Andrew Markwick - Quintiles IMS Holdings, Inc. Ari Bousbib - Quintiles IMS Holdings, Inc. Michael R. McDonnell - Quintiles IMS Holdings, Inc..

Jack Meehan - Barclays Capital, Inc. Tim C. Evans - Wells Fargo Securities LLC Garen Sarafian - Citigroup Global Markets, Inc. Greg Bolan - Avondale Partners LLC Robert Patrick Jones - Goldman Sachs & Co. Tycho W. Peterson - JPMorgan Securities LLC Ricky R. Goldwasser - Morgan Stanley & Co. LLC.

Ladies and gentlemen, thank you for standing by. Welcome to the QuintilesIMS Fourth Quarter 2016 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. As a reminder, this conference is being recorded, Tuesday, February 14, 2017.

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

Thank you, Jennifer. Good morning, everyone. Thank you for joining our fourth quarter and full year 2016 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer, and Michael McDonnell, Execution Vice President and Chief Financial Officer.

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 this call on the Events & Presentations section of our QuintilesIMS Investor Relations website at, ir.quintilesims.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 quarterly report on Form 10-K filed on November 3, 2016, and subsequent SEC filings.

In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered as a supplement to, and not a substitute for, financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation.

I would also like to point out that as with other global businesses, we have been impacted by foreign exchange. And therefore, we will discuss many of our results in constant currency to improve comparability. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib..

Thank you, Andrew, and good morning everyone. Thank you for joining our fourth quarter and full year 2016 earnings call. This is our first call reporting earnings for the combined company, and on this call, we will provide results for 2016 as well as guidance for 2017. The fourth quarter was very active for the QuintilesIMS team.

We delivered on our financial commitments through solid operational discipline. Our integration teams continue to drive execution of their integration plans, implementing best practices and process efficiencies across the organization.

Changes were made to our management structure as we look to fully leverage the talent across both legacy organizations, and specifically, we began to leverage the legacy IMS operating infrastructure and implemented organizational and sales force changes at the country level.

We started the process of integrating data into our site identification and patient recruitment processes, and we are beginning to see great traction with clients.

We also repurchased $1 billion of our stock during the quarter, and I'm pleased that our board of directors just approved an increase in our post-merger share repurchase authorization from $1.5 billion to $2.5 billion, leaving us with a $1.5 billion remaining authorization. Let's review the financial results.

Year-over-year comparisons are obviously impacted by the merger. We are making comparisons more meaningful by discussing results on a combined company basis. That is, as if the merger took place January 1, 2015. Fourth quarter revenue was about $2 billion on a combined company basis.

And adding back the merger-related deferred revenue adjustment we discussed last quarter, growth would have been 4.2% at constant foreign exchange rates. The legacy IMS business grew 6.9%. The new Commercial Solutions segment also includes legacy Quintiles Commercial businesses which declined year-over-year.

And so, in aggregate, Commercial Solutions grew 4.9%. R&D Solutions growth was 6.6%, and Integrated Engagement Services declined 8.4% during the quarter, and this is all at constant FX. Revenue growth on a reported basis was impacted by some headwind from unfavorable currency movements during the current quarter.

In aggregate, we lost about $10 million of revenue to our guidance of three months ago due to adverse FX, nearly all of which was in our Commercial Solutions segment. All-in-all, we performed in line with our revenue guidance at constant currency in all three segments.

Fourth quarter adjusted EBITDA was $541 million, which was $34 million higher than our mid-point guidance three months ago. Adjusted EBITDA growth was 14.5%, again at constant currency and on a combined company basis. Fourth quarter combined company adjusted EBITDA margin was about 27% when you exclude the deferred revenue adjustment.

We had strong margin expansion of about 300 basis points.

And this was primarily driven by operational improvements and good margin expansion in the Commercial segment, mostly the legacy IMS Commercial business, as well as operational improvements in the R&D segment, and to a lesser degree, from favorable currency mix in the delivery costs of our CRO work.

The Commercial Solutions segment continues to see success in the market. I'd like to give you some color and a few examples of a few recent wins. A top-five pharma client signed a global multi-year, multi-million dollar tech deal for our life science cloud-based Master Data Management, or MDM, app.

The client already uses a number of our SaaS-based apps and will benefit from our integrated suite. In this case, the win was driven by our proven track record and expertise in the MDM space, combined with our global deployment and support capabilities.

Another win, this time with a specialty pharma company who selected QuintilesIMS to be the single supplier supporting their entire commercial operations. This is a $16 million deal combined technology and services from our Commercial Solutions segment as well as sales rep deployment from our Integrated Engagement Services segment.

The R&D Solutions business saw good progress as well with a turnaround of our booking trend, which I'll remind you, we now report on an as-contracted basis. We finished the year with about $9.5 billion in contracted backlog, and that is stated as at the end of year currency rates. And we have about $4.3 billion in LTM contracted net new business.

You will recall that our integration teams are working hard to drive a productionized data-enriched R&D offering, which we expect to take to clients in the second half of 2017. We have a large full-time team working to integrate the legacy IMS data with the CRO business.

But we are not waiting, we already engaged with over 30 clients on opportunities to leverage this next-generation of clinical development offering.

In fact, we had already over $100 million worth of awards in the quarter for this next-gen clinical development, and we are working over $1 billion worth of opportunities, where data enabled site ID and patient recruitment can be leveraged.

For example, in a recent such win, which was for an ophthalmology trial, we were able to use our data assets, predictive analytics capabilities and expertise with biosimilar development to identify the right sites with both the appropriate patient density levels and the required investigator therapeutic expertise, in this case, intraocular injections.

In the traditional approach, 3,000 potential sites will have normally been identified as having the relevant patients that would qualify for the trial. However, using our data and analytics, we were able to target and pinpoint the 261 most optimal sites from the get-go.

The use of the IMS data saves considerable time and resources with the design of the trial, the identification of sites, and the targeting of eligible patient populations, ultimately helping clients deliver the product to market faster.

With that, I'd like to turn it over to Mike McDonnell, our Chief Financial Officer, to take you through the financials in more detail..

Thank you, Ari, and good morning, everyone. As Ari mentioned, Q4, our first quarter as a combined company was a strong quarter for QuintilesIMS and we hit the ground running. Let's review the details.

On a reported basis, the year-over-year numbers are not meaningful as this is our first quarter as a combined company, and IMS results are not included in prior periods. I will not read them out, but they are in the tables and many of them will be in the 10-K for review.

I would like to call to your attention the more meaningful comparisons in the center of the page. Fourth quarter revenue was just over $2 billion, an increase of 4.2% at constant currency and 3.5% reported on a combined company basis, and adding back deferred revenue.

You'll recall the deferred revenue adjustment we highlighted on our last call, this non-cash adjustment is the result of purchase accounting rules, which at the time of the merger requires the elimination of IMS Health deferred revenue, which would have converted to revenue in the fourth quarter.

Adjusting for deferred revenue and on a combined-company basis, Commercial Solutions revenue improved 4.9% at constant currency and 4.2% reported. The Commercial Solutions growth rate was dampened by a decline in the Quintiles legacy Commercial business of about $12 million.

Excluding this drag, legacy IMS Commercial Solutions grew 6.9% at constant currency and 6.1% at actual foreign currency. R&D Solutions service revenue grew 6.6% at constant currency and 5.4% at actual FX rates, and Integrated Engagement Services declined 8.4% at constant FX, and 6.7% reported. Turning now to profit.

Adjusted EBITDA was $541 million increasing 14.5% at constant FX and 16.7% of reported FX rates on a combined company basis. Adjusted EBITDA margins, when adjusting for deferred revenue, expanded about 300 basis points versus the fourth quarter of last year on a combined company basis.

As Ari mentioned, the strong margin expansion was primarily from operational improvements in the Commercial and R&D segments as well as to a lesser degree from a favorable currency mix in our R&D Solutions costs. Moving down to P&L, fourth quarter GAAP net loss was $178 million and GAAP loss per share was $0.74.

The loss was primarily due to a one-time deferred tax charge from changing our assertion regarding most of our 2016 and prior foreign earnings, whereby we will no longer permanently reinvest those earnings overseas. As a result, in the fourth quarter of 2016, deferred taxes were recorded on these earnings at the higher U.S. income tax rate.

The total P&L charge, as a result of this change was $252 million. It is important to note that we intend to assert there are foreign earnings after 2016, will be indefinitely reinvested overseas. Therefore, we do expect to return to normal tax levels in 2017 and subsequent years. Adjusted net income was $266 million.

You'll recall that our adjusted net income is calculated using an adjusted book tax rate, which was 34% for the fourth quarter. You should note that our cash tax rate is much lower, and in the fourth quarter was only 4.8%. Adjusted diluted earnings per share was $1.09 in the fourth quarter, using the adjusted book tax rate.

Now, let's turn to full year revenue. For the full year, once again, the reported numbers are not comparable as this is the first quarter we're reporting results as a combined company. I will not go into detail on these numbers during the call, but as I mentioned previously, they're in the table and many of them will be in the 10-K for review.

Full year revenue increased 7.8% at constant currency and 7.4% reported on a combined basis and adjusting for deferred revenue. For our segments, and on the same basis, Commercial Solutions revenue grew 9.1% at constant currency, 8.5% reported.

The Commercial Solutions' full year growth rate was also impacted by a decline in the legacy Quintiles Commercial business. Excluding this drag, legacy IMS Commercial Solutions grew 11.3% at constant currency and 10.5% at actual FX.

R&D Solutions grew 10.6% at constant FX rates, 9.9% reported, and Integrated Engagement Services declined 7.9% at constant currency, 5.8% at actual FX rates. Turning to R&D Solutions, net new business and backlog.

You will recall that last year, we began reporting our net new business and backlog metrics on an as contracted basis, meaning that we will not recognize the value of a client award until we have receipt of a written binding commitment or an executed contract.

We believe this is a more conservative practice and precise approach compared to the traditional industry practice. For the 12 months ended December 31, 2016, R&D Solutions bookings were about $4.3 billion resulting in an ending contracted backlog of approximately $9.5 billion.

This end-of-year backlog is stated at end-of-year exchange rates and the number therefore includes an adverse FX impact. We expect to convert approximately $2.9 billion of this backlog into revenue over the next 12 months. Now, contracted bookings were stronger this quarter than last quarter and we are pleased with this development.

I do want to remind you, this is a long-cycle business and quarterly bookings can ebb and flow, this is why you should focused on overall backlog and LTM metrics, rather than the book-to-bill in a given quarter. Adjusted EBITDA for the full year was $1.956 billion, an increase of 9.1% at constant FX and 12.6% reported on a combined company basis.

Let's spend a few minutes on the balance sheet. At December 31, cash and cash equivalents totaled $1.2 billion and debt was $7.2 billion resulting in net debt of $6 billion. Our gross leverage ratio was 3.7 times trailing 12 months adjusted EBITDA. Net of cash, or leverage ratio was 3.1 times.

Cash flow from operating activities was $447 million in the fourth quarter. Capital expenditures were $86 million, and free cash flow was $361 million for the fourth quarter. A quick update on share repurchase. You'll recall that on our last call, we announced the $1.5 billion share repurchase authorization.

Share repurchases are preferred method of returning capital to shareholders and we also see our shares as an attractive investment. As a result, we repurchased $1 billion of our stock representing almost 13 million shares, which is about 5% of our shares outstanding.

As already mentioned, our board has also approved an increase in our post-merger share repurchase authorization from $1.5 billion to $2.5 billion, leaving us with the remaining authorization of $1.5 billion. Before we move to guidance, let's take a minute to discuss foreign currency.

As you're aware, and as depicted on the chart, following the end of the third quarter and U.S. election results, the U.S. dollar strengthened significantly, especially against the Japanese yen, euro and the British pound.

As a result, this impacts our full year 2017 guidance at actual FX rates, which assumes rates remain unchanged through the end of 2017. To help you best understand the impact of currency fluctuations on our revenue, I'll provide you with a rule of thumb for a hypothetical scenario, where the value of the U.S.

dollar changes 1% versus our entire basket of securities. Of course, we do business in over 60 currencies, and not all will move in the same direction, by the same amount, at the same time.

Therefore, the purpose of providing this rule of thumb is not to predict exactly what will happen as currencies move, but simply to help you understand the potential impact of movements. Based on our current mix of currency, if the dollar changes 1% versus our basket of currencies, there would be a about $30 million impact on full year revenue.

The euro would account for about $14 million of this full year revenue impact, again would account for approximately $6 million, and all other currencies combined would account for approximately $10 million.

Now, we will attempt to mitigate the foreign currency impact on adjusted EBITDA after cost reductions and the potential to leverage favorable currency mix based upon, where we perform R&D work.

You should also note that our euro-denominated interest expense provide a natural hedge that reduces the impact from foreign exchange fluctuations on adjusted diluted EPS by about a third. Now, let's turn to guidance. Our revenue outlook for 2017, assuming FX rates held constant in 2017 versus 2016, will be $8.125 billion to $8.225 billion.

The difference between where rates are today and where they were on average for 2016, results in a foreign currency headwind of approximately $125 million. Therefore, our full year 2017 revenue guidance is $8 billion to $8.1 billion, assuming currency rates remain at current levels for the rest of the year.

From a segment perspective, Commercial Solutions revenue is expected to be between $3.6 billion and $3.65 billion. Research & Development Solutions revenue is expected to be between $3.655 billion and $3.69 billion. And Integrated Engagement Services revenue is expected to between $745 million and $760 million.

Similar to last quarter, this guidance again includes an estimate for deferred revenue, which is expected to reduce the Commercial Solutions segment revenue and QuintilesIMS revenue by about $7 million in the first quarter of 2017. For full year profit, we expect adjusted EBITDA to be between $2 billion and $2.1 billion.

And adjusted diluted EPS to be between $4.40 and $4.55. For our tax rates, we expect adjusted book tax rate to be approximately 30% for the year, adjusted cash tax rate to be approximately 16%, and GAAP tax rate to be approximately 25%.

Now, remember the timing of tax payments can be lumpy, so you may see the cash tax rate vary by a few percentage points in any given quarter. As discussed on our last call, we will also provide quarterly guidance going forward.

As you know, for legacy Quintiles and legacy IMS, the first quarter is seasonally lower than other quarters, so you should not expect a linear progression throughout the year. For the first quarter of 2017, assuming today's FX rates remain constant through the end of the quarter, we expect revenue to be between $1.89 billion and $1.925 billion.

From a segment perspective, Commercial Solutions revenue is expected to be between $850 million and $865 million. Research & Development Solutions revenue is expected to be between $855 million and $870 million. And Integrated Engagement Services revenue is expected to be between $185 million and $190 million.

This revenue guidance includes the expected $7 million deferred revenue adjustment, I just mentioned. For profit, we expect adjusted EBITDA to be between $450 million and $465 million, and adjusted diluted EPS to be between $0.93 and $0.97. In summary, we had a strong quarter. We delivered solid operational and financial performance.

Operational integration is moving forward as expected. We saw an uptick in our R&D booking trends. The early client success we are seeing for our next-gen clinical development is encouraging.

We repurchased $1 billion of our stock under the existing $1.5 billion authorization, and our board approved an increase to this authorization by another $1 billion to a total of $2.5 billion. And we look forward to delivering another year of strong financial performance in 2017. With that, I would ask the operator to please open the lines for Q&A..

Thank you. Our first question comes from the line of Jack Meehan with Barclays. Please proceed with your question..

Hi, thanks, and good morning. I wanted to ask about the new authorizations in the quarter. It look like the trailing 12 months data was pretty solid at 124 (24:55), and I think you mentioned in the fourth quarter you saw an uptick.

Is there any other data you can give just to give us a little bit more visibility on how the integration is affecting those numbers? Thanks..

Well, thank you for the question. Look, we've cautioned you in the past not to focus too much on quarterly bookings. Once again, this is a long-cycle business, and we ought to focus on at least the last 12 months booking trends.

Now, we did mentioned in the Q3 earnings release call that bookings has been weak in the last quarter of Quintiles standalone existence. And frankly, there had been ups and downs in the prior 12 months period. So, we were pleased to see that kind of weaker trend reverse in the fourth quarter.

And in aggregate, again for the last 12 months, we had strong bookings again on a contracted basis, which is what we want to focus people on. The data I did mentioned in my introductory remarks that we actually won over $100 million of awards which we believe can be traced to the leveraging of the data, and I gave an example of how that helped us.

We have a large pipeline of opportunities where we are already leveraging the data even though, as I mentioned, we not yet fully productionized, and we expect to be productionized in the second half of this year. Thank you..

Great. And I just wanted to follow-up on that point, Ari, in terms of automating the process. Could you just talk a little bit more about the systems build-out and what should we be expecting to see as you look to just integrate the process and make the data recruitment part of the package that you offer? Thanks..

Well, so again, you bring (27:16) systems, there is a lot of technology, specifically data mining tools and the way our databases are constructed.

So, there is a lot of work by our data scientists that is being done at the moment focusing on the top most significant 15 therapeutic categories, so that's going well, and we have a large full time team, with again data scientists, biostatisticians, epidemiologists, and clinicians working on this.

We're also leveraging our one key asset, which is over 15 million healthcare professionals around the world, a massive database, which again traditionally and historically have been used by IMS to support Commercial activities and we are redirecting this significant data asset to be used in clinical trials, and in site identification, and the ability to convert some of those physicians into investigators for specific trials.

So a lot of work is being done, and again, how we expect to see this happening in our Commercial activities is, we obviously want a high win rate, that's what we're targeting, and we are trying to, as we mentioned earlier, unlock large accounts that have been previously not significant clients of the legacy Quintiles R&D business.

We're also, frankly, looking at the burn rate.

I'm sure you've observed that the industry generally is experiencing slower burn of their backlog, and that is due to the increased complexity of the trials and of the highly specialized nature of the drugs that are being developed and in our (29:26) patient population and the difficulty to enroll those patients.

So, all of that leads to lower burn rate of the backlog. It's not so for us.

We've thankfully not experienced that, and we believe it's because we're leveraging the data, and the fact also that we now look at our backlog and our bookings on a contracted basis is much more precise, and therefore, we should see for both reasons the fact that we have a more precise backlog, more correct backlog, more accurate, and the fact that we leveraging our data should lead to a backlog conversion that's improving over time..

Thanks, Ari..

Our next question comes from the line of Tim Evans with Wells Fargo. Please proceed with your question..

Hi, thank you.

Mike, would you be willing to tell us how much acquired revenue in the last 12 months contributed to the growth in the Commercial segment and the R&D segment?.

Yeah, that's something that we typically – we obviously had a transformational transaction between Quintiles and IMS, but as far as the tuck-in strategy that IMS has utilized very successfully for extended period of time, we typically don't break that out in great detail.

I think that, overall, when you look at the rate of growth, I think the important highlight is that on a constant currency basis the business grew 6.9%, which is right in line with what we said before..

Yeah. I mean, I can....

Okay..

...supplement that. No, we've historically on the IMS side guided to a couple of points of our growth being from those tuck-in acquisitions, and the same is true for 2016..

Okay. And....

And on the Quintiles side, on the R&D side very, very little, right. I mean, after you accounted for the Q2, the Q square merger, you had half of the year was earlier in the year. But other than that, it's basically in the rounding..

Okay.

Just curious, did you guys do a number of small tuck-in acquisitions in Q4 that maybe didn't rise to the level of a press release?.

No. Not that I'm aware..

Nothing material, no..

No..

Okay. Thank you..

Thanks Tim..

Our next question comes from the line of Garen Sarafian with Citigroup. Please proceed with your question..

Good morning. Thanks for taking the questions. I want to touch on the combined sales force. In the past, you guys have discussed, working fine together, in the prepared remarks there were some examples cited.

But, could you just comment on where you are in terms of how the sales force is evolving as a combined entity, and when you expect the new and improved combined sales force to really start to gel, just to get a sense of how long that takes?.

Yeah. Well, historically, the R&D segment, the legacy Quintiles organization has a highly centralized account management and sales management activity.

We have decided to leverage both the existing centralized account management and sales force of Quintiles as well as the historically decentralized and close to the customer approach that IMS has utilized. So, we've reorganized our company to have one of the hybrid approach.

Account management obviously for probably the top 50 clients has to be one account management approach. And frankly, even if we didn't want to, our clients themselves have approached us.

We have – most of the large clients have approached us to – we have now become one of the most significant providers to them and across a suite of our offerings from R&D to Commercial and we welcome those conversations.

We have actually an account management team under Paul Spreen, who works on what we call total cost of ownership, and makes the rather compelling case to our clients that if they work with us, soup to nuts, it brings a lot of advantages.

We have the scale, the level of innovation, the investments that enabled them to get best-in-class offerings across the board, and certainly at compelling cost levels. So, we're having those conversations, and for those obviously, there has to be a unified account management approach..

So, has that sort of – has all those leaders been identified, those team leaders? And I guess, just trying to get a sense of when it sort of would start to gel in the marketplace?.

Yeah. So, in some cases, yes. In some cases, we're still transitioning.

Again, this case is where we have two very, very good account leads on both legacy organizations and for now they are working together as we are reallocating and there are clients that, frankly, that neither organization had dedicated a full-time account management team, because they were not large enough for either of us.

But in the present situation they have become, when we pull together the two accounts, the two legacy accounts. So, in those cases, we are still putting together an account management team because neither of the organization had one..

Okay..

So it's transitioning. I believe that by the middle of the year again everything will be in place. But, we've made very, very good progress..

Thank you very much..

Thank you..

Our next question comes from the line of Greg Bolan with Avondale Partners. Please proceed with your question..

Yes. Thanks for taking the question. So, I guess, as I think about some of your larger peers, it feels like there is a little bit of disarray among several for varying reasons. And I guess if you think about the integration of IMS with the CRO business kind of – if the smarter CRO, if you will.

And traction you're getting there from the standpoint of a win rate perspective, I'm assuming win rate probably ticked up in the fourth quarter. And then, in addition to that, just kind of what's going on whether it'd be a sales process for one of your competitors, another competitor, obviously, kind of dealing with their own skeletons.

Well, how do you fickle about Ari and the team, kind of your win rate as we think about 2017 specifically on the CRO business.

But also, if you'd like to talk about just the legacy IMS business, that would be great too?.

Okay. Well, thanks Greg, for your question. Look, we stated many times we're very excited about this combination. We're going about it in a very methodical and rigorous manner. We're not going to be distracted by what's happening around us. And every competitor, whether it's on the Commercial side, or on the R&D side, have their own issues.

We're focusing intensely on our merger integration and on developing what we believe are compelling solutions to resolve some of the most critical issues in healthcare. We believe that transitioning to more data-intensive, more process-focused type of approaches to clinical trial, more technology enablement is the right way to go.

Be less dependent on human error and paper processing, and that's our general vision here for the merger, and we find very receptive ears among our clients. Obviously, it's a long-cycle of business on the clinical trials side, owing to a win rate. For smaller trials, we are able to see already better trend.

It's hard to have enough numbers to call it a firm trend. And as I said before, this is a long-cycle business. So, not to get too excited about the good news in a quarter, nor to be too depressed about not so good news in another quarter. Let's look at least at the 12 months.

This is a long-term business – long-cycle business and we're here for the long-term. But, certainly what we've seen so far is very encouraging, and for smaller trials, we definitely know that we're winning, because we have these data, and because we'll be able to demonstrate a different approach to the clients.

In fact, in a couple of cases, we've sort of recovered from what at least the organization has believed was a loss, but we reintroduced the new approach and we're able to, safe today, so to speak. So, we know it works. It's very compelling. And we have bright eyes around the table when we demo what the data can do..

That's great. And looking forward to watching that win rate tick up over time, I'm sure. Thanks so much..

Thank you..

Our next question comes from the line of Robert Jones with Goldman Sachs. Please proceed with your question..

Thanks for the questions. Yeah, I'd just a couple around the cadence. I guess, first on the guide on R&D Solutions for 1Q, it looks like you guys are calling for revenue about 3%, full year 6%. Just wanted to get a better sense of that implied ramp.

I know the comps get easier, but do you have a line of sight into specific projects that will drive that acceleration throughout the year? And then, just off the topic of the next generation clinical development offering, I'm curious how much of the implied ramp is coming from that new offering as well?.

Yeah. I'll start, it's Mike. I think on the implied ramp and so forth, it continues to be – it's a great backlog business. I think that the fact that we now only included in backlog what's under contract gives us good visibility, good line of sight, and we did talk about seasonality in the results.

And I think that if you look at legacy Q, not quite a seasonal on the top line as maybe legacy IMS. And so, I think that the way we've staged the guidance, it feel like we've got good visibility when you look at what's in our backlog and we progress throughout the year..

Okay. And then I guess just one on the overall EBITDA cadence as well. I know, you mentioned seasonality, but it does seem like a little bit more than usual looking at the businesses independently of a drop-off in 1Q from 4Q based on the guidance.

Just curious if there is anything worth calling out beyond the normal seasonality that might help explain the drop off from this quarter to next quarter?.

Yeah..

Yeah. I might just – for those less familiar with the IMS business, generally the first quarter is slower. You know, budgets tend to still be firmed up among our clients. There usually is a rush in the fourth quarter to get things approved internally, and then therefore stock is deferred.

We also have a significant portion of the IMS legacy business that is subscription-based, and so, this is a renewal season, so to speak. And so a lot of the contracts are still being renewed. So, all of that has an impact. But with respect to EBITDA, and specifically this year, we have in addition, the integration going on.

So, a lot of restructuring driven by the merger, a lot of reorganization and project costs that are included there, and therefore, there is a ramp before you start seeing some of the benefit and the project costs going down towards the back-end of the year, so that's perhaps maybe what accentuates the trend this year..

That's very helpful. Thanks, Ari..

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

Hey, thanks.

Ari, can you talk a little bit more about the drivers of softness in Integrated Engagement Services down 8%, where do you see that bottoming out, and what do you think on timelines for recovery?.

Thank you, Tycho. I think, look, this is a business that's – that – it comes in big chunks. Right? It's very lumpy. It's a business that has very little deal flow; normally (43:39) this is not like we are looking at a big pipeline. These are one-off deals. You can have a year where you do extremely well.

And then, like I think the case – that was the case in 2015, where the business grew nicely. And then you have a year like 2016 where the business wasn't growing.

For 2017, we're not seeing any major ups or downs, we see more stability hopefully, and it ebbs and flows with the needs of pharma, and our clients have decided they want to internalize and some others decided they want to outsource. So, it's hard to predict this business.

It's not – none of us likes unpredictability, but look, it's a single-digit EBITDA business, hard to see; I'm in the margin expansion business, I've been all my career. And so, look at this business, and I keep – I'm struggling with how do you actually grow profits in this business, and it's very hard to do that.

We are going to put in place some actions to improve it, we're trying to also data enable it by the way. We're trying to make it more differentiated. Equip our CSO sales force with technology and so on. But, boy, it's not an easily margin expansion story. And even if you do everything right, it will be maybe a point or two better on margins.

I don't see this as a big grower top line, and I don't see it as a big contributor profit wise. Again, it requires no capital investments, it's there. And I cited an example in my introductory remarks of a case where a smaller specialty pharma company basically outsourced their entire commercial activities with us, including the sales force.

So, here it's for the first time we sold the full package. The full suite of data and services from the IMS legacy business and technology, CRM, et cetera, plus the IES (46:02) capabilities.

So, I think in some cases – and we have more and more demand for such kind of bundled services when a company considers outsourcing their entire commercial operations, sometimes even we're having a dialogue with larger pharma in specific geographies, Central Europe, Latin America, where they really don't have the scale to make this a profitable business.

So, it can be helpful with the rest of our business..

And then, similarly CSO within Commercial, that was down mid-teens.

Do you have a view on when that could start to improve?.

Yeah, that's tied primarily or in part to the Encore business. We talked about that previously and booked an impairment charge on that in the third quarter. And it's just a business that hasn't been performing to expectations. So, it's very small in the scheme of the combined company. It's not material.

But, as you look at it in isolation of the Commercial business, it's a little bit more of an impact which is why we called it out separately..

Okay.

And then just one last one, are you able to give us an organic growth number for legacy IMS in the quarter?.

Yeah, I answered the question earlier. I think I said it's similar to prior quarters, and that is, again when you're factoring – I don't know if you recall, we had made a large acquisition called Cegedim, and that's now largely out of the numbers.

They have the (47:34) legacy CRM business that's essentially dying product line and when you factor that in the drag was about a point, and if you adjust for that drag, the legacy IMS organic growth was same as usual at 4%..

Okay. Thank you..

Our next question comes from the line of Ricky Goldwasser with Morgan Stanley. Please proceed with your question..

Yeah, hi. Good morning. So, when we look at guidance for 2017, it seems that about a third of the EPS growth, however, a little bit more than that is coming from buyback. So, can you just walk us through the cadence of the buybacks of about $1.5 million remaining of authorization.

How should we think about the timing first half versus second half?.

Ricky, just to clarify your question, you mentioned that – you said the share buyback accounts for a third, is that what you said? I misunderstood it..

For 2017, just when you think about the EPS year-over-year growth?.

Right. So, well, I mean you have to offset the balance sheet of the share buyback with the cost, right, because the financing cost is significant.

If you – we use the $1 billion of cash which could at least theoretically be used to reduce the debt, plus we used our revolver, we repatriated cash from overseas, that's how we financed that $1 billion of repurchase.

And it was done largely towards the – within a few weeks after the November authorization, and obviously, we stopped doing that before the end of the year. So, I think in aggregate, it's more like in the (49:31)..

Yeah, when you look at 2017 exactly, you have to realize that we have $1 billion more borrowings than we otherwise would for buying those shares back. So, when you factor that in, it's much less impactful in 2017. Obviously, as earnings grow in future years, it becomes more, but....

Right. For future it's certainly very accretive. And that's what we did it, and we think that the shares are very attractive investments where they sit today. With respect to the $1.5 billion additional remaining authorization, we are looking at several scenarios now on how to execute that.

And in the normal course of events, we could simply continue to repurchase in the market. We also have large sponsors still. You know investors complain to us when we meet with them. But, what they call the hangover, and so that over time, obviously that should disappear. And so we might take advantage of this repurchase to reduce that hangover as well.

But again, we're committed certainly by the end of the year to do the balance of the $1.5 billion. So, another $500 million, and obviously, the earlier we can do, we can execute these repurchase, the better..

Okay. And then one follow-up in response to one of the questions, Ari. You talked about the improving backlog conversion rate that you expect to see, as kind of like your data capabilities resonate more in the marketplace.

So, how long will it take until we see kind of like these improved conversion rates? Are you seeing it already? Is this a factor in your 2017 guidance range, or is this something that we should think about as more mid to long-term benefit?.

Yeah. I mean, obviously, it's always, as I said before, it's a long-cycle of business, so it's more mid-term benefit. But look, I think there are two things. One, we changed how we look at our backlog in terms of our – and we focus on contracted.

Again, we believe that the traditional approach in the industry was not conservative enough, and a lot of awards there that may or may not – maybe should or shouldn't have been in the backlog, and as a result, you'll see conversion that's much slower, that maybe one of the explanations of what the industry is experiencing in lower burn rate.

The second one is, again, as I said before that the trials are more and more complex, and this is more difficult to find the right patients and to enroll them, and therefore revenue burns at a slower rate.

Now, because we have converted to contracted basis backlog measurement, we believe that we won't have that first issue, or less of it, and because we're using data to identify the optimal sites, we believe we will accelerate rather than delay backlog conversion, and therefore, we mitigate those trends; in fact, if you look at our burn rate, our burn rate, it's essentially flat to better, and our fourth quarter burn rate was actually better.

We do believe that it's the result of those two differences versus the rest of the industry. And we expect the burn rate to accelerate all the time..

Okay.

And just, will you provide in your filing the margins per segment?.

I think, what is the....

Yeah. There will be information on segments that will in our 10-K and we'll have some segment profit information. It won't necessarily be at the adjusted EBITDA level, but there will be some helpful and useful margin information by segment..

Right. Although again, the compares are difficult because of allocations and merger..

Correct. Yeah..

Very good..

Okay. Thank you..

Thank you very much..

Thank you, Ricky..

Okay. Thank you very much for taking the time to join us today, and we look forward to speaking with you again on our first quarter 2017 earnings call. Matt Pfister and I will be available to take any follow-up questions you might have. Thank you..

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