Exela Technologies Inc (XELA) 2017 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Exela Technologies fourth-quarter and year-end 2017 call. My name is Brian and I will be your host operator on this call. (Operator Instructions). Please note today's event is being recorded. I would now like to turn the meeting over to Jim Mathias, Vice President Investor Relations. Please go ahead.

Thanks, Brian. Good afternoon and welcome to the Exela Technologies fourth-quarter and year-end 2017 conference call. Presenting on today's call are Ron Cogburn, our Chief Executive Officer, and Jim Reynolds, our Chief Financial Officer. Also on today's call are Shrikant Sortur, our Executive Vice President of global finance and Anubhav Verma, our Senior Vice President Finance. Following prepared remarks made by Ron and Jim we will take your questions.

Today's conference call is being broadcast live via webcast, which is available on our Exela Investor Relations website. A replay of this call will be available until March 22, 2018. Information to access the replay is listed in today's press release, which is available on our website under the Investors section.

During today's call Exela will make forward-looking statements regarding future events and financial performance. These forward-looking statements are subject to known and unknown risks and uncertainties and are based on current expectations and assumptions. We undertake no obligation to update any statements to reflect the events that occur after this call.

Please refer to the Company's filings with the SEC for factors that could cause our actual results to differ materially from any forward-looking statements. Our 10-K includes risk factors that could cause our actual results to differ materially from the forward-looking statements.

During the course of today's call we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP results we discuss on this call can be found on the Investor Relations page of our website.

As a reminder, financial results discussed on today's call reflect pro forma combined Company results for the business combination of SourceHOV and Novitex which closed on July 12, 2017. Please note there is also a presentation that accompanies this conference call and an investor fact sheet which are also accessible in the IR section of our website. We will begin by turning the call over to our CEO, Ron Cogburn.

Thanks, Jim. Good afternoon and thanks, everyone, for joining us today. Looking back on the year, the highlight was our formation of Exela into a standalone Company trading on the NASDAQ. That was made possible by the hard-working men and women whose dedication and determination rallied to accomplish our goals. And equally important, the trust the investment community placed in our teams to deliver the committed results.

I want to cover a few highlights for 2017. If you would turn to slide number 5 we will begin. I am particularly pleased that we achieved our full-year 2017 guidance ranges for both pro forma revenue and adjusted EBITDA, a tremendous accomplishment. We finished the year with solid growth of 9% to $1.456 billion. Our further adjusted EBITDA was $347 million with a margin of 24%.

We generated further adjusted free cash flow of $304 million, which grew 2.9% with a conversion of 88%. Our CapEx, which was 2.9%, is low for an organization of our size and complexity. Our Q4 revenue was $386 million, which grew 9.6% year over year.

2017 was a remarkable year where our land and expand strategy yielded impressive results including revenue from the top 100 customers which grew 14%. We now have six clients generating over $25 million in annual revenue and 197 clients between $1 million and $5 million in revenue.

During the quarter we added a number of new logos, but I want to highlight a very significant win for Exela, which is a five-year agreement in which we will handle time sensitive correspondence for the administration of: an employee benefit program; a benefit claims processing; business continuity services; and management of the outbound communications.

This win is notable for Exela as it was made possible by the reliance on our business combination and our business process outsourcing, or BPA automation, excuse me, and our proprietary technologies. From a graphical footprint perspective, we added presence in two new countries, Norway and Poland.

Let's turn to slide number 6, embracing complexity and delivering simplicity, this is what we do every day. Momentum continues to build as we see large white space opportunities in growing industries. We have been investing for growth, increasing awareness of Exela's solutions in the market, accelerating investments in people within sales, marketing and strategy, as well as investing in our technologies.

To this end we have opened our first of many state-of-the-art innovation centers. These centers were designed to introduce the breadth of our capability to our current and prospective customers. We are also continuing to participate in the normal industry trade groups and shows.

Total contract value as of January 1, 2018 for contracts won in 2017 is $1.523 billion with renewal rates of 98%. Our customer concentration is low with our top customer at 6% of the total revenue and the remaining top 10 customers at 19% of the total revenue.

Our business process automation platforms, or BPA, continue to drive value with a nearly 20% increase in the revenue per FTE from $56,000 to $66,000 all while we decreased our employee base by 6% to 22,000.

Based on our solid 2017 results, as well as our outlook for 2018, we anticipate revenue growth of 4% to 6%. We are forecasting further adjusted EBITDA for 2018 to be between $330 million and $355 million with a margin of 22% to 23%. As we accelerate our business into 2018, we believe we are well positioned to drive long-term shareholder value.

With all of our recent success in our BPA rollout and our transformation, we plan to revisit our 2018 outlook on our second-quarter 2018 call in August of this year. Jim Reynolds will discuss our outlook for 2018 as well as the impact to the changes in the tax code a little later in the call.

Now let's turn to slide number 7. Our customers are global and we are well diversified across the industries we serve. We are among the largest global providers in the growing financial services and healthcare sectors where we have a significant presence in the top 10 US banks, nine of the top 10 US insurance companies and the top five healthcare insurance payers. These industries represented approximately 60% of our pro forma revenue during 2017.

While it is still early in 2018, we are seeing an increase in the enterprise opportunities that we mentioned last quarter. And although the sales cycles can take up to 14 months, a number of large financial and insurance customers have approached Exela requesting proposals for additional services featuring our business process automation.

Likewise we have been able to propose to large healthcare payers and providers additional services leveraging our combined strengths now. We are very pleased with the traction that we are seeing in terms of increased opportunities and we believe the combination has improved our ability to expand our existing relationships and increase our probability of wins.

So let's turn to slide number 8, which is our business process automation, or BPA, slide. Our technology is complex but our strategy and our results are simple. With our beginnings in the BPO industry we have consistently met with success in applying technology to drive improved outcomes.

Our primary focus in 2018 is continuing to bring our established business process automation solutions, including robotics and cognitive automation, to our clients allowing them to drive results in their own businesses.

As the illustration points out, Exela has been utilizing business process automation and robotic process automation, or RPA, for many years. Exela developed proprietary technology around cognitive automation roughly seven years ago. Evidence of their use internally to achieve greater efficiencies can be seen in our margin expansion over the past several years.

Our technology solutions are modular in nature and configured to seamlessly integrate with our clients' pre-existing legacy enterprise software platforms. With the acquisition of Novitex we gain the opportunity to expand our presence into the front office and apply our technology enabled suite of services there.

We are actively pursuing and offering our automation technology to the customers and locations that came with that business combination. We can pull forward our business process automation and the outcome resolutions to the front office and provide a better customer and employee experience.

To give an example of how we deploy Exela's business process automation to drive accuracy and efficiency, let's look at how we are deploying bots, or robots, for underwriting support across the insurance industry.

We worked with one of our largest property and casualty insurers to map all of their repetitive tasks that were being performed across one of their largest underwriting departments. We already had hundreds of on-site and off-site employees embedded throughout their organization helping support the underwriters by prepping all of the data so the experts had a clean package to review.

Our employees knew the process inside and out. It involved gathering data from many different systems, organizing what was important and comparing databases and documents to make sure it was all accurate. They had to do all this manually though, logging in, logging out of the various systems, pulling up emails, PDFs, copy, pasting, checking completeness and consistency and organizing all that support.

By giving them our BPA suite, which includes our RPA platform EON, they are able to quickly configure specialized bots to repeatedly login, extract, validate, run business rules and post the data with key flags and alerts. They could let the bots do all the redundant tasks and they focus on the exceptions.

The effect of this automation was that it enabled the workers to focus on more complex tasks and drastically increase the speed and a reduction in human error. To be clear, rather than spending time building these data packages, our solution allowed them to spend time analyzing the data. Exela's automation made the underwriters' lives both easier and far more productive. These are very exciting times for Exela.

Now let's move to slide number 9 which is our employee network. With our increased scale, we believe we are uniquely positioned to apply our business process automation solutions on a global basis. Additionally, with our established physical presence at over 1,100 customer sites, we have a natural competitive differentiator as we continue to discuss our expanded suite of services with those customers. This step makes us a more valuable embedded partner with our clients.

Many of Exela's clients are multinational. Our global employee footprint is a key component of our ongoing success. With a global workforce we have a significant opportunity to expand into the growing operations of our clients. Development and management of our effective proprietary technology that addresses the daily changes faced by our clients is an important part of our future growth strategy.

To that end, we employ approximately 2,000 IT and technology professionals globally devoted to building, implementing and managing our proprietary IT. Although our clients are global, over 90% of the revenue comes from the US. As a result, and with our focus on applying technology-based solutions, over half of our workforce is based here in North America.

Now let's turn to slide number 10. Building on what was an eventful and exciting 2017, here is our focus for 2018, driving long-term shareholder value. Let's start with the leverage of the BPA. Our initiative and our goal was to expand our business model to include on-site and off-site locations and to leverage our BPA leadership position as a first mover. So here is the update. We have 100 customers representing approximately 60% of our total revenue that's up 14% this year.

The next was to improve customer awareness. The initiative and goal, that was to increase customer awareness and leverage our scale And our BPA. Here is the update. We have opened two innovation centers and we have accelerated investments in people and technology.

Let's talk about the savings initiatives. What were our initiatives and goals? To maintain focus on delivering the identified savings. So here is the update. We delivered more than $40 million in 2017 for the cost-saving initiatives. 2018 guidance includes assumptions of $40 million to $45 million in savings with the remainder in 2019.

And lastly, accretive M&A. What were our initiatives and goals? Prudent look at the opportunistic accretive tuck-in acquisitions as they come up. What's the update? We have financial flexibility that enables strategic and opportunistic actions.

We have a significant opportunity to grow both organic and inorganic. We are investing in key areas within our business, including technology and people, to position us to provide additional value to our clients, which we believe will best position Exela for long-term sustainable growth and to drive shareholder value. Come by and check out our technology at one of our innovation centers near you.

And now I would like to hand over the call to Jim Reynolds who will discuss our financial results in greater detail. Jim?

Thanks, Ron. On slide 13 we have an overview of the fourth-quarter 2017 financial results. On the following three slides I will be walking through the details.

Let's turn to the slide 14. Revenues for the fourth quarter were $386.3 million, up 9.6% compared with $352.5 million in Q4 2016 and up 7.8% sequentially from Q3 of 2017. All of our reporting units grew on both a year-over-year and sequential basis.

Information and transaction processing solutions, ITPS, revenue was $301.5 million and grew 11.2% year over year. The ITPS segment also grew revenue sequentially 7.8%. The year-over-year increase in ITPS revenue was driven by increased volumes and expansion of services within existing customers.

Healthcare solutions revenue was $60.1 million compared with $58.6 million in Q4 2016 and up from $56.4 million in the third quarter of 2017. Our healthcare business growth came from existing customers and it grew sequentially from higher volumes during open enrollment season.

And finally, our legal and loss prevention services segment, or LLPS. The segment revenue was $24.7 million, up approximately $2.1 million or 8% year over year compared with Q4 2016. We are pleased with the growth.

Now on slide 15, we had a negative operating income of $51.2 million. This was driven by an impairment charge totaling $69.4 million. As we discussed, our legal business revenue has declined from its highs in 2014. And in Q4 of 2017 we took a goodwill impairment charge of $30.1 million related to this business in our LLPS business segment.

In addition, we wrote off $39.3 million relating to certain legacy trade names that will be dropped as part of our global rebranding initiatives to launch as one Exela.

On slide 16, adjusted EBITDA for fourth quarter 2017 was $62.7 million representing a margin of 16.2% compared with $64.7 million and a margin of 18.4% in the fourth quarter of 2016. The year-over-year decrease in fourth quarter 2017 was driven by higher ramp-up costs associated with new ITPS client contracts, investment in the Company's revenue growth initiatives, and incremental costs associated with operating as a public Company.

Slide 17, this is a summary of the full-year 2017 pro forma results, which I can cover in more detail on the following few slides. As Ron mentioned, we achieved our full-year 2017 guidance ranges for both pro forma revenue and adjusted EBITDA.

Turning to slide 18, revenues for the full year were $1.456 billion compared with $1.333 billion in fiscal year 2016, posting a 9.2% growth. ITPS revenue was $1.131 billion and grew 15% year over year primarily by increased volumes and expansion of services within existing customers and ramp-up of new customer wins.

Healthcare solutions revenue was $233.6 million compared with $247.6 million in fiscal year 2016, down 5.6%. We had growth in our existing payer business of $3.7 million, but it was offset by a decrease in demand from healthcare provider clients related to medical coding conversions of ICD-9 to 10 that slowed down in mid-fiscal year 2016.

And finally, our LLPS segment revenue was $91.6 million, down approximately 10% due to the sale of one small non-core asset in Q1 of 2017.

Turning to slide 19, for 2017 we had an operating loss of $102.1 million. This was driven by two main items. First, an impairment charge of $69.4 million we recorded in Q4, as I discussed a few slides back; and second, in fiscal year 2017, as part of the business combination, we incurred one-time transaction costs totaling $99 million.

For fiscal year 2017 our net loss of $242.4 million was also impacted by a one-time loss of $53 million related to the early extinguishment of the debt at the stand-alone entities as part of the business combination.

Now turn to slide 20. Adjusted EBITDA for fiscal year 2017 was $245.2 million, representing an adjusted EBITDA margin of 16.8% compared with $248.5 million or 18.6% in fiscal year 2016. Further adjusted EBITDA was $346.8 million, a margin of 23.8% compared with $349.9 million, or 26.2% margin.

The year-over-year decrease in further adjusted EBITDA was primarily driven by higher ramp costs associated with new ITPS client contracts, investments in the Company's revenue growth initiatives and higher public Company costs offset by savings initiatives, of which over $40 million were delivered in 2017.

In addition, the dilution of the margins in 2017 compared to 2016 was primarily due to the acquisition of a lower margin business. The strategic vision of Exela is to transform the acquired business with BPA over the next 12 to 24 months.

Touching on synergies, we continue to be on track. The Company continues to expand deployment of its business process automation suite to deliver the planned execution of the $99.2 million of identified savings. This is detailed in the reconciliation to the further adjusted EBITDA which is in the appendix.

Exela expects to have our further adjusted EBITDA converge to adjusted EBITDA as merger-related savings continue to flow into our results. Approximately $40 million to $45 million of the savings will flow through in 2018 with the remaining during 2019.

Now turning to slide 21, for the full-year 2017, we had $304.4 million of further adjusted free cash flows, an increase of 2% year over year and representing an 88% conversion of further adjusted EBITDA. Our strong free cash flow profile is due to our low CapEx model. For the full-year 2017 our CapEx totaled $42.4 million, 2.9% of our 2017 revenue.

Turning to the capital structure on slide 22, at December 31, our net leverage ratio was 3.88 times. Total liquidity was $141 million and total net debt was $1.345 billion. We had global cash and cash equivalents of $62 million, of which $23 million is allocated to customers with the corresponding liability. We also have a $100 million revolving credit facility which was undrawn, but net of approximately $21 million in standby letters of credit, giving the Company the ability to borrow $79 million.

Also in the fourth quarter, we entered into a standard three-year hedge on our first lien term loan given our view of the rising treasury yields. We have swapped out the entire portion of our floating-rate debt for a fixed 1.9275% rate floor which went into effect in January 2018.

We are also excited to mention that the Board approved a stock plan for employees for approximately 8.3 million shares. It will be partially funded with the stock buyback program we announced this past fall. This will replace a portion of the cash variable compensation paid to employees. During the fourth quarter, we bought back 49,300 shares.

Before I close, I want to discuss our 2018 guidance. Please turn to slide 23. Our 2018 guidance ranges are as follows. We expect revenue to be between $1.51 billion to $1.54 billion or 4% to 6% growth on a constant currency basis.

We expect adjusted EBITDA in the range of $290 million to $310 million, translating into a growth of 18% to 26%, representing a 19% to 20% adjusted EBITDA margin for 2018. We expect further adjusted EBITDA in the range of $330 million to $355 million translating into 22% to 23% margin.

In addition, for 2018 adjusted free cash flow conversion in the range of 87% to 89%. Our guidance includes delivering $40 million to $45 million in savings during 2018 with the remaining during 2019.

During our second quarter call in August, we anticipate we will provide a midyear update. Our longer-term guidance remains unchanged. Revenue growth on a constant currency basis in the range of 3% to 4% with further adjusted EBITDA margin guidance in the range of 22% to 23%. Further adjusted free cash flow conversion is in the range of 87% to 89%.

Before I open up the call to questions, I want to spend a minute on the recent tax reform and how it could impact our tax rate moving forward. The lower corporate tax rate will be a benefit for us. However, given the significant NOLs, approximately $234 million that are not subject to 382 limitations, we will continue not to pay much in US taxes until 2021 or 2022. Our effective tax rate will continue to be de minimis as we still have to pay some foreign taxes, less than $10 million a year, for our profitable international subsidiaries.

In closing, we had a solid 2017. We are executing against our plan Ron discussed when we created Exela this year. We are continuing to make the right investments in our technology platforms in elevating our position as an essential participant in our clients' value chain. Thank you. With that, operator, I'd like to open up the call for questions.

(Operator Instructions). Joseph Foresi, Cantor Fitzgerald.

Hi guys, this is Mike Reid on for Joe. We appreciate you taking the question. Could you tell us what's given you the confidence in giving this year's guidance above your longer-term financial objectives? And then, if you could, give us a little more detail on expectations by segment and maybe what kind of continued improvement you are looking for in healthcare and legal.

Sure, this is Jim. Our revenue guidance is based on a bottoms up analysis. We have over 90% visibility in revenue and have incorporated our total contracted revenue since January of -- January 1. So we feel really good with our visibility.

In addition, as Ron mentioned, in the fourth quarter we had a significant client win that is in the process of ramping up, that gives us further comfort in upping our short-term guidance range for 2018.

You know, we don't currently give specific guidance on the growth within the segments, but what I will say is, as you know, within our ITPS group we are very strong in our financial services and banking customers. As those industries grow and expand into fintech, etc., we see that tailwind and that uplift also.

So overall, consistent what we've said historically, we see the growth coming in our ITPS and healthcare. And then we expect our legal loss to be relatively -- legal and loss prevention services to be relatively flat.

Okay, got it. I appreciate the color on that. And then on the margins, the adjusted EBITDA guidance suggests some pretty good expansion this year. And then it looks like in 4Q, the operating income would have been around $18 million without the impairment charge or I guess close to 5%. Is this kind of a reasonable expectation for operating margins in 2018 if there is no other potential unseen event such as impairment? Or could there be improvement there too?

So I think we don't give specific guidance on the operating level, but we did have one-time charges that definitely impacted 2017. And we don't anticipate them being around at all in 2018. The reason for the expansion, as we discussed, is we have implemented certain cost savings that will start to flow through as we projected in 2018 as a result of our work on the savings. That will help drive (multiple speakers).

All right, thanks, guys.

Arun Seshadri, Credit Suisse.

Yes hi, Ron and Jim; thanks for taking my questions. Just a couple of questions for me. First, I just wanted to understand -- for Q4 of 2017, just wanted to understand the -- your revenue grew nicely on a year-over-year basis but gross margin dollars did not. Just wanted to understand sort of the puts and takes for that and -- maybe we can start there.

So, I think if you look at Q4, the margins were impacted by a few items that I discussed which was the public Company costs, the ramp up of additional customers. We don't currently break out our gross margin. We view it as you really need to look at an operating level. If you look at some of our add backs in the quarter, our biz ops were down significantly to approximately $11 million during the fourth quarter.

Also as part of Q4, we had previously some costs that could potentially be capitalized under accounting rules; we were not able to capitalize as much. So we took a little bit of a hit from that aspect. On a go-forward basis, with the implementation of the incremental $40 million to $50 million of savings, we see our operating margins expanding.

Got it. So basically some of those add backs are included -- are in that cost of revenue which muddles the gross margin line.

That is correct.

Understood. And then as far as the guidance for -- the adjusted EBITDA guidance for 2018, is there any way you could give us the breakout of the various -- of the add backs within that? So in other words, what would be the relevant numbers for I guess the optimization and restructuring expenses, what's the assumption as well as transaction? I mean I guess it shouldn't be much of transaction integration. And then finally just sort of the breakout in terms of like oversight management, new contract set up -- any additional color you can add on those add backs.

Sure. If you look at Q4, obviously you saw our business op costs go down significantly from the third quarter. They were basically $11 million in Q4 versus close to $21 million in Q3. So as we look to 2018 we would expect less of those charges also for the year somewhere between $20 million to $25 million in biz op type charges.

With respect to transaction fees, we had close to $97 million in Q3 related to the transaction. There were only $2 million that came through in Q4 of 2017. So we don't anticipate large add-backs from that area.

And then with respect to the management fees, those all went away as part of the combined merger. So those will be de minimis on a go-forward basis as there are no more management fees being paid by either company. So we see the adjustments decreasing significantly.

Got it. So is there any way you could sort of break that down to what type of GAAP EBITDA -- what kind of GAAP or cash EBITDA that would translate to, the $290 million to $310 million?

Yes. So at a high level we have given guidance of adjusted EBITDA between $290 million and $310 million with roughly $20 million to $25 million in biz op. If you take (multiple speakers).

So basically a $30 million overall reduction, so around $270 million, $270-ish million of GAAP EBITDA?

That is correct.

Got it. Understood. That's really good. And then finally I just wanted to ask in terms of the large contract I think Ron talked about, is there any way you could give us the size and ramp and any sort of indication on margins relative to your current ITPS business? Thanks.

Thanks, Arun. We typically don't share that level of detail. Just covering the highlights.

Okay. Can I ask one more question then? I must have missed what you said on HS growth implied for 2018. I think you said ITPS expects strong growth, LLPS flattish. Could you just repeat what you said on HS?

So what I said is we see the growth -- overall growth and expansion coming in ITPS and healthcare solutions and flat at legal loss prevention services. We don't necessarily break it out. But what I would tell you, we feel very confident that healthcare will grow as the industry grows.

If you remember, we have some of the top payers and providers as part of our customer base. And as they expand and do mergers and continue to grow their business we will grow along with them.

Okay, thank you very much.

(Operator Instructions). Bryan Bergin, Cowen.

Hi, guys, thank you. I wanted to ask first just on US tax reform, can you comment on US client spending behavior and any notable changes that you can see here?

Thanks for your question, Bryan. Currently we have not seen any significant changes to the business from our US customers. As you know, we are well positioned in the US with over 11,000 employees here. About 90% of our revenue is in North America and haven't seen really any significant impact thus far.

Okay. Then can you talk about capital allocation priorities in 2018? And how should we think about M&A contributing to your long-term growth rates?

So that's a good question. I think our capital allocation is consistent that we've laid out earlier in the year and there's been no material changes from that. I think if you look at potential transactions, we said that is a possibility down the road once we feel comfortable. There were a number of items we walked through, so at this point we have no change to that guidance.

Okay. And just last one here for me. Can you give us an update on your cross-selling progress and particularly as you are aiming to drive more awareness of your offering across the client base?

Yes, Bryan this is Ron. That's a great question and I think I touched on it a little bit. Part of the strategy was to be able to take the message two fold. Number one, we picked up about 1,100 customer sites with the acquisition of Novitex, an additional 400 customers are located there. And as we begin to roll out our business process automation we are helping to transform that existing business into a more automated process.

It's like the example I gave of the large property and casualty insurer. We had been there for a number of years and we had literally hundreds of employees involved there. So to be able to add automation, whether it's business process automation along with RPA or just pure business process automation, it creates a different conversation with those customers. Because now we are able to do things in a more automated way, a more efficient way with fewer errors and it creates what I would call a more sticky relationship with those customers.

So, we have rolled out that thesis across all of those customers we picked up with that acquisition as well as our existing customer base. We are not waiting for renewals. We have an active -- we are actively engaged with all of our largest customers, sharing with them the proposition of business process automation, what it can do for their business and what we can do for them. So it's a very exciting time for us and we are seeing some early adoption. So we are very excited about it.

Thank you.

(Operator Instructions). John Moore, HSBC.

Hi, guys. So, in terms of contracts and signings, are there any -- is there anything new in terms of the types of contracts you are signing? And I guess on the big one, even though in Q4 you don't want to describe too much about it, but is it in line with some of the other BPO transformation contracts you've done to date?

So that's the right place to start, BPO transformation with business process automation. And I think I talked a little bit about this. In the fourth quarter we began to see what I would call an acceleration of the interest from our customers for enterprise conversations. So that's where we show the combination of the two businesses overlaid with the automation. And in doing that, that allowed us to have that significant win along with others.

And so, as we looked forward, and I think I mentioned this in my voiceover, starting the first of this year we had about $1.5 billion of contracts won in 2017, a lot of which we saw in Q4. And it's a result of this strategy to be able to engage with a customer to roll out a transformation from a BPO installed service and solutions to business process automation. And we are finding a lot of interest from our customers. And as we focused on our largest customers we saw a lot of interest from them early on.

Great. And to date, through the quarter, the contracts that you got rolling earlier in the year, those transformations are all proceeding well in your mind?

Well, these are long sales cycles. Remember, some of this takes up to six to nine months to do the assessment, to understand and map all the processes and procedures within a customer, and then it may take another six months to implement. So, we are optimistic; we have some pilots that are functioning and in place. Later this year I think we will probably see some sort of movement with that.

Okay. And then just in terms of the optimization and the structuring expenses, they did come down a lot in Q4. And you mentioned it's -- you gave a range of $20 million to $25 million for 2018. But as we think about it, is there a quarter in particular when they should drop off a lot or is it kind of steady drop through 2018?

We don't give any specific quarterly guidance on it, but we would expect it to tail off throughout 2018.

Okay, great. That's it for me. Thank you.

Brad Eilert, RBC.

Hey, guys, just wanted to -- just a couple of quick things. For the guidance you gave for 2018 and then the longer-term guidance, is there any thoughts on how the CapEx spend is going to be for those time frames? Is it going to be consistent to what you've said in the past at about 3%-odd of top line?

Yes, we are maintaining the 3% CapEx as a percent of revenue.

Okay and then as far as on the shelf filing that you did a few weeks ago, the universal shelf, can you give us any sort of context on why that was done and the timing that it was done now? And should we think about that as more of a -- the flexibility for if you want to do any sort of these tuck-in M&As that you've highlighted here? Or is that -- kind of be somewhat associated with the employee stock program?

So, it's basically a housekeeping type item that we put in place to provide us with additional optionality for the future.

Flexibility.

Flexibility rather.

Okay. Thanks, guys.

[Anna Fretilla], Fortress.

Hey, guys, thanks for the call. Can you talk a little more about the healthcare solutions segment? I think you mentioned the revenue there year over year was a little softer due to less ICD 10 conversions on the provider side.

So, can you tell us what you are seeing in terms of areas of growth within that segment for 2018 that could maybe help to offset some of those tailwinds that you've seen in the past couple of years? Thank you.

Sure. I think we are very well positioned within the healthcare -- our healthcare segment. As I mentioned, historically there was a tail off when they did the conversion back in late 2015 and 2016. There was a big boom in the payer provider space for medical coding. We were able to fill that space and as the revenue came down from that it really caused the majority of the decline in our healthcare solutions business.

We are well positioned. We are in the top four of five in insurance payers. And then we also have a large government entity in that space. So we feel we are well positioned. Typically in that space the market is growing between 6% and 8%. We typically follow as our customers grow. So we feel good about our healthcare business.

Okay, that's great. Thank you very much.

This will conclude our question-and-answer session for the day. With that I'd like to turn the conference back over to Ron Cogburn for any closing remarks.

Sure. Thank you. And we really want to thank everybody for joining the call today and we look forward to speaking again with you in the first quarter. And for those of you that know us well, look for an invitation to come by and visit us at our innovation center in a city near you. Thanks a lot.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.