IQVIA Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the IQVS second quarter 2019 earnings conference call. During the presentation, all participants will be in a listen-only mode. As a reminder, this conference is being recorded Wednesday, July 24th, 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 Boothby, Chairman and Chief Executive Officer, Michael McDonnell, Executive Vice President and Chief Financial Officer, Eric Sherbert, Executive Vice President and General Counsel, Nick Childs, Senior Vice President, Financial Planning and Analysis, and Jen Haljerk, Senior Director, Investor Relations. Today we'll 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 presentation section of the 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 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 Busby.

Thank you, Andrew, and good morning, everyone. Thanks for joining us on our second quarter 19 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% of 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% of 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 and 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 a corner in the second quarter, growing 1% on a constant currency basis. Second quarter, adjusted EBITDA of $578 million was toward the high end of our guidance range. Adjusted EBITDA of $1.53 was above the high end of our guidance range and grew 18.6%. Let me 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 wins 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 to the platform which leverages AI and machine learning to identify and recommend next best actions to the sales reps. This is a level of insight that surfaces any capabilities that are available in the market today. Turning to real world, Discord, 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 the 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 a large pharma company. This award includes more than 20 real-world engagements over the next five years and covers all regional studies which will implement 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 ad-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 co-powered gross new business awards, which excludes pass-throughs associated with these bookings. We now have over $5.1 billion in core-powered smart trial awards since launch. Again, that is excluding pass-throughs. Finally, I'd like to recognize the work of our management team to turn around the contract sales business. We are beginning to see the fruits of their efforts with the stabilization of that 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 $2,740,000,000 grew 6.7% reported and 8.5% at constant currency. First half revenue of $5,424,000,000 grew 5.7% reported and 7.8% at constant currency. Second quarter technology and analytic solutions revenue of $1,102,000,000 grew 9% reported and 11.4% at constant currency. Technology and analytic solutions first half revenue of $2,177,000,000 grew 9.1% reported and 12.1% at constant currency. R&D Solutions second quarter revenue of $1,435,000,000 grew 6.3% at actual FX rates and 7.5% at constant currency. First half R&D Solutions revenue of $2,851,000,000 grew 5% at actual FX rates and 6.4% at constant currency. Second quarter contract sales and 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 and 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 $1,165,000,000 for the first half of 2019. Second quarter GAAP net income was $60 million and GAAP diluted earnings per share was 30 cents. First half GAAP net income was $118 million and GAAP diluted earnings per share was 59 cents. 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 $11,399,000, resulting in net debt of $10,461,000. Our net leverage ratio was 4.5 times our trailing 12-month adjusted EBITDA. Cashflow from operating activities was $391 million in the second quarter. CapEx was $155 million and free cashflow 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 $10.9 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 and analytic 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 $2,385,000,000 to $2,415,000,000. We are also raising our adjusted diluted EPS guidance by 5 cents, 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 appreciation 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 $2,730,000,000 and $2,780,000,000. adjusted EBITDA to be between $580 million and $595 million, and adjusted diluted EPS to be between $153 million and $159 million. 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 and analytic solutions. and R&D solutions sustained their strong momentum. TSMS continued 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 power 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.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. If you're using a speakerphone, please lift your handset before entering your request. Again, ladies and gentlemen, if you'd like to register a question, kindly press 1-4 on your telephone keypad. Our first question comes from the line of Robert Jones with Goldman Sachs. Please proceed with your question.

Great. Great. Thanks for the questions. I guess just two quick ones on RDS. You know, Ari clearly mentioned the strength there. you know, evidence in all the results and metrics you shared, you know, 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's 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 the large bib cancellation issue, last quarter from backlog, but I was curious if you would be willing to share how much of that continued 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 numbers, it's 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 1.59 book-to-bill on a 6-6 basis, which is extremely strong. And excluding pass-through is 135, which is also extremely strong on a services basis. And the reason for the disconnect, if you will, is a mixed issue. If we had the same proportion of core clinical, FSP, lab, and other type of work, then, you know, you would 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, there are higher margins, there are the whole suite of services, typically come in with more pass-throughs. So what this indicates to you here, with this very strong 159 number, is that the proportion, the relative proportion in the mix of bookings in the core 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 a denominator in the quarter, is still suffering from 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 when you do the LTM, again, you will see the same explanation. I'm just giving this extended explanation because I want to, A, show that Be careful when you're 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 lot of pass-throughs because, again, they are all-encompassing sets of services. I hope that gives you the color you were looking, maybe even more. Thank you, Bob, and maybe we can go to the next question.

Thanks, Ari.

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

Good morning, guys, and congrats. Maybe on the TAS business, on the tech business, you gave us some good color on OCE. Obviously, that continues to have momentum. It feels like, in general, there's 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, you know, that business get to kind of high single-digit growth, which, you know, obviously is a material acceleration of where you've been.

Yeah, well, thank you for the question. Yes, you're correct. OCE is not... Exactly contributing a huge amount here because, as you know, the winds have just been occurring over the past 18 months, and we are largely in implementation phase. We're not yet generating the attractive license SAS 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, a little bit more now, it's almost 40%, that are the double-digit high growers, and those are technology services that include a suite of products we talked about at the investor conference, including safety, compliance, pharmacovigilance, some of the clinical products that we have introduced, the 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 towards personalized medicine, towards being able to anticipate diagnosis earlier with a lot more AI and machine learning and predictive analytics that hopefully, you know, we can get to a point that we are seeing this already in certain therapies where we can anticipate that someone would 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 digits. So that's really what's going on in that segment, and that is supporting our 7% continued organic growth rate.

Very helpful. And maybe just going back to... the question prior on the R&D business. I mean, it feels like, you know, 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, you know, 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? 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 next-gen offerings out to them on the market. How far do you think we are from that place where that sustainable, sizable advantage becomes kind of clear to the customers?

Again, I think in terms of the runway ahead of us, we are extremely optimistic. We, you know, in terms of the specific smart trials technology, I mean, we just, I don't know, second or third inning at best, you know, we've got ways to go. Look, we have, you know, somewhere around 50 pharma customers that have bought uh these uh these solutions on the r d side 175 biotech customers um we've got uh you know 12 of the top 20 pharma they're doing work there you know five previously locked accounts that have been that have been unlocked um so there is a lot of potential left you know we've got thousands of clients um we we have ways to go and i think we've got great great runway Thank you, Ross.

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 J.P. Morgan. Please proceed with your question.

Hey, thanks. 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 revenue guidance increases.

Yes, thank you. Down the road is right. Again, when we sell our technology solutions online, We've got a significant phase of implementation, deployment in the field. That typically has essentially no margin, so that's a headwind. Secondly, you know, we've got investments that we're making. You know, obviously software development, a significant portion is 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 Ross was suggesting, in a position where we are just sitting and clients are coming knocking at the door, we're 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 become very familiar with our capabilities and what we believe are unique competitive advantages, but we still have to believe it or not, 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 remind you, we live in, at least in the U.S., in a full employment economy, so there is wage inflation. All of those are headwinds to our EBITDA margins, and frankly, it's 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 our programs of cost containment. And we are and continue 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 towards the back end of the year. And by the way, that has been the case consistently, you know, if you look back at the pattern prior years, typically we've got a nice ramp first and second quarter. We then 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, you know, we beat first half adjusted RUDPS, so there is less of a ramp in Q3. And then we raised our fully adjusted RUDPS guidance by five cents, and that's we're expecting to see most of that upside in the fourth quarter, including on our EBITDA market. 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 this mid-cap biopharma, biotech customer base?

Yeah, the environment continues as far as we can tell. It seems to be very strong. There's no change to the funding environment in terms of the biotech funding. Venture funding, according to 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 strong and a record year. Year-to-date, in terms of deal value, for us, it's like $11 billion or so. We did 729 deals so far. That's the market information. That's the market information, yeah, yeah. And then... I think it's about 50-50. Can you confirm that? Yeah. So the numbers before?

Yeah. So bookings in the quarter for EPP versus larger about 50-50. I think very soon after the merger, we saw a lot of uptake from emerging biopharma. But I think our core power awards now are really – getting more pounds than a lot of the growth that's coming from 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, 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, if operator of Ricky Goldwasser is on the line.

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

Yeah, hi. 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 a timeline or the lag between when you record the booking and when we see the impact on margin, kind of like that margin expansion?

Yeah. 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, you know, It's just the fact that, you know, lowest margin is for FSP, which is, you know, we provide a lot of CRAs and maybe a little bit of value, but essentially it's the lowest margin in our general, in the CRO marketplace. You've got the lab business, which has, you know, 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 a relatively lower labor content on the total mix of revenue. So that's the background for why it's higher margins. 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 two years of the start of a trial. That's when you get to, you know, peak revenue and margin realization.

So very much in line with your guidance.

And of course, when you close out the trial, you know, which usually is three to four years into the trial. Okay?

Yeah, so very much in line with the long-term guidance that you provided on ANLIS Day.

Yes.

I think that's more back-end.

Yes. Yes. Thank you. Thank you.

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

Hi, Ari. 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 for and what your kind of competitive win rate is recently and has it changed over the last quarter, last six months, last 18 months with the OCE launch?

Yeah, I mean, look, every – situation is a competitive situation. We're competing with the same set of characters on every single one, and every client looks at the same, you know, solutions that are in the marketplace. Our win rate somewhere is stabilized around two-thirds of those 60 to two-thirds of the competition that we participate in.

Historically, the team probably would have won one in three and would have now won two in three. Okay. Thank you.

Thank you, Shlomo. Next question, please.

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

Thank you. Good morning. 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 as strongly as we can, and so you will always have layers of new OC 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 analytic solutions. 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 towards sustainable high single-digit organic growth in this segment. And we provided you with guidance on a month ago for the next three years in terms of – and we expect this to be accelerating towards the double-digit type of rate towards the end of that three-year period, meaning towards 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 three years It turned out to be only two years, or a little bit more than two years. We're now 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 three-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 haven't even said that at the investor conference, I'll say it now, you know, our goal is certainly to be in double-digit territory when we get to the end of that period across the businesses.

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

Yeah, no, 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 that. And I think that, you know, overall what we're seeing in RDS is, you know, maybe pass-through headwind for the year a little bit higher than what we originally anticipated with M&A, roughly offsetting that. So we're all, you know, organically in about the same place.

Makes sense.

Yeah, so I'd agree with what Mike just said there. I think it's lumpy as we go through the year. We told you 100 basis points is embedded in our full-year guidance. Maybe it's a little bit more than that now, but, I mean, we're giving you our best estimates that we see right now. Okay. Next question, please, operator.

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

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

Yeah, I mean, 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 ranges due to that organic strength that we're seeing in the technology and analytic solutions business. I don't think 7% is probably the new run rate for the rest of the year, but it's definitely inching towards 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 are you thinking about the back half?

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

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

Yeah, again, very continued trends that you saw a month, that we discussed a month ago, and I just mentioned, I guess, before you joined the call, again, some of those numbers we continue to bring this to market and you know we have total I guess with 8,000 clients yeah yeah and you know we have 8,000 clients plus and only I guess you know 200 and maybe a little bit less than 250 are active customers now with our our a next-gen solution, a smart trial solution. So we continue the momentum, and there's a lot of runway ahead of us. But I mentioned this before, so I'm sure you'll get all those numbers. Thank you. Okay, great.

Thank you, guys. If we can move to our next question, please, operator.

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

Thanks very much. Most of my operational questions have been asked, so 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, you know, if we continue to see a lower interest rate environment at some point, does that start to offset? And then just sort of thoughts about managing, you know, 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, you know, buying back stock versus and using debt to do that, just trying to understand that. more on 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, you know, 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, you know, 25 basis point rate hike is like $6 million. It's very, very kind of insensitive to rate movements. So, I think that, you know, 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. You know, we ended the quarter at four and a half 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, you know, exiting 2022 with more like three and a half to four. So we still are in very much the same place and are going to continue to manage the balance sheet, you know, as we've said.

Okay. I appreciate it, Mike. Thank you.

Sure.

Thanks, Sandy. I think we can move to our next question, please.

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

Great. Thank you. 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 a function of what you have in terms of the global data assets, or was this a customer that you were working with previously, maybe from a next-gen 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 thereon in terms of the cost savings process. 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.

Yeah, thank you, Erin. I guess on the real-world side, and just to repeat what we've been saying before, we've got a unique set of capabilities. We spoke at length about the human data science cloud and the infrastructure we've 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. You know, 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, depth, granularity, and global coverage. But it's 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 forward in any engagement. I'll remind you, we're running more than 2,500 clinical trials. There's just no one in the world that has that kind of therapeutic coverage and scale on a global level. So you combine all of those assets, and we've spent the bulk of our time over the past few years integrating these assets and developing solutions that are push-of-the-button type of analytics, and that's kind of very unique. And so we were the obvious partner here for this 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 this consortium of partners, you know, came to us. And that's over the next five years. It's a big job over the next five years. Again, in the aggregate revenue of our company, it's not going to be something that's going to move the needle in a dramatic fashion. That was your question. But, again, it's just one unusual type of engagement that effectively demonstrates that, you know, we are – our capabilities put us head and shoulders above anything that's out there.

Okay.

I think I have a second question. Yeah, I'm cost saving, yeah. Yeah, 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 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-based, automation-based, process reengineering-based. This continued offshoring of certain capabilities where we have scale and et cetera, okay? It's not the same type of activities that is 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, you know, we're very confident we have visibility on that.

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

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

Hi, thanks very much. 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, do you view it as a bigger opportunity than OCE or smaller, just to frame it a little bit? Thanks.

Yeah. Okay. On the acquisitions, I think we did very little acquisitions, actually. I think we spent, what was the number? $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 million, maybe something like that to our revenue. Very small. In R&D, the acquisition contribution mostly came from Last year, 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. 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, and they've been brought in a couple million, if I remember. So there's very, very little new news here on the R&D side. And then technology is very small also, right? We need one or two new things. Yeah, just a small token. Yeah. And then the second question was?

The second question was, you know, you're thinking on OCT as a 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. You know, it used to be on-premise markets. type old systems and the 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. There's just a number of sales reps and that's it. It's a finite market. And now our growth in that market is simply market share grab. OC is a market share play against that large competitor. feel that, you know, that Imperator has like 80% plus in the market. We feel 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 Salesforce. With respect to OCT, it's 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, you know, prone to error, rework, and a 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 OC and a very attractive marketplace in terms of its growth patterns because it's really converting the historically paper and labor-intensive markets a set of processes into more automated processes. And as you know, the particularity of OCT is that we would like to create automated tools that actually speak to each other and that are interconnected. That's our difference. There are many people who are bringing 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 Salesforce 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.