IMS Health Holdings' (IMS) CEO Ari Bousbib on Q4 2015 Results - Earnings Call Transcript

| About: IMS Health (IMS)

Call Start: 09:00

Call End: 10:02

IMS Health Holdings, Inc. (NYSE:IMS)

Q4 2015 Earnings Conference Call

February 3, 2016, 09:00 ET


Tom Kinsley - VP, IR

Ari Bousbib - Chairman & CEO

Ron Bruehlman - SVP & CFO


Jamie Stockton - Wells Fargo Securities

Andre Benjamin - Goldman Sachs

Toni Kaplan - Morgan Stanley

Manav Patnaik - Barclays Capital

John Kreger - William Blair & company

Shlomo Rosenbaum - Stifel Nicolaus

Gene Mannheimer - Topeka Capital

Andrew Stein - JPMorgan


Welcome to the IMS Health Fourth Quarter and Full-Year 2015 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Tom Kinsley, Vice President, Investor Relations. Please go ahead.

Tom Kinsley

Good morning, everyone. Thank you for joining us to discuss IMS fourth quarter and full-year 2015 performance. With me today are Ari Bousbib, our Chairman and Chief Executive Officer and Ron Bruehlman, Senior Vice President and Chief Financial Officer.

Today we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following the call on the events and presentation section of our investor relations website.

Please note, we've changed the location of the link to our investor relations website. The link to the investor relations website is now located in the lower right-hand corner of our company's website,

Before we begin our prepared remarks, I'd like to remind all of you that some of the information contained in this presentation may constitute forward-looking statements. These forward-looking statements may include comments about our guidance and our expectations and prospects and are based on our views as of today, February 3, 2016.

Any such statements and projections reflect various estimates and assumptions by management concerning anticipated results. Whether or not any such forward-looking statements or projections are, in fact, achieved will depend upon future events, some of which are not within the control of the company. Accordingly, actual results may vary from the projected results and such variations may be material. We undertake no obligation to correct or update these forward-looking statements, whether as a result of new information, future events or otherwise.

During this presentation, we will refer to certain non-GAAP measures, including adjusted EBITDA, adjusted net income, adjusted diluted EPS, unlevered free cash flow and gross leverage ratio. We believe these non-GAAP measures provide additional information regarding our performance. In addition, management believes that these non-GAAP measures aid in assessing our operating performance trends by excluding certain material non-cash, unusual or non-recurring items and certain other adjustments we believe are not reflective of our ongoing operations and performance.

These non-GAAP measures are not presented in accordance with U.S. GAAP and our computations may vary from those used by other companies. These non-GAAP measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for, analysis of our results as reported under U.S. GAAP

Now I'll turn it over to our Chairman and CEO, Ari Bousbib.

Ari Bousbib

Thank you, Tom. And good morning, everyone. I would like to thank you for joining our fourth quarter earnings call to close out 2015 and to provide guidance on 2016. We had a good quarter, capping another year of steady operating performance at IMS. For the quarter, revenue grew 28% at constant currency. Tech services revenue was up 47% and Info was up 12%. Adjusted EBITDA growth was 17%.

Excluding the impact of the Cegedim acquisition, revenue grew 6.8% at constant currency, driven by 12% growth in tech services. Info continued to perform within the usual low single-digit range. Although, of course, it will bounce around from quarter to quarter, in the fourth quarter it grew about 2%. Emerging markets revenue increased 32% and developed markets grew 28% at constant currency. Excluding Cegedim, growth was about 9% in emerging market and about 6% in developed markets.

I want to give you some color on the progress we've made this year in our Tech Services Business. In Tech and Apps, we continued to make great progress with our software as a service, Nexxus Application Suite. During the quarter, we signed 29 new clients for our tech offerings.

We had a number of important wins in the quarter that levers the integration of Nexxus Mobile Intelligence, Nexxus Marketing, our cloud-based data warehousing and our business intelligence analytics. In fact, at the end of 2015, we had 232 clients using at least one Nexxus application. We posted another strong year for Real-World Evidence offerings. In the fourth quarter alone, we sold a Real-World Evidence engagement to each of the top 25 pharma clients.

Our clients need to meet increasing payer and provider demands to differentiate products, to demonstrate value and to support pricing. These trends generate growing demand for IMS Real-World Evidence info, tech and services. This includes enriched Real-World data service, our E360 Technology Platform which allows rapid patient cohort build and data mining, as well as our advanced analytics services.

We also had a busy year in the workflow analytics area, where our team conducted over 4,000 commercial analytics projects on behalf of more than 250 clients. We saw continued growth in advanced analytics as we utilize our predictive and prescriptive capabilities to help our pharma clients improve their new launch and in-market product performance.

Going forward, the outlook for this business remains strong, as pharma expects 500 new launches over the next five years, including 225 new drugs and 275 line extensions. These numbers are about 25% higher than the last five years.

The capabilities of our Workflow Analytics team were further strengthened just a few days ago when we closed the acquisition of AlphaImpactRX, a leading PMR company from the Symphony Technology Group. AlphaImpactRX delivers unique insights to life science companies in the U.S. through innovative technology and analytics that help improve the performance of the brands. This business is a nice strategic fit for IMS. It fills a gap in our U.S. capabilities, as our PMR business was already quite strong in Europe and in Asia, but practically nil in the U.S.

Some financial detail, AlphaImpactRX revenue, last reported in 2014, was about $60 million. This business has historically had EBITDA margins averaging in the low-teens. We see attractive revenue growth potential over time in both PMR and complementary services offerings, as well as margin upside as we integrate the business within IMS. Note that we just closed the deal and, therefore, we will only have 11 months of this acquisition in our numbers for 2016.

Along with this acquisition and as part of the deal, we will also obtain access to additional retail and specialty data from Symphony. This further expands our ability to provide insights into health care stakeholders and complex industry interactions. Separately, we settled all pending litigation matters between IMS Health and the Symphony Companies; all in all, a good outcome for IMS.

With that, let me turn it over to Ron Bruehlman, Senior VP and Chief Financial Officer, to take you through the financials in more detail.

Ron Bruehlman

Thanks, Ari and good morning, everyone. As Ari mentioned, we were pleased with our finish to the year. Now I will walk you through some of the specifics. Revenue grew to $812 million in the fourth quarter, an increase of 28.3% on a constant-currency basis, with technology services offerings growing 47.3% and information offerings increasing 12.4%. Of course, these growth rates were helped by the Cegedim acquisition. Excluding this impact, our overall constant-currency revenue growth was 6.8%, with technology services growing 12.3%, reflecting solid growth across the portfolio. Information revenue was up 2.1% at constant currency.

As we discussed during the year, FX was a considerable headwind for us during 2016 and the fourth quarter was no different. On a reported basis, that is at actual FX rate, revenue growth was 19.7% during the quarter, with technology services revenue growing 37.9% and information revenue up 4.2%. Excluding the contribution of Cegedim and again, at actual currency rates, revenue grew 0.7%, with tech services growing 7.2% and information declining 4.8%.

By geography, developed markets revenue grew 27.7%, emerging markets 32%, at constant currency during the quarter. Excluding the Cegedim impact, developed markets grew 6.4% and emerging markets 8.9%. At actual currency, developed markets grew 20.6% and emerging markets 14.8%. On the same basis, but excluding Cegedim, developed markets revenue grew 1.5% and emerging markets declined 3.6%.

FX impacted year-over-year results and growth rates unfavorably in both developed and emerging markets. A developed market growth was affected most significantly by the euro and Canadian dollar in the quarter, while emerging markets growth was dampened by the more recent weakening of the Brazilian real, Russian ruble, Turkish lira and several other emerging-market currencies.

Turning now to profit, adjusted EBITDA was $232 million for the quarter, increasing 16.8% constant currency and 8.4% on a reported basis. GAAP net income was $29 million during the fourth quarter, compared with $8 million last year. This resulted in GAAP diluted earnings per share of $0.09 versus $0.03 in the prior-year quarter.

Adjusted net income of $125 million increased 11.8% in constant currency and was flat on a reported basis, as the improvement in adjusted EBITDA was partially offset by higher foreign cash taxes. Adjusted diluted earnings per share was $0.37 in the fourth quarter, up 14.6% at constant currency and 2.5% reported.

Looking at the full year, revenue was $2.9 billion, an increase of 21% at constant currency. On the same basis, tech services revenue grew 37.7% and information revenue increased 8.4%. Excluding the impact of Cegedim, revenue growth for the core business was 5.8% at constant currency, technology services grew 11.7% and information increased 1.4%. There were really no surprises here; both are consistent with our long-stated medium term guidance of low double-digit technology services growth and low single-digit information growth.

Turning to the reported numbers, full-year revenue was up 10.6%, with tech services up 27.7% and information declining 2.1%. On the same basis, that is at actual currency, but excluding the impact of the Cegedim acquisition, revenue declined 2.6% for the year, tech services grew 5.1% and information offerings declined 8.2%. From a geographic standpoint, at constant currency, developed markets grew 19.9% and emerging markets 26.2% during 2015. And the same numbers excluding Cegedim were a 5% increase for developed markets and a 9.8% increase for emerging markets.

Now let's look at full-year profit metrics. Full-year 2015 adjusted EBITDA was $886 million, up 11.2% at constant FX and about 1% at actual FX. Adjusted net income of $515 million increased 24.6% constant currency and 13.5% reported. The year-over-year improvement was driven by lower interest expense and higher adjusted EBITDA.

Adjusted diluted earnings per share were $1.52 for the full year, up 21.3% at constant FX and 10.5% at actual FX, with the improvement reflecting growth in adjusted net income, partially offset by a higher average share count in 2015 related to our IPO. You saw in December, we announced a $250 million share repurchase authorization. Share repurchase is our preferred method of returning capital to shareholders, as we feel it is both tax-efficient and flexible. We see our shares as an attractive investment and this authorization enables us to repurchase shares opportunistically in the open market.

That said, we will continue to prioritize our overall capital deployment to growing the Business, so our share repurchase activity in any given quarter will depend, in part, upon the strength of our acquisition pipeline. During the fourth quarter, we repurchased $17 million worth of shares, leaving us with $233 million of remaining authorization as of yearend.

Now let's spend a few minutes on the balance sheet and cash flow. As of December 31, 2015, cash and cash equivalents totaled $396 million and the principal amount of debt was $4.3 billion, resulting in net debt of $3.9 billion. Our gross leverage ratio, that is gross debt divided by trailing 12-month EBITDA, was 4.8 at the end of the year.

Cash flow from operations was $164 million during the fourth quarter, while unlevered free cash flow was $211 million or 91% of adjusted EBITDA. For the full year, unlevered free cash flow was $628 million or 71% of adjusted EBITDA.

Now let's turn to the 2016 guidance. For 2016, we expect full-year constant-currency revenue growth of 10% to 12%. Also at constant currency, we expect adjusted EBITDA growth of 7.5% to 9.5%, adjusted net income growth of 6.5% to 8.5% and adjusted diluted EPS growth of 8.5% to 10.5%. Assuming foreign exchange rates remain at current levels through the end of the year, we expect 2016 full-year reported revenue growth of 7.5% to 9.5%, adjusted EBITDA growth of 6% to 8%, adjusted net income growth of 0.5 points to 2.5% and adjusted diluted earnings per share growth of 2.5% to 4.5%.

Now, the negative impact from FX in 2016 arises partially from the euro which is currently weaker than its 2015 average and also from the Canadian dollar, Australian dollar and the emerging markets currencies that I mentioned earlier. The FX impact is larger for adjusted net income and adjusted diluted EPS than for adjusted EBITDA because most of our interest expense, as well as our depreciation and amortization expense, is denominated in dollars. Of course, FX rates change daily and I remind you that we're estimating these year-over-year FX impacts by assuming current rates hold through the end of 2016.

Finally, we expect 2016 unlevered free cash flow to be between 70% and 80% of adjusted EBITDA. Now I would like to give you some color on 2016 margins. You'll note that revenue is growing faster than adjusted EBITDA in our 2016 guidance. This is due to the dilutive impact of acquisitions, primarily the additional quarter of Cegedim and the newly acquired AlphaImpactRX, both of which had significantly lower margins than the IMS average. In fact, our 2016 guidance includes margin expansion in the core business.

Starting from the 2015 adjusted EBITDA margin, all else being equal, product mix would have a dilutive impact, as lower-margin technology services revenue is growing faster than information revenue. Also, we continue to make investments to drive growth, including new sources of information such as specialty data and resources to support continued double-digit growth in technology services.

We expect to more than offset these two factors by continuing aggressive cost reduction throughout the Business. That has been our business model and will continue to be our business model. It is a model that generates margin improvement. However, in 2016, as it was true in 2015, we will have one-time margin compression, simply due to the math of adding much lower-margin acquisitions.

Before closing, we thought we should give you some help on what to expect in the first quarter because there's several factors that influence the year-over-year revenue growth and profit drop through. First, Q1 2016 is the final quarter where Cegedim is not included in the prior-year results. You'll recall we closed the acquisition in April last year. This affects our Q1 revenue growth, of course, but has a minimal impact on our Q1 profit growth since Cegedim margins have historically been weak in the first quarter.

Second, our cost savings will be lowest in Q1 and they'll ramp during the year. Third, our earnings comparison in the core business is a little bit more difficult in Q1 because we had unusually strong growth last year in high-margin ad hoc sales. And finally, the FX comparisons are tougher in Q1, again, assuming rates remain where they are.

Taking all this into account in the first quarter, we expect constant-currency results as follows, a revenue growth at 21% to 23%; adjusted EBITDA growth of 6.5% to 8.5%; adjusted net income growth of 1% to minus 1%; and adjusted diluted EPS growth of 2.5% to 4.5%. Assuming foreign exchange rates remain at current levels through the end of the first quarter, we expect reported revenue growth at 17% to 19%, adjusted EBITDA growth at 4.5% to 6.5%, a decline in adjusted net income of 5% to 7% and a decline in adjusted diluted earnings per share of 1% to 3% -- again, FX impacts greatest in the first quarter.

Finally, I would like to share with you one additional guidance item related to taxes. We previously advised you to expect our cash tax rate to average in the high-teens into mid-2021, before converging with our book tax rate. The reason is that we expected to have no material U.S. tax payments until mid-2021 due to accumulated net operating loss carry forwards and unutilized foreign tax credits.

But today we're updating this guidance, primarily due to the recent passage of the tax extender package in the U.S. We now expect our cash tax rate to continue in the high-teens for an additional two years, that is into mid-2023, as we expect to have no material U.S. tax payments until then.

To summarize, 2015 was another year of strong performance for IMS. We ended the year with a good fourth quarter, led by double-digit technology services growth, with strength across the portfolio. Our information business continued to deliver its usual and expected low single-digit revenue growth for the year.

We delivered double-digit growth for adjusted EBITDA, adjusted net income and adjusted EPS. We scored a number of important wins across our technology services portfolio and the Cegedim integration continues to progress nicely. Moving into 2016, we expect to continue to invest in and grow our Business, continue the successful integration of Cegedim and begin realizing synergy and of course, post another year of solid financial performance.

With that, I'll ask the operator to open the lines for Q&A.

Question-and-Answer Session


[Operator Instructions]. Our first question comes from the line of Jamie Stockton, from Wells Fargo Securities. Please proceed with your question.

Jamie Stockton

The first one, Ron. Could you go over the contribution from tuck-in deals, in the fourth quarter outside of the Cegedim contribution? Just to set the stage what your assumptions are for 2016?

Ari Bousbib

This is Ari. The organic core IMS revenue growth was about 4%. Bear in mind our guidance, remains the same for the core IMS our business. And that is mid-single digits revenue growth. And as we've consistently said, this will include 1 point to a 1.5 point of tuck-in acquisitions and in 2015 it was a little bit above that range.

Jamie Stockton

Okay. And then for 2016, should we expect that 1 point to 1.5 point to be consistent? And basically it's going to come from, if you set Cegedim aside, it's going to come from this AlphaImpactRX acquisition?

Ari Bousbib

No. Again, we've said again, mid-single digits for our core business. The AlphaImpactRX itself represents a couple of points and maybe less than a couple points. It's only 11 months. So this is not what we call a tuck-in. It's a larger acquisition. Our guidance for 2016 is 10% to 12%. So, if you do the math, about half of that is the larger [indiscernible] which is one more quarter of Cegedim. The first quarter. And then this AlphaImpactRX deal. And the other half is the usual and normal mid-single digits.

Jamie Stockton

Maybe just one more Ari. The trends for Info Business seem to pick up in the fourth quarter. You guys had talked about third quarter call about ad hoc demand being weaker. Could you talk about how that trended in the fourth quarter? It seemed like it picked up. And whether you are assuming in your 2016 view, that the business continues to perform fairly well?

Ari Bousbib

Yes. This is why we have consistently guided to focus on the yearly growth, both in Info and on Tech Services. We've said to expect organically low-single digits Info growth in high-single digits Tech Services growth. That's exactly what we've delivered year in and year out. The Info rate is going to bounce around quarter in, quarter out. We have told you not to get too exuberant if it's 3%. And not to be too dramatic if it's aero.

Last quarter we explained that we had seen ad hoc demand be soft in the U.S. And that was one of the factors that led to lower flattish organic growth for our Info Business. At the time, we couldn't give you an explanation of why that was the case.

I can tell you that the fourth quarter seems to have returned to business as usual. And we see no reason why it should continue, based on the pipeline and what we've seen so far to business as usual. Again, we suggest not to focus too much on the quarterly fluctuation. It is going to be bouncing around. We saw fourth quarter essentially returned to normal.


Our next question comes from the line of Andre Benjamin from Goldman Sachs. Please proceed with your question.

Andre Benjamin

My first question is, you talked a lot about wins and Real-World Evidence. Particularly that you're getting, I think this last quarter, you got some incremental business from each of the top 25. If you look at that business, when you do that, are you primarily taking share from internal spend? Are you taking some from spend with existing third parties? And how are you thinking about the growth of that asset? Particularly with all the pressure on the Pharma industry today? Versus some of the other parts of your Tech Business.

Ari Bousbib

Andre, good morning. This is Ari. Real-World Evidence is an area of strength for us. It includes Info, Tech and Advanced Analytic Services together. It's not the market that is defined at the moment several players are participating from different angles, but you are correct, most work has been done internally.

It is a new demand. And this new demand is prompted by increasing needs to meet payer and provider requests for demonstrating the value of the products and the safety of the products by regulators, as well as to support pricing. There is a lot of pricing scrutiny going on and that in fact, is a key driver of the growth of our Real-World Evidence business. [Indiscernible] on pricing more focus the effectiveness of the drug and on pay-for-performance leads to more demand for specialized data that can support the analytics that lead to the demonstration of the effectiveness of that drug. And support the benefits of the drug in the real world.

And support the underlying pricing assumptions made by our clients. So all the talk about pricing again, is a very favorable trend. It is the underlying driver that is pushing our demand for Real-World Evidence. We're uniquely well-positioned to serve that market. Again, it is a new market, not an existing one.

Andre Benjamin

One quick follow up. I believe when you did the Cegedim deal, you broke out the growing attractive parts of the business versus some of the declining legacy pieces. Which, I think, if my math is right, was about $110 million to $120 million annualized run rate this last year. How are you guys currently thinking about that? Is that still something we should be assuming declines 20% or so a year? And will you think about monetizing that? Or should we just assume that it declines in perpetuity for now?

Ari Bousbib

Yes. Than you Andrew for bringing it up. We haven't spoken about this. But, that 25%, when we were doing due diligence and looking at the revenues, we saw that it was mutual business growing low single-digits just like ours and it was a tech services business growing high-single digits organically just like ours.

There was also 25% of the total, that's about the numbers you quoted. That was declining 20% plus per year. That included the old legacy on-premise CRM business. That is a product line. We had to modify that, we're working hard to, as they have, to switch that to SAS CRM seats. At the time we were looking at the deal, more than 40% of their seats of the CRM seats were on trends legacy type. Today, more than 80% of our seats in SAS.

So in aggregate the number of seats hasn't moved much, if you will. But we have been switching legacy towards SAS. Either new clients or old clients that we've be able to substitute. But you can expect that product line to die out. We're trying to even out the growth with that decline. Again, from a year ago or thereabouts, when we talked about the acquisition, it was more than 40% on premise. Old legacy CRM and today it's less than 20%.

The rest of the 25% of the business includes things like, there was a PMR business conducted by your health care professionals. It's actually a business we like. We think it wasn't well-managed. We're trying to integrate it with our own PRM business in Europe. Provide insight into prescription drivers, perceptions about brand and manufacturers. It a sub-scale business. Not too dissimilar to the outside [indiscernible] business that we're buying from Symphony in the U.S. But this is in Europe. We think it's a keeper, we're going to try to turn it around.

We also have a small CSO business, Contracted Sales Force business. Which, in some geographies, like Russia, Eastern Europe a lot of cats and dogs which we're monitoring during 2016. We might exit that business, we'll let you know the time. Thank you.


Our next question comes from the line of Toni Kaplan, from Morgan Stanley. Please proceed with your question.

Toni Kaplan

First, on the organic piece. Looking at it by a segment. Trying to get a sense of, in Info, I'd assume that there is probably minimal acquisition. Outside of Cegedim. So about 2% there. In tech services, was it similar to last quarter? Was it about 2 points of acquisition? So should we be thinking that came in at about 10% this quarter?

Ari Bousbib

No. Good morning, Toni. There was more Tech Service acquisitions in the quarter. The Tech Services organic growth was the same as last quarter. Consistent with our guidance of high-single digits.

Ron Bruehlman

And Toni. You asked about Info. There were a couple of small acquisitions during 2015 in Info. But Info organic was positive in the quarter.

Toni Kaplan

Developed markets came in pretty strong this quarter. Just trying to figure out, is the environment getting better? Or is it just some quarters there is little bit lighter in terms of contract wins or something like that? So, is the environment improving or is there some sort of a timing going on?

Ari Bousbib

Yes, Toni. This is largely the Real-world Evidence was very strong in the quarter and that's largely in the developed markets. That's where the headquarters and research is among our client base and that's what's pushed that rate a little bit higher. Again, I think, I would caution against deriving too many implications from the specifically sub-segment quarterly numbers. They are going to be bouncing around.

For the year, we delivered exactly, consistently, boringly what we have said we would deliver. Which again, is in the low-single digit Info growth, low Tech Services growth, including some acquisitions and without the acquisitions, it's high-single digits Tech Services growth.


Our next question comes from the line of Manav Patnaik, from Barclays. Please proceed with your question.

Manav Patnaik

First, my organic growth question is to clarify. So, for 2016 if I heard you correctly, you said that the 10% to 12% constant currency growth includes the Cegedim impact, a one quarter Cegedim, 11 months of AlphaImpact and then another 1% to 2% from other deals. Is that correct?

Ari Bousbib

10% to 12 % is the guidance of constant currency for the year. We pointed out, that it does include one additional full quarter Cegedim which we didn't have last year and I think you can estimate those numbers. As well as, for 11 months, the newly acquired AlphaImpactRX which is the Symphony PMR business we just literally a few days closed on.

Now, when you exclude those larger deals with our usual mid-single digits guidance, nothing new, nothing higher, nothing lower than usual. That mid-single digit guidance, again, we've consistently said, will include a 1 point to a 1.5 point of acquisitions.

Manav Patnaik

Okay. Fair enough. That is what I wanted to clarify. And on AlphaImpactRX. I know you gave us the 2014 revenues. From what we had seen before, that was a low single-digit growth business. Two questions. One, any reason that profile changes? And two, help us understand a little bit more as to why AlphaImpact fits better with you than your competitor who you're basically buying it from?

Ari Bousbib

Not sure I completely understand the question. The fit with us, I think I explained in my remarks, is pretty obvious. We're in this business all over the world. This is a great set of tools and analytical resources that are provided to help Pharma clients monitor, track and improve their brand performance. It's a traditional PMR type business. Supplemented by proprietary analytical tools and some platforms in some cases.

Now, we're very successful with this business in Europe and in Asia. But, our presence in the U.S. is essentially zero. That was a great gap that we filled with this acquisition. And we're very excited about it. Why is it a better fit with us? I'm not sure, [indiscernible] going in the U.S. And I don't know. You'd have to ask them. They are large privately owned group that is involved in many different businesses. They saw fit to sell this one. They buy and sell businesses. And they decided to sell this business at this time.

I pointed out, that in addition and separate from this deal, we also are licensing some additional data from Symphony which is part of the overall agreement. And then again separately, we, as you know from our disclosures, we have a long-running series of disputes with Symphony. Various litigation and so on. Back and forth. We're very glad this is all behind us and has been completed settled on both sides.

Manav Patnaik

Any update on the cost energy run rates in Cegedim? That cost reduction area? The blue bar you highlighted in adjusted EBITDA margins? Or is it in the core business as well?

Ari Bousbib

It does include a little bit of synergy, very, very little but in 2016 is pretty much consistent. We told you $60 million, I believe exiting 2017 as a target. We're very confident that this is still a target we're going to achieve. I think, again, exiting the year. Don't put that as a run rate, but exiting 2016 we still knew about half of that would be exiting 2016. So there's a little bit of that [indiscernible] into that blue bar.

The rest is cost reductions, traditional and usual. Which, I think you will see when we file, we have taken a number of restructuring charges as we usually do, to continue to reduce overhead structure and optimize our costs within our corporations. We do this, as part of DNA, we do this day in and day out. That is what upsets the other investments we make in the business to support growth.

Specifically, additional acquisitions of data. Or additional acquisition of resources, mostly commercial resources. But technical resources as well. To support the Tech Services growth organically at high single-digit rates. Additionally as you know, since we've grown Tech Services much faster, 10 points or so faster than in our Info Business. [indiscernible] Tech Services is, by definition, lower margin contribution. Everything has been equal. We do have a headwind from Tech Services growth. That has been the case consistently.

What we have done historically, we continue to do. We have done in 2015 and we will continue to do in 2016. Is offset, all of that, by continued cost reduction actions. Absent the Cegedim and the AlphaImpactRX acquisition impact, we would have margin expansion in 2016. If you want to know how much that is again, we know with the Tech Services meets change implies as a margin headwind. We know what our investments are in the core. What that implies is a headwind for margins.

We cannot tell you exactly what the Cegedim and AlphaImpactRX impact is going to be. Because as you know, we blend the organizations and we want to [indiscernible] Cegedim as fast as possible. But we can estimate it based on what their margin was before the acquisition. And similarly, in terms of the growth of our business, we also know what the margins are. So, all in all, if you do the math, it would be about a 0.5 a point of margin expansion in the core business.


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

John Kreger

Ari, as you speak your clients about what their priorities and their spending plans are for 2016, are you seeing any new themes emerging? I'm curious if the way they think about 2016 is different given that it's an election year here in the U.S.

Ari Bousbib

Well, I'm not going to make comments on the political [indiscernible] other than, as you all know. And this is no news. Big statements tend to be made. Big headlines tend to appear in the papers. That affects sentiments and short term reactions.

Our clients, our focus on continued long term growth and margin expansion or maintenance. As you know, our clients have been facing consistently cost pressures from all the requirements, high regulations. And obviously there's always talk about pricing. There are [indiscernible] to that.

This, as I mentioned before, these are a set of favorable drivers to our business in general. The fact that you need to demonstrate the value of the drugs and the fact that we're more in a high specialty drug growth, driven overall Pharma market leads to demand for highly specialized data. The fact that there is demand to demonstrate the value of the drug and to support pricing leads to more demand for Real-World Evidence, as well as for our work for analytics.

The fact that they are subject to margin pressures, leads to search for reducing costs on an ongoing basis, not just the one time procurement driven cost decisions. Just different ways of doing business. That's leads to demand for our technology applications, all of which lead to more efficient operations within our commercial operation at Pharma.

I would say another trend is a convergence. More convergence between the clinical side of the house, the R&D side of the house and the commercial side of the house. As they try to factor in, earlier on before launch, many commercial decisions. Similarly, our commercial decisions affect back to R&D. So these are the micro trends that we're discussing with our clients. Frankly, all of which we're uniquely positioned to help them in that environment.

John Kreger

My one follow up actually relates to what you just said. In the past, you've talked about an effort to expand your offerings into new product categories and new client types. You've also told us not to model that. Can you give us an update? And are any of those gaining attraction in particular?

Ari Bousbib

I'm assuming you are alluding to the [indiscernible] to payers and providers. It's a large market. It's one where, again the UTI's have similar sets of data, similar sets of analytics, skill sets. Where we think we can add value. You want to ask me what is my biggest disappointment over the past 5.5 years that I have been here, I would say that's the failure to make a real dent into that market. We've got some antidotal successes here and there organically.

But we figure, that unless we make a significant size acquisition in that market, it's not going to become significant. And we tried. We've looked at a number of assets as you know. Many assets, analytics and data, business that have been in the market for a while. We've looked at them and we've passed on every single one of them for different reasons. But it's still something on our radar screen and we hope to one day be able to grow into that area. Thank you.


Our next question come from the line of Shlomo Rosenbaum from Stiefel. Please proceed with your question.

Shlomo Rosenbaum

Could you comment a little bit about the competitive environment with regard to Viva? You guys talked about a number of deals last quarter, I believe it was. In terms of showing some evidence that you're making some progress over there. Is there any other, either quantitative evidence or anecdotal evidence that you're turing the tide in that business vis a vis Viva?

Ari Bousbib

[Indiscernible] perhaps a little bit disproportionate [indiscernible], that is essentially because we just acquired Cegedim. As you know, it's a business that did some turnaround. So, we wanted to highlight a few early successes in that business. I just want to caution you and take a step back here and look at that business. In isolation, in our numbers in 2015 it was 5% of our revenues. And even if you pro formulate and add the additional Cegedim quarter, that's 6% of our revenues.

We don't look at CRM as a business we're competing per se. We're competing $50 billion data and tech service markets for our clients. We're focusing on selling integrated suite of technology applications, without data. We have a number of wins that I think are very interesting. We're not talking about them so much. They do include a CRM application. It's a new world. Our clients are not focusing solely on the sales rep. Sales reps are still important, but they do not constitute the primary go to market and marketing vehicle for our clients.

We live in a digital world. We need to integrate insights from multi-channel marketing tools that we can provide, uniquely. And we can integrate a lot of data all of these applications. So, back to the specifics of your question. The fact is, a good competitor is solely focused on CRM have done a good job using uniquely, the differentiated SAS platform based on the [indiscernible] tool to Pharma and essentially swept the deck if you will, in large Pharma. So we came in after-the-fact and we're, as we said, we're going to slow re-conquest if you will. These are long sales cycles.

We're winning when the competition is open. Weather is small mid-sized Pharma. Or frequently actually, former affiliates of large U.S. companies. We have announced some of those deals when we were allowed to by our clients. Sometimes they are on a competitor platform from the headquarters, but in their foreign subsidiaries, Europe or Canada or otherwise or Asia, they are on our platform. So whenever we have an open competition we compete. We're standing to have a very good win-rate, that's better than Cegedim had in the past. Thank you.


Our next question comes from the line of Gene Mannheimer from Topeka Capital. Please proceed with your question.

Gene Mannheimer

I just wanted to confirm for AlphaImpact that all the revenue of that acquisition falls in the Tech Services bucket. And can you just let us know, again forgive me if I've missed this, the price paid in that deal? And then I wanted to ask a prior question a little bit differently. Last quarter you expressed some caution in the Info Business regarding the purchasing behavior of some of your Pharma clients. Due impart to M&A issues in other related subjects. Can you comment on whether those trends carried to the fourth quarter? And how we're setting up into 2016? Thanks.

Ari Bousbib

I will address the second one.

Ron Bruehlman

Yes it's all Tech Services and we didn't disclose the purchase price.

Ari Bousbib

Yes. We had slower than usual Info growth last quarter. And we said, when we looked in more detail, aware it was in the U.S. The U.S. Info Business, we've told you many times, is essentially flattish. Has been for a long time. It's a mature market. It is flattish. And has been bouncing around in a positive to negative, plus or minus 2% calling.

And last quarter we said, the U.S. was outside that range in negative territory. Therefore, we were transparent. We told you that's where it's coming from, at least partially. When we look even deeper, we saw that it was essentially, the usual end of quarter ad hoc sale that some of them didn't materialize.

Again, we wanted to be transparent and maybe we were too transparent. I caution you 0.5 a point [indiscernible] Info Business is $1.5 million. I can tell you that this quarter, the fourth quarter, it went back into positive territory for the U.S., it's low-single digits. Is within the range and it is positive. So you can say okay, it went back to normal. Perhaps again, I want to tell you to focus of the yearly guidance and the yearly results. And they are exactly, I'm sorry to say, boring, usual and as expected. Low-single digits for Info.

Wouldn't derive many implications from the bouncing around in a given quarter. There was maybe a little bit of caution caused by what was happening in the atmosphere of Pharma at the time and that maybe caused people to delay. [indiscernible] it just came back in the fourth quarter. We don't see any reason why wouldn't continue the way it is into 2016. That is our assumption.


All right. So if you would like to take one more question, then, our next question would come from the line of Judah Silko [ph] from JPMorgan. Please proceed with your question.

Andrew Stein

It's Andrew Stein and good morning, Ari. Thanks for highlighting that 0.5 point of underlying margin expansion for 2016, it's real helpful. I want to make sure the medium term algorithm of EBITDA growth, the [indiscernible] growth at 1.5 times revenues is still intact. In particular as you think of 2017, should the core synergy of Cegedim during 2017 drive the EBITDA growth of a constant currency basis above that normal 1.5?

Ari Bousbib

Yes. We've said, I think it's too early to get into 2017. We're busy working on the planning for 2016. All the elements that we have visibility on and then were going to be focused on execution. So, the core business will have margin expansions as we discussed. I haven't done the math with that 0.5 a point [indiscernible]. But I remember when I was saying the mid-single digit revenue growth with 1.5 times more on that rate. I'm sorry on long expansion that was between 50 basis points and 100 basis points. Something like that.

So, this is more at the lower end of the range. And again, that is because we continue to invest a lot more on Tech Services. Bear in mind and maybe we should go back here and reevaluate that algorithm. But bear in mind that with the acquisition of Cegedim, we're now in much higher proportion of Tech Services then we were at the time of the IPO. We were more than 60/40 something like that, 62/38. We're now 50/50.

Tech Services has a lot more requirements, in terms of supporting the growth with resources, whether it's commercial or technical. And so the investment required to support that growth, given the mix in the portfolio, I don't know that we can do 1.5 times, but there will be margin expansion for sure. That is the business model, with respect to the synergy at Cegedim, yes.

We said that by the end of 2017, so I would say 2018 is when they are fully in the run rate. We have said $60 million. Again, I remind you that is 20% more than what we had announced at the time of the acquisition. Also, I would remind you that the euro rate is about 20% lower then what it was at the time of the acquisition that roughly speaking is another 20% higher.

So really, in equivalent terms, we're talking about $70 million plus of a run rate synergy at constant currency. And we said that some of that is going to come in, in 2016 and the rest in 2017. Again ramping up during the year so you can't take the whole number, but by the end of [indiscernible] year. So yes. The answer to your question is the model and the business equation we've said is always the same. Mid-single digit revenue growth with margin expansion. What the market expansion is going to be will vary. It may not be up to 1.5, simply because the Tech Services, I am just saying this thinking aloud. Because the Tech Services requirements, in terms of spend, are greater.

Tom Kinsley

Thank you everyone we appreciate you joining the call today and we look forward to speaking with you again in the first quarter. And I'm sure we've got plenty of questions, so Andrew, Rena and I will be available. Thank you.


Thank you, sir. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation. And that you please disconnect your lines. Thank you once again, have a wonderful day.

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