昆泰 (IQV) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the IQVIA First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, May 2, 2018.

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

Thank you, Tina. Good morning, everyone. Thank you for joining our first quarter 2018 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Michael McDonnell, Executive Vice President and Chief Financial Officer; and Nick Childs, Senior Vice President, Financial Planning Analysis. Nick is new to this call, and he joined the company a couple of months ago to lead our financial planning and analysis function. 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 standard, which is discussed in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K and subsequent SEC filings. 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 have been impacted by year-over-year foreign exchange 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 first quarter 2018 earnings call. We finished 2017 with strong momentum, and I am pleased to report we continued this momentum in the first quarter of 2018. Once again, we delivered strong financial results, with revenue and profit numbers above our guidance ranges.

Let's review the quarter. As we enter our second full year following the merger, we're now able to see our financial performance compared to the same base as last year.

I would also like to acknowledge the extraordinary work of our finance organization. They've been able to give us ASC 606 numbers to a high degree of precision for both 2017 and 2018. I'm pleased that we were already able to bridge the change in accounting standards first out of the gate in last quarter's earnings release and that we're able to provide full transparency into growth under the new standard today and going forward.

The team delivered very good results once again. First quarter revenue of $2,563,000,000 grew 8.6% and was higher than our guidance range.

The revenue beat was driven by 3 roughly equal components: first, organic operational upside, which we are flowing through to our increased full year revenue guidance. I will note that this organic upside was the entire driver of the adjusted EBITDA beat as well.

Second, the phasing of pass-through in our R&D Solutions segment, which came in at about $390 million for the quarter and a little higher than we had anticipated, which is entirely due to timing.

And third, an FX tailwind versus our guidance range, which we are also flowing through to our increased full year revenue guidance. You should note that while FX helped revenue in the first quarter, it had no material impact on profit. The primary reason for this is the mix of locations where R&D work is performed. Also, we do have some currency hedging below adjusted EBITDA, which offset any residual FX benefit at the adjusted EPS level.

From a segment perspective, first quarter Commercial Solutions revenue grew 14.1% reported and 9.3% at constant FX, which is again better than we had expected. R&D Solutions grew 8.1% reported and 5.8% at constant FX, also better than what we had expected.

Integrated Engagement Services revenue was down 9% reported and 12.8% at constant FX, and that's as we had expected.

Now as you know, we did several acquisitions last year, primarily of technology assets and primarily in the Commercial Solutions segment. So we would like to provide more color on the revenue impact from acquisitions on this call.

At constant currency, Commercial Solutions grew 9.3% of which about 4% was organic. In the R&D Solutions segment, constant currency growth was 5.8% and a gain of about 4% was also organic. So acquisitions represented over half of the constant currency growth in Commercial Solutions and about 1/3 of the constant currency growth in R&D Solutions.

Now acquisitions can be hard to predict, and while we did several last year, we did very little during the first quarter. We spent $20 million, which did not contribute meaningfully to first quarter revenue.

Separately, you may have seen that we took a minority stake in Cota, a health care data analytics company, which also happened to be a $20 million investment. We are excited about the opportunity to join Memorial Sloan Kettering and other prestigious institutions as we all look to address the value of cancer care through real-world technology-enabled analytics.

Turning to profit. Adjusted EBITDA of $547 million grew 8.5%, again beating our expectations. Compared to our guidance range, the beat was primarily driven by the drop-through from strong organic performance on the revenue line. As you know, and as I mentioned earlier, FX had no impact on EBITDA and pass-throughs have no impact on EBITDA either.

Adjusted diluted EPS of $1.34 grew about 20%. Relative to our guidance range, the beat was driven almost entirely by our strong operational performance and $0.01 of various plus and minus items below the adjusted EBITDA line.

Now I'd like to provide more color on our margins. As you know, we've said all along that our intention is to grow our profit faster than our revenue and expand our margins. This past quarter, we did indeed have solid margin expansion in the core business at constant currency.

Revenue conversion contributed 100 basis points of margin expansion, and all cost takeout actions contributed 120 basis points of margin expansion. As you know, we've committed to a cost synergy target of $200 million run rate savings exiting 2019, and we are still on track to achieve this goal.

Now in addition to the natural headwind from annual wage inflation, we are also making investments in the business to accelerate growth, including increased go-to-market resources; data scientists to support our R&D next-generation capabilities; specialty data panels, especially in the emerging markets; investments to replatform our global CRM and MCM capabilities; and of course, the technology acquisitions, which have a dilutive impact on our margins. All these items, plus and minus, net to 40 basis points of margin expansion at constant currency in the quarter.

So in summary, we're very excited by the operational momentum in the business.

Before I close my remarks and turn it over to Mike, let me mention some of the most important wins in our key businesses. In our tech business, you may have seen that Recordati, an Italian midsized pharma company, signed a 7-year deal to deploy our Orchestrated Customer Engagement, or OCE SaaS offering in 17 countries. Note, this was a highly competitive win, and it was awarded to us based on our highly differentiated capabilities, including a tool that utilizes our artificial intelligence and machine learning to integrate various functions within their commercial operations.

Our R&D Solutions business continues to gain momentum. We now have contracted backlog, including pass-throughs, which exceeds $15 billion. We continue to see strong traction with our next-generation capabilities and now have approximately $1.6 billion of R&D awards since the merger, and this is excluding the pass-throughs. These awards all utilize our advanced technology and analytical-driven approach to clinical development.

For example, during the quarter, we won a large project with a U.S. biopharma client. The deal was won through our ability to identify high-performing sites for patients with a serious autoimmune disorder. This project will cover a series of Phase III studies.

I also want to mention that the R&D team is working hard to advance our cutting-edge Virtual Trial solution. We're having very encouraging discussions with clients and have a large pipeline of Virtual Trial opportunities. I look forward to reporting more as we make further progress in this area.

We also had great wins in our Real-World Insights business. An example includes an innovative deal with a leading U.S. biotech company. This novel synthetic clinical trial will compare a single-arm population to a real-world data cohort comparator. Instead of setting up multiple comparator arms within the trial, we will benchmark the trial outcomes to our retrospective real-world data. Importantly, this study will be used to support a regulatory label expansion. Our significant domain expertise to design these innovative studies, access to the right real-world data and collaboration with regulators all are critical to this important win.

With that, let me 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, everyone. As Ari mentioned, we had a strong start to 2018. Let's review the financials, which I'll remind you are now on ASC 606 basis for all periods presented, which includes 2017.

First quarter revenue of $2,563,000,000 grew 8.6% reported and 5.2% at constant currency. Commercial Solutions revenue of $985 million grew 14.1% reported and 9.3% at constant currency. R&D Solutions revenue of $1,365,000,000 grew 8.1% at actual FX rates and 5.8% at constant currency. Integrated Engagement Services revenue of $213 million declined 9% at actual FX rates and 12.8% at constant currency.

And now turning to profit. First quarter adjusted EBITDA of $547 million grew 8.5% reported and 7.4% at constant currency. Adjusted EBITDA margins decreased 10 basis points on a reported basis but expanded 40 basis points at constant currency. As Ari mentioned, we had solid margin expansion in the core business, driven by revenue conversion and cost takeout, which was partially offset by the many investments we continue to make in the business.

GAAP net income was $69 million, and GAAP diluted earnings per share was $0.32. Adjusted net income of $285 million grew 8%. Growth was primarily driven by stronger adjusted EBITDA. Below the line benefited from a lower tax provision due primarily to the Tax Cuts and Jobs Act. These benefits were partially offset by higher depreciation and amortization and interest expense from higher debt levels.

Adjusted diluted earnings per share of $1.34 grew 19.6%. Year-over-year growth was driven by higher adjusted net income, which I just discussed, as well as the lower share count year-over-year.

On this basis, our LTM contracted net new business at March 31, 2018 was $4.72 billion, representing year-over-year growth of over 15%. If you focus on the quarterly bookings, contracted net new bookings in the first quarter of 2018 were up 17.5% versus contracted net new bookings in the first quarter of 2017, again, on the old basis.

I know the industry is still calculating the old book-to-bill ratio. We have suggested in the past this metric may not be as useful or meaningful to predict future growth. However, if you were to calculate on the old basis, you would derive an LTM book-to-bill ratio that is around 1.26 or so. And for the quarter, on the old basis, it would be in the same range. And by the way, if you were curious and wanted to calculate the book-to-bill ratio under the old, old method based on awards, the number would be well north of that.

Now back to the new standard. This book-to-bill metric is even less useful or meaningful because it is less precise. We will not report net new business or book-to-bill metrics inclusive of pass-through going forward. However, you will be able to calculate them by taking the difference in backlog and backing out revenue. I want to draw your attention to a number of reasons why, again, this metric may not be as meaningful under the new standard.

First, pass-through is not finalized at the same time as contract signature. And although we have a baseline number at the time of contract signature, it does not have the same degree of precision as service bookings. It is also subject to more fluctuation than services bookings during the life of the contract.

Second, business lines and therapy areas within the industry have varying levels of pass-through. Functional service provider, data safety science and regulatory and the lab all have little pass-through. Therefore, a swing in new business between this type of work and full clinical could significantly swing the book-to-bill in a given quarter.

And third, we are expecting pass-through revenue to decline in 2018, as we indicated when we provided our guidance last quarter. Therefore, the inclusion of pass-through and bookings could inflate the book-to-bill metric. For example, a higher mix of pass-through revenue with lower mix of pass-through net new business will deflate bookings metrics. A lower mix of pass-through revenue with a higher mix of pass-through net new business will inflate bookings metrics.

Finally, as a reminder, pass-through has 0 impact on profit over the life of the contract.

Taking all of this into account, let's turn to backlog, including reimbursed expenses. Closing backlog at March 31, 2018 was $15.16 billion. To assist you in building your models, we have also recast December 31, 2017 backlog to include reimbursed expenses, which is $14.84 billion.

Before we turn to guidance, let's spend a few minutes on the balance sheet. At March 31, cash and cash equivalents totaled $960 million, and debt was $10.4 billion, resulting in net debt of about $9.5 billion. Our gross leverage ratio was 5.1x trailing 12-month adjusted EBITDA. Net of cash, our leverage ratio was 4.6x.

Cash flow from operating activities was $182 million in the first quarter. Capital expenditures were $88 million, and free cash flow was $94 million, which compares favorably to the negative $22 million we reported in the first quarter of 2017. As is usual during the first quarter, our free cash flow was significantly impacted by annual incentive payments to employees.

As Ari mentioned earlier, toward the end of the quarter, we repurchased $86 million worth of our shares in the open market. We currently have approximately $1.6 billion remaining under our share repurchase authorization.

Let's turn to 2018 guidance, inclusive of the adoption of ASC 606. We are raising our revenue guidance by $50 million to flow through the first quarter currency benefit and the organic operational upside. We now expect revenue to be between $10.05 billion and $10.25 billion. We told you last quarter that under ASC 606, pass-through revenue is expected to dampen 2018 R&D Solutions revenue growth by about 3.5 to 4 percentage points and total revenue growth by about 2 percentage points. We are still tracking to these estimates. This revenue guidance assumes current foreign currency rates remain in effect for the remainder of the year.

Now the FX fluctuation had little impact on our profit metrics. We are reaffirming adjusted EBITDA and adjusted diluted EPS guidance, which is still expected to be between $2.15 billion and $2.22 billion for adjusted EBITDA and between $5.20 and $5.45 for adjusted diluted EPS, which represents year-over-year growth of 14% to 20%.

We are also reaffirming our full year tax rate guidance, which is expected to be approximately 24% for the adjusted book tax rate and approximately 17% for the adjusted cash tax rate. As in previous quarters, we will also provide guidance for the coming quarter.

Assuming foreign currency rates remain at current levels through the end of the second quarter, we expect revenue to be between $2.47 billion and $2.52 billion, adjusted EBITDA to be between $510 million and $530 million and adjusted diluted EPS to be between $1.17 and $1.24. This adjusted diluted EPS range represents growth year-over-year of between 13.6% and 20.4%.

In summary, we entered the year with solid momentum. We delivered strong financial results with revenue and profit numbers above our guidance range. Adjusted diluted EPS grew about 20%. R&D Solutions LTM contracted services net new business grew 14.5%. R&D Solutions contracted backlog now exceeds $15 billion. Our next-generation R&D capabilities continue to see success in the market with approximately $1.6 billion of postmerger awards. And our commercial team continues to drive new business wins with our OCE SaaS-based offering.

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

(Operator Instructions) Our first question comes from Sandy Draper, SunTrust.

One, first, just to start out with a quick housekeeping, and I apologize if you answered this because I've jumped on the call a tiny bit late. Did you give an adjusted backlog to exclude the pass-through revenue? Or are you just kind of go forward always including the pass-through revenue?

Yes. We did not give that, Sandy. It's Mike speaking. We tracked, obviously, 605 and 606 throughout the year last year, and we fully have implemented 606 at this point. And that's the basis upon which we're going to report backlog. We did give a 12/31/17 backlog under 606 for comparative purposes.

And I think in addition to that, Sandy, I mean, the most important thing here, it's 606 backlog, or rather the 606 revenue. We've given you next 12 months backlog from that metric as well, which was on the slides in the presentation, which is now expected to be $4.6 billion. So I think that should help you in terms of your modeling for the rest of the year.

Okay, that's helpful. And the next question, and I know you guys probably have answered this a lot and have been tired of it, but it would be helpful just to get the updated view of -- there's certainly some level of concern out there just across the industry about pharma M&A. Can you just walk us through again sort of how do you view the near-term impact and any exposure to consolidation and then -- on both sides of the business and how exposed you would be? And then what you think about longer-term impacts of pharma consolidation?

Yes, Sandy, thanks for the question. Look, this is not a new phenomenon. It's been happening for decades in the industry. So both legacy businesses have a lot of experience dealing with these phases of consolidation. First, you should know that we're a very well-diversified provider of services to the pharma industry. There's probably no one out there that provides as much stuff to pharma as we do. We've got offerings in multiple countries around the world, and there's no one that doesn't buy anything from us. Customer concentration, as a result of all that, is very low. I think our largest client is less than 10% of revenue. Actually, the highest is maybe about half of that. On the commercial side, it depends on the nature of the combination. The area of our business that would be theoretically most affected by a merger is the data business because, obviously, we are the largest supplier of that offering. And so it's very likely that when 2 companies merge, they will be both using our data. And again, here the impact on the data side will depend on the nature of the combination. To the degree that these are complementary therapies and complementary pipelines, then the effect is de minimis because there's no overlap. To the degree that they are exactly overlapping, usually, those mergers don't take place. There are regulatory oppositions to those. And so historically, we've modeled this in the past, and $2 of spend doesn't become $1 of spend, and I'm talking about the data side here. Over several years, potentially the impact goes from $2 to $1.8. That's only on the information side. The rest of the business is virtually not affected. Again, on the R&D Solutions, it's a backlog-driven business. There's good visibility into future revenues. We sometimes -- actually, those mergers may be an opportunity to sell more, depending on who's the surviving preferred supplier. And bear in mind, the legacy Quintiles organization was locked out of many large accounts. And so it has happened in the past that an acquisition actually has enabled us to penetrate a client that we were locked out from before. So again, overall, we feel good about all the mergers that have taken place, that have been talked about and do not expect any noticeable impact on our guidance.

Great. That's really hopeful. And just final one, I'll jump back in the queue. Lower level of share repurchase in the quarter, obviously, than we've seen in the past. That's just some normal timing and maybe the lower cash flow or is there any change in philosophy about your thought about share repurchases?

No, there's no change. Absolutely not. Look, if you go back to the entire past year, this is consistent with what we've done, right? I mean, we've done $100 million, plus or minus, of open-market purchases quarter in, quarter out. The difference is when there was a secondary offering by our sponsors, then we generally took the opportunity to participate in the secondary offering and buy $200 million, $250 million, $300 million worth of stock in that secondary. But that hasn't happened in the past quarter. Our response -- our existing P/E shareholders did not do a secondary in the quarter, and so we didn't have that opportunity. So the open-market purchases, I think, we bought $86 million. I guess, last quarter, we bought $113 million; the quarter before, $170 million-something; the quarter before, $78 million. I'm talking about open-market purchases. And bear in mind, we couldn't buy anything before the earnings release, which was February 14. And then we're precluded from buying for at least, some call it, a week after the earnings release. So the open window is relatively short because, obviously, long before the end of the quarter, we're also out of the market. So a small window and consistent with the past. We will continue to repurchase. If our sponsors choose to do a secondary in the future, we will look to participate, and there is no change whatsoever in our intent to repurchase there. We still have $1.6 billion of share repurchase authorization, and we intend to use it, whether in the next 12 or 16 or 18 months or so, a couple of years. Certainly, we will use that authorization.

Our next question comes from Erin Wright, Crédit Suisse.

I'm curious kind of where we stand in terms of the cost savings plan. Are you ahead of plan on that front? And just the broader integration process. Does it continue to be on track? You've made some meaningful accomplishments, I guess, to date, but what are the next steps in the integration and cost savings progress, I guess, as it stands now?

Yes. Thank you, Erin. I think we said that we expected to be on the run rate of $200 million of cost takeouts executed by the end of 2019. That is the end of year 3 after the close of the merger. The way synergies happen, as you know, it's kind of a -- it's an accelerating ramp, so it's usually the 20% or so is in the first year, and then another 30% or so in the second year and then the last 50% in the third year. And that was our plan. I think we are a little ahead of schedule, that is at the end of the first year, end of last year. Therefore, our run rate towards more than the 20%, more in the 30% or so. And I expect that by the end of this year, we'll be more than 2/3 done with our cost takeout actions. So we are a little ahead of schedule, and perhaps that is what you see in the -- I showed the chart that shows 120 bps of margin expansion at constant FX from integration savings as well as the regular operational efficiency work and cost takeout actions. So we are well on track and, again, ahead of schedule.

Okay, that's great. And then it was another nice step-up in growth bookings associated with the NextGen offering. Can you characterize kind of what you're seeing or where you're seeing the most traction in terms of customer types and how that's generally resonating? That would be great.

Yes. Look, EBP segment is where we see the most traction. We are -- our bookings generally in this segment have increased dramatically. I think we historically were doing okay with the EBP segment, but with the Next-Gen capability, we've accelerated our penetration of this segment. I would attribute most of the growth in our bookings, and you've seen that we've had excellent record booking quarters and an accelerating trend. Our N&B on the old basis is up 15% year-over-year, and we're very pleased with our traction in the market. I think it's almost -- or about 70% of our bookings in the quarter were EBP, and obviously, NextGen is a part of that.

One moment please for our next question, and it comes from the line of Robert Jones of Goldman Sachs.

I just wanted to ask one on the EBITDA margin guidance for 2Q. A little bit below what we would have expected, especially in light of the revenue in the quarter and also the better revenue guidance. Is there anything specific worth calling out there? Or are there some spending items or anticipated expenses that we should be thinking about for 2Q? And then for the back half of the year, is there anything else that you would flag as far as the cadence of the EBITDA margin expectation?

Thank you, Bob, for the question. I don't know what really you mean by lower margin and expectation. I think we show here, for the second quarter, margin expansion of how much, Andrew? Do you have it? Can you get me that?

Yes.

We see significant margin expansion because revenue growth, we guide to 4.9% to 7%, which is pretty strong, 5% to 7%. And then adjusted EBITDA growing at 9.2 to 13.5. So that's like more than the 1.5x growth on EBITDA versus revenue growth that we had guided to, which is like the range of 80 to 120 basis points of margin expansion, which is, I don't know -- I mean, maybe we expected more than that, but I think I don't know many companies in our space that are expanding margins at 100 basis points a clip. I think perhaps what you're referring to is the absolute dollar number that you guys have had out there for second quarter may have been a little bit higher than what we -- than the range we're providing here, which $510 million to $530 million. And the reason for that is you had no way to know what was second Q. We provided 2017 recast on an ASC 606 basis at the end of last quarter, but we didn't give you the quarters. If you look in this release, in the back of the earnings release, we have Q2 2017 recast on an ASC 606 basis, and you can see there that the growth and you can see the percentage. So maybe what you want to compare is the growth of EBITDA under the new standard versus the growth of EBITDA under the old standard that you have in your model. I think we are also providing, and you'll get this right after the call, we recast every quarter of '17 under the new basis. That way, you have better ways to compare.

Yes, you're going to find that, Bob, in the appendix of the slide deck on the website.

So again, very strong actually margin expansion, even greater than in the first quarter in our guidance.

Yes. No, I was talking specifically more about the margins sequentially. It looked like it's down 50 bps. I'm sure you noticed, obviously, that the EBITDA that you guided to is below where The Street was. Not that on a year-over-year basis it wasn't impressive. It just clearly was maybe a cadence thing where The Street was not modeling EBITDA across the next 3 quarters the way that you're now guiding to, it would seem.

Yes. I think, Andrew, you want to answer that?

Yes, I think we are seeing that, Bob, in some of the revenue beat in the first quarter was due to stronger FX and then it hasn't dropped through to the EBITDA line, and again, the stronger pass-through in the first quarter. So that's where you're getting a slightly weaker...

Yes, but that will be a lower margin in the first quarter. I think Bob is saying that sequentially, the margin -- okay, let us look at [it well], but I think again, I don't know whether the second quarter margin typically goes down or do you want to take a look at that?

Yes, there is a step-down sequentially when you look at the quarterly pacing for '17. But we can take it off-line, Bob.

Our next question comes from John Kreger of William Blair.

Mike, given all the work you've done on the conversion to 606, what's your current thinking about what the impact of this will be on '19? So last quarter, you laid out the kind of the earnings headwind in '18. But do you have any thoughts about how it will impact '19, kind of up or down?

Yes, John, it's really too early to tell on that. We did lay out the earnings impact for 2018 at about $40 million, which was similar to 2017. And I would say I will refer you to the midterm guide where we continue to try to grow our revenue mid-single digits. We're committed over the medium term to grow our EBITDA at least 1.5x of top line and grow our EPS double digits. So I can give you that kind of color for the medium term, but I think in terms of 2019, we'll get deeper into our planning process several months out, and we'll obviously have more color and guidance to provide at that time.

Yes. I mean, look, obviously, we're asking ourselves the same question. As you know, we were first in our peer group to make the conversion. We actually ran all of last year under the 2 standards already when most of our peers, if not all of them, are actually doing it this year. So I realize for you guys, it's a little difficult to compare across the industry because our peers are reporting kind of apples and oranges. For '19, what we said is the mix of projects will drive a lot of the -- because of pass-through, the amount of pass-throughs, and that's the biggest issue that people will have. The more FSP work, which is less pass-throughs, then that would normally tend to dampen growth. However -- and we've said that. We've said that this year, absent the 606 conversion, we would have a significantly higher growth on our revenue top line for R&D and for the company as a whole, 3.5 to 4 points for R&D and a couple of points on the top line. So nevertheless, we are confident because of the strength of the pipeline that's building, because of the churn of our backlog, that we -- to hold in the midterm -- we were confident that holding the midterm guidance that we gave in November and that Mike just reminded us of, mid-single digits revenue growth in aggregate. Remember that, that includes IES, which is almost 150 to 200 basis points of headwind. So we feel good about the growth. If I maybe take advantage of the question here too. I don't know yet about '19. We'll confirm that during the year when we provide guidance for '19. But I would not -- I don't see why it would be different. 2018 revenue guidance that we reminded you of today is 3.6% to 5.6% range on the top line. And the ASC 606 impact is a range of 170 bps to 220 bps, right? So if you just readjust on the old standard, our guidance translates, on the old standard, into a growth range for this year of 5.3% to 7.8% under the old standard, which is very good and certainly above the single -- mid-single-digit guidance that we have given historically. Now again, if you're focusing on our largest businesses and take into account the headwind from the IES declines, you also know that we divested a business called Encore last year. We're happy we did that. However, it was with us in the first half of the year, and it's also a headwind that we don't have it this year. So in aggregate, the headwind from IES decline and Encore is 170 bps to 190 bps for the year. So if you add that back and want to understand the underlying growth under the old standard of the R&D business and the commercial business together, it's actually 7% to 9.7% growth for this year. That's our guidance for the commercial R&D business under the old standard. Of course, we benefit from FX, and I think it's about $150 million.

$130 million.

$130 million.

Right. We said at the -- when we gave guidance last time, it was 100 bps. We had better FX in the first quarter. Now it has gone back. The euro was 1.20 when we gave guidance last time. It's back to 1.20. So we had about $30 million or so of FX benefits in the first quarter, which we're flowing through. So it's, call it, 30 bps, and plus the 100 that we gave, so it's 130 bps of FX benefit included in this 7% to 9.7% revenue guidance under the old standard for the R&D and Commercial Solutions business. So that's for '18. And we certainly hope that as we go into '19, we'll continue to sustain these growth rates or better.

Okay, great. And maybe one quick follow-up. Thank you very much for the added clarity on organic growth that you gave earlier on the call. For the Commercial Solutions business, I think you indicated it was around 4% organic. Can you kind of break that down a little bit? How is the data business doing versus the technology solutions versus some of the service businesses that you're in there?

Thank you. Again, nothing changed. If you go back and you look at the historic IMS numbers, info was kind of flattish, 0%, 1%, 2%, depending quarter in, quarter out. And on an organic basis and the tech -- what we call the tech services business, which is our technology business and our services business, that grows typically in the high single digits organically, 8% plus or minus 1 depending on the quarter. The old real-world business at IMS, which is a data-based real-world business, grows solid double digits. And the old Quintiles business, real-world business, which is more akin to clinical trials, it's a lot of people and it's a longer-type studies, that grew mid-single digits also. So in aggregate, the real-world business is kind of double-digit. So if you put it all together, you get to this 4% organic growth on the commercial side.

Our next question comes from the line of Shlomo Rosenbaum of Stifel.

I just want to go over a couple of points just to make sure I understood it right. Were the NextGen-type of awards $1.6 billion since the merger? Is that the way to understand it? And then also if you can get into a little bit about the replatforming of some of the technology on the salesforce.com platform and where we are with that and how that's improving your competitive position.

Okay, yes. So on the NextGen , yes, you're correct. It's $1.6 billion of Next-Gen awards since the merger. The OCE platform was launched. The replatforming was done for the CRM product as of the end of last year. I think we had a launch event in December, if I recall, with Salesforce. And we are in the market now, and we mentioned some of the most significant wins with Pierre Fabre, with Recordati, mostly midsized. As you know, the large pharma segment essentially is in long-term contracts with the competitor, but we have good hopes of winning back some of those over time. And in the meantime, we are -- the renewal cycle is kind of beginning now, '18, '19, and we hope to win some of those back. But in the meantime, we are winning every single time that we compete on these types of products in the midsized segment.

Okay. And then what's the plan or what needs to happen to turn around the IES business? I mean, is it realistic to do that? Or is the goal to get it to maybe just flat growth? What's going to be considered success here and how will you get there?

Well, look, during '17, we evaluated several strategic options for the business, as you know, including the sales profits, and I spoke very transparently about this. It's a legacy contract sales organization, which had about somewhere around $750 million, $760 million of revenue in '17 and single-digit EBITDA margins. And after we've gone through the process and saw it's a fairly small industry, and it goes in cycles, we felt that it was not the right time, and we decided to integrate this segment at the end of last year with our broader portfolio of offerings. So we're going to continue to report it separately, but we are now managing it locally. It's a very local business. And when it was managed as a global entity, it probably had too much costs. And maybe it was a bit far from clients. So we're trying to integrate it with our regional and country-level sales force, and we try to leverage our technology and customer relationships to optimize these operations. So hopefully, we will report better numbers going forward, but again, it's not a market that has the wind in its sails.

Our next question comes from Tycho Peterson of JPMorgan.

I want to go back to the guidance for a second, just so we're clear. You are raising by less than the beat. Presumably that reflects kind of the timing on the full forward and reimbursed expenses for R&D Solutions. So maybe 2 questions there. Can you just give us a sense of how we should model that? That reimbursed expense component over the next couple of quarters? And is that solely the reason why you are expecting this sequential decline?

Yes. So Tycho, it's Mike. On the reimbursed expenses, you should model that in a manner that's consistent with what we said last quarter. We estimated that the pass-throughs in the aggregate for the entire company would be on the order of about $1.6 billion. That's for R&D, Commercial and IES. We still think that's about the right number. We had said that about $175 million of that $1.6 billion would be non-R&D. And so if you take that $1.425 billion and divide it by 4, the pass-throughs did come in a little heavier in the first quarter at $390 for R&D. But we still think that's due to phasing, and we're still sticking with that -- at that same estimate, which is what we've baked into our thinking on the guidance.

We said $1.6 billion includes some pass-throughs on the Commercial side.

Yes, I said that. Yes.

Right.

Great. And then Ari, a question for you on real-world evidence. Just 2 parts here. One, is the FDA more receptive to kind of incorporating and looking at some of that data? And on the pharma side, are you seeing any evidence of pharma customers looking to use Real-World Evidence to pursue label expansion at this point?

Yes, very much so. Good question. A lot of interest in doing single-arm studies. I mentioned one. Again, this is where you -- instead of having a cohort of randomized patients that are going to take the drug and go through treatment and using a placebo for another parallel cohort or several ones, we don't do that. We compare to a model and patients taken from our database. And the FDA is very willing for label expansions to look into -- to do that. And actually, we are in the midst of -- we just won a very significant study. Obviously, the more we do that, the more it favors our business because we've got the assets here to deploy. And so we're very excited about that.

Okay. And then one last one. I appreciate the color you guys gave on NextGen awards. Just curious on fixed price contracts overall, where you are in rolling those out? And what part of the backlog is fixed price at this point?

Yes. So Tycho, it's Mike. Our Next-Gen award is becoming a bigger part of the mix overall. It's probably inching toward about 50% of what we are bidding on these days. And a portion of that would be fixed-price, and we do fixed-price in instances where we have good line of sight on recruitment and we feel like we can comfortably commit to it. So it would be a subset of that.

Our next question comes from Jack Meehan of Barclays.

So I want to focus on the new awards in R&D Solutions, up 16%. Looks very healthy. But could you talk about the pacing of the RFP flow you've seen at the start of the year? And any increased activity or interest around strategic partnerships?

Yes, the RFP flow is as healthy as it has been. Actually, a very significant number of RFPs coming through. We told you, I think, already last quarter that Q4 was significantly higher than Q4 '16. I'll tell you the RFP flow Q1 '18 was significantly higher than Q1 '17. So same trend. And then, of course, as you know, we have a strategy we talked about before called see more, win more. So we're casting a wider net. And again, very healthy momentum. Our N&B on the old basis are up 15%. I don't know if we mentioned this, but even in the quarter, the bookings are up...

17.5%.

17.5% year-over-year. And that obviously has partly -- partly is we believe we are gaining market share and we are gaining a bigger share because of NextGen. But partly also, we still have the underlying market here. So growing -- the market is not growing at 17.5%, but I think we see a healthy pipe here. There's no signs that this is abating anyway.

Great. Sorry if I missed this earlier. But related to the segment guidance that you provided last quarter, is it safer to say you feel a little better about commercial and R&D Solutions at this point and maybe a little toward the lower end with IES?

Yes.

Our final question comes from Ross Muken of Evercore ISI.

So maybe just on sort of the technology side and the R&D business. I think you called out maybe some interest in the virtual trial side, and we've heard a lot more interest in terms of the concept around Site-less trials. Maybe give us a feel for, one, where the interest is coming from and how to size or think about how that could play into the market. And then secondarily, on the patient recruitment side or some of the other tools you're employing to drive these kind of NextGen wins, do you feel like you're getting the proof points in terms of that the client base market it more broadly? Because we are hearing, at least from customers, a lot more favorable sort of feedback or at least awareness relative to some of the ways you can influence startup times and total cost of trial, et cetera.

Yes. So Ross, I'd love to spend a few hours here telling about the stuff that we're doing here in NextGen. We just have a couple of minutes, but we've got a lot to say here on your question, a very important question because it speaks to the future of the industry. Just to touch on virtual trials, again, we're not going to totally eliminate the way we do trials today. You still require a full understanding of the disease area, the study protocol, the country-level regulation, how to assemble the right process to deliver on a global scale. So you still need all of those things, right? But we have a lot of -- we have a very strong uptick in sponsor interest in an innovative way of managing the trials. So the problem here in classical trials, you have a lot of sites to manage. It's not unusual to have hundreds of sites in a clinical trial that you're managing at the same time. And every one of these sites has investigators and requires a separate startup and separate systems and CRAs on these sites and patients. So it is, as a concept, is a difficult machinery to make work at the same time. Virtual trial, the idea is to have one site, one virtual site that then deals with all the local labs and deals with the patients at their location. If you think about it, today less than 5% of eligible patients actually participate in clinical research. One of the main reasons is that the distance to a site is significant. The average distance that a patient who's enrolled in a trial travels to a site is 50 miles. 70% of eligible patients live at least 2 hours away from a physical site and so largely don't participate in a clinical trial. So the idea here, of course, is to reduce the costs, reduce the timeline but also make it a lot more efficient by using remote monitoring of patients at their homes. So in terms of how we are working on this, obviously, because we have a better understanding of where the patients are and the availability of centralized monitoring, which, as you know, we have best-in-class capabilities in, building out a technology platform -- it's something we call a study hub, that facilitates video chats with investigators, telemedicine, e-consent. You mentioned the technology acquisitions we did last year on the clinical side with DrugDev, that's part of that strategy. Scheduling notification, the ability to send medical records and to answer study questions like -- simple questions, how are you feeling today? Did you take your medicine and so on? Plus the relationship with the local hubs -- the local labs. So all of these present an extraordinary opportunity. If you ask me what is the pipeline, again, it's not that -- I think the total pipeline we have now is probably, I want to say, $100 million of opportunity in total. And it's several small studies, again, mostly with EVPs, with difficult diseases and so on. But I think there's growing interest and we have a lot of conversations. The regulators are very supportive. FDA also in Europe, the EMA, very supportive and are encouraging us to explore new ways of doing this as long as we maintain patient safety, of course, and data integrity. And again, with the technology that we have, we are able to do this. Again, the idea is to reduce the patient burden, to streamline the startup because it's just the one virtual site. It's much shorter than if patient recruitment is facilitated because it's an expanded patient access. The patient who would not normally participate because they're too far from the site would participate. We have 100% remote monitoring maybe with very limited visits, but again, considerably reduces CRA travel to sites. Facilitates -- I think, data integrity would be much higher because it would be all electronic and there will be consistency of process versus inconsistent across sites and a mix of electronic systems depending on the sites, et cetera. So there's a lot of interest. I can spend a lot of time on this. As I said, there's just a couple of minutes. So again, we have -- we're very excited. And under the proof points on NextGen, it's going to accelerate. The proof points we're able to show now are on a much larger sample. Last time we spoke about this, I guess it was in November investor meeting, we only had very few NextGen trials that we're starting up, literally a handful that we could speak about. Today we already have several dozen that are full speed ahead. And like for example, we have 70 trials at the moment where we're already in the patient enrollment stage. And these 70 trials include over 1,800 sites. So the data that we can use to prove the effectiveness of NextGen over traditional approach is much broader, and it's a broader scale. And the more time goes by, obviously, all the NextGen awards that we've won are in startup mode, and we'll able to have a broader base for our proof points.

With that, thank you very much for the question and for the call. Andrew?

Yes, thank you very much, everyone. Thanks for taking the time to join us today, and we look forward to speaking with you on our second quarter 2018 earnings call. I'll be available for the rest of the day to take up any follow-up questions you might have. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask to please disconnect your lines. Thank you, and have a good day.