IQVIA Holdings Inc. (IQV) Q2 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the IQVIA Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, July 24, 2019. I would now like to turn the conference over to Andrew Markwick, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you, Jennifer. Good morning, everyone. And thank you for joining our second quarter 2019 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Michael McDonnell, Executive Vice President and Chief Financial Officer; Eric Sherbet, Executive Vice President and General Counsel; Nick Childs, Senior Vice President, Financial Planning and Analysis; and Jen Halchak, Senior Director, Investor Relations. 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 our Events and 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 which are 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 comparable GAAP measures is included in the press release and conference call presentation. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib.

Thank you, Andrew, and good morning, everyone. Thanks for joining us on our second quarter 2019 earnings call. It was great to see you all at our Analyst and Investor Conference just last month. As you recall the objective of the event was to take stock of our progress since the merger which was almost three years ago and to lay out the path forward to 2022. We are all very proud of the unique company that has been created from this merger. Turning to our Q2 earnings release, this quarter was largely a repeat of the first quarter with continued strong momentum and similar outstanding financial and operational performance. Once again, both revenue and earnings came in above our guidance ranges. Second quarter revenue of $2,740,000,000 came in above our guidance range, resulting in constant currency revenue growth of 8.5%. From a segment perspective, technology and analytics solutions revenue grew 11.4% at constant currency and organic growth was the same as last quarter about 7%. This strong performance was again driven by solid double-digit growth in our real world and technology businesses. R&D solutions revenue grew 7.5% on constant currency. Excluding pass through constant currency growth was 8.8% with acquisitions contributing about 150 basis points to R&D revenue growth. Again similar to last quarter, organic constant currency growth was over 7%. As you recall, we said contract sales in medical solutions will return to growth in the second half of 2019 with the objective of flat revenue year-over-year. I am pleased to report that the CSMS business has turned the corner in the second quarter, growing 1% on a constant currency basis. Second quarter adjusted EBITDA of $578 million was towards the high end of our guidance range. Adjusted diluted EPS of $1.53 was above the high end of our guidance range and grew 18.6%. And we'll provide a brief update on our business in technology first OCE continues to gain traction in the market and there is a tremendous amount of excitement from clients and prospects about our revolutionary solution. So far in 2019, our technology team has won over 20 new OCE engagements resulting in over 50 OCE win since the SaaS offering was launched just 18 months ago. You saw that orchestrated analytics for OCE was launched in April. This is an important enhancement of the platform which leverages AI and machine learning to identify our recommend next best action through the sales reps. This is a level of insight that surfaces any capabilities that are available in the market today. Turning to real-world, this quarter, the team was awarded a large contract with a consortium of life science companies to demonstrate the long-term safety for a certain kind of agent that is used in a common procedure. This research was mandated by the FDA and the choice of IQVIA as a consortium's partner in this important study demonstrates our leadership in this area. In addition, our clients are increasingly looking for a partner in the real world space. During the quarter, we were named a preferred provider for large pharma company. This award includes more than 20 real world engagements over the next five years and covers all regional studies, which will implemented a new hybrid outsourcing model combining both in-source and outsourced services. Our capabilities in both prospective research and advanced machine learning based predictive analytics really set us apart from the competition. Moving to R&D, the team continued their momentum with another strong quarter of net new business, backlog of over $18 billion grew almost 15% year-over-year. Our bookings growth and book-to-bill ratios remain robust and whatever way you look at it, we had another great quarter for R&D bookings. For the quarter, our book-to-bill on an as contracted 606 basis, that is including pass-throughs was 159, excluding pass-throughs our book-to-bill was 135 for the quarter. Looking at the last 12 months, our book to bill on an as contracted 606 basis was 141 excluding pass-throughs, the book-to-bill is still at 150 on an LTM service basis. In addition, the R&D team secured another record quarter of over $800 million of core power gross new business awards, which excludes pass-throughs associated with these bookings. We now have over $5.1 billion in core power smart trial awards since launch again that is excluding pass-throughs. Finally, I'd like to recognize the work of our management team to turnaround of contract sales business. We are beginning to see the fruits of their efforts with the stabilization of business and even a return to modest growth. In sum, we have a very, very strong quarter across all our businesses. And now Mike will review the financials in more detail.

Thank you Ari, and good morning everyone. As you have seen, we had another solid quarter. Let's turn first to revenue. Second quarter revenue of $2.740 billion grew 6.7% reported and 8.5% at constant currency. First half revenue of $5.424 billion grew 5.7% reported and 7.8% at constant currency. Second quarter Technology & Analytics Solutions revenue of $1.102 billion grew 9% reported and 11.4% at constant currency. Technology & Analytic Solutions first half revenue of $2.177 billion grew 9.1% reported and 12.1% at constant currency. R&D Solutions' second quarter revenue of $1.435 billion grew 6.3% at actual FX rates and 7.5% at constant currency. First half R&D Solutions revenue of $2.851 billion grew 5% at actual FX rates and 6.4% at constant currency. Second quarter Contract Sales & Medical Solutions revenue of $203 million declined 1.5% reported and grew 1% at constant currency. As Ari mentioned, we expected this business to transition to growth as the year progresses after several years of decline. Contract Sales & Medical Solutions first half revenue of $396 million declined 5.5% at actual FX rates and 3.1% at constant currency. Turning now to profit. Adjusted EBITDA was $578 million for the second quarter and $1.165 billion for the first half of 2019. Second quarter GAAP net income was $60 million and GAAP diluted earnings per share was $0.30. First half GAAP net income was $118 million and GAAP diluted earnings per share was $0.59. Adjusted net income was $306 million for the second quarter and $615 million for the first half of the year. Second quarter adjusted diluted earnings per share grew 18.6% year-over-year to $1.53. First half adjusted diluted earnings per share of $3.06 grew 16.3%. Let's now turn to R&D Solutions backlog. Closing backlog at June 30, 2019 was $18.03 billion and the amount of backlog that we expect to convert to revenue over the next 12 months is approximately $4.9 billion. Let's now review the balance sheet. At June 30 cash and cash equivalents totaled $938 million and debt was $11.399 billion, resulting in net debt of $10.461 billion. Our net leverage ratio was 4.5 times our trailing 12 month adjusted EBITDA. Cash flow from operating activities was $391 million in the second quarter. CapEx was $155 million and free cash flow was $236 million. We repurchased $236 million of our stock during the second quarter at an average price of $134.65. Let's now turn to 2019 guidance. We are raising our full year 2019 revenue guidance from between $10.900 billion and $11.125 billion to now be between $11 billion and $11.150 billion. This guidance assumes the same FX headwind that was built into our previous guidance of about 100 basis points. This update to our revenue guidance range is mainly driven by our year-to-date organic performance in Technology & Analytics Solutions and a strong organic outlook in this segment for the rest of the year. We are affirming our adjusted EBITDA guidance at the midpoint of the range and tightening the range by $10 million on both ends as we now have more visibility. The new range is $2.385 billion to $2.415 billion. We are also raising our adjusted diluted EPS guidance by $0.05, so the range moves from between $6.20 to $6.40 to between $6.25 and $6.45. Please note that for the below the line items, depreciation is tracking a bit lower than expected and interest a bit higher, essentially offsetting each other. We now expect depreciation to be about $300 million and interest about $450 million for the year. The adjusted book tax rate is always lumpy quarter to quarter, but we are still on a trend of about 22% for the year. Depending on tax efficiencies, we could see favorability to that number of at least half a point. The adjusted cash tax rate is still expected to be about 15% for the year. The guidance provided assumes that foreign currency rates at June 30 remain in effect for the rest of 2019. As in prior quarters, we are also providing guidance for the coming quarter. For the third quarter, assuming foreign currency remains at June 30 rates through the end of the third quarter, we expect revenue to be between $2.730 billion and $2.780 billion, adjusted EBITDA to be between $580 million and $595 million and adjusted diluted EPS to be between $1.53 and $1.59. Please note, based on the tax rate guidance I just mentioned, we do expect third quarter adjusted book tax rate to be about the same as Q2 but then we expect it will ramp in the fourth quarter resulting in the full year tax rate guidance that I just discussed. Year-to-date, this guidance represents revenue growth of 5.6% to 6.2%, adjusted EBITDA growth of 6.3% to 7.3%, and adjusted diluted EPS growth of 13.3% to 14.8%. So in summary, we delivered second quarter results above or at the high end of our guidance ranges. Technology & Analytics Solutions and R&D Solutions sustained their strong momentum. CSMS continues to improve. OCE now has over 50 wins with 20 added so far this year. The R&D team secured another record quarter of core powered gross new business wins of over $800 million. The book-to-bill ratio including pass-throughs was 1.59 times for the quarter. The LTM book-to-bill excluding pass-throughs was 1.50 times and we have raised our revenue and earnings guidance for the year. With that, let me hand it back to the operator and we can open things for Q&A.

[Operator Instructions] Our first question comes from the line of Robert Jones with Goldman Sachs. Please proceed with your question.

I guess, just two quick ones on RDS. Ari clearly mentioned the strength there. You evidenced in all the results and metrics you shared. You did grow backlog at an accelerated rate off of what appeared to be a fairly difficult comp. So it might just be across the board, but I'm curious if there is anything to parse out of maybe where you saw incremental strength in this quarter across bookings relative to where you had been trending. And then just one housekeeping question. I know you guys removed a large BIP cancellation last quarter from backlog, but I was curious if you would be willing to share how much of that continue to show up in revenue in the quarter.

Okay. Let me just address the second part. Very little. Okay. So negligible. So this is behind us essentially, whether it's in the bookings numbers or in the revenue number is just out. The first question you asked was what, the color on the bookings. I would say we had an exceptionally strong bookings quarter. And you know, you might have noted a little disconnect on the book-to-bills, other than the fact that it just comes to show that what we've been saying forever, which is don't rely on book-to-bill ratios and don't use them to compare across the board, because there are so many variables that affect that fraction. So you noted - we reported 1.59x book-to-bill on a 606 basis, which is extremely strong. And excluding pass-through is 1.35x, which is also extremely strong on a services basis. And the reason for the disconnect, if you will, is a mix issue. If we had the same proportion of CORE clinical, FSP, lab and other type of work, then you will have the exact same proportion of pass-throughs. We've said before and I want to repeat it here for clarification, CORE clinical bookings which are the most attractive portion of our business, as you know they are higher margins, they are the whole suite of services, typically come in with more pass-throughs. So what this indicates to you here with this very strong 1.59x number is that the proportion - the relative proportion in the mix of bookings in the quarter of CORE clinical is significantly higher than it has been on a normalized basis historically. That's very good news. It is higher quality bookings. Now it happens to be, the fraction is higher because the revenue which is the denominator in the quarter is still suffering from a headwind from pass-throughs. So you've got two things going on here, you have higher quality bookings with a higher mix relative to normal of CORE clinical bookings and you have relatively less pass-throughs on the revenue in the denominator, because we're still executing now historic bookings, which were a lower mix of CORE clinical and as a result of which you've got still a headwind because of a decline of pass-throughs year-over-year. I hope that's clear. And again the reverse trend on the - when you do the LTM, again you will see the same explanation. I'm just giving this expanded explanation because I want to A, show that be careful when you given a book-to-bill ratio, there is a lot underneath. And number two, in our case, we chose to give you everything this quarter. Hopefully to convey to you how strong the bookings are not just on the dollar number, but also as I just explained in terms of the quality and the mix. Included in this mix, of course, is the very - much higher proportion of CORE powered smart clinical trials, all of which are CORE and all of which come with a lower pass-throughs, because again they are all encompassing sets of services. I hope that gives you the kind of color you were looking maybe even more.

Our next question comes from the line of Ross Muken, Evercore ISI. Please proceed with your question.

Maybe on the TAS business-the tech business, you gave us some good color on OCE. Obviously that continues to have momentum. But it feels like in general, there is a number of other parts kind of contributing in kind of the SaaS based part of the business to kind of the overall growth rate being elevated. And it seems like also some of the M&A you've brought in over the years obviously helping to accelerate growth there. Just maybe give us a feel for outside of just OCE contributing some of the other pieces that are helping that business get to kind of high single-digit growth, which obviously is a material acceleration of where you've been.

Well, thank you for the questions. Yes, you're correct OCE is not exactly contributing a huge amount here because as you know the wins have just been occurring over the past 18 months and we are largely in implementation phase. We're not yet generating the attractive license, SaaS revenues associated with those deployments. We're more in implementation phase for most of those. And so that's to come. So the suite of products that contributed strongly to generating this 7% organic - continued 7% organic growth rate on TAS, as you know we said at our Analyst Meeting and I'm saying it again here, this business roughly, you can think of it as three portions. One-third is our traditional data business and that business essentially, you can assume grows at nothing, zero, flat. One-third is services businesses, outsourcing businesses essentially time and labor-based type of economic model and that grows mid-single digits. And then you have got one-third of those businesses that are a plus, little bit more now is almost 40% that are the double-digit high growers and those are technology services that includes the suites of products we talked about at the investor conference, including safety, compliance, pharmacovigilance, some of the critical products that we have introduced a clinical technology suite. So all of those are contributing to very strong double-digit growth in our technology portfolio, and then of course, you've got the real world business, which is very strong. As I mentioned in my introductory commentary, this is really the future, this is where we're seeing going toward personalized medicine toward being able to anticipate diagnosis earlier with a lot more AI and machine learning and predictive analytics that hopefully we can get to a point that we are seeing this already in certain therapies where we can anticipate that someone will be diagnosed with a specific disease and we hope to talk some more about this in the future. But this is really what everyone has been striving for. We've said before, we have the tools, we have the assets, we have the people and the technology to bring it together and this is why we've been growing very strong double-digit. So that's really what's going on in that segment and that is supporting our 7% continued organic growth rate.

And maybe just going back to the question prior on the R&D business. I mean, it feels like, you've obviously had several quarters in a row of superior bookings. It's quite clear you're gaining share but you are also continuing to invest in the business. You see it in the CapEx line in terms of software CapEx and then in all of the sort of efforts you outlined at the Analyst Day, and many of those tools. I guess as you think about sort of your advantage versus the peer group continuing to kind of increase, how are you thinking about the realization of that at the customer side. Like in terms of them continuing to see, you have more and more progress, I would think at some point, there's sort of a watershed event where a continued larger proportion of customers start coming to you and asking about tools as opposed to you having to push some of the NextGen offerings out to them on the market. Like how far do you think we are from that place where that's sustainable sizable advantage becomes kind of clear to the customers?

Well, again, I think in terms of the runway ahead of us, we are extremely optimistic in terms of the specific smart trials technology, I mean we're just, I don't know, second or third inning at best. We've got ways to go. Look we have somewhere around 50 pharma customers that have bought these solutions on the R&D side with 175 biotech customers. We've got 12 of the top 20 pharma doing work there, 5 previously locked account that have been unlocked, so there is a lot of potential left. We've got dozens of clients. We have ways to go and I think we've got great runway.

Our next question comes from the line of Ricky Goldwasser with Morgan Stanley. Please proceed with your question. Mr. Goldwasser, your line is open. Please go ahead. We cannot hear you.

Okay, next question.

Our next question comes from the line of Tycho Peterson with JPMorgan. Please proceed with your question.

I want to ask about the EBITDA outlook given that it's unchanged. Given that CORE is higher margin and a higher proportion, shouldn't we see a bit of a tailwind going down the road? Just curious why EBITDA margins aren't being increased with the revenue guidance increase.

Yes, thank you. Down the road is right. Again, when we sell our technology solutions we've got a significant phase of implementation, deployments in the field that typically has essentially no margin. So that's a headwind. Secondly, we've got investments that we're making. Obviously, software development, significant portion is capitalized. But we still have extra costs that are in the P&L and in our margin so that's a headwind as well. We've got our investments that we're making and continue to make in business development, higher cost resources, in order to take all of our technology solutions to market whether - by the way, it's also true in R&DS. We just spoke a moment ago, in the prior question about our runway for our smart trials and while we would love to be as - we're always suggesting in a position where we are just sitting and clients are coming knocking at the door, we are not quite there yet. This is not the world we live in. It's still a very highly competitive marketplace and we need to bring these solutions to market. You all have been - become very familiar with our capabilities and what we believe is our unique competitive advantages, but we still have to believe it or not every client in the world knows about this or is aware of the capabilities and these are long cycle selling efforts. People don't buy OCE just on a whim or because they saw an ad at the bus stop. The clinical trial is a long selling process and so we do need business development resources that's an investment as well. All of that is headwind to margins. So in terms of the investments, OCE is a big area of investment, OCT is a big area of investment, smart trial, automation, virtual trials we've got more and more data scientists, software deployment teams, all of those are headwinds. And again I'll remind you we live in a - at least in the US in a full employment economy, so there is wage inflation. All of those are headwinds to our EBITDA margins and, frankly, it is great performance that we are able to do that and still generate the margins that we're generating. And that's because we continue with the programs of cost containment and we are - and continuing to be committed to margin expansion. During the year in particular, in '19, our investments are more first-half weighted and we expect to see the majority of adjusted EBITDA growth and margin expansion toward the back end of the year. And by the way that has been the case consistently. If you look back at the pattern in prior years, typically we've got the nice ramp first and second quarter. We did have a lull in the third quarter. That's kind of, I don't know, a lot of reasons for it but that's typically what happens. And then we have more of a ramp, more of a hockey stick, if you will, in the fourth quarter. But we've done it before, if you go back and check and so we feel confident about that. That's why we beat first half adjusted diluted EPS, so there is less of a ramp in Q3, and then we raised our full year adjusted diluted EPS guidance by $0.05 and that's - we expect them to see most of that upside in the fourth quarter, including on our EBITDA margins. Thank you.

And then one follow-up, can you comment on emerging biopharma, how were awards in the quarter and how are your efforts going to go after the mid-cap biopharma - biotech customer base?

The environment continues, as far as we can tell, seems to be very strong. There is no change to the funding environment in terms of the biotech funding. Venture funding according to the National Venture Capital Association, through the end of Q2 is running about level with last year's annual rate, which as you know was exceptionally a strong and a record year. Year to date, in terms of deal value for us it was like $11 billion or so. We did 729 deals so far.

That's the market information.

That's the market information, yes - and then - I think it's about 50-50, is that - can you confirm that? The numbers before.

Yeah. So bookings in the quarter for EBP versus large are about 50-50. I think very soon after the merger, we saw a lot of uptake from emerging biopharma. But I think our CORE-powered awards now are really getting more balanced than a lot of the growth that's coming from the larger or mid-sized clients. But as Ari said, the environment is very healthy, and we're still seeing good demand across the emerging biopharma space.

Essentially, it was - the awards were 50-50 large pharma-EBP.

Yes, correct.

Okay, thanks.

Okay, that's helpful. Thank you .

I think we were going to try Ricky again, operator if Ricky Goldwasser is on the line.

Our next question comes from the line of Ricky Goldwasser with Morgan Stanley. Please go ahead.

Thank you for taking the question. So, a question on the bookings. To your earlier point, the bookings is composed actually of higher quality business. So can you just kind of like remind us what type of margin is associated with these bookings versus enterprise? And also kind of like, how should we think about the timeline or the lag between when you recorded the booking and when we see the impact on margin kind of like that margin expansion?

So the first question, I'm not going to answer. It's a nice try, though. We're not giving a margin profile. That's highly sensitive and competitive information, so we're not giving margin profiles. But it's just a fact it's an acknowledged - it's just a fact that lowest margin is for FSP which is, we provide a lot of CRAs and maybe a little bit of value, but essentially is the lowest margin in our - in general in the CRO marketplace. You've got the lab business which has maybe a little bit higher margins but not that much. You've got the stats business and the data science and really the higher margin business. The one everyone is after is what we call core clinical, which is essentially the full outsourcing of the full clinical trial that includes all of the above. And that's obviously because it includes the higher value-added activities in a clinical trial, by definition, have higher margins and relatively lower labor content on the total mix of revenue. So that's the background for why its higher margin. To the second question, when does that happen. As you know, it takes time to activate the sites and to start trials. So, usually you get to the peak activity within 18 months to 2 years of the start of a trial, that's when you get to peak revenue and margin realization

So very much in line with the long-term guidance.

And of course when you close out the trial, which usually is 3 to 4 years into the trial. Okay?

So very much in line with the long-term guidance that's provided in Analyst Day, kind of like that's more backend loaded?

Our next question comes from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.

Thank you very much for taking my question. Can you talk a little bit about - you updated the OCE contracts. Can you talk about how many of them were competitive takeaways? And what your kind of competitive win rate is recently and has it changed or over the last quarter, last 6 months, last 18 months with some of the - with the OCE launch?

Yes, I mean look - every situation is a competitive situation. We are competing with the same set of characters on every single one and every client looks at the same solutions that are in the marketplace. Our win rates somewhere is stabilized around two-thirds - or above 60% to two-thirds of the competition that we participate in. So that's - Andrew, do you have any further color?

Historically, the team probably would have one in three and we're now at two in three.

Our next question comes from the line of Jack Meehan with Barclays. Please proceed with your question.

I was hoping maybe just a little bit more color on the pacing of the revenue recognition related to some of the OCE deployments. And I guess what I'm trying to get to is if you look at the organic growth in TAS it was 7% the last couple of quarters. Do you think this is actually something that should be stepping up as we go into year-end. How should we be thinking about that?

Well, look, we want to continue selling strongly as we can and so, you will always have layers of new OCE deployments and other technology solution deployments. As we told you, the increase in our full year revenue guidance is mainly driven by our year-to-date organic performance in Technology Analytics Solution. And of course, we continue to see a strong organic outlook in this segment for the rest of the year. I wouldn't assume 7% is the new constant currency, organic run rate, but we are definitely inching toward sustainable high single digit organic growth in this segment and we provided you with guidance a month ago for the next three years in terms of - and we expect this to be accelerating toward the double-digit type of rate in - toward the end of that 3-year period, meaning in toward the end of 2022. I mean if you step back and you look at our businesses and what we've been doing since the merger, there was an integration phase, which we thought would be 3 years. It's turned out to be only 2 years or little bit more than 2 years. We're now in at an inflection point where we're seeing acceleration of our top line and we hope to sustain and increase that acceleration over the next 3 year period. And then our expectation is that we will then get to a level of scale and market penetration that will enable us to hopefully - I didn't even say that at the investor conference, I'll say it now, our goal is certainly to be in double-digit territory when we get to the end of that period across the businesses.

Mike, I had one quick follow-up. Is there any color you can give just on the pass-throughs in the back half? I know for R&D, I know it's been a little bit of a headwind in the last couple of quarters. Do you expect that to persist or could it actually flip? Any color would be great.

Yes, I think that the pass through headwinds are lumpy. We talked about in the first quarter, it was over 300 basis points. Second quarter was maybe roughly half of that. And I think that overall, what we're seeing in R&DS is maybe pass through headwind for the year, a little bit higher than what we originally anticipated with M&A roughly offsetting that. So overall organically in about the same place.

Makes sense. Thank you.

Yes, I agree with what Mike just said now. I think it's lumpy as we go through the year. We told you a 100 basis points is embedded in our full year guidance, maybe little bit more that now, but I mean we're giving you our best estimate that we see right now.

Our next question comes from the line of Dan Brennan with UBS. Please proceed with your question.

I joined a few minutes late. I'm just wondering Ari and Mike, for the guidance, for the rest of the year organically, was anything updated there and can you just kind of clarify that? Thanks.

Yes, Ari just mentioned in one of the other questions, Dan I think really we're seeing organic strength in the TAS segment right now. We've come out at 7% in Q1, 7% in Q2. So a lot of our full year guidance range is due to that organic strength that we're seeing in the Technology & Analytics Solutions business. I don't think 7% is probably the new run rate for the rest of the year but its definitely inching toward that high single digit organic growth business. So we're pleased the range went up by $100 million at the low end, $25 million at the high end and we're definitely seeing strength across the board.

And Andrew, thank you for that. And then on the R&D side, similarly, I apologize, but like anything change there from an organic basis, how you're thinking about the back half?

No change to what we said before. We're still kind of tracking to our expectations for the year.

And then I know, earlier in the conversation, Ari, you were discussing again some of the kind of NextGen trends. Could you just remind us - and I know the Analyst Day was only a month or so ago - like what percent of your clients have actually seen NextGen today and kind of how would you characterize the win rate on NextGen offering versus your non-NextGen offering? Thanks.

Yes, again, a very - continues the trend that you saw that we discussed a month ago and I just mentioned, I guess, before you joined the call, some of those numbers, we continue to bring this to market and we have in total I guess...

We have 8,000 clients across the enterprise.

Yes. We have 8,000 clients plus and only I guess 200 and maybe a little bit less than 250 are active customers now with our - the NextGen solution, our smart trial solution, so we continue the momentum and there is a lot of runway ahead of us. But I mentioned this before, so I'm sure you'll get all those numbers. Thank you.

Our next question comes from the line of Sandy Draper with SunTrust. Please proceed with your question.

Most of my operational questions have been asked and maybe just a quick one for Mike. When you think about the step up in the interest looks obviously - the debt's going up, I don't know, just remind me in terms of floating rate, if we continue to see a low-interest rate environment, at some point does that start to offset. And then just sort of thoughts about managing - because cash flow is obviously better this quarter, when we think about balance of this year and into next year, how you guys are thinking about buying back stock versus and using debt to do that, just trying to understand more so the nuances of the capital structure. Thanks, Mike.

Sure, Sandy. So the first question, we have very little exposure to rate variances we've got. Effectively when you look at our fixed versus variable rate mix on the surface, it's about 50-50, but when you look at the swaps and the caps and the collars and all those other pieces, effectively we're about 80% fixed. So to put it in context, 25 basis point rate hike is like $6 million. It's very, very kind of insensitive to rate movements. So I think that very little exposure to rate movements. Overall, we continue to see our stock as a very good investment. We've still got a significant amount of share buyback authorization, as you saw in our earnings release. And we'll continue to be a buyer of our stock in terms of debt levels. We ended the quarter at 4.5 times, which is right in the sweet spot of where we said we would be. And as we said in our investor conference, we expect to come down over time exiting 2022 at more like 3.5x to 4x, so we still are in very much the same place and are going to continue to manage the balance sheet, as we've said.

Our next question comes from the line of Erin Wright with Credit Suisse. Please proceed with your question.

You mentioned the new real world preferred partnership. How should we think about the contributions from a win like this in the real world space? And should this contribute more meaningfully over time and what was the genesis of the relationship? How much of it was the function of what you have in terms of the global data assets or what does the - customer that you were working with previously maybe from a NextGen perspective? And then I guess I have a second question just on cost cutting. You've obviously been very diligent there. During your Investor Day you highlighted as part of Vision 2022 kind of the next wave of cost cutting. I think you mentioned that you were still identifying some of the key initiatives there and the progression there on in terms of the cost savings. I guess, what have you identified thus far and how should we be thinking about the progression of the next wave from a cost-cutting standpoint? Thanks.

Yes. Thank you, Erin. I guess on the real world side and just repeat what we've been saying before, we've got the unique set of capabilities. We spoke at length about the human data science cloud and the infrastructure we have built, which is really what allows data to be consumed. This is a critical issue in healthcare and the most vexing problem that many companies have been confronting. Even assuming you could source all the data that's required, the scale that's required. And again, I want to remind you, no one comes close even at the fraction level in terms of the scope, that granularity and global coverage, but the linking of those data assets, the interoperability of those data assets and the work that we do from a technology standpoint to be able to mine and utilize and consume those analytics and then the technology layer of artificial intelligence and predictive analytics that's required. So it's the combination of those assets. Again with the unmatched therapeutic expertise that our company can bring forwards in any engagement. I'll remind you, we're running more than 2,500 trials - clinical trials. There's just no one in the world that has that kind of therapeutic coverage and scale on a global level. When you combine all of those assets and we've spent the bulk of our time over the past few years integrating these assets in developing solutions that are push-of-a-button type of analytics and that's kind of very unique. And so we were the obvious partner here for these consortium of pharma. This is an agent that is very commonly used, in a very common procedure that I think every one of us has undertaken at one point in time or another. And there are questions on safety and naturally the FDA and these consortium of partners came to us. And that's over the next 5 years. It's a big job over the next 5 years. Again, in the aggregate, revenue of our company is it's not going to be something that's going to move the needle in a dramatic fashion, if that was your question. But again, it's just one unusual, the type of engagement that essentially demonstrates that we are - our capabilities put us head and shoulders above anything that's out there.

Okay. And then I guess on the...

And regarding the second question, that was on.

Cost savings.

Yes, just on the cost cutting.

Yes, I mean, look, I gave enough color on that. We basically are done with the identification. We know what we're going to be doing is some refinement between now and the end of the year, but we essentially will be launching these programs, early next year. And as I said on at the conference, this is not basic SG&A and overhead consolidations as perhaps a lot of it was after the merger. This is more IT base, automation base process reengineering base is continued off-shoring of certain capabilities, where we have scale and et cetera. Okay it's not the same type of activities at this continued procurement, as we continue to gain scale in some areas, and we know how to do this. This is operations 101 or 102 and we're very confident we have visibility on that. Maybe one more question.

Thank you.

Yeah, I think we're coming up on the hour, so I think if we just take one last question, please, operator.

Our next question comes from the line of John Kreger with William Blair. Please proceed with your question.

Two questions, first, Ari, can you talk about the assets that you've bought so far this year, particularly in Q2? Sounds like that's mainly in R&D Solutions, but just sort of the nature of the assets you're buying. And the second question, I know you've talked about rolling out OCT I think later this year. As you think about that business over the next few years, is it - do you view it as a bigger opportunity than OCE or smaller just to frame it a little bit? Thanks.

On the acquisitions, I think we did very little acquisitions actually. We had a - I think we spent what - what was the number this quarter?$26 million I think we had one small little thing in technology and a tiny, tiny little thing in R&D. We had no acquisitions in R&D in the first quarter and in the second quarter like a small thing that added like a couple of million maybe something like that to our revenue, very small. In R&D, the acquisition contribution mostly came from last year in the I think I guess in the fourth quarter, we did an acquisition. And that acquisition did actually brought in a little bit more in the second quarter than we had anticipated. There another new contract that generated I think a little bit more revenue. But again, you're talking about single-digits here and then a very tiny, tiny acquisition that maybe brought in a couple of million, if I remember. So there is very, very little new news here on the R&D side and then technology is very small, so like really one, two little things.

Yes, just a small company.

Yes. And then the second question was..

The second question was your thinking on OCT, little bigger or smaller opportunity.

So, look, it's a potentially huge market. It is not a market that's as well defined as the CRM market because the CRM market is a very mature market that has been there for decades. Used to be on-premise type old systems and with a CRM market for sales reps in pharma is a very old market. It was then revolutionized by one player, who introduced a SaaS solution that did extremely well and that continues, remains to be the leader in that market, but it's a very finite market. Okay, there's just a number of sales reps and that's it. There's no - it's a finite market and our growth in that market is simply market share grab. It's an OCE - OCE is a market share play against that large competitor. We just feel that competitor has like 80% plus market and we feel we are - we can claim a fair share of that market and that's what is actually happening on the back of superior capabilities that were obtained on the back of more investments in technology and our great partnership with sales force. With respect to OCT, its essentially about across the clinical suite of activities in a trial, deploying tools and technologies to automate processes that were previously paper-based and that included a lot of labor manipulations and prone to error, rework and the lot of inefficiency. So it's hard to quantify the size of the market, but I would say yes, the market is potentially much larger than OCE and a very attractive marketplace in terms of its growth patterns, because it's really converting the historically paper and labor intensive set of processes into more automated processes. And as you know the particularity of OCT is that it's - we would like to create automated tools that actually speak to each other and that are interconnected. That's how difference. There are many people who will bring in point solutions to the market. We are bringing in a suite of tools that can be turned on or off and that speak to each other and are interoperable and connected in a seamless suite, as we demonstrated at the investor conference and all of which are built on a sales force platform as well. Okay.

Thanks for your question, John. Thank you everyone for taking the time to join us today. We look forward to speaking with you again on our third quarter 2019 earnings call. Jen and I will be available to take any follow-up questions you might have for the rest of the day. Thank you.

Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation, and ask that you kindly disconnect your lines. Have a great day, everyone.