, this is what we're going to model.

But these are the numbers from the early next-gen-based trial as of last November when we reported this.

We now have a lot more trials that are going to get started.

I mean, we'll continue to update these figures and feel -- we feel comfortable.

Once you have a couple of hundred trials that are running, we are -- we feel we are in good shape.

If we can say, look, we can get to site identification 75 days faster, to site start-up 90 days faster and have the first patient enrolled 20 days faster, this makes a dramatic difference.

So again, I'm trying to give you as much granularity as I can, but we will continue to update.

And again, in follow-up calls with the team here, we could provide more color as required.

I want to -- I think that we are well past the time.

Thank you very much.

Thank you, everyone.

Sorry we can't take all the questions.

We look forward to follow-up calls.

Yes.

We'll be available for the rest of the day to take follow-ups, and we look forward to speaking to everyone again on our Q1 2018 earnings call.

Thank you.

Thank you, ladies and gentlemen.

That does conclude the conference for today.

We thank you for your participation and ask that you please disconnect your lines.