IQVIA Holdings Inc. (IQV) Q1 2016 Earnings Report, Transcript and Summary

On behalf of Quintiles, good morning, and welcome to the Quintiles First Quarter 2016 Earnings Call Webcast. My name is Dana, and I will be your web event specialist today. [Operator Instructions]. It is now my pleasure to turn the webcast over to Todd Kasper, Vice President of Investor Relations. Mr. Kasper, the floor is yours.

Thank you, Dana. Good morning, and welcome to Quintiles First Quarter 2016 Earnings Call. With me this morning are Tom Pike, our Chief Executive Officer; Mike McDonnell, our Chief Financial Officer; and Kevin Gordon, our Chief Operating Officer. In addition to our press release issued this morning, a conference call presentation corresponding to our prepared remarks is available on our website at www.quintiles.com/investors. 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, which are discussed in the company's filings with the Securities and Exchange Commission, including the company's 2015 Annual Report on Form 10-K filed on February 11, 2016. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered as 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 like to point out that, as with other global businesses, we have been impacted by foreign exchange, and therefore, we will discuss many of our results in constant currency to improve comparability. I would now like to turn over the call to our CEO, Tom Pike.

Thank you, Todd. Good morning to everyone, and thank you for joining our first quarter 2016 earnings call. As you've heard this morning, we are excited to have entered into a definitive merger agreement combined with IMS Health in all-stock merger equals transaction to create an industry-leading information and technology-enabled Healthcare Services provider. We're excited about the announcement, and we will focus our comments on this call on Quintiles' first quarter results. Having already hosted one call this morning, we'll be shortening this call to about 45 minutes. Now let's jump right to Slide 3 with some of the highlights from the first quarter. We delivered 8.4% constant currency service revenue growth, with product developmental accelerating to 12.6% growth in constant currency for the quarter, and we grew diluted adjusted earnings per share by 23.6% to $0.89 per share. Our $1.03 billion of net new business resulted in company-wide book to bill of 0.93x, which included a 0.95x book to bill in product development and 0.84x book to bill in IHS. Now regarding new business, let me share right up front that we had decisions on several large opportunities slipped into the second quarter. During April, we obtained awards resulting in stronger than usual net new business. In fact, it was the largest dollar volume of new business awarded in Product Development in the first month of any quarter since we went public 3 years ago. Entering the second quarter, even reducing for the strong April awards, we had the largest ever dollar value pipeline in Product Development. And we also had very strong cash flow in the first quarter of the year, with $112.1 million of cash flow from operations and $86 million of free cash flow. In all, our important Product Development business is performing well with a strong pipeline. Our IHS business is strategically important but continues to be a little lumpy and contribute a little less to the bottom line. Now let me hand the call over to Mike, who will walk you through the financial results in more detail.

Thank you, Tom, and good morning, everyone. Let's begin with the consolidated results on Slide 4. For the quarter ended March 31, 2016, consolidated service revenues grew 8.4% at constant currency compared to the prior year quarter. At actual foreign exchange rates, service revenues grew 7.6% to $1.11 billion in the quarter, net of an unfavorable foreign exchange impact of $8.1 million. For the quarter, the North America and Latin America region contributed approximately 45% of our consolidated revenues. The Europe, Middle East and Africa region contributed nearly 33% and the Asia Pacific region contributed approximately 22% of total consolidated revenues. The Product Development segment accounted for 75.6% of our service revenues, while the IHS segment accounted for 24.4%, a 280 basis point greater contribution from Product Development compared to the first quarter of 2015 due to stronger revenue growth in this segment, including the revenue from the businesses contributed by Quest Diagnostics into Q² Solutions. During the first quarter, adjusted income from operations grew 22.5% to $181.9 million, a margin of 16.4% with 200 basis points of margin expansion. This expansion was comprised of 60 basis points due to revenue mix shift as a result of faster revenue growth in Product Development and further leverage of our cost structure, with the remainder resulting from favorable currency fluctuations. For the first quarter, SG&A was $225.5 million, or 20.4% of service revenues compared to $219.6 million, or 21.3% of service revenues in the prior year. The current year quarter included the increased cost from Q² Solutions, and increase compensation-related costs, partially offset by a positive impact from foreign exchange. We recognized $4.5 million of other expense, net, in the first quarter compared to $2.9 million of other income net during the same period last year. In the first quarter of 2016, this primarily consisted of $4.2 million of foreign currency net losses. We recognized $3.1 million in net restructuring charges during the first quarter in connection with previously approved and announced plans. Net income attributable to noncontrolling interests was $2.4 million in the first quarter, primarily due to the 40% minority interest in Q² Solutions. Income tax expense was $42.6 million during the quarter, equating to a GAAP effective income tax rate of 28.6% compared to $36.1 million and 29.7%, respectively, for the same period last year. Adjusted net income in the first quarter grew 18.7% to $108.3 million compared to the same period last year. Diluted adjusted earnings per share grew 23.6% to $0.89 per share in the first quarter compared to $0.72 per share in the prior year quarter. Our cash balance was $1.05 billion as of March 31, 2016, of which $228 million was in the U.S. Cash flow from operations and free cash flow were $112 million and $86 million, respectively, for the quarter ended March 31, 2016. The net cash provided by operations during the period reflects the increase in net income as well as lower payments for interest and income taxes, and a 1-day improvement in days sales outstanding in the first 3 months of 2016. Capital expenditures were $26.2 million for the quarter or 2.4% of service revenues compared to $16.4 million during the same period in 2015. Our total debt outstanding as of March 31, 2016, was $2.46 billion. Our net debt outstanding, defined as total debt and capital lease obligations less cash and equivalents, at March 31, 2016, was $1.4 billion compared to $1.49 billion at the end of December 2015. This decrease is primarily due to the higher cash balance. The $1.03 billion of new business booked during the quarter, net of foreign exchange impact on the backlog, resulted in backlog of $12 billion. Let's now move to the 2 reporting segments, beginning on Slide 5. In Product Development, we booked net new business totaling $799 million, representing a book-to-bill ratio of 0.95x service revenues in the quarter. Product Development's constant currency revenue grew 12.6% in the first quarter compared to the same period last year, and at actual foreign exchange rates, grew 11.7% to $837.5 million, including $6.9 million of unfavorable foreign exchange impact. Product Development's constant currency revenue growth benefited from volume-related increases in core clinical services and clinical trials support services as well as the incremental impact of the business that Quest contributed to Q² Solutions. Product Development income from operations for the quarter was $189.3 million, a 20.6% increase at actual rates and 12.1% increase at constant currency rates. The Product Development income from operations margin was 22.6% in the quarter, an improvement of 170 basis points compared to the same period last year. This margin improvement included 180 basis points of foreign exchange benefits offset by an increase in compensation and related expenses as well as our continued investment in the growth of our Global Delivery Network, including the opening of a new facility in Mumbai, India. We continue to -- we intend to continue investing in growth through the second quarter, adding and training people both in Mumbai and our clinical development organization as a whole. In the IHS segment, we booked net new business of $227 million, representing a book-to-bill ratio of 0.84x service revenues in the first quarter. IHS service revenues declined 3.1% at constant currency rates in the first quarter. At actual foreign exchange rates, service revenues were $270.5 million, representing a decrease of 3.5% or $10 million compared to the same period last year, including unfavorable foreign exchange of $1.2 million. As expected, IHS constant currency revenue growth started the year slowly as a result of cancellations in commercial services during 2015 as well as lower new business additions in Japan. This constant currency service revenue decrease was offset by growth in the real-world and late phase research unit. IHS income from operations for the first quarter was $17.9 million, a decrease of 1.1% at actual rates and a 6.5% decrease at constant currency rates. The IHS income from operations margin was 6.6% in the quarter, an improvement of 10 basis points compared to the same period last year. This margin improvement included higher margins in the real-world and late phase unit, and a benefit of 40 basis points from favorable currency fluctuations, offset by lower margins in commercial services in North America and Japan and advisory services. Now turning to our 2016 full year guidance. Today, we are reaffirming that our 2016 constant currency service revenue growth guidance remains in the range of 7% to 8.5% compared to the full year of 2015. We are also reaffirming our expectations of diluted adjusted earnings per share of between $3.70 and $3.85 per share, representing growth of 11.1% to 15.6% and diluted GAAP earnings per share of between $3.52 to $3.70 per share. We continue to expect the annual effective income tax rate to be approximately 29%. This financial guidance assumes foreign currency exchange rates as of the end of March remain in effect for the remainder of the year, and does not reflect the potential impact of any future equity repurchases. I will now turn the call back to Tom.

Thank you, Mike. Our Product Development segment remains the CRO industry leader. It is our crown jewel. Our therapeutic and scientific expertise, technology and global reach are the envy of our industry. Our reputation is such that small companies want to work with us, help lend credibility to their efforts. Including midsized and small, we now have over 10 sole-source relationships. We executed well on revenue and income from operations in Product Development in the first quarter. We're having a success with our revenue acceleration programs. We are pleased with our 12.6% constant currency revenue growth, and that we've maintained margins while absorbing some cost increases for key roles and a normal beginning of the year resets for employee taxes and benefits. And we are pleased with the cash flow, which is above our seasonal norms for the first quarter. In terms of backdrop for that segment, the Product Development segment, there are now over 5,300 compounds in Phase I to III clinical research, up sequentially again. Our pipeline is the largest in overall dollar amounts, opportunities entering a quarter that we have seen. It's increased sequentially for the fourth quarter in a row. It contains a nice mixture of large and small opportunities and large and small companies. We're also having strong performance in Asia, given our years of investment there. After all, we do have the backlog of $12 billion to burn. We have the best sales team in the business. However, the timing of decisions, especially large ones, is up to our customers. As I mentioned, several of our larger opportunities across both segments slipped out of the first quarter. In Product Development, we had strong bookings in April as you've seen and importantly, we're holding our full year guidance and earnings guidance for revenue and earnings. Moving to IHS, our commercial business continues to be hampered by the lumpy bookings from last year, and now this quarter. Traditionally, Q4 is a strong quarter for the business and Q1 is often weaker. With 45 approvals of new medicines last year in the U.S., U.S. outlook is the strongest of our regions. Our commercial team continues to make progress with customer relationships to take advantage of those approvals. With the complex therapies, injectables and fusion products, et cetera, we are starting to see more interest in providing nurses and clinical trial educators to both the research and development and commercial customers. Although a bit less consistent, the commercial business is valuable for the completeness of our offerings. Perhaps more important is our real-world, late phase business. This continues to grow against the strong market backdrop. In this segment, due to the orientation of the medical affairs customer and other customers outside of R&D, we continued to see a market and business that's growing in double digits. Real-world data is critical to both challenges across of R&D and working with payers. Our epidemiologists are industry-leading. Leveraging our real-world late phase business, this quarter we announced an innovative deal with the American College of Surgeons to continue our relationship and build them instead of sophisticated and comprehensive registries with feeds from over 1,800 hospitals. We are leveraging the skills of our Encore acquisition here as well. This will allow a sophisticated analysis of real-world practices, with potential of improving the practice of medicine not only in surgery but in key therapeutic areas, which the college gets involved. This is the kind of thing that we can do in the back of our sophisticated technology, medical and epidemiological skills. In closing, I would like to thank and recognize the entire Quintiles' team for their hard work, commitment and execution in the start of 2016. Once again, this hard work distinguish Quintiles as a world-class leading company, proud to be named one of Fortune's World's Most Admired Companies, one of Forbes' Best Employers in America, Ethisphere Institutes World's Most Ethical Companies and the Best Hero in Asia at the BioPharma Asia Industry Awards. And finally, by being recognized by HR.com with leadership excellence awards. I will now turn it back over to Todd to begin the question-and-answer.

Thank you, Tom. We are now ready to take questions. [Operator Instructions] You may now open the call for questions, please.

[Operator Instructions] Your first question comes from the line of Robert Jones from Goldman Sachs.

Tom, I know this call is about the quarter, but the previous call obviously ran long with all the details that you guys provided on the transaction. So if it's all right, I want to go back to that. I think the synergistic opportunities might not be as obvious to some just given that this transaction is somewhat unprecedented. So I guess the real question for me is just thinking about the revenue synergies, is this more from selling into areas, where either one or both of you already have a strong presence? Or is this actually coming up with new and innovative solutions and products that your pharma clients currently don't have access to today?

Robert, it's actually, primarily, leveraging the businesses that both of us have today and being more effective in them. If you think about our business, overall, and you think about that Product Development pipeline that I spoke about for instance, it's the largest one that we've had since we've been public. And not only that, but actually, it's perhaps the largest one that we've had ever, but we just don't have statistics from back over all of the years associated with it. But I would expect that it probably is the largest one we've ever had. And interestingly, the quality of what's in there is very attractive full service work. So if you think about bringing a differentiated competitive advantage about how we can find and recruit patients, one that we can demonstrate to customers in an RFP process or for talking about partnerships and even in trials where other CROs are primary providers but we can demonstrate the fact that we can get to investigators and the patients in a differentiated way, I think it's incredibly powerful combination. So for me, I think when you start with that with the CRO and then you look at the opportunity in the industry, it's fantastic. And then you start moving across the real world, both organizations having a very fast-growing business units. We've put together very complementary capabilities. We literally wrote the book on comparative effectiveness and they are, as Ari says, the Big Data company, the original Big Data company in this space and then powering up both of our commercial solutions given the relationships, I think it's very powerful. So interestingly, we don't even have to do much to our solution except power them up with each other's capabilities to really drive the benefits. Does that help, Robert?

No, no, that does. That definitely does. And I guess just -- since this is the Q1 call, just one in the quarter, bookings were weak across both segments. You mentioned some very large awards being pushed into April. I'm just curious, is that from both segments, or was that really from Product Development? And then any sense at all you can give us on the size of those deals just so we can maybe get some context around what 1Q might have looked like had those deals not slipped out, that would be really helpful.

Yes. Bob, it actually was both segments. So my lawyer -- nobody wants me to make excuses about Easter or conferences or things like that, that happened to fall toward the end so I won't make those excuses, Bob. But the reality was that both -- we had some very large transactions that needed board approval before they went forward, and really it's been a very strong April in terms of closing out those opportunities. As we described, it's certainly our best April since going public and again, we don't have all the data on it. But it's our best April for many, many years, if not, ever. So that would be indicative. As you might know in our business, the first month of the quarter is actually not traditionally, the strongest month of the quarter. So I think we feel very good about the ability to close out the opportunities we had on the first quarter.

Your next question comes from the line of Garen Sarafian from Citigroup.

Just following on the same thing of the prior question, regarding the first call, the merger IMS. You guys mentioned higher win rates a few times as a major value creator. So could you give us a little bit more context around that? So just to the extent you could quantify, what are the average win rates that you're sort of discussing for the industry? What are you envisioning those win rates could be, again, using averages if you can't get to specifics? So just give us a little more confidence as to what you're trying to describe.

We don't disclose our win rates in particular, Garen, but let me just give you a couple of general statistics. The industry sees at least $20 billion of RFP-related opportunities and in general, across it and the industry being the CRO industry. And then in addition to that, you may know that we've really led the way with sole-source relationships that others don't see as part of the industry. I think if you think about those few things, the ability -- if you can move the win rate just a few percent, it creates a pretty significant bottom line impact. And then in addition, our ability to really be a great partner for more pharmaceutical firms we think is enhanced. And so it's very interesting. I mentioned on the other call about, if you look at the assets that they have, which are quite unique, in particular because there are many claims and other databases around the United States that can be used. But what IMS Health has is assets around rest of the world, and this is where I've mentioned that about -- in areas where about 85% of our patients are recruited, they have data. If you look across their physician database, which they maintain regularly, they actually have a group who regularly calls physicians to make sure information is updated, et cetera. That identifies physicians that are clinical investigators, and we already have the largest database in our industry that will be significantly enhanced. So if you start thinking about some of these advantages, Garen, and if we execute well and like when you run a business, it's always about execution. If we execute well and both organizations are known for strong execution, we should really be able to drive those higher win rates both through a combination of partnerships and then in general, just in terms of the RFP flow.

Your next question comes from the line of Ross Muken from ISI.

This is Luke in for Ross. I guess just keeping with the RFP activity scene, if you guys could just comment on potential levels that you're seeing among your small biotechs versus the large customers, especially since a couple of competitors have talked about a little slowdown in RFP activity among the larger clients, given they're focusing on their priorities that are going on right now?

We -- Ross, we haven't given Kevin an opportunity to chat yet. So Kevin, do you want to take that one?

Yes, Luke. Clearly with the pipeline that Tom described, not only the opportunities that we see in the volume, the dollar volume of opportunities that you've heard us comment over the quarters about the strong mix of business that we've had really across the spectrum or the size range of our customer base, and that's really no different as we look at this quarter. So whether it's small, midsize or large, I think the comment was even somewhere in the prepared remarks here that the pipeline remains strong in all those areas. We continue to have opportunities and even the biotech area, which I'm sure is somewhat the genesis of your question, actually some pretty good strength there. So we feel very good about the size of the pipeline, the breadth and the diversity of the customers that are included in that.

Your next question comes from the line of Dave Windley from Jefferies.

So many things to ask, hard to pick just one. I will focus on real-world evidence or real-world late phase as you guys have called it. It seems, Tom, that that is a pretty significant focus of value creation in the deal. I know you haven't spoken specifically to size but what I'm interested in is some framing of size of real-world late phase for Quintiles, maybe if you could expound on that as to what it would look like when you combine the companies. And then you mentioned that it's growing double digits but Product Development is also growing double digits. So double digit is certainly good, but I would have expected given the opportunity that real-world late phase would be growing significantly faster than that, and how do you think about the contributors of IMS to accelerating that growth rate?

Let me start for those who don't look at it as much as we do. This whole area of real-world evidence or real-world late phase is huge and growing need for the business because the cost of collecting primary data are just getting too great and then at the same time, we are actually collecting more and more secondary data, and it ranges from everything from electronic health records to genomic data, so the data sets are becoming broader and broader. And essentially over some period of time, we're going to be able to monitor safety signals and reduce the cost of clinical development and then improve the value-based models by really powering them up with this real-world evidence. This is extremely strategic for the industry, and I think a company like ours, we've always been a company that's been able to see around the corners and for us being the first one with this kind of enormous data asset and the ability to drive value out of it is really key. In terms of the businesses itself, what we have disclosed to you guys is that since we bought Outcome Sciences in 2011, we've already tripled the business. And at this point, it is growing significantly faster than Product Development, so that's a good take but we don't disclose that number. I think what we'd like to do is do a little bit more work together with IMS Health, and we can give you a little bit more shape of the 2 businesses together over the coming months. We have to give you something, Dave, to look forward. And we don't want to give it all to you today. We want to give you something to look forward too so. But I think what you'll see is 2 businesses that are similar size, that essentially are a scaled business when put together that combine a combination of secondary data with great technology and primary data with great epidemiology, great relationships and it will be the clear industry leader as it comes together.

Your next question comes from the line of Greg Bolan from Avondale Partners.

I think I get it. The deal makes sense to me what for -- whatever that's for. I am getting questions though about your comments earlier with regards to reduced agency cost. Totally understand the vendor fees that you have to pay in a rapid way to respond to an RFP can be very costly, I get that. It sounds like the alliance had already been kind of running pretty strong. The questions that I'm getting from investors is why not just kind of expand that alliance, maybe make it a more intimate relationship above and beyond what it was than actually kind of going through and I guess, getting hitched, if you will. Tom, could you maybe talk a little bit about that, please?

Yes. And so agency costs [ph], my old economics term really referring to that in any company or any combination of companies, there are some costs just to the transactions of people working together contracting on things. Imagine that we see -- I talked earlier about the volume of RFPs that we see. It's in the billions of dollars and imagine if we had to go and contract for data, every time we had an RFP for slightly different indication, different geography, different protocol and we had to try to contract for that and then serve up that data and analyze it. The analogy, I've actually made internally is associated with your GPS system. If you think about it, if you had to -- every time you got in your car, you had to go and figure out where you were going to go, download the map, load it into your car, you'd hardly ever use your GPS system. But with the technology that IMS Health is creating, that literally puts the data in the cloud and makes it accessible to basically kind of a push button accessible for opportunities, it's powerful. The other thing that we get to do is our world-class medical experts are going to become intimate with that data in terms of what's available, how it works, which will provide us a really unique competitive advantage. Now why not just do this arm's length and why do they want to do this? One of the things that Ari and I have done learned together is their strategy is very much not just to provide data, arm's length, but actually provide solutions and capture the economic returns associated with the solutions. And so I don't think their preference is to just sell the data. It's actually to capture all of the value associated with the services that are provided around clinical research. So and again whether that's real-world, whether that's commercialization, what we're doing is extremely in line with the IMS Health strategy and their strategy would be, to capture economic value out of delivering the result rather than just providing the data. So I think it's a great match. It would be -- it's going to be very difficult to replicate this arm's length.

No, that's great. And obviously, great for patients. Congrats.

Well, I'll tell you that is the best part to be honest with you because we've all got to get this health care complex faster and more effective for patients, especially with some of the therapies.

Your next question comes from the line of John Kreger from William Blair.

Tom, I think one of the other value creation discussions was this sort of smart hero concept. So can you just maybe dig into that a little bit more? I know we've heard you guys talk about your ability to kind of hit some of those key client pain points like site selection, patient enrollment and trial design. But it sounds like some of the same concepts were hit to justify the combinations. So maybe just go back. What does an IMS give you that enhances your ability to basically offer a more efficient trial process to clients?

Yes. Let me use an example and then we can go back through, and I'd welcome Kevin if he wants to add some things to this, too. I think you all know and Infosario Design today. Many of you know, so we've created the industry-leading software tools. It's actually installed in a couple of customers to look at feasibility to be able to use electronic health records and other data to understand where patients and investigators are. If you look at that tool today, unfortunately -- it's the best of its kind by the way in our industry -- but unfortunately, it operates primarily on U.S. data. So we've announced some of the data partnerships that we've had today, and they're in the tens of millions of electronic health records. Imagine powering that up with 0.5 billion electronic health records from around the world and the incremental value that we could provide. So you take something like that, they actually have tools on feasibility. We have tools on feasibility today. We can enhance each other's feasibility tools. So those are the kinds of benefits that we see. So essentially, again, it's primarily around really designing more effective trials, which reduces protocol amendments and speeds up the process for the customers, and then it's executing them more effectively and doing more effective feasibility.

Your next question comes from the line of Eric Coldwell from Robert W. Baird.

Since I avoided the last call, I might ask a 2 part here. First of all, does the 1Q book to bill as well as the ongoing IHS weakness push your annual guidance to more of a 2-way tramp? And as a follow-on to that, I'd like to hear a little bit more about what the drivers of the poor IHS bookings were in the quarter? It wasn't as clear to me that it was simply slippage. What does that pipeline look like, and what are your new expectations for growth in IHS for the year?

Yes. I'll start, Eric. It's Mike McDonnell. I think that it's fair to say that it's a bit of Q2 ramp. You have to remember that we had a lot of growth in IHS in the first half of 2015, and so the comparisons are bit more difficult in the first half of 2016 in that business. Product Development on the other hand goes the other way because we have the Q² joint venture not in the results for comparative purposes in the first half of '16. That will go the other way in the second half. So it's a bit of a mix, but I think your comments bear [ph] importantly, we did reaffirm the guidance that we gave at the beginning of the year. I think as it relates to the pipeline overall, as Tom mentioned, the question about April being the strongest month and whether that was both Product Development and IHS, it was both, as we talked about. And obviously, the product development side is the largest side of the house, at 75% plus of revenue base. But overall, the April month was strong on both fronts. And I think overall, we're pleased with where we sit at this point in the year.

Want to add something, Kevin?

Yes, Dave I would just add, on the revenue side, exactly what Mike described. I think you heard in the remarks, we talked about opening a new facility in India, investment in bringing people on board there and in their clinical business as well. So from a bottom-line standpoint, I would expect the same second half better than the first.

And do you have a full year growth adjustment in IHS? Is there some kind of an update we can get on what you're thinking for real growth in that business for the calendar year?

Yes, I think that when you look at IHS, again, we talked about in the beginning of the year, being a much lower growth engine than Product Development obviously. I think that's something that we expect and has started to play out. And I think overall, the trajectory overall, reasonably flat but you have to obviously remember that the margins are extremely low and what really drives our profitability and EPS is much more on the Product Development side.

Your next question comes from the line of Tim Evans from Wells Fargo.

In this -- if I come back to the deal for a second. In this revenue synergies or revenue growth acceleration target that you have in the out-year, I'm trying to figure what's that relative to? So what baseline are we measuring that against? Is it your own long-term 7% to 8% target range? Is it kind of what you've been growing recently on a constant dollar organic growth basis? Is it some combination of the 2 companies' recent growth rates? Just help me understand what to measure that target against?

Yes. So I think you're talking about the companies on a combined basis, right, and the 1% to 2%. So I mean, I think overall, when you look at all the opportunities that we see out there and the ability to do things like increasing win rates and more holistic solutions that we can offer on a combined basis, we feel very confident that overall, I think the way to think about it is that, it's 1% to 2% incremental over and above what either company could have achieved on its own. So when you model it out, you should get to a run rate ultimately, that on a combined basis if you thought it was going to be x to y. When you put those synergies in, it would be x to y plus 1% to 2%.

Okay. So -- and I guess, the second part of the question I wanted to ask was what is the opportunity here that you'd like to go after beyond the traditional pharma customer base? In other words, you've talked in the past about going more after the payer provider set, and this could potentially position you to do that a little bit more aggressively, but how important was that element to this deal?

And I think -- Tom I'll speak to that. Interestingly, both of us have somewhat similar size entity that pursues the payer provider market. And both of us believe that our skills are transferable into that marketplace. So if you take in our case, this really, deep knowledge that we have of therapies, medical knowledge and science that we believe that that can help with care pathways' effective use of drugs adherence. Now, there's a lot of value. We actually get a lot of positive feedback from providers and others that that's possible. And I think very similarly IMS Health is assembling assets that increasingly are valuable into the payer and provider realm. So essentially, that was not a major factor in terms of doing the deal, but it is a longer-term opportunity for growth for both companies that is outside of the industry, the pharmaceutical industry.

Okay. So I think with that, as Tom mentioned at the call, we are going to keep today's call to 45 minutes, given 2 calls and to not monopolize everyone's time this morning. So thank you for your time. Thank you for the questions, and we will look forward to speaking with everyone soon. Have a great day.

Thank you.

Thank you again for joining us. This concludes the webcast and you may now disconnect.