Executives
David R. Carlucci - Chairman and Chief Executive Officer
Leslye G. Katz - Chief Financial Officer
Gilles V.J. Pajot - Vice Chairman
Harvey A. Ashman - General Counsel
Michael Kleinrock - Senior Manager, Global Market Insight Team
Darcie Peck - Vice President, Investor Relations
Analysts
Glen Santangelo - Credit Suisse
Lawrence Marsh - Barclays Capital
John Kreger - William Blair & Co.
Randall Stanicky - Goldman Sachs
Eric Coldwell - Robert W. Baird & Co.
IMS Health Inc. (RX) Q3 2009 Earnings Call October 22, 2009 8:00 AM ET
Operator
Ladies and gentlemen, welcome to the IMS Health third quarter 2009 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded, Thursday, October 22, 2009. It is now my pleasure to introduce Darcie Peck, Vice President, Investor Relations.
Darcie Peck
Good morning everyone. Welcome to the IMS third quarter 2009 earnings conference call. With me today are Dave Carlucci, Chairman and Chief Executive Officer; Leslye Katz, Chief Financial Officer; Gilles Pajot our Vice Chairman; and Harvey Ashman our General Counsel. I have also asked Michael Kleinrock, senior manager of our global market insight team to join us today to answer any detailed questions you may have about the global pharmaceutical forecast we released just a few weeks ago.
As in the past, we've posted slides on our website, and I would encourage you to view those during our remarks this morning. Our presentation includes certain non-GAAP financial measures, and in an effort to provide additional information to investors, all non-GAAP measures have been reconciled to their related GAAP measures in accordance to SEC rules. You will find a reconciliation at the end of our presentation, in the press release, and in the Form 8-K submitted to the SEC.
Let me remind you that certain statements made in this presentation may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements involve a number of factors that could cause actual events to differ. Additional information concerning these factors is contained in our filings with the SEC. Copies are available from the SEC, from the IMS website, and from us in investor relations. Forward-looking statements represent our views only as of the date they are made, and the company undertakes no obligation to correct or update them whether as a result of new information, future events, or otherwise.
On Tuesday, IMS announced that it is exploring a variety of strategic alternatives including a possible sale of the company. The company further stated that as a part of the process, the Board of Directors has formed a committee, which has retrained Foros Securities, LLC, as its financial advisor. The company has also retained Deutsch Bank Securities as its financial advisor. We further stated that there can be no assurance that this exploration of strategic alternatives will result in a transaction, and we do not expect to make further public comments regarding these matters while this exploration process continues.
Our remarks on the call today are intended to discuss our third quarter and year-to-date results and our outlook for the full year 2009. So, please note that during the Q&A session today, we won’t be taking questions except those related to our results or business operations. We appreciate your consideration in this matter.
In addition, when we held our webinar last month, our intention was to have an investor day this November. However, given recent events, we have decided that it is appropriate to postpone that for the time-being.
Now, let me turn the call over to Dave Carlucci who will review our third quarter and year-to-date results and discuss our full year financial outlook.
David R. Carlucci
Good morning everyone and thanks for joining us. Our third quarter results showed improvement in several areas of our business, and we’re in line with our expectations.
Revenue and operating income declined in the quarter, but at a more moderate pace than in the first half, and we’re in a solid position to achieve our outlook for the full year. We saw top-line improvement across all regions and continue to generate very strong cash flow. For the quarter, revenue was $541 million, down 4% constant dollar and 6% reported year-over-year. Sequentially, we grew revenue 1% constant dollar and 3% reported quarter to quarter. On an adjusted basis, operating income was $101 million and adjusted earnings per share were $0.40.
We delivered another exceptional cash flow performance in the quarter, coming in at $155 million. This brings our year-to-date free cash flow to $405 million exceeding our guidance for the year.
Now, let me give you an update on some of the areas where we saw better performance.
Commercial effectiveness, our largest business line improved from 7% constant dollar decline in the second quarter to down 3% in Q3, and our product and portfolio management went from a 7% decline in the second quarter to a 2% decline in the third.
Our information and analytics offerings in these two business lines account for about two-thirds of our total revenue and together they grew 1% sequentially. So, our core offerings are showing resiliency demonstrating that clients continue to value our foundational assets to run their businesses, and with consulting-in services, more clients are engaging us on their transformation initiatives as they adapt their approaches in models.
We saw significant improvement in C&S going from 17% constant dollar decline last quarter to 7% decline in the third quarter. That was driven by gains in commercial implementation services, pricing and reimbursement, and portfolio strategy.
Our win percentage and opportunity pipeline were up across all practices. More and more we’re engaging clients with an integrated platform approach bringing together our C&S and information and analytics offerings.
With our new commercial models platform, we’re helping clients transform their marketing and sales strategies. We’ve rolled out new methodologies and analytics to re-design and implement commercial processes for clients as they adjust for different therapy area focuses and influences.
We’re also winning projects in local markets and across countries. In the quarter, we had a significant win with a merger client to design, plan, and optimize the size and structure of their combined sales force in more than 20 countries across Europe and Latin America. We’ll be helping them with implementation over the next few quarters.
With our launch readiness platform, clients are turning to us to understand a more complex environment with a different mix of stake holders from regulators to payers to patients.
In our pricing and market access practice, we have unique assets to help with launch strategy. We’re winning new business in earlier launch phases, and that’s driven some larger engagements in all of our regions during the quarter.
So, we’re encouraged by the opportunities we’re seeing in these spaces and how we’re positioning ourselves for future growth in broader integrated services engagements, but for now, the cost focus by clients in this environment continues to have an impact on our results.
We see that in the mix performance across our customers. Of our pharma customers, 7 of our top 20 grew with us during the quarter. We have low single digit gains with our medium-size clients, and our small accounts were consistent with the company’s performance in the quarter.
Now, let me briefly take you through our results in the regions.
The Americas was down 3% constant dollar and 5% reported in the quarter reflecting growth in patient and specialty level insights and an improvement over the first half in consulting and services, particularly in the United States. We’ve had early success with our move into business transformation services. In the quarter, we secured a significant project to help a major pharma client design a faster and lower cost way to run their sales incentive programs.
In EMEA, revenue declined 7% constant dollar and 12% reported. Consistent with the first half of the year, the major and key mid-sized markets remained under pressure. However, we did see improvements in product and portfolio management, particularly with our global MIDAS offerings. Our restructuring actions are a priority in this region and we’ve moved out with an initial focus on reducing capacity in lower growth areas in consulting and services.
The Asia-Pacific region grew 3% constant dollar and 10% reported with an improved performance in our information and analytics offerings and better growth in Japan.
So, all in all, we delivered an operational and financial performance that keeps us on track with our full-year outlook. We did see activity pick-up during the quarter, that said, client cost controls remain in place and we don’t expect that to change in the near term. This lower growth environment is why we took the decisive steps we did at the end of the last quarter to reduce our cost structure. These plans are on track, and Leslye will take you through the details of our restructuring and financial performance.
Leslye G. Katz
Good morning everyone. Let me begin with the highlights of our financial results starting with cash. In the third quarter, we delivered another excellent performance in cash flow. Preliminary free cash flow in the quarter was $155 million, up $39 million compared to last year. Year-to-date, preliminary free cash flow was $405 million, up $246 million over the same period last year. DSO was again a significant contributor to our strong cash flow results. DSO improved sequentially by 6 days to 51 days in Q3, and was 10 days better than Q3 2008, continuing an excellent performance over the past several quarters.
As previously announced, we incurred a restructuring charge this quarter. $104.3 million of that charge was primarily for severance and related employee termination benefit and is recorded on the severance impairment and other charges line. In addition, we recorded a $2 million charge which we’ve broken out separately in our press release on the accelerated depreciation and amortization line, primarily for office space that we have exited. The total restructuring charge in the quarter was $106.3 million of which $3.1 million was non-cash. We expect an additional charge of approximately $4 to $6 million in the fourth quarter related to future office facility exits.
The implementation of our restructuring plan is off to a good start and is on track. While we have completed some severance actions already, incremental savings in 2009 are not expected to be significant. As discussed in July, our annualized cost savings for this program will be $80 to $85 million by 2011 and we expect approximately 60% of those savings to be realized in 2010.
Now, let me turn to the other key elements of our third quarter performance. Third quarter revenue was $540.8 million, down 6% reported and 4% constant dollar. As the dollar has weakened versus earlier in the year, the GAAP between reported and constant dollar revenue has narrowed compared to the last two quarters. On a sequential basis, revenue increased 3% reported and 1% constant dollar. This is the first time since 2005 that we have generated sequential revenue growth between the second and the third quarters.
Information and analytics revenues declined 5% reported and 3% constant dollar compared with the third quarter of 2008, a more moderate decline than last quarter. The year-to-year revenue decline was driven by lower spending for ad hoc or non-contracted information purchases similar to what we’ve experienced for the better part of this year.
From a margin perspective, I&A revenue less direct costs was 57%, down 10 basis points compared with the third quarter of last year and up 40 basis points on the year-to-date basis. One of the contributors to the improved year-to-date margin performance is the moderate decrease in our data cost this year as we’ve been carefully managing our data cost investments.
Consulting and services posted revenue decline of 10% reported and 7% constant dollar. This represents a marked improvement over the second quarter. As Dave mentioned, there were encouraging signs in several practice areas including pricing and reimbursement and product and portfolio strategy, both of which grew for the first time this year in Q3. Consulting and services gross margin was 49%, 230 basis points lower than the third quarter of last year and 110 basis points lower than last year on a year-to-date basis.
The revenue declines this year are the primary contributors to the gross margin decline. With our restructuring program, we have already begun to adjust our capacity in C&S in those areas where we have seen lower demand. Utilization in the third quarter was approximately 71%.
Throughout the year, we’ve continued to maintain very tight spending controls. Year-to-date, constant dollar cost expense growth was approximately 1%, excluding the restructuring charge. IMS adjusted operating income was $100.8 million in Q3. Our adjusted operating margin was 18.6%, a 50 basis point improvement over the second quarter for the 360 basis points decline from third quarter 2008. Adjusted operating income excludes the $106.3 million restructuring charge.
Turning to the non-operating components of our Q3 performance, total interest expense net was $8.8 million, down $0.2 million from last year due to lower debt levels and lower interest rates as compared to the third quarter of 2008. Other expense net on a GAAP basis was $7.8 million and $1.4 million on an adjusted basis, reflecting the phasing of $6.4 million of foreign exchange hedge losses into the fourth quarter.
The adjusted effective tax rate in the third quarter was 19.6% due to the expiration of certain statutes of limitation. We continue to expect the second half adjusted tax rate to be approximately 27% and the full year to be 23%. This means the adjusted tax rate in the fourth quarter will be approximately 33%.
GAAP EPS for the third quarter was negative $0.05 due to the large restructuring charge. On an adjusted non-GAAP basis, EPS was $0.40 compared with the adjusted non-GAAP EPS of $0.43 last year.
Turning to the balance sheet, cash and cash equivalents totaled $302 million at quarter end, an increase of $62 million compared with June 30, 2009, due primarily to very strong cash collections. Debt as of September 30th totaled $1.345 billion, a decrease of $14 million compared with June 30th. In terms of capital deployment, we spent $27.5 million on deferred software and capital expenditures in the quarter, up $4.4 million from last year driven by the technology investments we are making to enable the restructuring actions in customer delivery and development.
Our full-year outlook remains consistent with what we indicated in our July call. For the full year 2009, we still expect revenue will decline at a constant dollar rate that is about the same as we experienced in the first half. Our full year non-GAAP EPS guidance excludes three items; the Q3 $106 million restructuring charge, the Q2 $25 million asset and contract impairment charge, and the Q1 $63 million tax benefit. On this basis, the range we outlined at the end of the second quarter for non-GAAP EPS of approximately $1.60 to $1.67 remains achievable. Free cash flow has been very strong year-to-date and is likely to exceed the $380 million guidance.
Now, let me turn the call back to Dave.
David R. Carlucci
So, we have some encouraging signs in the quarter and are managing well in a tough market. Our teams are focused on the right areas as we delivered new value for customers, lowered our cost structure, and continued driving strong cash flow. The fundamentals of our business remain strong and we’re striking a good balance between current priorities and future opportunities.
Thanks for your time this morning and we’d be happy to take your questions.
Question-and-Answer Session
Operator
(Operator Instructions). Our first question comes from the line of Glen Santangelo - Credit Suisse.
Glen Santangelo - Credit Suisse
Dave, I just had a couple of quick questions; first, I saw no share repurchase again this quarter. I watched the company for years buy the stock back in the 20s and now this quarter you hit a multi-year low here in the low double digits, but yet you refused to buy back stock. Could you comment on why that’s the case and maybe the outlook for share repurchase at all?
David R. Carlucci
We’ve given guidance that we intended in the one-year to 15-month period to repurchase the authorized amount from the board. We also indicated on the second quarter call that taking the restructuring charge made us watch very closely our debt levels in the beginning; as that burns off later in the year, our cash allows us to begin that process, but Leslye, you may want to add a view to that.
Leslye G. Katz
That’s exactly right Dave.
Glen Santangelo - Credit Suisse
So, Leslye, what do you think is the appropriate leverage on the balance sheet so I can think about cash repurchases?
Leslye G. Katz
I think I’ve said before that debt-to-EBITDA ratio in the 2- to 3-times range is the range that I am comfortable with. With the restructuring charge particularly it will be in our trailing or quarter’s EBITDA this quarter and for three more quarters. It pushed debt-to-EBITDA up towards the top end of that range when we get out past Q2 of 2010; then that debt restructuring charge will come out and debt-to-EBITDA will go back down toward the low end of that range.
Glen Santangelo - Credit Suisse
Leslye, I just want to follow up on some comments you made about the charge this quarter; you said, I forget how you worded it, but a decent amount of it seems to be severance. Could you gives us a little bit more granularity; what percentage of that charge was severance and maybe some of the other items that might have been in there, just given the magnitude of it is pretty big.
Leslye G. Katz
Of the $104.3 million on the severance impairment line, $102 million is severance; so the vast majority is severance.
Glen Santangelo - Credit Suisse
So, it’s all severance. Maybe, if I could just ask one last question to Dave; we’re obviously sitting waiting for a bunch of these recent form M&A transactions to close and we’re starting to look at a pretty daunting patent expiration schedule over the next couple or few years; have you begun to quantify the impact and thinking about the impact of those on your growth rate over the next 2 to 3 years?
David R. Carlucci
The next 2 to 3 years is a hard thing to tell because you would be speculating on what’s going to happen in the market place, but we have said that the large acquisitions that we’ve seen in 2009 have been factored into our 2010 plans and we see about a 2-point impact to our overall revenue growth for next year.
Glen Santangelo - Credit Suisse
So, the deals announced to date, you’re saying, have a 2% impact to revenue growth next year?
David R. Carlucci
Yes, and the good news piece of that is; we’ve talked on this call about the fact that we’ve seen clients go pretty heavily into cost and expense tightening mode. This quarter we won a large CE integration project across 20 countries which I mentioned which we’re quite excited about. We’re going to be the team that helps this client when the bell rings to allocate their sales forces and track the progress of the combined entity.
Operator
Our next question comes from the line of Lawrence Marsh - Barclays Capital.
Lawrence Marsh - Barclays Capital
The message this morning from you guys fundamentally is no real reason to stand up and cheer but signs of stability and encouragement. Dave, are you in a position just directionally, especially in light of what your forecasting team has been talking about for 2010 to say you’re anymore confident, less confident, or about the same confidence level in next year to than you were say earlier this year?
David R. Carlucci
Larry, I think you characterized it well. We’re encouraged by the quarter-to-quarter sequential improvement and seeing the C&S decline slow considerably. I think the client environment still has a fair amount of uncertainty in it and they’re still pretty heavy focused on cost; I think you see that reflected in some of the pharma earnings announcements and their statements on SG&A. The fourth quarter is typically our largest quarter and driven to some degree by ad hocs. So, there is a lot of discretionary activity depending on where they are in their budgets in the fourth and we want to watch that fairly closely. So, I think it’s still a little early to call, but as I said there are signs that are very encouraging.
Lawrence Marsh - Barclays Capital
I just wanted to be clear; the message here, you want a big merger client contract to help them think about their sales force post combination, and I think you confirmed with Glen’s questions, there is still 200 basis points off of top line with mergers; it seems like this is a new development positive this quarter; was there something else that was more negative that would still keep you in that 200-basis-point range for next year?
David R. Carlucci
This one is oriented to services that we’re going to provide over the next couple of quarters; so we’ll see some of the positive aspects of that this quarter and next quarter. To me it was much more an indication of a willingness now to get down to business relative to what they have to do to optimize their performance on the top line, and that’s a good sign because a lot of the discussions prior to that related to, ‘how do I guess the cost and expense targets?’ or ‘how do I do the cutting?’ It was a sizable transaction, but again, in the grand scheme of things, not only do we have the mega-mergers, but you’re seeing some smaller ones occur in 2009. The two points is not that precise; it’s generally what we think the impact is going to be, Larry.
Lawrence Marsh - Barclays Capital
Second question; it seems like you had a nice positive swing in Asia-Pacific, up on a constant-dollar basis, 3% versus being down 3% in Q2. Just wondering, I know you called out Japan being weak in the second quarter; was there anything more specifically there that drove that swing this quarter; and along those same lines, can you talk about the announcement you made earlier this month with Gilles now becoming Vice Chairman in all the regions except Asia-Pacific now reporting up to you directly?
David R. Carlucci
Certainly Gilles is taking credit for that swing upward in Asia-Pacific, but no it’s primarily Japan’s improvement. The rest of Asia, nothing unique to report there, but Japan improved and that helped hold the whole thing up as you know Japan is about two-thirds and their movement is significant on that overall region. The announcement with Gilles was, and he is here with us, is really twofold. One, the emerging markets and particularly Asia-Pacific with China and India there, we think, needs the level of attention during a period where we’re taking significant cost cutting actions in the company that we really focus on this very very important growth region, and from that respect, Gilles and I are kind of dividing and conquering here. In my mind it fits well with the strategy role and the M&A role that we’ve asked Gilles to take on in addition to this which is ‘where are we going to drive our growth in the company, what are the key elements that are going to be the swing factors that we’re going to have to in a sense make sure we protect the investment in,’ and so with Gilles’ experience in the industry for as many years as he has been at it, he is the ideal person to take that on. I am going to get involved in a little more of the blocking and tackling around the restructuring and the co-ordination of our business transformation services and our management consulting.
Lawrence Marsh - Barclays Capital
Just to clarify, is there anything; Japan being better, is that just something more cyclical or was there something restructural there that you’re more encouraged about, even in light of the payment cuts in the market?
David R. Carlucci
I think if you look at Japan on a year-to-date basis, they’ve had a pretty good performance, and we’re very pleased with the way that team has progressed and the receptivity in our consulting and services business now which, as you know, was a little bit behind from a percentage of growth to the rest of our business. That market takes a little longer to develop on almost any front. So, good steady progress in Japan.
Lawrence Marsh - Barclays Capital
Two other quick things then; I know the utilization rates you talked about consulting and services still about 71% in the quarter versus the same as the second quarter. Is there a target utilization rate you want to get to say by sometime next year, and are you anymore encouraged that you’re going to get there?
Leslye G. Katz
Yes, our target utilization rate is in the low 70s; so we’re pleased with where we are here.
Lawrence Marsh - Barclays Capital
That didn’t tell me anything; so you’re saying you’re pleased with the consulting business even though it’s down 15% in profits?
Leslye G. Katz
No, I am saying that I am pleased with the 71% utilization rate. I am not pleased with the decline in revenue and the decline in gross margin and the fact that we still have excess capacity, and that’s what we’re tackling aggressively with the restructuring plan.
Lawrence Marsh - Barclays Capital
Help me understand that; I thought utilization was the proxy for capacity. So, you’re saying you’re pleased with the capacity of 71%; I am just thinking in my own mind how do I measure your progress there; obviously revenues, but you’re saying 72% is the right range.
Leslye G. Katz
I am saying that we’re targeting utilization of our billable consultants in the low 70s and it varies based on the type of and level of consultants. Some of our lower-level analysts and we would target to be much higher than 71%, we would target those to be up in the 80% or 90%. Some of the higher-level consultants would have less billable targets and they would have other objectives including business development. So, there are a number of metrics that we’re tracking in our consulting business including utilization, gross margin, capacity, billable revenue per consultant, etc.
Lawrence Marsh - Barclays Capital
Leslye, on that point of free cash flow expected to be above $380 million; is there any reason, like Q4’s free cash flow would be any lower than Q3; I know you’re going to have a much higher tax rate, but just directionally, is there any reason to think it would be down sequentially?
Leslye G. Katz
Yes, there are a couple of things. One is we will have a cash outlay for severance related to the restructuring plan in the fourth quarter. You did identify the higher tax rate and that will be a factor as well.
Lawrence Marsh - Barclays Capital
Have you said which is your longer-term tax rate; I think before you said high 20s, is that still the right ballpark, Leslye, or do you think it could be lower?
Leslye G. Katz
I thought that I’ve said before, this year I’ve said the tax rate at 23%. I thought I’ve said before a tax rate in the low 30s.
Lawrence Marsh - Barclays Capital
Finally Dave, I know you’re not commenting or you’re able to comment about the process, but from a timing standpoint, if we got to mid-to-late December and we still didn’t hear anything in terms of resolution; wouldn’t you say that would be disappointing or is it that you cannot comment at all about that?
David R. Carlucci
I really can’t Larry, we want to run a thorough process and I really can’t make any predictions on that.
Operator
Our next question comes from the line of John Kreger - William Blair & Co.
John Kreger - William Blair & Co.
Dave, I think in the past you’ve talked about a concept of pursuing some functional outsourcing arrangements with pharma; can you talk about that, have you seen any progress in that concept?
David R. Carlucci
Yes, we have John. As you know, I announced in the third quarter Don Otterbein leading our Business Transformation Services and we have brought in a few external hires with expertise in that arena as well as signing an agreement with Tata Consulting Services to build our offshore capability in Bangalore. We see it as a significant opportunity; how it will ramp is always the question, but in the last year and a half Ray Hill and his team have focused heavily on developing process improvement methodologies and focusing in three key areas; in sales incentive programs, in managing those; in the market research area; and in the area of managed markets. We had a very nice win in the third quarter on our sales incentive transaction that I mentioned on the call, and the level of activity here is building, and certainly the concept is we’re embedded in these areas with our information and analytics, we’ve given them significant insights through our management consulting organization, and on the next turn of the crank on how did they improve their productivity and their cost and expense, we’re proposing that we take a broader step to take over large parts of those functions, and we’ll manage the offshore-onshore mix. Obviously it is appealing to clients because we’re subject matter experts in these areas, and they feel very comfortable with our knowledge base. We’re also not alone in this space; there are a lot of people who see this opportunity around analytics and around helping clients save cost in sales and marketing, but this is something that we think over time is a significant growth driver for us.
John Kreger - William Blair & Co.
Changing the subject, could you give us an update on the state legislative front and give us kind of the scorecard, which states are still pursuing legislation to limit physician oriented data and is that impacting your business at all?
David R. Carlucci
It is impacting our business. The only state where we have modified our capability is in New Hampshire. We still have the open issues in Vermont and Harvey can elaborate on that if you would like, and we have not seen other states introduce legislation. All of the states, I think the number was in the neighborhood of 23, that had introduced some form of legislation between the end of November last year and today, roughly the last 12 months have either abandoned those efforts or not proceeded in any way.
John Kreger - William Blair & Co.
Finally, you mentioned in your remarks at the beginning of the call that you are seeing some better market growth or at least your clients are; could you just expand a bit more on that, is that truly in the US or are you seeing that globally and what are the key drivers of that?
David R. Carlucci
It’s predominantly in the US which moved the needle when we announced a few weeks ago our global forecast, and took the forecast up for ’09 in the US which impacted global as well as the 2010 forecast. Mike you might take just a minute or two and give some color as to what drove that forecast increase.
Michael Kleinrock
Overall market growth is at historically low levels. So, we did see stronger demand in the US and that lifted the forecast as you said. We still see the impact of the global recession in the macro-economy around the world. The rising influence of healthcare access issues and continuing funding of market demand really lifts the market overall, and generally, between our last forecast and the new one, volume has continued largely as expected. US is the main reason for the increase in the forecast and despite payer efforts to limit price increases, pharma manufacturers have sustained their historic-level price increases. There may be the increasing impact of employee discounts and rebates which we don’t reflect in our audits or forecasts. We also see some volatility in the volume that moved some volume from one month to another across a calendar year as pharmacy chains managed their inventory very tightly creating some of the changes that we saw in the forecast.
Operator
Our next question comes from the line of Randall Stanicky - Goldman Sachs.
Randall Stanicky - Goldman Sachs
Dave, just a followup; how should we think about calibrating your global market forecast with how you view your top line opportunities and the growth in the next 3 to 5 years?
David R. Carlucci
We’ve always said there is no direct correlation between it; however, we do like a client who has stronger upward momentum. So, it can only be a good thing for our business. We also try to track rather closely the SG&A trends because no matter how good you sell on ROI and value, you can find yourself with headwinds there that you’re dealing with and I think that’s pretty much the environment we’re seeing right now. So, more launches, stronger pharma industry, is always good for us. Trying to do some direct correlation to that, we’ve never been able to do.
Randall Stanicky - Goldman Sachs
Just so that we’re clear, you mentioned 7 of the top 20 customers; is that like 13 new clients; how do we think about it, just being more direct on top line; as you guys budget, over the next 3 to 5 years, how do we think about the top line; are we talking about 3% to 5% growth; what are you thinking in terms of growth to the top line?
David R. Carlucci
We’re not really making any predictions on that. I can say that we’ve said from a long-term perspective, we see the company in the mid-to-high single digits. So, that’s the way we look at it as we do our projections. On the question of does that mean that others decline; several of them were relatively flat and some of them did in fact decline.
Randall Stanicky - Goldman Sachs
Leslye, two cost restructurings in the last couple of years you pulled a lot of costs from the business; how much more room do you have to improve margins from a cost perspective?
Leslye G. Katz
I think the biggest driver on improved margins is going to be this combination of the benefits from this restructuring, $80 million to 485 million by 2011, and at some point in time seeing the revenue obviously turn positive versus negative, and the two of that together are going to bring the margin back up. Is there a lot of additional room to cut costs; I think we’ve gone very aggressively with this restructuring, in terms of both headcount and leveraging investments that was made in technology in order to drive efficiency and productivity. I think this is an appropriate place to be.
Randall Stanicky - Goldman Sachs
My last question, just to follow up to Glen’s question on the share repurchase; how much cash do you actually have in the US to be able to buy back stock; is that a constraint and should we still expect over the 18 months that you’re thinking of continuing to buy back at the same level that you talked in the last quarter?
Leslye G. Katz
I think you can. What we’ve said is we’ve got the 9.5 million shares available, still authorized, and that over the next 12 to 15 months we would expect to use that; I think Dave explained what the dynamics are. We don’t keep a lot of cash in the US; when we have cash in the US we use it to pay down our credit line. So, our debt is located really in two geographies; one is the US and one is Japan, and both of those are obviously places where we generate a lot of cash and when we have it we use it to pay down the debt.
Operator
Our next question comes from the line of Eric Coldwell - Robert W. Baird & Co.
Eric Coldwell - Robert W. Baird & Co.
Leslye, you mentioned on the call the marked improvement in consulting and services and Dave, you also talked about consulting and services going from a 17% decline in 2Q to a 7% decline in 3Q; that’s technically correct, but the 2Q comp was nearly $20 million higher, about 15% higher than the comp for 3Q; adjusting for that, revenue really was effectively flat in 3Q versus 2Q, I think it was up $1.03 million, and I guess my question and comment is, if you show a similar nominal improvement in Q4, I think consulting and services is going to be down 25% to 30% constant dollars. So, what visibility do we have that consulting and services nominally can grow quarter to quarter $20 million or $30 million such that your constant dollar rate of decline is similar to what we saw in 3Q.
Leslye G. Katz
A couple of things there; one is historically, and I don’t see any reason why this year should be different than that; the fourth quarter is our largest quarter, historically we’ve seen upticks in consulting and services in Q4 relative to Q3, the visibility we have right now is to how much revenue in hand we have, revenue in hand relative to our outlook for C&S in the fourth quarter is about, on a percentage basis, where we were in Q4 of last year at this same point in time. Our pipeline coverage relative to the revenue to go is also above where we were at the same point in time last year. So, the metrics that we’re tracking give us confidence that we will see sequential growth in C&S quarter to quarter.
Eric Coldwell - Robert W. Baird & Co.
That was a fantastic answer, thanks for the detail on that. The second question I have is on the tax rate; I think we started the year at a 31% projection and that dropped to 29% and then that dropped to 27%, and each quarter it seems like the next quarter is going to be higher, but then it isn’t. To Larry’s question, your response was that you think a long-term tax rate in the 30% area, did I hear that correctly, and is the implication that we’re at 30% in 2010 or that we’re tracking back toward 30% over the next few years, and what would be the basis for that expectation.
Leslye G. Katz
Our tax rate I expect longer term to be in the low 30s. I am not calling that tax rate yet for 2010, we’re not calling anything quite yet for 2010. The elements that help to arrive our tax rate below that low 30s rate relate to expirations of statutes of limitation or settlements of open audits. So, as we look ahead to what those can be in the future, that’s where a tax rate in the low 30s seems to be make sense to me. Just to step back through this year and I will agree we had some change, we started the year at 31%, I think on our April call we said we would go down more to 29%. In the second quarter we had some unanticipated settlements with Dun & Bradstreet which allowed us to bring that tax rate down in the second quarter substantially below what I was expecting bringing the full year rate down to 23%, the second half being at 27%. So, that’s the progression this year and we have largely settled our D&B legacy tax matters. So, I don’t see that as an opportunity going forward.
Operator
We have no further questions at this time. You may resume with your presentation or closing remarks.
Darcie Peck
Thank you. I will turn the call back over to Dave.
David R. Carlucci
Thank you for your questions. We feel that we’re on track to the revised guidance we gave you at the end of the second quarter and so it’s steady as we go forward. Thank you very much.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a good day everyone.
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